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2010 DIGILAW 2686 (ALL)

YAMAHA MOTOR ESCORTS LIMITED v. STATE OF U. P.

2010-09-01

K.N.PANDEY, SUNIL AMBWANI

body2010
JUDGMENT We have heard Shri Bharat Ji Agrawal assisted by Shri Piyush Agrawal, Shri Nishant Misra and Shri Kunwar Jee Saxena for the petitioners. Shri S. P. Kesarwani appears for the State - respondents. In all these connected writ petitions, the petitioners have challenged the assessment orders of the trade tax under the U.P. Trade Tax Act, 1948 in so far as the assessing authorities have not allowed adjustment/set-off of the tax quantified under section 8(1) of the Central Sales Tax Act, 1956 from the monetary limit of the exemption mentioned in the eligibility certificate granted to the petitioners under section 4A of the U.P. Trade Tax Act, 1948 for the relevant assessment years. In all these writ petitions the interim orders were passed by this court directing that the benefit of tax exemption granted by notifications dated July 27, 1991, March 31, 1995, July 19, 1996 and February 21, 1997, will continue to be available to the petitioners for the duration contemplated by the notification subject to the terms and conditions mentioned in the notification notwithstanding the withdrawal of those benefits with effect from October 15, 2002 by the State Government, when the Central Sales Tax Act was amended by the Finance Act No. 20 of 2002 on May 30, 2002. In the Commercial Tax Revision No. 1125 of 2008, Swastik Components Private Limited v. Commissioner, Commercial Tax, U.P., Lucknow, connected with Commercial Tax Revision Nos. 1126 of 2008 and 1127 of 2008 (of the same company) the court was called upon to decide the question as to whether the applicant - dealer, holding eligibility certificate under section 4A of the U.P. Trade Tax Act, 1948 for exemptions to pay Central sales tax for a period of eight years under the notification dated March 31, 1995 from January 17, 1997 to January 16, 2005, on graded basis, will be entitled to the exemptions, after the amendment of the Central Sales Tax Act, vide amendment in section 8(5) by the Finance Act, 20 of 2002, on the sales made to unregistered dealers outside the State of U.P. for which form C/D is not produced. M/s. Swastik Components Private Ltd., in the aforesaid case, had applied for eligibility certificate under section 4A of the U.P. Trade Tax Act as new manufacturing unit. The certificate provided for exemption from sales tax without furnishing any forms (sales to unregistered dealer outside the State). M/s. Swastik Components Private Ltd., in the aforesaid case, had applied for eligibility certificate under section 4A of the U.P. Trade Tax Act as new manufacturing unit. The certificate provided for exemption from sales tax without furnishing any forms (sales to unregistered dealer outside the State). The exemption was covered by Notification Nos. 780-781 dated March 31, 1995 issued by the State Government in exercise of powers under sub-section (5) of section 8 of the Central Sales Tax Act, which provided for exemption/reduction, in the rate of tax on the inter-State trade and commerce subject to the condition specified therein. The exemption was granted for a maximum amount covered under the eligibility certificate, on credit basis, for different years in accordance with the notifications until the entire amount is exhausted, within the specified period. The Central Sales Tax Act was amended by the Finance Act No. 20 of 2002 published on May 13, 2002. The amendment to sub-section (5) of section 8, restricted the powers of the State Government to the extent, that on being satisfied, that it was necessary to do so, in public interest, by notification in the Official Gazette and subject to certain conditions as may be specified therein the State Government may direct that no tax would be payable in respect of inter-State as well as by a dealer having his place of business in the State or tax payable to be calculated at such lower rates than those specified in sub-section (1) or sub-section (2) of the Central Sales Tax Act on the condition that the requirements laid down in sub-section (4) of section 8 were fulfilled. The exemption from tax or liability of tax, at a lower rate by a notification under section 8(5) of the Central Sales Tax Act was to be confined only if the sales were made against form C or D. The Department took a stand that the amendment in the Central Sales Tax Act by the Finance Act No. 20 of 2002 with effect from May 13, 2002 will by statutory application amend the notification issued under the unamended Central Sales Tax Act, and since the Act itself has been amended, the principle of promissory estoppel invited by the petitioner was not attracted. The Department was of the opinion that section 8(5) has been amended with effect from May 13, 2002 and thus exemption from Central Sales Tax Act after May 13, 2002 can be allowed only on furnishing of forms C and D of the Central Sales Tax Act. In the judgment dated October 24, 2008 deciding Commercial Tax Revision No. 1125 of 2008 with connected Commercial Tax Revision Nos. 1126 of 2008 and 1127 of 2008, one of us (honourable Sunil Ambwani, J.) after considering the questions of law relating to the principle of promissory estoppel held as follows : "In this case the State Government granted exemptions under the authority given to it by the Central Act. When the same Central Act qualified these powers by a parliamentary amendment to a particular category of sales in the course of inter-State trade and commerce, it cannot be said that the State Government was required to issue a fresh notification or had a discretion vested in it to grant exemption or reduction in the rate of tax in variance with the Central Act. In the present case, the eligibility certificate under section 4A and the exemptions granted to the unit has not been withdrawn nor the rate of tax has been increased or the quantum of exemptions decreased to affect the industrial unit. There was no such promise extended to the new industrial unit that all the Central sales in the course of inter-State trade and commerce subject to the conditions specified in the notification will be exempted from tax. The benefit of exemption has not been denied to the petitioner. In the relevant assessment years the applicant was in fourth, fifth and sixth of its production. It was allowed exemptions on those Central sales which are covered by form C/D, i.e., made to the registered dealers and the State. The only effect of the amendment in section 8(5) of the Central Sales Tax Act with effect from May 13, 2002 is that the tax liability is confined only to Central sales covered by forms C/D. There was no foundation laid before the assessing authority or even in this court that by increasing the tax liability the industry will suffer such financial burden, which it would not be able to bear and that it will make it unviable to run the industry. In the concerned assessment years the applicant has admitted the tax liability for the year 2002-03 at Rs. 3,92,945. The assessing officer found the tax payable at Rs. 4,79,636. In the year 2003-04 the applicant admitted tax liability at Rs. 5,05,231. The assessing authority found the tax payable at Rs. 8,02,024. In the year 2004-05 the tax liability was admitted at Rs. 5,04,147 whereas the tax payable was assessed at Rs. 6,00,641. The transactions, which did not qualify the Central sales tax, are not of such volume on which the tax liable to be paid cannot be absorbed nor any such plea has been taken. The sales in the course of inter-State trade and commerce can only be taxed by the Central law, under entry 42 read with entry 92A of List I of the Seventh Schedule to the Constitution of India. The State Government does not have power to tax these sales. Consequently the State Government will not have powers to exempt the sales which do not qualify for such exemption after the amendment of the Central Sales Tax Act. The judgment in the State of West Bengal v. N.S. Text Prints Pvt. Ltd. [2009] 20 VST 952 was not on the same set of facts. The principle of promissory estoppel depends upon the circumstances in which the doctrine based on equity is invoked. The Government of West Bengal had issued a notification on August 2, 2002 in general application to all the dealers. This notification was not confined to newly set up industries nor did it prescribe that it was issued in supersession of the earlier notifications. Its application was held to be prospective and that the court found it very difficult to reconcile the two notifications to make the subsequent notification applicable to a case where the exemption was granted. With the introduction of value added tax the whole regime of applicability of sales tax laws have changed. The new laws do not conceive of transactions in inter-State sales with unregistered dealers. The amendments in sales tax laws have to be uniform and that all exemptions have to give way to the new laws. For the aforesaid reasons the sales tax revisions are dismissed." The judgment was challenged by the assessee in the Supreme Court in S.L.P. (Civil) No. 8395-8397 of 2009, (Swastik Components Pvt. Ltd. v. Commissioner, Commercial Tax, U.P.). The amendments in sales tax laws have to be uniform and that all exemptions have to give way to the new laws. For the aforesaid reasons the sales tax revisions are dismissed." The judgment was challenged by the assessee in the Supreme Court in S.L.P. (Civil) No. 8395-8397 of 2009, (Swastik Components Pvt. Ltd. v. Commissioner, Commercial Tax, U.P.). The Supreme Court disposed of the special leave petition with the following order : "Although we agree with the view expressed by the High Court in its impugned order, what we find from the impugned order is that before the High Court a relevant point has not been argued. That point arises in following terms : '32. That, it is further submitted that assuming that the applicant was liable to pay tax on inter-State - sales made on or after May 13, 2002 without form C/D at 10 per cent as provided for under section 8(4) of the CST Act, the amount of tax so calculated was liable to be set off from the maximum monetary limit available to the applicant at the beginning of the year under consideration. The amount would remain unutilized if the interpretation placed by the respondents is accepted causing huge loss to the applicant, besides being contrary to the scheme and policy of the Industrial Development contained in section 4A of the U.P. Trade Tax Act.' For that purpose, we grant liberty to the petitioner to move the High Court in review. Special leave petitions stand disposed of accordingly." Shri Kunwar Jee Saxena had appeared in the commercial tax revisions in M/s. Swastik Components Private Limited. He states that the review petition has been filed, and is still pending. The question of law, as to whether the petitioner will be entitled to exemption after the amendment of the Central Sales Tax Act vide amendment in section 8(5), by the Finance Act No. 20 of 2002 on the sales made to unregistered dealers outside the State of U.P. for which form C/D is not produced, was decided in favour of the assessee, on the reasoning that the amendments in the Central Sales Tax Act by the Finance Act No. 20 of 2002, published on May 13, 2002, will not affect the exemption to the units covered under section 4A of the U.P. Trade Tax Act. The view expressed was upheld by the Supreme Court. The view expressed was upheld by the Supreme Court. The parties agree that the question of applicability of the amendments made under section 8(5) of the Central Sales Tax Act by the Finance Act No. 20 of 2002 published on May 13, 2002 on the principle of promissory estoppel have attained finality. They have confined their arguments, on the point, which was left open by the Supreme Court, namely assuming the petitioners are liable to pay tax on inter-State sale made on or after May 13, 2002 without form C/D at 10 per cent as provided under section 8(4) of the CST Act, the amount of tax so calculated is liable to be set off from the maximum monetary limit available to the applicant at the beginning of the year. Shri Bharat Ji Agrawal, learned counsel for the petitioner, submits that the effect of the amendments in section 8(5) of the Central Sales Tax Act is on the rate of tax and not on the quantum of the amount covered under the eligibility certificate under section 4A of the U.P. Trade Tax Act. The payment of higher rate of tax, if forms C/D are not produced on inter-State sales after May 13, 2002, does not affect the set off of such higher rate of tax under the eligibility certificate. Shri Agrawal would submit exemption given to new unit is an incentive linked to the production, if the units satisfy all other conditions. The set-off of the trade tax or Central sales tax is not linked to the rate, which can either vary according to the notifications issued in exercise of statutory powers, or may be allowed on any reduced rate. He would submit that the rate of tax either by way of exemption or otherwise, has nothing to do with the limit of exemption under section 4A of the Trade Tax Act. The object of amendment to section 8(5) restricting the powers of the State Government to issue notifications in public interest, to give exemptions of reduced rate of tax, on production of form C/D only with effect from May 13, 2002 has nothing to do with the object and purpose of the exemption granted to the units under the eligibility certificates from tax for specified number of years on graded basis. Shri S. P. Kesarwani, on the other hand, submits that where the unit has committed breach of the exemption for reduced rate of tax, even the higher rate of tax is not liable to be set off from the amount of exemption given to the units covered under the eligibility certificates under section 4A of the U.P. Trade Tax Act. He submits that the amendments under section 8(5) of the Central Sales Tax Act with effect from May 13, 2002, relate to rate of tax but also to the set-off to be provided to the units, which are having eligibility certificates. The tax on such transactions will not be liable to be set off. He submits that the tax is qua transaction, and not qua unit. If the unit does not fulfil the statutory condition of specified transaction after the amendment in Central Sales Tax Act, the amount of tax cannot be set off from the limits of the exemption under section 4A of the U.P. Trade Tax Act. We do not find substance in the submission of Shri S. P. Kesarwani made on behalf of the State - respondents that if the reduced rate of tax is not allowed for non-production of form C/D after May 13, 2002, the higher rate of tax will not be permissible to be set off from the limits prescribed under the eligibility certificate under section 4A of the U.P. Trade Tax Act. The rate of tax has nothing to do with the amount of tax benefit under the eligibility certificate. The incentive to be given to the industry, for the limit worked out, for specified period on graded basis is not linked to the rate of tax on the manufactured products. We may further observe that non-production of form C/D will not make the inter-State transaction illegal or void. It will only result into denying the manufacturer the benefit of reduced rate of tax. If we accept the argument of Shri S. P. Kesarwani, the requirement of producing form C/D after May 13, 2002, to qualify for reduced rate of tax will become violative of Act under article 301 of the Constitution of India. It will only result into denying the manufacturer the benefit of reduced rate of tax. If we accept the argument of Shri S. P. Kesarwani, the requirement of producing form C/D after May 13, 2002, to qualify for reduced rate of tax will become violative of Act under article 301 of the Constitution of India. We, therefore, hold that, whereas the amendments to the Central Sales Tax Act by the Finance Act No. 20 of 2002 published on May 13, 2002, are valid and do not suffer from any vice of discrimination, and also do not violate principle of promissory estoppel qua the petitioner, the higher rate of tax payable for non-compliance of the amended provisions of section 8(5) namely non-production of form C/D, cannot be taken to be a ground to deny the set-off of such higher rate of tax from the limits prescribed in the eligibility certificate under section 4A of the Trade Tax Act, subject to other conditions, namely, the maximum limit for particular year or period and maximum amount for which such exemption is provided. All the writ petitions are partly allowed. The assessing authorities are required to modify the assessment orders accordingly and to allow set-off to the petitioners, which was earlier denied to them on the rate of tax, without the benefit of reduced rate of tax on the inter-State transactions for which forms C/D were not produced. The required modification shall be carried out within a period of two months from the date of production of this judgment. A copy of the judgment will be given to Shri S. P. Kesarwani, additional chief standing counsel, for communication to all the assessing authorities. The petitioners are also required to produce the judgment before the assessing authorities within a period of 30 days from today.