# EUROTEX INDUSTRIES AND EXPORTS LIMITED & ANR v. STATE OF MAHARASHTRA & ANR

- **Citation:** [2017] 4 S.C.R. 392
- **Court:** Supreme Court of India
- **Decided:** 2017
- **Case number:** Civil Appeal No. 4491 of 2016
- **Bench:** A. K. Sikri, Abhay Manohar Sapre
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/eurotex-industries-and-exports-limited-anr-v-state-of-maharashtra-anr-31979
- **Pages:** 29

## Headnote

Maharashtra Value Added Tax Act. 2002:
ss.93(1), (lA) and (1 B) - Retrospective operation of - By
C Maharashtra Value Added Tax (Levy, Amendment and Validation)
Act, 2009 - Constitutional validity - Package Scheme of incentives
in the year 1993 - Granting proportionate incentives to the
industries on acquisition of new fixed assets outside the project
scheme - The word 'proportionate' deleted from the scheme - Despite
0
deletion of the word 'proportionate', Trade Circular issued by Sales
Tax Authorities stipulating that under the 1993 Scheme. incentives
would be given in proportion to the expansion capacity- The circular
was held not validly issued because administrative circulm; contrary
to the 1993 scheme (which was statutory in nature), could not have
been issued -: Therefore, legislature amended Bombay Sales Tax
E Act, 1959 (the preceding Act to Value Added Tax Act, 2002) inserting
s.41 BB providing for proportionate incentives as prescribed by State
Government by.framing rules in this beha?f - However, no rules
framed - Enactment of 2002 Act by replacing the 1959 Act - Section
93 of 2002 Act amended retrospectively by 2009 Act·- Challenged
F as arbitrary, unreasonable, oppressive violative of fundamental
rights u!Arts.14 and 19(1)(g) of Constitution - High Court held
that retrospective operation was permissible - On appeal, plea that
grant of proportionate incentive by 2009 amendment amounted to
fresh levy of VAT with retr().lpective effect - Held: From the very
beginning, the statutory scheme (uls.41BB of 1959 Act as well as
G
u!s. 93(1) of 2002 Act) itse?f provided for proportionate incentives
and this legislative intent was manifest even ,fi-om the Objects and
Reasons - By giving retrospective effect to s.93(1) was to rectify the
earlier error committed by the executive in not implementing the
legislative intent in the form of subordinate legislation i.e. statutory
Rules and trying to achieve the same by administrative action i.e ..
H
392
•
EUROTEX fNDUSTRIES AND EXPORTS LIMITED & ANR. v.
393
STATE OF MAHARASHTRA & ANR.
by issuance of Circular - Therefore, it cannot be said that new levy
A
was imposed with retrospective effect - Thus, retrospective operation
of ss.93(1), (IA) and (JB) is upheld.
Dismissing the appeals, the Court
HELD: 1. Section 41BB of the Bombay Sales Tax Act, 1959
was not an enabling provision, but contained a legislative mandate
B
in the form of restrictions to the effect that notwithstan:ling
anything contained in any Package Scheme of Incentives, an
eligible unit holding an eligibility certificate, shall be eligible to
draw benefits only on that part of its turnover of sales and
purchases as would be arrived at by applying the ratio which was c
to be prescribed by the State Government. Therefore, legislative
intent behind the aforesaid provision was clearly manifest i.e. to
allow the benefit only on proportional basis. However, at the
same time, it was left to the Government to prescribe the ratio
on the basis of which only a part of the turnover of the sales and
purchases would qualify for incentives. [Para 22)(409-E-G]
2. Likewise, when Maharashtra Value Added Tax Act, 2002
(MVAT Act) was enacted, identical provision as contained in
Section 41BB of the Sales Tax Act, was incorporated in the form
of Section 93(1). It is the implementation of this statutory
provision where the Government erred.
Though, the
Government carried out that intention by issuing Circular dated
January 17, 1998 which provided for benefits only on that part of
the turnover of sales or purchases of eligible unit by prescribing
the ratio, the manner of doing the same was faulty. Instead of
prescribing the same by way of Rules, which was the proper
procedure, the purpose was sought to be accomplished by wi~y of
an administrative circular in imposing a ceiling on the utilization
D
E
F
of incentives under the 1993 scheme in proportion to the
production attributable to the newly acquired fixed assets.
Because of this legal infi

## Text

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[2017] 4 S.C.R. 392
A
EUROTEX INDUSTRIES AND EXPORTS LIMITED & ANR.
B
v.
STATE OF MAHARASHTRA & ANR.
(Civil Appeal No. 4491 of 2016)
MAYOS,2017
[A. K. SIKRI AND ABHAY MANOHAR SAPRE, JJ.]
Maharashtra Value Added Tax Act. 2002:
ss.93(1), (lA) and (1 B) - Retrospective operation of - By
C Maharashtra Value Added Tax (Levy, Amendment and Validation)
Act, 2009 - Constitutional validity - Package Scheme of incentives
in the year 1993 - Granting proportionate incentives to the
industries on acquisition of new fixed assets outside the project
scheme - The word 'proportionate' deleted from the scheme - Despite
0
deletion of the word 'proportionate', Trade Circular issued by Sales
Tax Authorities stipulating that under the 1993 Scheme. incentives
would be given in proportion to the expansion capacity- The circular
was held not validly issued because administrative circulm; contrary
to the 1993 scheme (which was statutory in nature), could not have
been issued -: Therefore, legislature amended Bombay Sales Tax
E Act, 1959 (the preceding Act to Value Added Tax Act, 2002) inserting
s.41 BB providing for proportionate incentives as prescribed by State
Government by.framing rules in this beha?f - However, no rules
framed - Enactment of 2002 Act by replacing the 1959 Act - Section
93 of 2002 Act amended retrospectively by 2009 Act·- Challenged
F as arbitrary, unreasonable, oppressive violative of fundamental
rights u!Arts.14 and 19(1)(g) of Constitution - High Court held
that retrospective operation was permissible - On appeal, plea that
grant of proportionate incentive by 2009 amendment amounted to
fresh levy of VAT with retr().lpective effect - Held: From the very
beginning, the statutory scheme (uls.41BB of 1959 Act as well as
G
u!s. 93(1) of 2002 Act) itse?f provided for proportionate incentives
and this legislative intent was manifest even ,fi-om the Objects and
Reasons - By giving retrospective effect to s.93(1) was to rectify the
earlier error committed by the executive in not implementing the
legislative intent in the form of subordinate legislation i.e. statutory
Rules and trying to achieve the same by administrative action i.e ..
H
392
•
EUROTEX fNDUSTRIES AND EXPORTS LIMITED & ANR. v.
393
STATE OF MAHARASHTRA & ANR.
by issuance of Circular - Therefore, it cannot be said that new levy
A
was imposed with retrospective effect - Thus, retrospective operation
of ss.93(1), (IA) and (JB) is upheld.
Dismissing the appeals, the Court
HELD: 1. Section 41BB of the Bombay Sales Tax Act, 1959
was not an enabling provision, but contained a legislative mandate
B
in the form of restrictions to the effect that notwithstan:ling
anything contained in any Package Scheme of Incentives, an
eligible unit holding an eligibility certificate, shall be eligible to
draw benefits only on that part of its turnover of sales and
purchases as would be arrived at by applying the ratio which was c
to be prescribed by the State Government. Therefore, legislative
intent behind the aforesaid provision was clearly manifest i.e. to
allow the benefit only on proportional basis. However, at the
same time, it was left to the Government to prescribe the ratio
on the basis of which only a part of the turnover of the sales and
purchases would qualify for incentives. [Para 22)(409-E-G]
2. Likewise, when Maharashtra Value Added Tax Act, 2002
(MVAT Act) was enacted, identical provision as contained in
Section 41BB of the Sales Tax Act, was incorporated in the form
of Section 93(1). It is the implementation of this statutory
provision where the Government erred.
Though, the
Government carried out that intention by issuing Circular dated
January 17, 1998 which provided for benefits only on that part of
the turnover of sales or purchases of eligible unit by prescribing
the ratio, the manner of doing the same was faulty. Instead of
prescribing the same by way of Rules, which was the proper
procedure, the purpose was sought to be accomplished by wi~y of
an administrative circular in imposing a ceiling on the utilization
D
E
F
of incentives under the 1993 scheme in proportion to the
production attributable to the newly acquired fixed assets.
Because of this legal infirmity this circular was set aside by the
High Court. According to the High Court, it is this defect which G
was sought to be cured by amending the statutory provision itself
by makiag the said amendment retrospectively. On the aforrsaid
basis, the High Court rejected the contention of the writ
petitioners that a new levy was imposed with retrospective effect.
[Para 22J[409-G-H; 410-A-CJ
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[2017] 4 S.C. R.
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3. At the time of insertion of Section 41BB of 1959 Act, by
amendment vide Amendment Act 22 of 2001, the Statement of
Objects and Reasons accompanying the introduction of the Bill
specifically stated that the purpose of the amendment was 'to
restrict grant of incentives in proportion to goods manufactured
B in the expansion units located in the backward areas of the States'.
Thus, the legislative intent was manifest by inserting the said
provision to provide the incentives to the eligible units on
proportionate basis. Similar intention can clearly be discerned
from the provisions of MVAT Act. Section 93(1) of the said Act
specifically provides for 'proportionate incentive to an digible
C unit in certain contingencies'. [Para 23][410-D-E]
4. It is in the backdrop of Package Scheme of incentives
(as provided under sections 88, 89, 90 and 91), Section 93(1)
follows, providing for proportionate incentives. Once it is found
that from the very beginning the statutory scheme itself p•·ovided
D for proportionate incentive and this legislative intent was
expressed even in the Objects and Reasons, it cannot oe said
that there was no provision of this nature prior to 2009 and such
a provision was inserted for the first time in the year 2009. [Para
25][411-E-F]
E
F
5. It is also not correct to say that the effect of 2009
amendment was to neutralise or overrule the decision of the
Cour!. Clear intention was to rectify the earlier error committed
by the Executive in not implementing the legislative intent in
the form of subordinate legislation i.e. statutory rules and, trying
to achieve the same by administrative action. [Paras 26, 27][411F; 412-C-D]
6. If a law passed by a legislature is struck down by the
Courts as being invalid for one infirmity or another, it would be
competent to the appropriate legislature to cure the said iDfirmity
and pass a validating law so as to make the provisions of the said
G earlier law effective from the date when it was passed. In the
present case, the legislature had given power to the State
Government to prescribe the ratio/proportion in which the benefit
was to be given. The State Government acted thereupon, but
exercised the power in a wrong manner. In order to achieve
H what was intended by the statutory provision, the State legislature
EUROTEX INDUSTRIES AND EXPORTS LIMITED & ANR. v.
395
STATE OF MAHARASHTRA & ANR.
itself remedied the situation by amending the Section A
retrospectively. [Paras 29, 30][412-H; 413-A-B, H; 414-A-B]
Rai Ramkrishna v. State of Bihar AIR 1963 SC 1667 :
[1964] SCR 897; Epari Chinna Krishna Moorthyv.
State of Orissa AIR 1964 SC 1581: [1964] SCR 185 -
followed.
Hirata! Ratanlal v. State of Uttar Pradesh (1973) 1 SCC
216 : [1973] 2 SCR 502; Bakhtawar Trust v. M.D.
Narayan (2003) 5 SCC 298 : [2003] 1 Suppl. SCR 1;
Indian Aluminium Co. v. State of Kera/a (1996) 7 SCC
637 : [1996] 2 SCR 23; Assistant Commissioner of
Agricultural Income Tax & Ors. v. Netley 'B' Estate &
Ors. (2015) 11 sec 462 : [2015] 3 SCR 630; R.C.
Tobacco (P) Ltd. v. Union of India (2005) 7 SCC 725 :
[2005] 3 Suppl. SCR 342 - relied on.
West Bengal Hosiery Association & Ors. v. State ofBihar ·
& Am: (1988) 4 SCC 134 : [1988] 2 Suppl. SCR·378
- distinguished.
British Physical Lab India Ltd. v. State of Kamataka &
Aw: (1999) 1 SCC 170 - referred to.
B
c
D
7 .. The dealer upon whom the tax is imposed is not in a
E
position to pass on tax on the consumers, is of no relevance to
the competence of the legislature. [Para 36][418-F]
J. K. Jute Mills Co. Ltd. v. State of Uttar Pradesh AIR
1961 SC 1534 : [1962] SCR 1 - followed.
R.C. Tobacco (P) .Ltd. v. Union of India (2005) 7 SCC
725 : [2005) 3 Suppl. SCR 342 - relied on.
Case Law Reference
(1988] 2 Suppl. SCR 378
distinguished Para 14
(1999) 1 sec 110
referred to
Para 14
· (1973] 2 SCR 502
relied on
Para 18
[1964) SCR 897
followed
Para 29
[1964] SCR 185
followed
Para 30
[2003) 1 Suppl. SCR 1
relied on
Para 32
[1996) 2 SCR 23
relied on
Para 33
F
G
I-I
396
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SUPREME COURT REPORTS
[2015] 3 SCR 630
[2005] 3 Suppl. SCR 342
[1962]SCR 1
relied on
relied on
followed
[20 I 7] 4 S.C.R.
Para34
Para 34
Para 35
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 449 I
B of 2016.
c
From the Judgment and Order dated l 0.06.2013 of the High Court
of Bombay at Mumbai in Civil Writ Petition No. 843 I of2009
WITH
C. A. Nos. 4492, 4495, 4497 and 4499of2016.
C. U. Singh, A. K. Ganguli, S. Ganesh, Balbir Singh, Sr. Advs.,
Arjun Harkauli, Nikhil Nayyar, DilipC. Daga, N. Sai Vinod, Ms. Smriti
Shah, Divyanshu Rai, Prasanth P., Rupinder Sinhman, Abhishek Baghel,
Rajesn Kumar, R. K. Srivastava, Rahul Chitnis, Ms. Ramni Taneja, A nil
D Shrivastav, Advs. for the Appellants.
Aniruddha P. Mayee, Nishant Ramakantrao Katneshwarkar, Arpit
Rai, Advs. for the Respondents.
The Judgment of the Court was delivered by
A. K. SIKRI, .J. I. These appeals arise from the judgment of the
E Bombay High Court dated June IO, 2013 by which the High C'Jurt has
dismissed a batch of writ petitions wherein challenge was laid to the
constitutional validity of the Maharashtra Value Added Tax (Levy,
Amendment and Validation) Act, 2009 which amended certain provisions
in the Maharashtra Value Added Tax Act, 2002 (for short, the 'MVAT
F Act') with retrospective effect from April 0 I, 2005 .. The High Court
has based its judgment by referring to various judgments of'this Court
which held'that Legislature has the power to enact prospective I: as well
as retrospectively. The appellants do not, and in fact cannot possibly,
have any objection at all with this proposition. However, they argue that
the High Court has failed to appreciate the effects and consequences
. G and the practical impact of the retrospective amendment on the industrial
units which had, in response to the State Government's Scheme, made
huge investments in the most extremely backward areas of Maharashtra
and which were led to believe that they were entitled to claim exemption
from Value Added Tax (for short, 'VAT') on l 00% of their production
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EUROTEX INDUSTRIES AND EXPORTS LIMITED & ANR. v.
397
STATE OF MAHARASHTRA & ANR. [A. K. SIKRI, J.]
and accordingly did not recover any VAT from their customers. According
A
to them, the effect and consequence of this amendment was that, with
retrospective effect from April 0 l, '.WOS, industrial units which had made
capital investments in very backward areas in the State of Maharashtra
and which were earlier entitled to claim VAT exemption benefit on the
entire production of their respective industrial units, had their exemption B
benefit substantially curtailed, being limited to, only a portion of the total
production of the unit due to the aforesaid retrospective amendment.
2. It is in this backdrop the issue is as to whether retrospective
amendment in the MVAT Act stands the test of constitutionality and is
valid in law. Following factual background need to be noted in order to
understand the exact nature of controversy and the decisions whic!1 are
C
taken by the appellants on the one hand and the respondent on the other.
3. In order to encourage and ensure industrialisation in the
backward and underdeveloped areas, Government of Maharashtra had
introduced package schemes ofincentives to the industrial units for setting
up industries in such areas. First scheme in this process is known as the
D
'Package Scheme of Incentives' which was introduced in the year
1964. Then came few amended Schemes in the subsequent years. On
September 30, 1988, yet another new Package Scheme of Incentives
for the period between October 0 l, 1988 to September 30, 1993 was
promulgated with a view to rationalise the scope, scale and mode of E
release of incentives and accelerate the dispersal of industries from the
developed areas of the State to underdeveloped regions. This was notified
with effect from May 07, 1993, with which this case relates to.
4. The object of the Scheme was to achieve a dispersal of
industries outside the Bombay Thane - Pune belt and to attract them to
f
the underdeveloped and developing areas of the State, pa1ticularly, regions
away from Bombay Thane - Pune belt. Paragraph 3.8(I)(i)(c) of the
Scheme provides as follows:
"3 .8 Gross Fixed Capital Investment -
(I) Gross Fixed Capital Investment shall mean and include, in the
G
case of -
(i) New Fixed Assets - The value of new Fixed Assets acquired
at site and paid for:
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SUPREME COURT REPORTS
(2017] 4 S.C.R.
A
Explanation -
(a)
xx
xx
xx
(b) .
xx
xx
xx
( c) Any acquisition ofnew Fixed Asset~ outside the project scheme
B
accepted by the Implementing Agency can be considered for the
purposes of proportionate incentives during residual eligible period
provided such acquisition is not less than 25% of the Gro~s Fixed
Capital Investment at the end of the previous financial year of the
Eligible Unit."
c
5. By Government Resolution (GR) dated July 06, 1994, paragraph
3.8(I)(i)(c) was amended and substituted by deleting the word
'proportionate' from the Scheme of 1993. As a result, it was stipulated
that an acquisition of new fixed assets outside the project scheme
accepted by the fmplementingAgency could be considered for in.:entives
other than special capital incentives ifthe acquisition was not less than
D 25% of the gross fixed capital· investment. However, for the purposes
of sales tax benefits, the quantum of entitlement would be limited to
75% of that admissible to a new unit. Existing units were also entitled to
benefits of the clause.
6. Notwithstanding the deletion of the word 'proportionate' in
E the 1993 Scheme, on January 17, 1998, Trade Circular was issued by the
Commissioner of Sales Tax, which stipulated that under the 1993 Scheme
incentives would be given in proportion to the expansion capacity to the
total capacity or the investment ratio of new fixed capital investment to
the total gross fixed capital investment after the expansion/investment
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and not on the entire production of an eligible unit covered under such
category. Vires of this Circular were challenged by filing writ petitions
in the High Court. While these writ petitions were pendmg, the
Maharashtra Sales Tax Tribunal, in its judgment dated March 17, 200 I,
held that the aforesaid Circular was not validly issued as such an
administrative circular could not be issued, which was contrary to the
1993 Scheme, as amended, since such a Scheme was statutory in nature.
ft may be mentioned that the aforesaid order of the Tribu!lal was
subsequently upheld by the High Court and it attained finality. To
overcome this difficulty, the Legislature brought amendment to the
Bombay Sales Tax Act, 1959 with the insertion of Section 41 BB. This
provision reads as under:
·
EUROTEX INDUSTRIES AND EXPORTS LIMITED & ANR. v.
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STATE OF MAHARASHTRA & ANR. [A. K. SIKRI, J.]
"4 lBB.- Proportionate incentives to an Eligible Unit in ce11ain
A
contingencies. -
(1) Notwithstanding anything to the contrary contained in any
Package Scheme of Incentives, any Eligible Unit, to whor.1 the
Eligibility Certificate has been granted, shall be eligible to draw
the benefits in the current year or in any year, whether preceding
B
or succeeding the date of commencement of Section 12 of the
Maharashtra Act 22 of 200 l, only on that part of its turnover of
sales or purchases as may be arrived at by applying the ratio as
may be prescribed by the State Government to the total turnover
of sales and purchases of the said unit in that year and different
ratios may be prescribed for different classes of dealers and
C
different schemes.
(2) The benefits availed of by an Eligible Unit in contravention of
sub-section (I), if any, shall be and shall be deemed to have been
withdrawn and such unit shall be liable to pay tax in respect of the
turnover of sales and purchases in excess of the turnover arrived
D
at under sub-section (I) and accordingly any benefit whi;;h is
withdrawn shall be recovered as arrears of tax as provided in
sub-section (3).
(3) For recovery of arrears of tax as provided in sub-section (2),
the Commissioner shall require the unit, by order in writing, to pay
the tax, interest and penalty on such turnover on which the benefits
are not available and serve on the dealer notice of demand
accordingly:
Provided that, no order under this section shall be pussed
without giving the dealer a reasonable opportunity of being heard.
Explanation. - For the purposes of the provisions contained in
section 41 BA and 41 BB the terms "Existing Unit, Eligible IJnit,
Implementing Agency, Eligibility Certificate and Ce1tificate of
Entitlement' shall have the same meaning as provided i1; the
relevant Package Scheme of Incentives."
It would, however, be pertinent to mention that though Section
4 IBB provided for grant of proportionate incentives, it could be as
prescribed by the State Government by framing rules in this behalf.
However, no rules were ever framed.
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[2017] 4 S.C.R.
7. This provision clearly introduced the concept of proportionality,
which is also clear from the Statement of Objects and Reasons
accompanying the Introduction of that Bill, categoricidly stipulating that
the Act was being amended 'to restrict grant of incentives in
proportion to the goods manufactured in the expansion units located
in the backward areas of the State'.
8. In the year 2002, VAT regime was introduced and the State of
Maharashtra also enacted the MVAT Act thereby replacing the 13ombay
Sales Tax Act, 1959. It came into force on April 0 l, 2005. Section 8( 4)
of the MVAT Act empowers the State Government to provid..-: for an
· exemption from payment of the whole of the tax in respect of any class
C or classes of sales of goods effected by a unit holding a Certificate of
Entitlement, as defined in Section 88, to whom incentives are granted
under any Package Scheme of Incentives, by way of exemption from
payment oftax. Section 93 of the MVAT Act deals with proportionate
incentives to an Eligible Unit in certain contingencies. Sub-section (I)
D thereof, as it originally stood, reads as under:
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F
"93. Proportionate incentives to an Eligible Unit in certain
contingencies. -
(I) Notwithstanding anything to the contrary coi1tained in any
Package Scheme of Incentives, any Eligible Unit to whom the
Eligibility Certificate has been granted, shall be eligible to draw
the benefits in any year, after the appointed day, only on that part
of its turnover of sales or purchases as may be arrived at by
applying the ratio as may be prescribed by the State Government
. to the total turnover of sales and purchases of the said unit in that
year and different ratios may be prescribed for different classes
of units and different schemes.
xx
xx
xx"
9. It is this provision which has been amended retrospectively by
the Amendment Act of2009 and is the bone of contention. The amended
G provision now reads as under:
"(I) Notwithstanding anything to the contrary contained in any
Package Scheme of Incentives, any Eligible Unit, to whom the
Eligibility Certificate and Certificate of Eligibility have been granted
at any time before or after the appointed day, on account of
H
increase in the production capacity or, as the case may be,
EUROTEX INDUSTRIES AND EXPORTS LIMITED & ANR. v.
40 l
STATE OF MAHARASHTRA & AN.R. [A. K. SIKRI, J.]
acquisition of new fixed capital assets, shall be entitled to draw A
the benefits in any year, only on that part of its turnover of sales
or purchases as may be arrived at by applying the provisions of
sub-section (IA) to the total turnover of sales and purchases of
· the said unit in that year: . ··
·
·
( l A) In case where the Eligible Unit has, -
. B
(a) maintained separate accounts of sales and purchases and is
able to identify the sales and purchases pertaining to the increase
in the production capacity or, as the case may be, the said eligible
iw:estment, then the portion of the turnover eligible for benefits
will be decided solely on the basis of such identification;
c
(b) not maintained separate accounts of sales and purchaser. and
is not able to identify the sales and purchases in relation to increase
iii the production capacity or, as the case may be, the said eligible
investment, .then such benefits shall be calculated after applying
the formulae in sub-clause (i) or, as the case may be, sub-clause
D
(ii) given as under:
(i) in case where there is increase in production capacity, then
for the Package Scheme oflncentives for 1988 or, as the ·case
may be, Package Scheme of Incentives for 1993, the formulae
shall be as below:
Turnover x Increase in
Eligible Turnover=
production capacity
Total produ?tion capacity
after such increase
(ii) in case where there is no increase in production capacity,
then for the Package Scheme oflncentives for 1993, the formulae
shall be as below:
Turnover x New fixed
Eligible Turnover=
capital investment
Total gross fixed capital
investments
(I B) When the eligible turnover comprises of multiple finished
products, then, -
(a) the production capacity of each of the finished products shall
be separately considered in determining the corresponding eligible
turnover, and
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B
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SUPREME COURT REPORTS
[2017] 4 S.C.R.
(b) eligible turnover shall relate to those products on which the
eligible investment has made impact and when eligible investment
does not add to production capacity, then it shall apply to all the
finished products."
Simultaneously, Section 93A has been inserted to provide that
Section 93 shall apply to all the Eligible Units, to whom Eligibility
Certificates and Certificates of Entitlement have been issued ur.der any
of the Package Schemes of Incentives; if such certificates have been
issued on or before the appointed day (I April 2005), then from the
appoi11ted day and in any other case, from the date of effect mentioned
in such certificates.
10. Section 5 of Amending Act 22 of2009 contains a validation
and s&vings provision which is as follows:
"S( I) Notwithstanding anything contained in any judgment, decree
or order of any Court or Tribunal to the contrary, any assi;;ssment,
review, levy or collection of tax in respect of sales or purchases
effected by any dealer or person, or any action taken or thing
done in relation to such assessment, review, levy or collection
under the provisions of the Maharashtra Value Added Tax Act,
2002 (hereinafter in this section referred to as "the Value Added
Tax Act"), before the date of the commencement to the
Maharashtra Value Added Tax (Levy, Amendment and Va!idation)
A~t, 2009 (hereinafter referred to as "the said Act"), shall be
deemed to be valid and effective as if such assessment, review,
levy or collection or action or thing had been duly made, taken or
done under the Value Added Tax Act, as amended by the said
·Act, and accordingly,-
(a) all acts, proceedings or things done or taken by the State
Government or by any officer of the State Government or by any
other authority in connection with the assessment, review, levy or
collection of any such tax, shall, for all purposes, be deemed to be,
and to have always been done or taken in accordance with law;
(b) no suit, appeal, application or other proceedings shall lie or be
maintained or continued_in any Cowt or before any Tribunal, officer
or other authority, for the refund of any tax so paid, and
EUROTEX INDUSTRIES AND EXPORTS LIMITED & ANR. v.
403
STATE OF MAHARASHTRA & ANR. [A. K. SIKRI, J.]
( c) no Court, Tribunal, officer orother authority shall enforce any
A
decree or order directing the refund of any such tax.
(2) For the removal of doubts, it is hereby declared that nothhg in
sulJ-section ( l) shall be construed as preventing a person,-
( a) from questioning in accordance with the provisions of the
Value Added Tax Act, as amended by the said Act, any assessment,
review, levy or collection of tax referred to in sub-section (I), or
(b) from claiming refund of any tax paid by him in excess of the
aniount due from him by way of tax under the Value Added Tax
Act, as amended by the said Act.
(3) Nothing in the Value Added Tax Act, as amended by the said
A1,;t shall render any person liable to be convicted of any offence
in respect of anything done or omitted to be done by him, before
the commencement of the said Act, if such act or omission was
B
c
not an offence under the Value Added Tax Act but for the
amendments made by the said Act; nor shall any person in re~pect D
of such act or omission be subject to a penalty greater than that
which could have been imposed on him under the law in force
immediately before the commencement of the said Act."
11. As pointed out in the beginning itself, it is only the retrospective
operation of sub-sections(!), (IA) and (I B) of Section 93 of the MVAT
E
Act which is the subject matter of challenge.
12. The High Court has brushed aside the challenge holding the
retrospective operation of the said amendment to be permissible 011 the
ground that it was in the nature of a valid legislation and such a legislation
can be passed by the Legislature with retrospective effect, more so
F
when the Legislature is empowered to enact the laws retrospectively.
13. Mr. S. Ganesh, learned senior counsel, submitted that
chronology of events stated above clearly establishes that the State
Government and the tax authorities led all industrial units to a bona.fide
belief, during the relevant period from 2005 to 2009, that the benei'it of G
VAT exemption would be available in respect of the entire production of
the industrial unit and not merely a proportionate part thereof. These
industrial units were, therefore, disabled and prevented from recovering
any VAT on any part of their production, as that would have been illegal
and would in fact have constituted a criminal offence. If the same
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SUPREME COURT REPORTS
[2017] 4 S.C.R.
A amendment had been made in the year 2005 itself, the industrial units
would have availed of the VAT exemption benefit over a longei period
of time and from 2005 onwards would have recovered from their
customer.s VAT on an appropriate proportion of their total production.
He argued that the only reason or justification given by the respondents
for the retrospective amendment is that the State Government was losing
B
a considerable amount of revenue. This is only because a huge amount
of capital investment was made in the extremely backward areas of
Maharashtra in response to the State Government's Incentive Scheme.
The State Government, thus, fully realised all its objectives and goals
under the Incentive Scheme. To then do a somersault and make a
. C significanfreduction of the Scheme benefits is entirely unfair, arbitrary
and unreasonable. Further, the twin effects of the retrospective
amendment are that, first, the industrial units are permanently denied a
portion of the exemption benefit to which they are entitled by reason of
the capital investment made by them, though the exemption period has
D years to go before it lapses. Secondly, the industrial units are permanently
denied of any opportunity to recover the amount of VAT from their
customers only because they were disabled and effectively prevented _
from recovering it in the relevant period. It is, therefore, submitted that
the retrospective amendment is arbitrary, unreasonable and oppressive
and, therefore, violates the appellant's fundamental rights under Articles
E
14 and 19( I )(g) of the Constitution.
14. He argued that where the Government has created the situation
which makes it illegal or impossible for a manufacturer/dealer to recover
sales tax/VAT from its customers, then no demand for amount of tax
can be raised, as held in West Bengal Hol"iery Association & Ors. v .
. F State of Biflar & A11r., ( 1988) 4 SCC 134 and British Physical Lab
India Ltd. v. State of J(amataka & Anr., ( 1999) l SCC 170. In this
behalf, he pointed out that throughout the period 2005 to 2009, the
appellant and other industries covered by the said exemption, were entitled
to claim sales tax exemption benefit on the entire turnover of their
respective expanded undertakings, only because no Rule was framed
G by the State Government, firstly under Section 4188 of the Sales Tax
Act and thereafter under Section 85 of the VAT Act. Consequently, the
appellant and other industries were effectively disabled and prohibited
from recovering sales tax or VAT on any part of their turnover. In fact,
if the appellant recovered sales tax on any part of its turnover from its
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EUROTEX INDUSTRIES AND EXPORTS LIMITED & ANR. v.
405
STATE OF MAHARASHTRA & ANR. [A. K. SIKRl, J.]
customers, the appellant would have been guilty of a criminal offence
A
under the VAT Act. It is the respondents who are completely respon~ible
for this state of affairs, which could have been put an end to forthwith
by merely framing a Rule under Section 41 BB or Sectior. 93.
Accordingly, the appellant availed tax exemption on I 00% of the turnover
of its expanded undertaking and passed on the benefit of exemption to
the appeilant's customers. In the process, the appellant exhausted its
entire tax exemption benefit calculated at 130% of its total fixed capital
investment, long before the expiry of the appellant's l 5 year exemption
period which ended only in 2015. Immediately after exhausting its sales
tax exemption benefit limit, the appellant started recovering VAT from
its customers and paying over the same to the tax authorities.
15. The learned senior counsel also argued that the exact effect
and impact of the impugned retrospective amendment made in 2009
with effect from April 01, 2005 needs to be clearly understood, as under:
B
c
(a) The total exemption benefit to which a manufacturer was
entitled was, in any event, limited to 130% of the total eligible
D
Fixed Capital Investment in the expansion, which could be
availed of over a long period of 15 years. The effect of the
retrospective amendment is that an undertaking which had
already availed of the exemption benefit on 100% of its turnover
will, as a result of the retrospective amendment, forfeit
E
absolutely a slice of its exemption benefit entitlement, for no
fault committed by it at all.
(b) If the said amendment had been made on April 0 l, 2005 itself
(by the simple method of issuing a Rule under Section 93),
then the appellant would have availed of tax exemption only
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on the proportionate portion of its turnover and would have
recovered VAT on the balance (taxable) portion of its turnover.
As a consequence of the impugned retrospective amendment,
the appellant is permanently denied not only a slice of its
exemption entitlement (based on its capital investment) but also
denied permanently the opportunity to recover VAT fro:n its
G
customers on that proportion of its turnover which is taxable.
(c) There is no warrant or justification at all for the said double
adverse impact on all the industries in question. All of them,
including the appellant, have duly carried out everything that
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[20 J 7] 4 S.C .R.
A
was expected of them under the prevailing law. They made
huge capital investments in the most backward districts of the
State of Maharashtra and added significantly to the production
and turnover of their undertakings and, thereby, greatly
expanded the tax base of the State of Maharashtra.
B
(d) Counsel for the State of Maharashtra gave no explanation or
justification at all for the retrospective amendment except to
say that it was for correction of an error or anomaly, which, as
already pointed out, was an unstateable argument.
· 16. Mr. Anil Shrivastav, learned counsel who appeared in Civil
c Appeal No. 4499 of 2016 additionally argued that the retrospective
amendment vide Amendment Act 2009 does not seek to remove an
ambiguity or to correct a cause of invalidity but, in essence, seeks to
impose a fresh levy of tax on the appellant for the first time, which is
unreasonable and arbitrary and is, therefore, liable to be struck down as
being ultra Vires the Constitution oflndia. His submission in this behalf
D was that the High Court failed to consider that the sole purpose of the
amendment made from retrospective effect was to neutralize the effect
of the judgment dated July 27, 2009 and the orders dated October 13,
2008 and June 19, 2009 of the Bombay High Court, which was not
permissible. He also submitted that Legislature cannot legislate with the
E sole object of neutralising or over-ruling the decision of the Court. Another
submission of Mr. Shrivastav was that vested rights were cr~ated in
favour of the appellant and also Doctrine of Promissory Estoppel was
applicable in the present case and these aspects precluded the Legislature
to make the amendment retrospectively. He referred to number of
judgments on the aforesaid propositions.
F
17. Other counsel, appearing in remaining appeals ado;Jted the
above arguments .
. 18. Learned counsel forthe State refuted the aforesaid submissions
of the counsel for the appellants and pleaded that well reasoned judgment
G of the High Court does not require to be interfered with. He argued that
from the very beginning, the legislative intent was to allow benefit under
Package Scheme of Incentives only on proportionate basis which was
reflected in Section 4 IBB of the Sales Tax Act as well as Sectivn 93 of
the MVAT Act. Under these Sections, the State Government was required
to formulate the modality for proportionately restricting the. grant of
H
EUROTEX INDUSTRIES AND EXPORTS LIMITED & ANR. v.
STATE OF MAHARASHTRA & ANR. [A. K. SIKRI, J.]
benefits under a Package Scheme oflncentives by prescribing the ratio
for computing the part of the turnover of sales and purchase of a unit
eligible for such benefits. He pointed out that though no Rules prescribing
this ratio were framed by the State Government, instead the
Commissioner of Sales Tax issued administrative circular dated January
17, 1998 in this behalf which was quashed by the Coutts as impermissible
on the ground that 'in the absence of any provision under the 1993 scheme
and alternatively, in the absence of any ratio prescribed by the State
Government by framing Rules, it was not open to the Deputy
Commissioner of Sales Tax to direct the assessee to avail the incentives
under the 1993 scheme in proportion to the production attributable to the
newly acquired fixed assets.' Referring to the aforesaid quoted portion,
learned counsel submitted that the High Court recognized the existence
of the legislative intent to restrict the benefits but concluded that there
was a lacuna/anomaly in effectuating that intent by not framing any
Rules. It is for this reason VAT Act was amended in the year 2009 with
retrospective effect to cure the aforesaid deficiency. According to the
learned counsel, such a move was within the competence of State
Legislature and very much permissible in law. He also referred to various
judgments showing that not only Legislature is empowered to enact a
law, including a fiscal statute, either prospectively or retrospectively, but
Legislature is also empowered to nullify the effect of a judicial decision
by changing the law retrospectively by removing the basis on which the
decision was founded. The learned counsel emphasised that it is in the
public interest to restrict the benefits given under a Package Scheme of
Incentives in any year to the propottion ofadditional capital investment
as this balances the burden of tax amongst various sectors and prevents
an unsustainable drain of financial resources of the State. The Legislature
in enacting the Validating Act has, in its wisdom, decided that the grant
of benefits on a pro rata or proportionate basis is in public interest and
subserves the objective of the Package Scheme of Incentives. The
Validating Act not only carries out the intent and purpose of Section 93,
as originally framed, but also subserves the underlying objectives of the
Package Scheme of Incentives as a means of benefiting public interest
as well as the State and safeguards against these objectives being nullified
by the imposition of a huge financial loss on the State. Another
submission of the counsel for the State was that a retrospective enactment
cannot be impugned on the ground that the retrospecti vc levy did not
afford any opportunity to the dealers to pass on the tax to consumers, as
407
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D
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G
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SUPREME COURT REPORTS
(2017] 4 S.C.R.
A held in Hiralal Ratanla/ v. State of Uttar Pradesh, (1973). 1 SCC 216.
19. Before dealing with the aforesaid contentions of the parties
on either side, it would be apposite to traverse through the i!l'pugned
judgment of the High Court in order to ascertain the reasons which have
prevailed with the High Court in rejecting the arguments of the appellants
B herein.
c
20. A perusal of the judgment of the High Court would show that
after capturing the essence of the Scheme of 1988, 1993 and s!atutory
provisions in the form of Section 41BB of the Act and amendments
thereto from time to time (which have already been stated by Uo above)
and recording the submissions of the counsel for the parties on either
side, the High Court dealt with the main issue, viz., 'validating legislation
and retrospectivity'. After pointing out that the power to legislate on a
subject which falls within the competence of legislature comprehends
within its ambit, the enactment of laws with prospective as well as
retrospective effect, the High Court also spelled out another legal principle,
D namely, where a law suffers from an infirmity which has been '.loted in
the judgment of the High Court, it is permissible for the legislature to
remedy the defect by curing the defect which has been found by the
Court. This is known as legislation of validating nature, which is
constitutionally permissible inasmuch as such validating law is in the
E nature of removing the defect or vice in the earlier legislation. The High
Court thereafter referred to and quoted from various judgments on the
aforesaid twin principles, namely, power of the legislature to en~ct a law
prosp\!ctively as well as retrospectively AND also to pass a validating
enactment. Thereafter, the High Court proceeded to discuss the
F
contention of the appellants thatthe Amending Act of2009, in substance,
amounted to imposition of a new levy and the imposition of a fresh levy
with retrospective effect was violative of Article 14 of the Constitution
and repelled that contention after finding that legislative intent was given
benefits only on that part of turnover of sales or purchases as may be
arrived at by applying the ratio that may be prescribed by the Government.
G The Government did prescribe this ratio but chose wrong method by
issuing administrative circular rather than issuing statutory no\ification in
the form of rules. It is that which is achieved by the validating Act and
therefore it was not a new levy.
21. The High Court has also discussed that the aforesaid kind of
H legislation would be in the nature of validating legislation inas:nuch as
EUROTEX INDUSTRIES AND EXPORTS LIMITED & ANR. v.
409
STATE OF MAHARASHTRA & ANR. [A. K. SIKRI, J.]
the very basis of foundation of the earlier decision was sought to be
A
undone.
22. With this we advert to the arguments advanced by the
appellants. We have already taken note of those arguments.