Calcutta High Court (Appellete Side)
- Pacific Health Care (P) Ltd vs State Of on 11 February, 2011
Author: I.P. Mukerji
Bench: Kalyan Jyoti Sengupta, I.P. Mukerji
1
In the High Court at Calcutta
Constitutional Writ Jurisdiction
Appellate Side
PRESENT:
The Hon'ble JUSTICE KALYAN JYOTI SENGUPTA
The Hon'ble JUSTICE I.P. MUKERJI
W.P.T.T. 08 of 2008- Pacific Health Care (P) Ltd. - Vs. - State of
W.B. & Ors.
With
W.P.T.T. 09 of 2008- Sheffield Appliances Ltd. & Anr. - Vs. - State
With
W.P.T.T. 10 of 2008- M/s. Cure-N-Care Products (P) Ltd. - Vs. - State
& Anr.
With
W.P.T.T. 11 of 2008- M/s. Digitech Industries (P) Ltd. - Vs. - State of
W.B. & Anr.
With
W.P.T.T. 12 of 2008- Smt. Shwetaben M. Patel - Vs. - State of W.B. &
Anr.
With
W.P.T.T. 22 of 2008- M/s. Cure-N-Care Products (P) Ltd. & Anr. - Vs.
- State & Ors.
With
W.P.T.T. 05 of 2008- M/s. Jesie Household Care Products (P) Ltd. -
Vs. - State of W.B. & Ors.
With
W.P.T.T. 20 of 2008- Timir Kumar Majumdar - Vs. - State of W.B.
With
2
W.P.T.T. 03 of 2008- M/s. Lila Electronics & Anr. - Vs. - The
Commercial Tax Officer, Budge Budge Charge &
Ors.
With
W.P.T.T. 04 of 2008- M/s. Proftel Engineering (P) Ltd. & Anr. - Vs. -
Dy. Commissioner of Commercial Taxes, 24
Pgs. & Ors.
For the petitioners in : Mr. R.N. Bajoria, Sr. Advocate
W.P.T.T. No. 08 of 2008 Mr. J.P. Khaitan
Mr. Chittaranjan Panda
Mrs. Swapna Das
For the State : Mr. Prasenjit Basu
Mr. B. Bhattacharjee
For the petitioners in : Mr. J.P. Khaitan
W.P.T.T. No. 11 of 2008 Mr. Prithu Dhoria
For the State : Mr. Prasenjit Basu
Mr. B. Bhattacharjee
For the petitioners in : Mr. J.P. Khaitan
W.P. T.T. No. 09 of 2008 Mrs. Swapna Das
For the State : Mr. Prasenjit Basu
Mr. B. Bhattacharjee
For the petitioners in : Mr. Prithu Dudhoria
W.P.T.T. No. 10 of 2008
For the State : Mr. L.K. Gupta
Mrs. Seba Ray
For the petitioners in : Mr. Prithu Dudhoria
W.P.T.T. No. 12 of 2008
For the State : Mr. L.K. Gupta
Mrs. Seba Ray
For the petitioners in : Mr. Prithu Dudhoria
W.P.T.T. No. 22 of 2008
3
For the State : Mr. L.K. Gupta
Mrs. Seba Ray
For the petitioners in : Mr. J.P. Khaitan
W.P.T.T. No. 05 of 2008 Mr. R.K. Khanna
For the State : Mr. L.K. Gupta
Mrs. Seba Ray
For the petitioners in : Mr. J.P. Khaitan
W.P.T.T. No. 20 of 2008 Mrs. Swapna Das
For the State : Mr. Prasenjit Basu
Mr. B. Bhattacharjee
For the petitioners in : Mrs. Chandrima Bhattacharyya
W.P.T.T. No. 03 of 2008
For the State : Mr. L.K. Gupta
Mrs. Seba Ray
For the petitioners in : Mrs. Chandrima Bhattacharyya
W.P.T.T. No. 04 of 2008
For the State : Mr. L.K. Gupta
Mrs. Seba Ray
Judgment on: 11.02.2011
I.P. MUKERJI, J.
FACTS:
The basic issues of facts and law are identical in all the above applications. So they are being dealt with by this common judgment and order. 4 In each of the above applications, the impugned order of the Tribunal refusing to declare retrospective operation of the amendment of Section 39(3) of the West Bengal Sales Tax Act with effect from 1st September 1999, as bad and ultra vires the constitution, has been challenged.
In each of the above applications, the newly set up small scale industrial unit satisfies the definition of "newly set up small scale industrial unit" given by Section 39 of the above Act read with explanation (i) of Rule 98 of the West Bengal Sales Tax Rules 1995. Section 39 of the above Act enacts that if a small scale industrial unit as defined by the said Act and rules thereunder is set up in a prescribed area after an appointed date, the turn over of sales of such an unit would be exempted from sales tax for 5 years.
Now it seems from the subsequent amendments that the legislature did not have in mind the situation that would arise from a small scale industrial unit manufacturing goods as a franchisee of a large organization, domestic or foreign using its trade mark or brand name or logo. It appears from the subsequent amendments that if this situation were foreseen by the legislature, it would not treat these units as small scale units at all. But under Section 39 of the Act as it stood enacted, there was no bar on a small scale unit, whether it was set up by a person or body to manufacture its own goods with its own brand name or set up as a franchisee or agent or a unit of a large company with its well known brands 5 to claim the exemption. In any of the cases, the goods would be entitled to exemption from sale tax.
The above situation did arise. Therefore, steps were taken to remedy the situation which it seems was not contemplated by the framers of Section 39 of the Sales Tax Act at the time of enactment of the statute. The government tried to remedy the above situation by amending explanation I of Rule 98 of the said rules by notification No. 2425 FT dated 12th August 1999 effective from 1st September 1999 by adding clause (v) to the following effect.
"98.
Explanation I.
(v) which does not use on franchise or otherwise the trade mark or brand name or logo of any product of [any other industrial unit, or commercial organisation,] situated within or outside West Bengal and where such product is sold in West Bengal."
This retrospective rule was inter alia challenged before the West Bengal Taxation Tribunal in Pacific Health Care (P) Limited and another - v - State of West Bengal and others. The said tribunal by its judgment and order dated 12th May 2000 held:
"In the result, it is hereby declared that the clause(v) added to the Explanation I to rule 98 of 1995 Rules by 6 means of the Notification No. 2425-FT dated August 12, 1999, published in the Calcutta Gazette on the same date (effective from September 1, 1999), is not applicable to the newly set up SSI units of the present applicants up to the expiry of respective periods of five years from the respective dates of first sale, i.e., from the dates of commencement of validity of EC granted to them. The applicants are entitled to tax holiday for the full period of five years under section 39. If EC has not been granted yet to any of them or has not been granted for the full period of five years from the date of first sale of manufactured product, the appropriate respondents shall issue such EC for the full period of five years within four weeks of this date. The use of brand name, trade mark or logo of any other company shall be no ground to deny the benefit of tax holiday to them. The notice issued by the Commissioner of Commercial Taxes on August 31, 1999 to give effect to clause (v) of Explanation I with effect from September 1, 1999 shall be of no effect in respect of the newly set up SSI units of the present applicants. We direct that way bills shall not be refused by the respondents to the applicants particularly to the applicants in RN-420 of 1999, on the ground of non-compliance of clause (v) of the Explanation I to rule 98. All the six applications are thus finally disposed of. No order for cost."
After the above judgment of the Taxation Tribunal the West Bengal Sales Tax Act, 1994 was amended by West Bengal Act (XVI) of 2001 by inserting a new sub section 3 of Section 39 with retrospective effect from 1st September 1999. All acts and actions under the above rule were sought to be validated with effect from 1st September 1999 to do away with the effects of the above judgment and order of the Tribunal. The amendment carried out was thus:
"Section 39 (1)....................................
(2)....................................7
(3) "Notwithstanding the provisions contained in sub-
section (1) or the rules made thereunder, a dealer who has been enjoying, or has been entitled to enjoy, the benefit of exemption from payment of tax under that sub-section in respect of sale of goods manufactured by him in his newly set up small scale industrial unit shall cease to be eligible for the benefit of exemption under that sub-section in respect of all sales of goods so manufactured by him, on franchise or otherwise, using the trade mark or brand name or logo of any product of any other industrial unit, or commercial organisation, situated within or outside West Bengal."
(4) ...................................
Section 39A.:Validation - Notwithstanding anything contained in any judgment, decree or order of any Court, Tribunal or other authority, all proceedings, acts or things taken or done on the basis of the provisions contained in clause(v) of the Explanation I to rule 98 of the rules made under sub-section (1) of section 39 in respect of dealers enjoying, or entitled to enjoy, the benefit of exemption from payment of tax under that sub-section shall, for all purposes, be deemed to be and to have always been taken or done validly and effectively as if the provisions of sub-section (3) of that section had been in force at the material time when such proceedings, acts or things were taken or done."
This amendment and consequences flowing there from were challenged by each of the applicants before the West Bengal Taxation Tribunal by preferring an application under Section 8 of the West Bengal Taxation Tribunal Act 1987. In RN - 242/2002 the case of Kosmos Health Care Private Limited & Another - v
- State of West Bengal & 4 others, the Tribunal dismissed the application holding thus.:
"..................................8
65. We accept that the petitioners had an existing legal right to enjoy tax holiday for a period of five years under the pre- amended provision of section-39 of the 1994 Act and that the said right was expressly curtailed and/or withdrawn by the impugned amendment on and from the date the said provision came into force. We also accept that a legislative provision can be struck down on the ground of arbitrariness if there is manifest arbitrariness as discussed hereinbefore. At the same time it is also settled law that the legislature has the right and authority to take away an existing legal right in public interest if such legal right is used in a manner which defeats the very purpose behind conferment of such right. Individual interest must yield before larger public interest. Thus if an amendment is necessary to rectify a system which has proved to be detrimental to achievement of the object behind introduction of the system, it cannot be held to be arbitrary and unreasonable because such amendment affects and/or curtails an existing right under the system which is sought to be rectified.
66. We have already analysed the object and purpose of section-39(1) of the 1994 Act. It appears to us that unrestricted right conferred by section-39(1) enabled established industries to gain undue advantage and enjoy the benefit of tax exemption not meant for them. Legislature in its wisdom has thought it necessary to impose restriction to prevent other established industries from taking advantage of the lacuna and diverting the incentive of tax exemption meant for small-scale industries for their benefit.
67. It is not the law that an existing and continuing right can never be taken away or curtailed. An existing right cannot be withdrawn or curtailed whimsically without any good and valid reason. It is also settled that a concession or incentive can be withdrawn in greater public interest.
68. We have noticed that at the time of enforcement of the 1994 Act a small-scale industry had three alternative benefits - tax exemption under section-39(1), deferment of tax under section-40 and remission of tax under section-41. Present petitioners and several other small-scale industries opted for the benefit of tax exemption under section-39(1). Those small-scale industries, which opted for any of the other two benefits did not invite any restriction and were continuing to use trademark, logo or brand name of products of other industries and commercial organisations. According to us, when the State, through appropriate legislation, decided to curb an unfettered right of enjoying tax holiday, it 9 should have given option to those small-scale industries enjoying tax holiday to switch over to anyone of the other two benefits viz. deferment of tax or remission of tax. 1994 Act has prohibited switch over to the benefit of tax-holiday under section-39(1) once an industrial undertaking has opted for remission or deferment of tax under section-40 or 41, but the said Act has not made exemption holders under section-39(1) ineligible for switch over to the benefit of remission or deferment of tax if they are otherwise eligible. We may refer to sections 39(2), 40(6) and 41(4) in this connection. We, are of the view that the State Government should consider whether small-scale industrial units affected by section-39(3) should be given option to switch over to any of the benefits available under sections 40 and 42 of the 1994 Act, if any of those affect small-scale industries make appeal before the State Government for such option.
69. For the aforementioned reasons, we are unable to accept the petitioner's claim that section-39(3) as inserted by West Bengal Act XVI of 2001, is arbitrary or unreasonable and consequently unconstitutional for violating Article-14 of the Constitution. We, however, are of the view that if the small-scale industries affected by section-39(3) make appeal to the State Government, it should seriously consider whether the industries should be allowed to switch over to other benefits under section 40 or 41 of the 1994 Act.
70. Application is thus disposed of. All interim orders are vacated.
71. No order as to costs."
For substantially the same reasons other applications before the Tribunal were also dismissed.
Now, each of the applicants is before us by preferring an application under Articles 226/227 of the Constitution of India.
10RIVAL CONTENTIONS:
Mr. R.N. Bajoria, learned Counsel for the petitioner in W.P. No. 8 of 2008 (Pacific Healthcare (P) Limited and another - v - State of West Bengal and others) has drawn our attention to the above legislative history of Section 39 of the Act and the rules of 1995 and has taken us through the above decision to the tribunal dated 12th May 2000. He has argued that the impugned amendment of the 1994 Act is arbitrary and violative of the principles of Article 14 of the Constitution of India. It professes to take away certain vested rights with retrospective effect and that there is no proper justification in the Act itself for taking away of such vested right.
He had relied on the case of MRF Ltd. - v - Assistant Commissioner (Assessment) Sales Tax and others, reported in (2006) 148 S.T.C. 225 (SC). In that case acting on the incentives, concessions and benefits granted by the Government of Kerala in relation to sale tax, the appellant before the Supreme Court entered into a project for expansion and diversification. The board of revenue granted tax exemption to the appellant for 7 years for the agreed amount of Rs.74,122,77,529/-from December 30, 1996 to December 2003. Thereafter, certain notifications were made by the Government from January 15, 1998 purporting to curtail those benefits. The Supreme Court held that industrial units which had been set up before the exemption withdrawing notifications were entitled to exemption for the full period mentioned in the exemption certificate 11 and declared that the intention of the Government was not to take away such benefits. The Supreme Court said:12
"13 14 15
For the reasons stated above, the appeal is accepted, order of the High Court is set aside. Writ of mandamus is issued restraining the respondents from taking any proceedings against MRF Ltd., contrary to or inconsistent with the eligibility certificate dated January 10, 1997 and the exemption order dated June 10, 1998. Parties shall bear their own costs." On the other hand Mr. L.K. Gupta, learned Senior Advocate appearing for the State had made very extensive arguments. In his argument it was stated that the respective powers of the centre and states to enact laws with respect to the third list referred to in the 7th Schedule of the Constitution of India, containing the subject matters over which Parliament and the State legislation can enact law, exclusively or concurrently. He has said that both the Parliament and the State have power to make laws with retrospective effect in appropriate circumstances. In this connection he has cited Rai Ramkrishna & Others etc.- v - State of Bihar, AIR 1963 S.C. 1667; A.B. Abdul Kadir & Others - v - State of Kerala, AIR 1976 S.C. 182; Goodricke Group Ltd. & Others - v - State of West Bengal and Others, 1995 Supp. (1) S.C.C. 707; I.N. Saksena - v - State of Madhya Pradesh, (1976)4 S.C.C. 750 and Meerut Development Authority & Others - v - Satbir Singh & Others, (1996)11 S.C.C. 462. He submitted that both Parliament and the State legislature have power to pass appropriate legislation rendering judgments or orders of competent courts or tribunals ineffective by legislation which is known as validating legislation, after altering or curing the defects as pointed out in the judgment and order invalidating the statute. He cited Virender Singh Hooda & Others - v - State of 16 Haryana & another (2004)12 S.C.C. 588 to show that a validating act would also nullify the benefit of a judgment and order and still be valid. He cited State of Rajasthan & Another - v - J.K. Udaipur Udyog Ltd. & Another, 137 STC 438 to show that a recipient of an exemption or concession has no enforceable right and such exemption or incentive can be taken away by the Government in exercise of the very power by which it was granted. He also cited State of Tamilnadu - v - M/s. Arooran Sugar Ltd. AIR 1997 SC 1815. He has also drawn our attention to Dal-Ichi Karkaria Ltd. - v - Union of India & Others, (2000) 4 SCC 57 and Kasinka Trading and another - v - Union of India and another, (1995)1 S.C.C. 274 and analogous matters in Union of India and others - v - Godfrey Philips India Ltd. an analogous matter reported in AIR 1986 SC 806 to bring out the exact operation of the principle of promissory estoppel and to show circumstances when that doctrine would not apply in the withdrawal of exemption notification. DISCUSSION:
We have considered the rival contentions of the parties. Section 39 is a beneficent legislation. It has been enacted to encourage small scale industrial units in prescribed areas of the State. Obviously the purpose is for encouragement of specific economic growth. In order that, these small scale industrial units are able to compete with their bigger brothers, the section itself provides for a scheme of sales tax exemption to the small scale industrial units. 17 In the instant case it was for five years. It is quite possible that the small scale industrial unit which the legislature had in mind was the small entrepreneur who had set up an industrial unit in specified areas; because of the initial high cost of production in a small scale unit would not be able to withstand a competition in putting finished goods in the open market unless some protection by the state was given. Therefore, the need to give this incentive or exemption for a limited period to enable the small scale industrial unit to develop a market and to become cost effective was felt. It can legitimately be inferred that the legislature at that time did not have in mind a franchisee of a foreign multinational or large Indian companies setting up small scale industrial units and using well known brand names, logos to avail of this exemption. But an enactment ordinarily has to be interpreted by its plain grammatical meaning. Applying this test this section before amendment applied to these franchisees, agents were all equally entitled to this exemption. Many authorities have been cited as noted above on the doctrine of promissory estoppel. Extensive submissions have also been made regarding the operation of the doctrine.
This doctrine of promissory estoppel arises when any person, be it Government or a private person makes a representation by word or in writing or a promise, to another and on which another person acts intending to create a legal relationship and thereafter, the person making the representation or promise withdraws it or 18 due to technical reasons the promise is legally unenforceable, then the person who is making the representation or promise is prevented from denying the representation or the promise and in some case is compelled to fulfill the representation on promise made. The rule has its origin in the law of evidence which prevented a person from withdrawing a statement or denying the truth of an assertion made but has gradually found its place in substantive civil law including administrative law.
It is equally true that whatever be the representation or promise, it could not be stretched so as to legalise an illegal act on the basis of the representation or promise made. In other words, if the object of the representation or promise was illegal it had no force. Secondly, if the object of the representation or promise had been nullified by legislation, the promise or representation could not be enforced to over ride the statute. Therefore, there is no estoppel to buttress illegality nor against the operation of statute. The above are very trite principles. The argument over the applicability of the principle of promissory estoppel has no real application in this case whatsoever because an amendment was made in the statute, more specifically in Section 39 by adding sub Section 3 of Section 39, as discussed above with retrospective effect from 1st September 1999. When there is exercise of legislative power, the principle of promissory estoppel does not apply. The principle may have applicability up to the time of amendment of the sales tax rules which is in the realm of subordinate legislation carried out by the executive. 19 The principle of promissory estoppel seems to cover administrative orders and subordinate legislation but does not seem to cover cases affected by statute. State of Rajasthan & Another - v - J.K. Udaipur Udyog Ltd. & Another, Vol. 137 STC 438 and and Kasinka Trading and another - v - Union of India and another, (1995)1 S.C.C. 274 said that an exemption granted by the Government can be withdrawn by it and in the circumstances mentioned in that case the doctrine of promissory estoppel would not prevent the Government from withdrawing the concession. But it is true that in the case State of Rajasthan & Another - v - J.K. Udaipur Udyog Ltd. & Another the exemption was with regard to sale tax which was subsequently withdrawn but such withdrawal of incentive did not have any retrospective effect. In Kasinka Trading and another
- v - Union of India and another, the exemption related to basic import duty which was subsequently withdrawn for ten days and thereafter the exemption was granted afresh. In this case also there was no retrospective withdrawal. In both the above cases the withdrawal of exemption was upheld by the Hon'ble Supreme Court of India. No rights, under the doctrine of promissory estoppel or otherwise, was said to have arisen out of such withdrawal of concession. Such was also the case in DAI - ICHI Karkaria Ltd. - vs - Union of India and Others, (2000)4 SCC 57 and Union of India and others - vs - Godfrey Philips India Ltd. an analogous matter reported in AIR 1986 SC 806. It is equally true that a statute including fiscal statute can be made or amended with 20 retrospective effect (see I.N. Saksena - v - State of Madhya Pradesh, (1976)4 S.C.C. 750) But, once the operation of a statute is retrospective, the obligation of the Government to satisfy the Court that it is not violative of Article 14 of the Constitution of India is higher.
Therefore, the real test is whether this legislation is in conflict with Article 14 of the Constitution of India.
If one considers the proviso to sub section 1 of Section 37 of the Act, one observes that a beneficiary of an exemption under Section 39 has two options. One is to collect the tax and retain it. Secondly, not to collect any tax at all. The above two options are exercisable during the period of the exemption. We are of the view that immense injustice would be caused by a legislation taking away this exemption with retrospective effect. If the dealer has exercised option one, he might have utilised the tax collected from customers and not paid it to the Government, to meet capital and revenue expenditure of his business or both, over a period of time. After a period of time this dealer is asked to return this sum of money. Now, take the case of the dealer who exercised option two. This dealer has not collected the tax at all from his customers. In the circumstances, the customer has got the goods at a lesser price which has benefited the dealer. Now, if after a period of time the dealer is asked to pay to 21 the Government taxes that he has not collected from his customers, it would be absolutely impossible to realize the taxes from customers. Moreover, this kind of an incentive is ultimately convertible into money and hence is property. Now, once this incentive is availed of by the dealer it becomes a vested right in him.
As we have observed earlier, the retrospective effect from 1999 of the 2001 amendment does cause great hardship and prejudice to the petitioners. No rational basis is disclosed in the statute or in the pleading to justify taking away of monetary benefits with retrospective effect. It appears to be most arbitrary and discriminatory.
No doubt, an exemption scheme or incentive scheme may be revoked. But in the facts and circumstances of this case, as noted above, retrospective revocation is unconstitutional.
In the circumstances, the application succeeds. We hereby declare that the amendment of Section 39 by insertion of sub section 3 with retrospective operation is invalid and ultra viras the constitution. It is valid prospectively. We, direct the respondents to grant consequential reliefs. Urgent certified photocopy of this judgment and order, if applied for, to be provided upon complying with all formalities.
22I agree, (I.P. MUKERJI, J.) (KALYAN JYOTI SENGUPTA, J.)