By TIOL News Service

MUMBAI, SEPT 05, 2018: THE ISSUE BEFORE THE BENCH IN THIS CASE IS - Whether benefits under a scheme introduced by a particular statute would continue to accrue to a claimant when such statute & rules made thereunder were themselves amended by a subsequent legislation. NO IS THE ANSWER.

The bench also held that in such circumstances, the scheme and the benefits flowing through it would be subject to the provisions of the amended statute. It was also held that any concession flowing from a scheme cannot be claimed as an absolute right or availed of without any restrictions, where such scheme itself is subject to amendment. The bench also made it clear that the doctrine of promissory estoppel cannot be applied to a legislation or to the exercise of legislative functions so as to contest the withdrawal of benefits accruing from a certain scheme.

Facts of the case

The assessee company sought the benefit of the Package Scheme of Incentives of 1993 during the relevant AY. It claimed to have fulfilled the stipulations contained in the scheme by extending its existing unit in the backward area of the State. An eligibility certifcate to such end was issued in its favor by State Industrial and Investment Corporation with financial ceiling of Rs 267.1 crores to be deferred during the period from 01.09.1999 to 31.08.2013. The assessee was also issued an entitlement certificate by virtue of which it was eligible to defer sales tax liability pertaining to the period of eligibility. In respect of such certificate, the assessee claimed that no condition stipulated maintaining or enhancement of production capacity. The assessee also established a new unit manufacturing vehicles under brand name of 'Scorpio'. For such unit, it obtained separate entitlement & eligibility certificate valid till 2016. Such second certificate too contained no stipulation about the manner in which the deferred payment of tax could be exercised, and so the assessee was eligible for deferral of 100% of sales tax liability. Hence the assessee submitted periodical returns deferring the entire sales tax amount & such deferral was approved by the AO. The tax amount so deferred was Rs 880.4 crores.

Thereafter, the assessee was aggrieved by the change in mode of availment of benefits under the scheme, as amendments to the MVAT Act introduced entirely new mechanisms for computing the quantum of incentives enjoyed. In the amended scheme, production capacity was increased. The assessee claimed that such parameter had never been introduced in the original scheme. The assessee was aggrieved by the amendment to Section 93 of the Act which it claimed took away rights vested in it under the scheme and that such loss of benefits would cause irrepairable financial loss. It further stated that its new unit in the backward area had been established and expanded based on benefits declared under the Scheme and that such volte face was contrary to the spirit of the scheme. The assessee's assessments for the relevant AYs were re-opened and considering the tax benefits it had already availed, the assessee was held to have short paid sales tax duty. Hence duty demands were raised with interest. The assessee claimed that such re-opening of assessment was on the basis of change of opinion.

In writ, the High Court held that,

++ The contention of the assessee that there was a promise contained in Package Scheme of Incentives and it could be carved out from its various terms and condition and therefore, it could not have been curtailed in the manner in which it has sought to be done also is not a sustainable argument. By the Package Scheme of Incentives the State Government has granted a tax concession but there is no embargo to withdraw the said concession under the Package Scheme of Incentives of 1988 and 1993 which were formulated under the provisions of the Bombay Sales Tax Act. On introduction of the MVAT Act, the Package Scheme of Incentives came to be recognized as the schemes introduced and amended from time to time. Section 93 of the said enactment came to be amended by Maharashtra Act No.22 of 2009 with a retrospective effect introducing the scheme of proportionate incentives to an eligible unit in certain contingencies. Since the benefits granted to the petitioner under the scheme formulated under a statue came to be withdrawn and the petitioner is deprived of the said benefits by another statutory amendment, the concession withdrawn cannot be said to be arbitrary. The tax exemption granted in the Package Scheme of Incentives was only by way of concession for encouraging the industries to start operating in the underdeveloped areas and since it was concession it could be withdrawn any time and the Government was fully empowered to withdraw the same. The concept of promissory estoppel would not come to the rescue of the assessee since the exemption is withdrawn by a legislation and there can be no applicability of said doctrine to a legislative act;

++ When under a Package Scheme of Incentives was introduced by the State Government and when it granted benefits of tax exemption either in full or partial extent, it was done in exercise of powers conferred under Section 41 of the Bombay Sales Tax Act, 1959 as well as the section itself states that the power of exemption is being conferred by the State Government in order to enable the Government to act in public interest. It was open to the Government in exercise of its powers under Section 41 of the Bombay Sales Tax Act to exempt any class of sales or purchases from payment of whole any tax payable under the provisions of any Act. It is open to the Government to restrict the benefits to the units set up in the backward areas which are engaged in the production of same type of goods as a new unit. The exemption accorded to new manufacturing or production units set up in backward areas by way of incentives for development of industries in backward areas, promotion of dispersion of industries all over the State, and for industrialisation of and creating employment opportunities in the backward areas, has a sound economic and public policy underlying it. The tax exemption was granted so as to encourage the new industrial units to be set up in the backward areas. The package scheme of incentives therefore provided the manner in which such incentives could be enjoyed by making it subject to certain conditions. The Legislature by inserting Section 41BB in the Bombay Sales Tax Act, 1959 made the eligibility of the benefits dependant on that part of its turnover of sales or purchase as may be arrived at by applying the ratios stipulated by the State Government to the total turn over of sales and purchases of the unit in that year. Section 93 inserted in the MVAT with retrospective effect also restricted the benefits to be drawn by making it proportionate only to that part of its turnover of sales or purchases as may be arrived at by applying the provisions of subsection 1A to the total turnover of sales and purchases of the said unit in that year. Section 91 of the MVAT mentions that the benefits flowing from the certificate of entitlement granted to any unit under any package scheme of incentives makes shall be availed only in accordance with the act, rules and notifications issued thereunder. Though the package scheme of incentives were formulated by issuing the Government Resolution from time to time and it came to be amended in the like manner, it finds its source to the power conferred on the State Government by the said State Legislature in permitting exemptions, subject to the terms and conditions which the State Government was empowered to set out. The said package schemes of incentives are thus subject to the statutory scheme and the rules framed thereunder and when the statute itself was amended with retrospective effect, the benefits to be enjoyed and flowing from the package scheme of incentives must be enjoyed strictly in the manner spelled out by the statute. Section 41BB of the Bombay Sales Tax Act 1959 so also Section 93 of the MVAT begins with words "Notwithstanding anything contained in the package scheme of incentives";

++ Even though some concession was conferred on the assessee by virtue of a scheme, it is not an absolute concession and as the package scheme of incentives was subject to amendment, it cannot be thus said that the State Government has permitted the assessee to enjoy the benefits absolutely without any fetters. In any contingency, the exemption benefits which the assessee enjoyed till the year 2009 @ 70% deferral are not sought to be completely withdrawn. The Scorpio unit of the assessee is a unit separate in all aspects and it enjoys 100% deferral. Under the 1993 Package Scheme, the incentives were only to be availed by the unit which has expanded its investment by more than 25%. By insertion of Section 93 with retrospective effect, the assessee would fall within the purview of the said Section and which has been given effect from 1.4.2005. Once the validity of Section 93 has been upheld, the assessee cannot be permitted to argue that he was entitled to enjoy the benefits in terms of its eligibility and entitlement certificate. The Package Scheme may be of 1993 but it was in force in 2005 when the MVAT regime came in. It was then governed by this regime and was subjected to it.

(See 2018-TIOL-1821-HC-MUM-VAT)