Bombay High Court
Olympic Oil Industries Ltd. And Another vs State Of Maharashtra And Others on 9 July, 1986
Equivalent citations: [1987]65STC191(BOM)
JUDGMENT Dharmadhikari, J.
1. As all these writ petitions involve common question of law and facts, they were heard together and are being disposed of by this common judgment.
2. By these writ petitions the petitioners, who are engaged in the production and manufacture of edible oil, seek to challenge the constitutional validity of the Bombay Sales Tax (Amendment) Act, 1985, hereinafter referred to as the said Amendment Act, as being ultra vires of articles 14, 19(1)(g) and 300A of the Constitution of India.
3. Initially the Government of Maharashtra announced a package scheme of incentives in the year 1964 vide Government Resolution dated 25th September, 1964, to encourage and induce entrepreneurs to establish industrial units in undeveloped and underdeveloped areas-outside Bombay-Thane and Pune-Pimpri-Chinchwad regions. By this resolution the State Government agreed to give to new industries, during the initial stages of its production, a cash refund of sales tax paid by the industry on the raw materials purchased by it and on the finished goods for the the first 13 years from the date of the registration and/or licence, provided the refund on account of the sales tax did not exceed in a year 8 per cent of the capital investment. This incentive scheme was framed for dispersal of the industries outside Bombay-Thane and Pune-Pimpri-Chinchwad. By another resolution dated 2nd April, 1969, the State Government, in partial modification of its earlier resolution of 1964, introduced a modified incentives scheme, under which eligible units were granted interest-free loan equivalent to the sales tax paid by them on raw materials and finished products for the first 6 years of production, repayable in 18 years of the disbursement of loan in 3 easy annual instalments, provided the quantum of loan in any one year will not exceed 8 per cent of the gross fixed assets. Thereafter with a view to give graded incentive so as to ensure that the new industries going into interior and more backward regions get more incentives progressively at a reduced rate, the State Government by its resolution dated 23rd October, 1973, decided to divide various areas of the State into 4 groups and modified the package scheme of incentives with effect from 15th August, 1973, under which the interest-free loan was given by SICOM on the basis of sales tax paid by the new unit for 6 to 10 years upto the maximum of 8 per cent of the fixed assets each year. The package scheme of graded incentives was further modified by the Government vide Government Resolution dated 18th January, 1977, with effect from 1st August, 1976, for a period of 3 years. Under the said scheme eligible unit was entitled every year to the sales tax incentive at 4 per cent of the cost of the fixed assets plus employment incentive based on the average employment worked out at Rs. 1,200 per job per year, limited to 4 per cent of the cost of the fixed assets, provided the total amount so calculated was limited to the total sales tax liability during the year or 8 per cent of the gross value of the fixed assets whichever is lower. By Government resolution dated 17th September, 1977, the Government introduced a special capital incentive scheme with effect from 1st August, 1977 for a period of 3 years under which the special capital incentives admissible to the eligible units in specified industrial areas was in the form of interest-free loan to the extent of 15 per cent of the fixed assets subject to the maximum of Rs. 15 lakhs repayable after 12 years in 6 equal annual instalments. By Government resolution dated 18th October, 1979, the special capital incentives scheme introduced under the Government resolution dated 17th September, 1977, was extended for a further period of one year, i.e., upto 31st July, 1980, to enable more units to get the advantage of the scheme.
4. Thereafter by Government resolution dated 5th January, 1980, the Government introduced modified package scheme of incentives (hereinafter referred to as the 1979 scheme). This was to remain in force for the period from 1st August, 1979, to 31st March, 1983, with liberty to Government to amend the scheme at any time after giving six months notice. However, it was made clear therein that the commitments already made were not to be affected by any such amendment. Under the said scheme the unit in production prior to 1st August, 1979 was considered as an existing unit, while an industrial unit, for setting up of which at least one of the final effective steps was required to be completed after 1st August, 1979, was considered as a new unit. The period of eligibility in respect of the eligible unit or the new unit was 3, 5, 7, 9 and 13 years, depending on the nature and location of the eligible unit. The areas of the State were classified into 4 groups for the purpose of the said scheme. An eligible unit in the small-scale industries sector, was given exemption from the purchase tax on the raw materials purchased by it as also from the sales tax on the sales effected by it during the period of eligibility without any limit. Thus by the 1979 scheme the total exemption from payment of purchase tax and sales tax without any limit was provided.
5. According to Government these incentives scheme were introduced with a view to secure planned and co-ordinated development of various regions of the State and to reduce progressively disparities in the level of developments between different regions of the State. Thus the package scheme of the incentives was meant for promotion of industries in undeveloped and developing parts of the State. The 1979 scheme was under 2 parts, i.e., parts 1 and 2, giving option to the entrepreneurs to opt for the benefit under one or the other part. As far as the sales tax incentives were concerned, choice given to the entrepreneurs was to choose benefit of incentive in the form of tax exemption or benefit in the form of deferral. It is the case of the petitioners that relying on this representation, they set up their units and had complied with all the obligations under the scheme.
6. To give effect to this scheme the Government of Maharashtra amended its earlier notification issued under section 41 of the Bombay Sales Tax Act, 1959, adding entry 136 to the schedule providing for a statutory exemption from the sales tax, purchase tax and Central sales tax in favour of an industrial unit set up in the developing region of the State. The petitioners in Writ Petition No. 3275 of 1985, Olympic Oil Industries, made an application for issue of the necessary eligibility certificate under the 1979 scheme. Accordingly eligibility certificate was issued which was to remain in force for a period from 1st November, 1982, to 31st October, 1991. An agreement was also entered into between the petitioners and the Governor of Maharashtra incorporating reciprocal obligations. A certificate of entitlement was also issued by the Deputy Commissioner of Sales Tax under entry 136. It appears that in some cases though the petitioners applied for eligibility certificates, they were not being issued. Ultimately the matter came before the Full Bench of this Court in Tapti Oil Industries v. State of Maharashtra and after the decision of the Full Bench necessary certificates came to be issued.
7. It is then the case of the State Government that during the operation of the 1979 scheme, certain difficulties came to be faced by the implementing agencies as also by some industrial units and more particularly by the edible oil units which had gone into production prior to 1979. These units faced severe competition from the eligible units under the 1979 scheme, and therefore, they made several representations to the State Government to discontinue the incentives given to the new units under the 1979 scheme so as to do away with the discrimination between the old units and the new units. The other industrial units which did not get the advantage of incentives under the 1979 scheme also made representations that they were finding it very difficult to compete with new units who are getting unlimited sales tax exemption under the 1979 scheme. The State Government, therefore, by its resolution dated 5th July, 1982, modified the 1979 package scheme of incentives, inter alia, by limiting the total cumulative sales tax incentives to 100 per cent of the fixed capital investment during the period of entitlement. The said resolution was made effective from 10th January, 1983, as under the 1979 scheme, the Government had agreed to give 6 months notice for any amendment of the 1979 scheme. It was also mode clear in the said resolution that the units governed by the 1979 scheme prior to the amendment, will continue to be governed by the unamended 1979 scheme. During the period from 5th July, 1982 to 10th January, 1983 several new units were set up who got advantage of the 1979 scheme. The number of the edible oil units being the largest, with a view to save the old units from fierce competition the Government tried to regulate the issue of eligibility certificate or entitlement certificate, by administrative instructions but the same came to be challenged before this Court in Tapti Oil Industries case (FB). The Full Bench held that all eligible units under the 1979 scheme were entitled to full benefits under the scheme and the Government was estoppel by the principle of promissory estoppel from reducing the incentives.
8. It is also the case of the State Government that in the light of the experience gained, in the implementation of the 1979 scheme, the Government came to the conclusion that the 1979 scheme had caused enormous harm or injury to old units which were not entitled to the benefit of sales tax exemption to unlimited extent and it was very difficult, if not impossible, for those units to compete with the new units. The State Government also found that it was unnecessarily losing huge revenue on account of the exemption from payment of the purchase tax and sales tax to unlimited extent. The State Government realised that the edible oil units formed a class by themselves and the competition faced by the old units in edible oil industry was very fierce and unhealthy thereby threatening their very existence. The State Government further realised that edible oil units did not suffer from the disabilities suffered by other units, particularly because the edible oil industry is agro-based, it was mainly concentrated in rural areas, and was able to secure raw materials in or near about the site of its factory. It was also possible for an edible oil unit to recover its entire capital invested in fixed assets within a year or even earlier. The State Government, therefore, decided not to give any incentive to units in edible oil industry going into production after 1st April, 1983, either by exemption of sales tax or otherwise. The State Government also modified the existing incentives in respect of other units going into production after 1st April, 1983.
9. Even after the deletion of edible oil industry from the new package scheme of incentives, the Government received representations from old units, including the units in edible oil industry which were not getting the benefits of the 1979 scheme, to the effect that unlimited incentives granted under the 1979 scheme continued to cause fierce competition to those units. However, in view of the Full Bench judgment of this Court in Tapti Oil Industries case , it was not possible for the State Government to reduce the incentives already available to the units covered by the 1979 scheme, by executive or administrative orders.
10. Thus, having realised that the enjoyment of unlimited exemption from payment of sales tax by the units under the 1979 scheme had not only resulted in huge draw on the public exchequer which was never intended, when the package scheme of incentives was designed and announced, but had also created unhealthy trade practices and competition, the Government issued an Ordinance No. 5 of 1985 on 24th May 1985, inter alia, to limit the benefit derived on account of exemption from payment of sales tax under the 1979 scheme to the extent of 100 per cent of gross fixed capital investment by the eligible units at the time of grant of eligibility certificates or such other lower percentage, if any, as may be provided under the eligibility certificate issued in accordance with the provision of any package scheme of incentives.
11. The said Ordinance came to be challenged in this Honourable Court by various industrial units, including the units in edible oil industry. During the pendency of those petitions, and before the Ordinance was replaced by the Act, the Government received number of representations from the small-scale industries or their representative organisations or associations. The Government also received representations from the units in edible oil industry which started production either before 1st August, 1979, or after 1st April, 1983, to the effect that they were being subjected to hostile discrimination and they were not in a position to compete with those units in edible oil industry which were getting the benefit of exemption of sales tax without any limit under the 1979 scheme.
12. On consideration of all these representations, the State Government came to the conclusion that except the units in edible oil industry, which formed a separate class, all other units which were eligible for exemption from purchase tax and sales tax without any limit under the 1979 scheme during the period of eligibility may continue to get those incentives under the 1979 scheme. So far as the units in edible oil industry are concerned, the Government realised that there was discrimination between the pre-1979 and post 1st April, 1983, units on the one hand and the eligible units under the 1979 scheme on the other, which required redressal. The Government also realised that it was not the public interest to continue the said exemption to the units in edible oil industry, because it was unnecessarily depriving the public exchequer of legitimate revenue, apart from causing loss and harm to units not covered by the 1979 scheme.
13. Thereafter the Ordinance was replaced by the Maharashtra Act No. 15 of 1985, which was brought into force from 24th May, 1985. It was published in Maharashtra Government Gazette on 1st August, 1985. By the said amending Act new section 41A was inserted in the Bombay Sales Tax Act, 1959. It is this section 41A which is challenged in the present petitions on various grounds :
Section 41A of the said Act reads as under :
"41A. Notwithstanding anything contained in this Act or in any judgment, decree or order of any Court or Tribunal to the contrary, on and after the date of commencement of the Bombay Sales Tax (Amendment) Act, 1985 (hereinafter in this section referred to as 'the commencement date'), the eligibility certificate granted to any registered dealer of an edible oil unit in accordance with the provisions of any package scheme of incentives shall case to have any effect in relation to the exemption from payment of tax under this Act or under the Central Sales Tax Act, 1956, and the certificate of entitlement issued in favour of such registered dealer by the Commissioner under entry 136 of the Schedule to the notification issued under section 41 shall stand automatically cancelled on the commencement date and such registered dealer shall not be entitled to claim any further benefit of exemption from payment of such tax under the eligibility certificate or the certificate of entitlement on and after the commencement date, and he shall surrender the certificate of entitlement together with all the unused form BC which have been attested by the sales tax authorities to the Commissioner forthwith and in any case on or before the 31st day of August, 1985, unless he has already surrendered the same earlier."
14. Shri Dhanuka, learned counsel appearing for the petitioners contended before us that section 41A purporting to cancel the eligibility certificate and the certificate of entitlement granted to the edible oil unit alone, who acting upon the scheme set up their units in undeveloped and underdeveloped areas, is wholly arbitrary, discriminatory, unreasonable and confiscatory. Entry 136 was incorporated in the notification issued under section 41 of the Act, in public interest. The impugned Act purports to relieve the State of its irrevocable commitment to honour certificate of entitlement for its entire duration after the entrepreneurs have acted upon the solemn promises made by the Government at a stage when restoration of the status quo ante is not possible. The Statement of Objects and Reasons appended to the Bill in terms states that the impugned Act has been enacted in order to remove the alleged discrimination between pre-1979 units on the one hand and the units covered under the 1979 scheme on the other. The impugned Act, far from removing the alleged discrimination between the pre-1979 units and the units covered under the 1979 scheme, in fact creates a hostile discrimination by treating unequals equally.
15. He further contended that by the impugned Act only edible oil units are singled out for hostile discrimination in respect of withdrawal of tax incentives and is, therefore, violative of article 14 of the Constitution of India. He submitted that edible oil units do not form a class by themselves, as sought to be contended by the respondents but on the other hand all the units covered under the 1979 scheme form one homogenous group and the edible oil units cannot be singled out for being deprived of the benefits under the scheme. The alleged classification made is not only unreasonable, but has also no nexus with the objects sought to be achieved by the enactment. Further the object of the scheme was rapid industrialisation and rapid dispersal of industries in undeveloped and underdeveloped areas of the State. This was highly in public interest, and, therefore, section 41A is wholly arbitrary being unreasonable and also not in public interest. He further contended that the legislation relieving the State of its obligation stemming from the doctrine of promissory estoppel is also arbitrary, and perverse as it is not only in the public interest but also in the interest of our democracy that both citizens and the Government should be required to honour their commitments and the different standards cannot be laid down for Government, in that behalf. This is more so in view of the agreement entered between the parties. The obligations of the Government, regarding exemption from payment of sales tax is sought to be extinguished unilaterally, though the corresponding obligation qua the petitioners continues. This is being done at a stage when a return to the status quo ante is impossible. The impugned Act does not affect the benefits to those units who have opted out for the scheme of deferral and only affect the edible oil units who have opted for the alternate scheme.
16. The learned counsel then contended that the rights accrued to the citizens qua tax exemption under the certificate of entitlement amounts to property. The obligation of the State to continue these tax benefits and concessions amounts to liability enforceable at law. The impugned Act therefore is confiscatory in nature so far as it purports to extinguish the rights of the citizen with effect from 24th May, 1985, when the certificate of entitlement was operative till 31st October, 1991. The Maharashtra Ordinance No. 5 of 1985 permitted the entrepreneurs to use the certificate of entitlement even after 24th May, 1985, where the cumulative benefits enjoyed by them had not exceeded 100 per cent of the gross capital investment. Some of the units did not collect tax in view of the exemption granted on the footing that the certificate of entitlement continued to be in force. The impugned Act retrospectively extinguishes all the rights accrued under the certificate of entitlement with effect from 24th May, 1985. Thus the said enactment is ultra vires of article 300A of the Constitution of India, as it deprives the petitioners of their property without the authority of law. It also violates article 19(1)(g) as it amounts to unreasonable and unjustified interference with the petitioners' fundamental rights to carry on business and trade and it is not saved by article 19(6) as the restrictions imposed by the Act are not in public interest. In support of his various contentions Shri Dhanuka has placed strong reliance upon the decisions of the Supreme Court in M. M. Pathak v. Union of India , Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh , Union of India v. Godfrey Philips India Ltd. , D. S. Nakara v. Union of India , Lohia Machines Ltd. v. Union of India and Tapti Oil Industries v. State of Maharashtra .
17. While adopting the arguments advanced by Shri Dhanuka, Shri Nain and Shri Kothari, learned counsel appearing for other petitioners in companion petitions, contended that there is yet another discriminating feature qua the impugned Act, namely, it withdraws exemption in respect of the edible oil units but not in respect of the non-edible oil units or other units. The said enactment, so far as it gives retrospective effect to section 41A, is also bad in law as it is confiscatory in nature. Ordinarily the tax legislation is made retrospective, when it is passed to validate the invalidated tax statute. The present enactment is not passed for validating any statute and still it is made retrospective. Even under the Ordinance edible oil units were entitled to enjoy tax exemption benefits to the limit of 100 per cent. Under the said Ordinance some of the petitioners enjoyed the said exemption benefit as they had not reached the prescribed limit. There are certain units who have not reached that limit even today. Despite the same the impugned Act withdraws the exemption retrospectively. This in substance will mean that though there was an exemption even during the period when the Ordinance was operative, by its withdrawal by the impugned Act, these units will have to pay the sales tax which was not payable, and, therefore, obviously not transferred to the consumers. This is confiscatory in nature and, therefore, the impugned enactment is also void on that count.
18. On the other hand it is contended by Shri Singhavi, learned Special Counsel appearing for the respondents, that the challenge in these petitions is to the provisions of the Bombay Sales Tax Act which is a fiscal statute. In the very nature of things the tax is a compulsory extraction and the selection of the items to be taxed must be left to the legislature. The competence of the legislature to enact the law has not been challenged. Normally tax is imposed for the purpose of augmenting the revenue. Further the burden to show that the provision is discriminatory or the classification is bad, is upon the person who challenges, it, since there is presumption that the law enacted is valid and constitutional. The notification issued under section 41 of the Act adding entry 136 was in the nature of exemption. By this enactment the said exemption has been withdrawn. The matter of exemption is outside the province of the court and unless it is demonstrated that the withdrawal of the exemption is palpably arbitrary, the court cannot interfere with the wisdom of the legislature. Further the intention of the legislature is not relevant. The court cannot go into the propriety of the legislation. The exemption granted under section 41 of the Bombay Sales Tax Act is withdrawn by the legislature qua the edible oil industry, in exercise of its legislative power. The principle of promissory estoppel can never apply to a legislative power. The impugned enactment has nothing to do with the package deal, as other concessions, like concessions regarding payment of octroi duty, electricity, etc., still continue. If those concessions continue and if the edible oil units want to enjoy those benefits, then they are also bound by the corresponding obligations. Only because the legislature in its wisdom by exercising its legislative power has withdrawn one of the concessions, whole scheme is not set at nought. The legislature is not bound by the promises made by the executive. Further from the material placed on record it is quite clear that the edible oil units form a distinct class in itself, and there was enough material before the legislature to come to the conclusion that the total exemption from payment of sales tax was unintended and was also inequitable. The concessions under the package scheme were contemplated so as to enable the new units to compete with the existing units and not to enable them to monopolise the business and throw out the existing units out of competition.
19. The scheme regarding deferral or deferral payment is covered by section 38 of the Bombay Sales Tax Act and was restricted to 100 per cent. It applied only to finished goods and, therefore, was not comparable. In the case of deferred payment there is only postponement of payment of taxes whereas in the case of exemption there is total loss of revenue. The exemption applied to purchase tax as well as sales tax. Further from the materials placed on record as well as the representations received, the legislature came to the conclusion that the exemption was inequitable and should not be continued. The doctrine of promissory estoppel would be displaced in such a case, because even on facts, equity would not require that the Government much less the legislature should be held bound by such a promise. In support of his contentions Shri Singhavi has placed strong reliance upon the decisions of the Supreme Court in Charanjit Lal Choudhury v. Union of India , Shri Ram Krishna Dalmia v. Shri Justice S. R. Tendolkar , Mohamed Hanif Quareshi v. State of Bihar , East India Tobacco Co. v. State of Andhra Pradesh , Orient Weaving Mills (P.) Ltd. v. Union of India , R. K. Garg v. Union of India AIR 1981 SC 2138, K. Nagaraj v. State of Andhra Pradesh , T. Venkata Reddy v. State of Andhra Pradesh , Jalan Trading Co. Pvt. Ltd. v. Mill Mazdoor Sabha , Bombay Conductors and Electricals Ltd. v. Shri K. Chandramouli, Under Secretary to the Government of India [FB] and Cashmir Spices v. State of Jammu and Kashmir [1985] 59 STC 25 (J&K).
20. Shri Thakore, learned counsel appearing for the interveners, i.e., owners of edible oil units established prior to 1979, adopted the arguments advanced by Shri Singhavi and contended that as a matter of fact the exemption of sales tax granted in favour of the edible oil units under the 1979 scheme was itself ultra vires of article 14 being discriminatory. It was based on arbitrary and unreasonable classification between the units established prior to 1979 and post-1979 units. The impugned Act has, therefore, only removed the discrimination created by the 1979 scheme between the pre-1979 units and post-1979 units. On earlier occasions whenever new scheme was framed existing units were also given an option. It is for the first time under the 1979 scheme, pre-1979 units were not given any option, though the object of this scheme was also the same. Therefore by enacting section 41A of the Act, hostile discrimination is removed and uniformity is achieved. It was not in public interest to continue the exemption from the payment of tax as it was wholly inequitable qua the Government a well as pre-1979 and post-1983 units. This exemption had resulted in unhealthy competition and if it had continued then pre-1979 units would have been forced to close their units. Therefore taking any view of the matter present enactment is wholly reasonable and is also in public interest.
21. For properly appreciating the controversy raised before us it will be worthwhile if a detailed reference is made to the Statement of Objects and Reasons of the impugned legislation, i.e., Maharashtra Act No. 15 of 1985, which reads as under :
"The Government of Maharashtra has announced the Package Scheme of Incentives, 1979, under Government Resolution, Industries, Energy and Labour Department, No. IDL-7079/(2043)/IND-8, dated 5th January, 1980, which provides inter alia that the small-scale units set up in the industrially backward areas in the State would be eligible for sales tax exemption for a period ranging from 5 to 9 years without any limit. Subsequently, it was noticed that in the absence of any limit on the benefit of exemption of sales tax derived from the Package Scheme of Incentives, 1979, many a small-scale unit in the category of edible oil industry were able to exploit the concession and earned such incentives in sales tax exemption exceeding 100 per cent of their gross fixed capital investment in the eligible small-scale unit. This had resulted in a huge draw on the public exchequer, which was never intended by the State Government when the Package Scheme of Incentives, 1979, was designed and announced. The concession of exemption of sales tax granted to such small-scale units under the Scheme of Incentives, 1979, has rendered this scheme inequitable as against the Government and also vis-a-vis the edible oil units covered by pre-1979 scheme as also the edible oil units established after coming into force of the 1983 Package Scheme of Incentives which are ineligible for sales tax exemption. It had also been represented to Government that such small-scale units claiming benefits under the Package Scheme of Incentives, 1979 took undue advantage of the absence of any monetary limit in claiming exemption from sales tax and were consequently creating unhealthy trade practice and competition.
2. The Government of Maharashtra in its Package Scheme of Incentives, 1983, announced under Government Resolution, Industries, Energy and Labour Department, No. IDL-1082/(4077)IND-8, dated 4th May, 1983 had sought to exclude edible oil units from the purview of incentive scheme by specifically providing that the edible oil industry comprising delinting, decortication or processing of groundnuts or other oil-seeds, crushing of oil-seeds and manufacture of edible oil, refining of edible oil or hydrogenation of edible oil shall not be considered eligible for any incentives under the 1983 scheme.
3. Even earlier, the State Government by Government Resolution, Industries, Energy and Labour Department, No. IDL-7082/(3559)/IND-8, dated 5th July, 1982 had sought to modify the package of incentives and the benefits derived therefrom. The incentives were then limited to 100 per cent of the fixed capital investment of the small-scale units. The Package Scheme of Incentives, 1979, provides for giving notice of 6 months for any change or modification in the scheme and accordingly, the modified scheme, dated 5th July, 1982, was proposed to be brought into force in respect of small scale units with effect from 10th January, 1983. However, during the intervening period of notice, a number of small-scale units particularly the oil units tried to take advantage of the unlimited incentives to the disadvantage of the existing units and also caused loss to the public exchequer in respect of revenue from sales tax and attempts of the State Government to regulate the incentives in respect of these units led to litigation. After the decision of the Bombay High Court in Tapti Oil Industries v. State of Maharashtra reported in [1984] 56 STC 193 (FB), a large majority of registered dealers covered by the Package Scheme of Incentives, 1979, claimed benefit of tax exemption without any limit, thus causing a continuing loss to the revenue.
4. As both Houses of the State Legislature were not in session and it was necessary to take immediate action to restrict the exemption from payment of sales tax enjoyed by all the eligible units to whom eligibility certificates and the certificates of entitlement were granted in pursuance of the provisions of the 1979 Scheme of Incentives, and for that purpose to amend the Bombay Sales Tax Act, 1959, the Bombay Sales Tax (Amendment) Ordinance, 1985 (Maharashtra Ordinance V of 1985) was promulgated by the Governor of Maharashtra on the 24th May, 1985.
5. It has come to the notice of Government that following the Ordinance certain small-scale industries were likely to be hit adversely, and the Government received number of representations in this regard. Government gave a careful consideration to the provisions of the Ordinance and its likely effects on small-scale industries in the State. In view of the fact that the edible oil units were held not eligible for incentives under the pre-1979 scheme and the 1983 scheme, it is necessary to remove the discrimination and anomaly that would continue under the Incentives Scheme of 1979 under which the edible oil industry enjoyed unlimited exemption of sales tax. Therefore, Government considers that it would not be in the public interest to continue the concession to the edible oil units covered by the 1979 Scheme of Incentives as it is inequitable against the Government as also against the pre-1979 scheme units and the edible oil units established after the 1983 Scheme of Incentives. Government has, therefore, decided to modify the provisions of the Ordinance and to make suitable provisions in the Bombay Sales Tax Act, 1959 to declare that the oil units covered by the Package Scheme of Incentives of 1979 shall not be eligible for continued benefits of exemption from payment of sales tax under the said scheme.
6. The Bill is intended to replace the said Ordinance by an Act of the State Legislature with modifications as aforesaid."
From the bare reading of this, the object of the legislation is more than clear. It is quite obvious that the total exemption from the sales tax had resulted in huge draw on the public exchequer which was never intended by the State Government when the Package Scheme of Incentives, 1979, was designed and announced. The concession of exemption of sales tax had rendered the scheme inequitable as against the Government and also vis-a-vis edible oil units established prior to the 1979 scheme and after 1983. It was also represented to the Government that these units took undue advantage of the exemption and were creating unhealthy trade practice and competition. Therefore, the legislature came to the conclusion that it would not be in the public interest to continue the concession to the edible oil units covered by the 1979 scheme. For the purposes of the impugned enactment the legislature has treated edible oil units as a class by itself. In the affidavit filed by the Under Secretary, Finance Department of the Government of Maharashtra, the reasons have been disclosed as to why the Government considered the units of edible oil industry as a separate and distinct class. These reasons read as under :
"(a) it is an agro-based industry, mostly located in rural areas of the State;
(b) it can easily obtain its raw material in its vicinity;
(c) it finds market for its finished products very easily in areas near about its factory;
(d) it can be set up with a modest capital and the entire capital invested in fixed assets can be recouped within a year after its going into production;
(e) compared to units in other industries, the number of units in edible oil industry, which took the advantage of the 1979 scheme, was much larger and the competition faced by the pre-1979 and post 1st April, 1983 units in edible oil industry, was most fierce and harmful threatening their existence;
(f) the discontent amongst the units of edible oil industry due to the 1979 scheme was most acute compared to units in other industries;
(g) units in edible oil industry going into production after 1st April, 1983, were not getting any exemption from sales tax and purchase tax, which was not the case with units in other industries;
(h) in edible oil units, there were four categories : (1) pre-1979, (2) covered by the 1979 scheme, (3) units after 10th January, 1983, and (4) units after 1st April, and that created gross discrimination;
(i) the edible oil units covered by the 1979 scheme were in a position to compete with pre-1979 units even without the concession of exemption from purchase tax and sales tax under the 1979 scheme;
(j) units in edible oil industry did not suffer from the disabilities with which the units in other industries were suffering due to their being located in rural areas."
The respondents have denied the various adverse allegations made in the petitions. The respondents have annexed to their affidavit a statement showing the investment in the fixed assets and the total sales tax benefits which these units would have derived during the period of 9 years. According to this statement they would have derived this benefit almost 17 times of their fixed capital investment. Further it is the case of the respondents that after promulgation of the Ordinance and before its replacement by the Act several representations were received by the Government from various small-scale, medium scale and large scale industries. According to the information available with the Government around 400 units were established in edible oil industry to avail of the sales tax exemption under the 1979 scheme and those units constitute 9 per cent to 10 per cent of all the units getting advantage under the 1979 scheme. In western Maharashtra edible oil industry units are concentrated in Dhule, Jalgaon area, particularly because of the easy availability of the raw materials. Further the edible oil units enjoying exemption were taking undue advantage of it. So far as the challenge based on the retrospective operation of the Act is concerned, it is the case of the State Government that since the Act was enacted to replace the Ordinance it was brought into force from the date of the Ordinance. The legislature is competent to enact a law with retrospective effect. The period covered is marginal and, therefore, on that count also the law is perfectly legal and valid.
22. From the rival contentions raised before us it is quite obvious that the main challenge to the enactment is based on article 14 of the Constitution of India. It is not disputed nor it could be disputed that there can be no promissory estoppel against the legislature in the exercise of its legislature functions. In view of the latest decision of the Supreme Court in Union of India v. Godfrey Philips India Ltd. it is not necessary to make any reference to the earlier decisions in the field. After making a detailed reference to the earlier decisions, this is what the Supreme Court has observed in para 14 of the judgment :
"14. Of course we must make it clear, and that is also laid down in Motilal Sugar Mills case , that there can be no promissory estoppel against the legislature in the exercise of its legislative functions nor can the Government or public authority be debarred by promissory estoppel from enforcing a statutory prohibition. It is equally true that promissory estoppel cannot be used to compel the Government or a public authority to carry out a representation or promise which is contrary to law or which was outside the authority or power of the officer of the Government or of the public authority to make. We may also point out that the doctrine of promissory estoppel being an equitable doctrine, it must yield when the equity so requires, if it can be shown by the Government or public authority that having regard to the facts as they have transpired, it would be inequitable to hold the Government or public authority to the promise or representation made by it, the court would not raise an equity in favour of the person to whom the promise or representation is made and enforce the promise or representation against the Government or public authority. The doctrine of promissory estoppel would be displaced in such a case, because on the facts, equity would not require that the Government or public authority should be held bound by the promise or representation made by it. This aspect has been dealt with fully in Motilal Sugar Mills case and we find ourselves wholly in agreement with what has been said in that decision on this point."
However, replying upon certain observations in M. M. Pathak v. Union of India , it is contended by Shri Dhanuka that the said principle is also relevant for judging the reasonableness of a provision, while considering the challenge under article 14 of the Constitution of India. In this context he has placed strong reliance upon the following observations in para 11 of the said judgment :
"11. Furthermore, I think that the principle laid down by this Court in Union of India v. Anglo Afghan Agencies can also be taken into account in judging the reasonableness of the provision in this case. It was held there (at page 385 of SCR) (at page 728 of AIR) :
'Under our jurisprudence the Government is not exempt from liability to carry out the representation made by it as to its future conduct and it cannot on some undefined and undisclosed ground of necessity or expediency fail to carry out the promise solemnly made by it, nor claim to be the judge of its own obligation to the citizen on an ex parte appraisement of the circumstances in which the obligation has arisen'.
In that case, equitable principles were invoked against the Government. It is true that, in the instant case, it is a provision of the Act of Parliament and not merely a Governmental order whose validity is challenged before us. Nevertheless, we cannot forget that the Act is the result of a proposal made by the Government of the day which, instead of proceeding under section 11(2) of the Life Insurance Corporation Act, chose to make an Act of Parliament protected by emergency provisions. I think that the prospects held out, the representations made, the conduct of the Government, and equities arising therefrom, may all be taken into consideration for judging whether a particular piece of legislation, initiated by the Government and enacted by Parliament, is reasonable".
23. On the other hand according to Shri Singhavi the observation in para 11 is not the ratio of the case as no other Judge has dealt with the said question. Further once it is held to be a settled principle that there could be no promissory estoppel against the legislature in exercise of its legislative function, then the said principle cannot be imported indirectly via article 14 of the Constitution. It is also contended by him that the observations made by Beg, C.J., in M. M. Pathak's case are in conflict with the law laid down by the Supreme Court in other cases, including in Union of India v. Godfrey Philips India Ltd. . In our view there is no apparent conflict between the view expressed by Beg, C.J., in M. M. Pathak's case and the law laid down by the Supreme Court in other cases. Though there can be no promissory estoppel against the legislature in exercise of its legislative functions, still, if substantive provision of an enactment is challenged on the ground that it is violative of article 14 of the Constitution, being unreasonable, then in a given case depending upon the facts and circumstances of the case, for testing the reasonableness of a provision, the said principle might become relevant. However, even if the present enactment is tested on the touchstone of the said observations, still, having regard to the facts and circumstances of the present case, it is difficult to hold that the present enactment is any way arbitrary or unreasonable. We have already reproduced in detail the reason as to why the legislature considered the units in edible oil industry as a separate and distinct class. As observed by the Supreme Court in D. S. Nakara's case article 14 forbids class legislation but permits reasonable classification for the purpose of legislation which classification must satisfy the twin tests of classification being founded on an intelligible differentia which distinguishes persons or things that are grouped together from those that are left out of the group and that differentia must have a rational nexus to the object sought to be achieved by the statute in question.
24. Further the classification need not be constituted by an exact or scientific exclusion or inclusion of persons or things. The courts cannot insist on delusive exactness or apply doctrinaire tests for determining the validity of the classification in any given case. Classification is justified if it is not palpably arbitrary. (See In re The Special Courts Bill, . The reasons given by the respondents for considering the edible oil industry as a separate and distinct class cannot be termed as irrelevant or extraneous. These reasons clearly disclose that the said industry is a class by itself and is not comparable to the industries left out. It is also based on the needs and exigencies of the society as well as the past experience.
25. Shri Dhanuka, learned counsel appearing for the petitioners, disputed the very statements of facts incorporated in the objects and reasons. In our view it will not be permissible for this Court to go into the truthfulness or otherwise of the said reasons in a writ jurisdiction. As to how the laws relating to the economic activities should be viewed has been laid down by the Supreme Court in R. K. Garg's case AIR 1981 SC 2138. This is what the Supreme Court has observed in paras 7 and 8 of the said judgment :
"7. Now while considering the constitutional validity of a statute said to be violative of article 14, it is necessary to bear in mind certain well-established principles which have been evolved by the courts as rules of guidance in discharge of its constitutional function of judicial review. The first rule is that there is always a presumption in favour of the constitutionality of a statute and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional principles. This rule is based on the assumption, judicially recognised and accepted, that the legislature understands and correctly appreciates the needs of its own people, its laws are directed to problems made manifest by experience and its discrimination are based on adequate grounds. The presumption of constitutionality is indeed so strong that in order to sustain it, the court may take into consideration matters of common knowledge, matters of common report, the history of the times and may assume every state of facts which can be conceived existing at the time of legislation.
8. Another rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion, etc. It has been said by no less a person than Holmes, J., that the legislature, should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or straight-jacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature. The court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicitously expressed than in Morey v. Doud (1957) 354 US 457 where Frankfurter, J., said in his inimitable style :
'In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The legislature after all has the affirmative responsibility. The courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the judges have been overruled by events self-limitation can be seen to be the path to judicial wisdom and institutional prestige and stability.' The court must always remember that 'legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry' that exact wisdom and nice adaption of remedy are not always possible and that 'judgment is largely a prophecy based on meagre and uninterpreted experience'. Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses. There may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid. The courts cannot, as pointed out by the United States Supreme Court in Secretary of Agriculture v. Central Roig. Refining Co. (1950) 94 LEd 381, be converted into tribunals for relief from such crudities and inequities. There may even be possibilities of abuse, but that too cannot of itself be a ground for invalidating the legislation, because it is not possible for any legislature to anticipate as if by some divine prescience, distortions and abuses of its legislation which may be made by those subject to its provisions and to provide against such distortions and abuses. Indeed, howsoever great may be the care bestowed on its framing, it is difficult to conceive of a legislation which is not capable of being abused by perverted human ingenuity. The court must therefore adjudge the constitutionality of such legislation by the generality of its provisions and not by its crudities or inequities or by the possibilities of abuse of any of its provisions. If any crudities, inequities or possibilities of abuse come to light, the legislature can always step in and enact suitable amendatory legislation. That is the essence of pragmatic approach which must guide and inspire the legislature in dealing with complex economic issues."
26. It is equally well-settled that the legislature has larger latitude and discretion in the matter of selection of items and levy tax. It is also well-settled that the legislature is not required to tax everything in order to tax something. Further it must be presumed that the legislature understands and correctly appreciates the need of its own people, that its laws are directed to problems made manifest by experience, and that discriminations are based on adequate grounds. That the legislature is free to recognise degrees of harm and may confine its restrictions to those cases where the need is deemed to be clearest. It is the function of the State, in order to raise revenue for State purposes to determine what kind of taxes shall be levied and in what manner. In substance, its function is to raise revenue for public purposes. Even if the exemption was given in public interest, and if after experience the public interest demands otherwise then the legislature can withdraw the exemption. Unless it is demonstrated that the discretion exercised is palpably discriminatory or arbitrary the court cannot go into the propriety of the legislative wisdom.
In our view having regard to the facts and circumstances disclosed in the affidavit and the statement of objects and reasons it could safely be held that the classification made by the legislature in withdrawing the exemption qua edible oil units only is neither arbitrary nor unreasonable. In view of the material placed on record it would be inequitable to hold the legislature to the promise or representation made by the executive. The doctrine of promissory estoppel, assuming it applies, would be displaced in such a case, because on facts equity would not require that the legislature should be held bound by the promise or representation made by the Government.
27. In this context it cannot be forgotten that the question of exemption from payment of tax is not the province of the court nor the court can go into the intention behind the legislation or its propriety. The legislature obviously can pick and choose. In the present case having regard to the history of the package scheme, its import, and the effect of the exemption on the exchequer and the other existing units the legislature though it fit to withdraw the exemption qua the edible oil units, which could safely be termed as a class by itself. As stated in the affidavit it is an agro-based industry. It can easily obtain raw material in the vicinity. The market for the finished goods is very easily available in the areas nearby the factory. It can be set up with a modest capital and the entire capital invested in fixed assets can be recouped within a year after its going into production or within a reasonable time. Therefore having regard to the object of the Act, in our view the classification made cannot be held as palpably arbitrary so as to suffer from the vice of arbitrariness. On the other hand the classification is found on an intelligible differentia which distinguishes edible oil units from others and the said differentia has a rational nexus with the object sought to be achieved by the Act. Therefore it is not possible for us to accept the contentions raised by the petitioners in that behalf.
28. In the view we have taken, the question as to on whom onus or burden lies to prove the reasonableness becomes irrelevant. Even otherwise when both sides have placed before us, the relevant material for judging the reasonableness of a legislation then at least at this stage, the question of burden becomes irrelevant. Once it is held that the impugned legislation is not violative of article 14, then the challenge based on article 19(1)(g) as well as on article 300A will have to be rejected. In the very nature of things the taxes are imposed in the public interest. Taxation is the sovereign power of the legislature and raising revenue of the State is in the public interest. Further the petitioners are entitled to shift the burden of sales tax to consumers. Therefore it is not a restriction on trade or business much less, unreasonable. It also cannot be held that the petitioners are deprived of any property save by authority of law within the contemplation of article 300A of the Constitution, once it is held that the legislation is not violative of article 14 of the Constitution then the challenge based on articles 19(1)(g) and 300A of the Constitution must fail.
29. However, we find some substance in the contentions raised by the petitioners, that giving retrospective effect to an enactment qua the edible oil units is bad in law. The Maharashtra Ordinance No. 5 of 1985 had expressly permitted industrial units who had not enjoyed sales tax exemption to the extent of 100 per cent of their gross fixed capital investment to continue to enjoy the same until they reach the said limit. There are many edible oil units who had till 24th May, 1985 not enjoyed the notional sales tax exemption to the extent of 100 per cent of their gross fixed capital investment, and they continued to enjoy the said exemption. Because of this they were not required to pay sales tax and also did not collect it from the parties to whom they sold the goods. This benefit they enjoyed till 1st August, 1985. By the present amending Act, qua the edible oil units the exemption of sales tax stands withdrawn from 24th May, 1985, irrespective of the fact whether they had enjoyed the sales tax exemption to the extent of 100 per cent of their gross fixed capital investment, which they could enjoy under the Ordinance. As a result of giving retrospective effect to the amending Act the edible oil units will be required to pay the amount of sales tax for a period from 24th May, 1985, to 1st August,, 1985, from their own reasources and in our view this will be clearly violative of article 14 of the Constitution. The edible oil units have enjoyed the benefit of exemption, as they were legally entitled to it under the Ordinance. Therefore, withdrawal of such a benefit, which was validly and unequivocally granted and enjoyed must in the circumstances and in the absence of proper grounds be held to be unreasonable and arbitrary.
30. A contention was also raised that on this count the whole amending Act must be declared as ultra vires since it is not separable and since it will amount to rewriting the provision. According to Shri Dhanuka the date of the coming into force of the Act is an integral part of the enactment itself. The expression "commencement date" is used in various other sections of the amending Act. Therefore the whole enactment should be declared as ultra vires. It is not possible for us to accept this contention since the provision is separable. Therefore on that count the whole enactment cannot be declared as ultra vires. It is open to this Court to direct that a particular provision will operate only prospectively. This is what was precisely done by the Supreme Court in A. V. Nachane v. Union of India . Since by giving retrospective effect to the present enactment from 24th May, 1985, so far as the edible oil units are concerned, the benefits validly enjoyed under the Ordinance by the edible oil units are being taken away retrospectively, it will have to the declared that so far as those edible oil units are concerned, the Maharashtra Act No. 15 of 1985 will come into force with effect from 1st August, 1985, and not from 24th May, 1985. To that extent the petitioners are entitled to get relief in these writ petitions.
31. Shri Bhatt, learned counsel appearing in Writ Petition No. 3562 of 1985, has also made a grievance that the petitioners in that case were granted eligibility certificates qua other oil units also, that is, other than edible oil units. By Maharashtra Act No. 15 of 1985 the said eligibility certificate is sought to be cancelled as a whole and the said cancellation is not restricted to edible oil units only. On the other hand it is contended by Shri Singhavi that the cancellation of the certificate under section 41A of the Act is qua edible oil units only and not qua other units. Therefore it will not result in cancellation of the certificate qua other units if certificate is a composite one. In our view there is much substance in the contention of Shri Singhavi. If section 41A of the Act is read as a whole and between the lines, together with the relevant definitions, it is quite clear that the cancellation of certificate is restricted to edible oil units only and not the qua other units. Therefore, we do not find any substance in this contention of Shri Bhatt.
32. In the result, therefore, these writ petitions are partly allowed, i.e., to the extent that it gives retrospective effect to the Maharashtra Act No. 15 of 1985, with effect from 24th May, 1985, so far as the edible oil units who have validly enjoyed the benefits under the Ordinance are concerned. As already held the said Act shall be deemed to have come into force with effect from 1st August, 1985, qua these edible oil units. All other challenges raised stand negatived and rejected. Hence rule is made partly absolute in all these writ petitions. However, in the circumstances of the case there will be no order as to costs.
33. At this stage, the counsel appearing for the petitioners in all these writ petitions orally prayed for leave to appeal to the Supreme Court. Since we have decided the question raised before us on the touchstone of the law laid down by the Supreme Court in our view, this is not a fit case wherein such a leave should be granted. Hence leave refused.
34. Writ petitions partly partly allowed.