This feature started as Sales Tax corner
in 1995-96. The first contributors to write it were Govind G Goyal and C B
Thakar. The feature was started with the intention to spread awareness about
Indirect Taxes, and more particularly sales tax as excise duty was covered by
another column titled Excise Duty Spectrum. Sales tax was replaced by VAT in
2005 and so the feature explained the new law initially. Later it was renamed
as VAT.
The
feature covers contemporary issues under VAT. It is an analytical feature where
a topic or an issue under it is selected and discussed in light of available
decisions from the highest court to the tribunals. Authors give a conclusion at
the end and offer their views. When we asked them what keeps them going they
said: “As we travel for speaking engagements across the country, we receive
positive feedback and that has been the major source of motivation for us”.
Talking about BCAJ@50, Govind Goyal said, “Its journey must continue with same
zeal, with same enthusiasm in pursuit of such a noble cause of sharing &
spreading knowledge.”
Package Scheme of Incentives –
Proportionate Incentives vis-à-vis retrospective effect to section 93 of the MVAT Act
Introduction
Under MVAT era there were
incentive schemes, for backward area units,
announced by the State Government from time to time, which were also
known as Package Scheme of Incentives (PSI). The incentives used to be given to
new units as well as for the expansion of the existing unit. The unit enjoying
original benefits under the PSI may have carried out expansion and therefore
may also become eligible for further PSI benefits by separate certificate for
expansion.
Under the 1993 PSI, the
units, who got the Entitlement Certificate for expansion, took benefit on the
whole production of the unit. While the Government was contemplating only
proportionate exemption i.e. in the ratio of production from exempted unit as
compared to total production.
However, the Hon. Bombay
High Court in case of Pee Vee Textile Ltd. (26 VST 281)(Bom)
ruled that once the unit holds Entitlement certificate even only for Expansion,
till the unit is entitled to take the benefit for total production and no pro
rata working is applicable.
Amendment in MVAT Act
Having above back ground,
Government of Maharashtra amended the MVAT Act, 2002 and inserted section 93
and 93A in the MVAT Act in 2009 with retrospective effect from 1st
April 2005.
By the
above amendment, the Government prescribed the Scheme for pro rata
benefit in relation to Expansion. This amendment was retrospective and hence it
was challenged before the Bombay High Court. The Hon. Bombay High Court
delivered judgment in case of Jindal Poly Films Ltd. (63 VST 67)(Bom)
in which it was held that legislature has power to amend the position
retrospectively and hence the retrospective amendment was upheld. In view of
above it was general feeling that there are no chances to avoid pro rata
working of benefits from 1.4.2005.
However, recently there is
a judgment from the Hon. Bombay High Court in relation to above issue wherein
in spite of above position laid down earlier Hon. High Court has given
favorable judgment. The reference is to the judgment in case of Finolex
Industries Ltd. (MVAT A.No.61 of 2017 dt.29.10.2018).
Facts in above case
The facts, narrated by the
Hon. High Court in the judgment, may we read as follows:-
“3. The Appellant Company,
in the year 1994, has made a fixed capital investment of Rs.329.5 crore,
thereby creating a new manufacturing factory in Ratnagiri (hereinafter referred
to as “Ratnagiri Factory”) for manufacturing of PVC Resins and also PVC Pipes.
The said 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 appellant by
SICOM qua its Ratnagiri unit. By virtue of the said eligibility
certificate, the appellant was held eligible for maximum entitlement of sales
tax incentives of Rs. 313,03,07,000/- by way of exemption. The said eligibility
certificate was valid for a period of 10 years from 4th April 1994
to 30th April 2004. On the basis of the said eligibility
certificate, the Sales Tax Department also issued an entitlement certificate on
25th April 1994 to the appellant and both the certificates mentioned
the production capacity as 1,30,000 metric tonnes. The said eligibility
certificate expressly described the unit of the appellant as “Pioneer Unit”. In
the year 1993, a new Package Scheme of Incentives substituted the existing
Package Scheme of Incentives. The appellant made a further investment in its
Ratnagiri unit to the tune of Rs.208.89 crore in August 2002 and accordingly,
the existing capacity of PVC Resins and extruded products like pipes, flared up
from 1,30,000 metric tonnes to 2 lakh metric tonnes per annum. The appellant,
accordingly, made an application for availment of necessary incentives in terms
of 1993 Package Scheme of Incentives vide application dated 8th
October 2002. Accordingly, on 10th February 2003, a fresh
eligibility certificate was issued to the appellant in the capacity as Pioneer
Unit by SICOM. The said certificate issued on 11th February 2003 was
valid for 106 months i.e. from 1st August 2002 to 31st
May 2011 and the eligibility certificate issued in favour of the appellant for
additional fixed capital investment of Rs. 20889.76 lakhs for village Ranpar,
District Ratnagiri was made subject to review/ monitoring every year. Certain
conditions were stipulated in the said eligibility certificate which included
the condition of automatic curtailment of the eligibility certificate from the point
of time when the total sales tax incentives admissible under the Scheme are
availed of, or exceed the limits as specific in the 1993 Package Scheme of
Incentives i.e. on attaining 69.93% of the gross value of Fixed Capital
Investment actually made subject to a ceiling of Rs. 20889.70 lakh i.e.
Rs.14,608.17 lakh or from the date from which the certificate of entitlement is
either cancelled or revoked, whichever event occurred earlier.
4. The certificate of
Entitlement issued in favour of the appellant on 21st October 2002
by SICOM 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 consequential certificate of entitlement
dated 10th February 2003 issued by the Sales Tax Department,
according to the appellant, also does not in any condition stipulating that the
appellant should avail the incentives on a proportionate basis of increase in
production capacity of additional investment. It is the specific case of the
appellant that for the Financial Years 2005-06, 2006-07, 2007-08 and 2008-09
and in particular, for the Financial Year 2005-06 in respect of which the
present Appeal is filed, the appellant 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 is the case of the appellant that it 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. As such, the
appellant exhausted the eligible quantum of benefit under the entitlement
certificate in the month of March 2009 itself. The appellant also claimed a
refund of tax paid on purchases in terms of Rule 78 of the MVAT Rules 2005 for
the period from 4th February 2006 to 1st March 2006 and
accordingly, the respondent granted provisional refund to the appellant
amounting to Rs. 5,65,39,588/.
Perusal of the chronology
of events would further reveal that on 22nd February 2013, an
assessment order was passed by the Assessing Authority for the disputed period
2005-06.
In the assessment order,
the Assessing Authority 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 prorate turnover of 35%. The assessing
authority rejected the claim of 100% exemption without applying prorate factor
on the ground that the dealer has not produced any books of accounts and has
not identified the goods manufactured by old and new units and there was no
identification of goods. Resultantly, the appellant 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 appellant.”
The
argument of the appellant was that since the benefits are already exhausted and
it has started paying tax subsequent to exhaustion and that there is no
periodicity available for taking benefit of modified working, the retrospective
amendment should not be made applicable to it.
On the part of Government
the argument was that the law should be applied as already upheld by the Hon.
Bombay High Court and only pro rata benefit should be granted,
irrespective of the consequences.
The Hon. Bombay High Court
has held that in the above specific circumstances the position should not be
disturbed. Hon. High Court concluded the position in following words.
“26. The findings recorded by the First
Appellate Authority as well as the Tribunal is amiss the legal position laid
down by the Hon’ble High Court in ACC Ltd Vs. State of Maharashtra (supra),
wherein it was categorically held that the expansion made by the existing
pioneer unit which specified conditions under para 3.12(b) will not be hit by
expansion under para 8.1(i)(c). The amendments made by Maharashtra Act No. XXII
of 2009 will 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.
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 this court in case of Jindal Poly Films
(supra) which is upheld by the Hon’ble Apex Court and thus, upholding the
retrospectively of the said 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
appellant has already exhausted the benefits of exemption before 27th
August 2009, the appellant 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 and 28th August 2009. A retrospectively 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 appellant 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.”
Thus, favorable position is
available inspite of retrospective amendment.
Conclusion
The judgment gives much
required relief to the backward area units. In fact many units have suffered
financially due to retrospective amendment. This judgment will save many of
such units and they will not be affected by the retrospective amendment. This is
good judgment considering the basic intention of the Scheme. This judgment will
also be guiding judgment in relation to retrospective amendments, where
applicable and where not applicable. 
