By TIOL News Service:

AHEMDABAD, OCT 29, 2016: THE issue is - Whether constitutionality of insertion of new provision can be challenged on the ground that the cut off date excludes a certain class of persons/events from the fold of statutory provision, when such exclusion is not arbitrary. NO IS THE VERDICT.

Facts of the case:

The assessee is a society registered under the Multi State Cooperative Societies Act, 2002 and is engaged in manufacture and sale of fertilizers and is registered under the State as well as the Central Sales Tax Acts. The manufacturing unit of the assessee held sales tax exemption certificate. By virtue of this , the assessee would claim set off on tax paid on purchase of raw materials on goods sold within as well as outside the State. The Sales Tax authorities though granted such set off for the goods sold within the State, denied the same with respect to the goods sold outside the State. Assessee contended that the stand of the Sales Tax authorities was contrary to the law laid down by the Gujarat Sales Tax Tribunal in case of Wood Polymer Ltd. The Assessing Authority, however, observed that this issue is sub judice and rejected assessee's contention. Assessee filed appeals against such order of Assessing Authority before the First Appellate Authority. FAA after a number of years rejected the appeals. Assessee preferred second appeals before the Tribunal. The question of limitation therefore arose. The Tribunal, condoned the delay and noted that the appeals which were filed before FAA were disposed of without serving the notice of hearing to the petitioner. The appeals were, thus, disposed of without any opportunity of hearing to the petitioners. The Tribunal, therefore, allowed the appeals, set aside the FAA orders and remanded the proceedings before the FAA for fresh disposal.

FAA allowed the appeals in part. By the time these appeals were heard, the decision of the Tribunal in case of Wood Polymer was already upheld by the High Court in case of State of Gujarat vs. Wood Polymer Ltd. reported in 50 STC 229. The FAA, therefore, applied the ratio laid down by the High Court in the said judgement and granted benefit to the assessee as a result of which, the assessee was entitled to a refund. The assessee noticed that, the appellate authority had not given credit of an amount paid by the petitioner against an earlier demand notice. The petitioner, therefore, applied for rectification of such order. The appellate authority passed an order granting additional refund. However, there was no direction for refunding the amount with interest. The assessee, thereupon, preferred second appeals before the Tribunal questioning non-granting of interest on the delayed payment of refund. While these appeals were pending, the assessee realized that the Tribunal being a creation of statute may not be able to grant such refund since in terms of Section 54(1)(aa) of the Gujarat Sales Tax Act (GST Act), such interest would be available only in case of refund arising out of assessment orders passed for the years 1993-94 and onwards. The petitioner, therefore, withdrew the appeals before the Tribunal and filed the present petition. In this petition, as noted, the petitioner has prayed for two reliefs. One is for declaring that Section 54(1)(aa) of the GST Act is discriminatory and arbitrary insofar as the same denies interest on refunds concerning the period prior to 1993-94. The second prayer of the petitioner is for granting interest on the delayed refund concerning the petitioner's cases for the relevant years.

On appeal, the High Court held that,

1. When the legislature frames a new provision which either creates or extinguishes existing rights, there is invariable requirement of making such a provision applicable from a certain date. As long as the choice of the date is not arbitrary, the same would not be open to the vice of the unconstitutionality merely on the ground that the cut off date excludes a certain class of persons or events from the fold of the statutory provision. In the present case, the provision recognizing interest on delayed refund was inserted in the statute for the first time w.e.f. 01.04.1993. The most natural date therefore would be the said date for granting such benefit. In order ot avoid any ambiguity or a possible claim of interest on delayed refund in cases where the refund arose out of a period prior to the date of introduction of the said provision, an explanation was added by the legislature below Section 54(1) (aa) of the GST Act. The explanation was given retrospective effect. By virtue of this explanation therefore, it was made clear that the interest on delayed refund would be available only in case where the same relates to a specified year which would mean a financial year commencing from 01.04.1993 and onwards. We do not see that this provision, in any manner, offends Article 14 or the equality principle flowing from such Article.

2. The Tribunal in view of the fact that the FAA had proceeded ex parte merely remanded the proceedings before the FAA for fresh consideration and disposal. In the second round, the FAA with the aid of the petitioner, applied view of the High Court in case of Wood Polymer and granted substantial refund. Without any fault on the part of the assessee, thus, such refund was delayed for nearly 30 years. Not on the ground that interest, as a matter of course, must be paid on the principal of compensatory basis, in the present case, we are inclined to grant such interest on the ground that the department had unauthorizedly and illegally for nearly three decades withheld the amount which legally belonged to the petitioner.

3. This is not a simple case where a right to refund arose out of an assessment dispute which ultimately got settled in favour of the assessee. This is a case where at the very outset, the refund should have been granted by the assessing authority since the issue was settled in favour of the assessee by virtue of a judgement of the Tribunal which was binding on the AO. The amount was thus retained without authority of law and therefore, in violation of Article 300A of the Constitution. Not granting interest and merely ordering repayment of amount would result into great injustice and prejudice to the petitioner. Though we have noticed that the claim of interest can arise out of a statutory provision providing for such interest or contractual relations, nothing prevents a constitutional court from granting such interest in extraordinary circumstances where the money has been withheld by the State for a long period of time without any authority in law. This is how the Supreme Court had in case of Gujarat Fluoro Chemicals had viewed the decision of the earlier Bench in case of Sandvik Asia Ltd.

(See 2016-TIOL-2653-HC-AHM-CT)