JCB India Limited, Suyaan Infrastructure Pvt. Ltd., Siddharth Auto Engineers Pvt. Ltd. And Ratnapprabbha Motors Versus Union of India, The Goods and Service Tax Council, The Commissioner Central Tax GST Nasik, The Commissioner Central Tax GST, Pune And Central Board of Excise and Customs
GST
2018 (4) TMI 585 – BOMBAY HIGH COURT – 2018 (15) G. S. T. L. 145 (Bom.)
BOMBAY HIGH COURT – HC
Dated:- 20-3-2018
Writ Petition No. 3142 OF 2017, Writ Petition No. 3186 of 2017, Writ Petition No. 3212 Of 2017, Writ Petition No. 3187 of 2017, Civil Writ Petition No. 12378 of 2017 And Civil Writ Petition No. 14245 of 2017
GST
MR. S. C. DHARMADHIKARI AND PRAKASH D. NAIK, JJ.
For The Petitioner : Mr. Raghuraman with Mr. Raghvendra & Mr. Prabhakar K. Shetty
For The Respondents : Mr. M. Dwivedi with Mr. Jitendra B. Mishra
ORAL JUDGMENT
(Per Shr i S.C. DHARMADHIKARI, J ) :
1. All these petitions were heard together and are being disposed of by this common Judgment.
2. We
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to its dealers located in various parts of the country. The petitioner's manufacturing facility/factory was registered under the erstwhile Central Excise Act and the petitioner paid central excise duty on clearance of such machines from its factory. The petitioner has a Duty Paid Depot in the State of Maharashtra at PlotsA & B of the same village. The Duty Paid Depot was registered under the Maharashtra Value Added Tax Act prior to 172017, but was not registered under the Central Excise Act, 1944. Upon transitioning to GST, the petitioner's factory and depot obtained registration under GST in the State of Maharashtra.
5. That some of the machines manufactured by the petitioner were used as demo machines which were cleared on payment of excise duty by its factory and were removed on selfinvoicing basis. The petitioner used to keep these demo machines at the depot after removing them from the factory and these machines were removed from the depot on need basis. The demonstratio
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ious duties such as excise duty, countervailing duty, special additional duty, etc., have been subsumed under the GST regime. Unlike the erstwhile levies, the GST is payable at all stages of supply right from the manufacturer/importer to the final customer with credit of input taxes available at each stage of value addition. This essentially makes the GST a tax only on value addition. This is to ensure elimination of cascading effect of taxes and provide a common market for all goods and services. Adverting to the Statement of Objects and Reasons, it is urged that the essential vision is to create onenationonemarket wherein all the goods irrespective of their territory suffer the same tax and have the same costs.
6. To abolish the cascading effect, the CGST Act provides for the input tax credit eligibility in terms of these transitional provisions. Section 140(1) of the CGST Act inter alia provides that a manufacturer will be entitled to carry forward the closing balance of CENVAT cre
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credit under the GST regime causes discrimination between the petitioner and other manufacturers. It is put to a disadvantageous position as far as the closing stock on 172017 in respect of goods lying in stock prior to 3062016.
7. It is elaborated as to how a person who is not in possession of a duty paying document is also eligible to avail input tax credit on a presumptive basis, but the petitioner who is in possession of all the duty paid documents is barred from availing CENVAT credit where the invoice is issued on or prior to 3062016. It is contended that nonavailment of such credit was not due to the fault of the petitioner but due to unreasonable and arbitrary cutoff date of goods lying in stock for less than one year to transition of such credit. Now, the petitioner will have to bear the burden of double taxation in case it is not allowed to transition the credit of central excise duty paid by it at the time of removal from the factory for demo machines. The petitioner has al
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ect on depot/traders while extending full credit to registered manufacturers and partial credit to traders who do not have the duty paying documents available with them. It is in these circumstances that the provisions and insofar as noted above are challenged as violating the mandate of Articles 14 and 19(1)(g) of the Constitution of India.
10. This challenge which we have summarised in the foregoing paragraphs is sought to be elaborated in the grounds set out in the Memo of the Petition.
11. Pertinently, there is no affidavit in reply to this petition.
12. The other petition being Writ Petition No.3212 of 2017 is by a petitioner having stock of machines who is further styled as a trader. The said petitioner also raises an identical challenge. Then we have Writ Petition No.3187 of 2017 wherein the petitioner before this Court is a trader. The Writ Petition No.3186 of 2017 is also by a Private Limited Company and carrying on business of trading. This is also an entity registered und
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s stated that the petitioner can be termed as first stage dealer. It procures various locally manufactured goods, imported goods and these goods were sold to the customers under the prescribed documents. They pass on the incidence of duty to the customers. After inviting our attention to the CENVAT Credit Rules, 2004 and the relevant definitions therein, it is submitted that the President of India assented to the Central Goods and Services Tax Act, 2017, Integrated Goods and Services Tax Act, 2017, Union Territory Goods and Services Tax, 2017 and the Goods and Services Tax (Compensation to States) Act, 2017. The Central Goods and Services Tax Act, 2017 has the transitional provisions, vide Chapter XX, contained in Sections 139 to 142 which enables the assessee to migrate from the old indirect tax regime to the present GST system. It is stated that the condition that is imposed by Clause (iv) of subsection (3) of Section 140 is arbitrary and discriminatory in nature inasmuch as it prohi
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nd 19(1)(g) of the Constitution of India and unenforceable qua the first stage dealer.
16. To this petition, an affidavit in reply has been filed after notice of the same was served on the Attorney General. The affidavit is filed by the Commissioner of Central Tax (GST), Pune1.
17. It is stated that the petitioner has challenged a policy decision taken by the Parliament which is not subject to judicial scrutiny. It is stated that the challenge is completely misconceived and untenable. It is stated that in the Value Added Tax, there is a restriction on availing of such credit. The same cannot be provided on grounds of hardship or equity. The impugned provisions clearly restrict the CENVAT credit for the stock lying in the warehouse, as on 3062017, only to the extent where the invoices or other prescribed documents issued are not earlier than twelve months preceding the appointed date, namely, 172017. Thus, a reasonable period of twelve months has been provided for availing of credit f
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denied in the Act itself and to allow flexibility. The restrictions can be placed on availability of credit, as credit can be availed only as permitted by law. It is stated that the petitioner has erred in stating that the restriction/prohibition on taking of credit of CENVAT by a first stage dealer on the goods lying in stock where the invoice/prescribed documents are issued not later than twelve months preceding the appointed date, is unreasonable and arbitrary. It is contended that a reasonable period of twelve months has been provided for availing of credit for such invoices or other prescribed documents. Further, input tax credit provisions do not provide that all taxes paid on all inputs should be availed as credit. Hence, the argument that there is a discrimination or there is unreasonableness, cannot be accepted. Thus, this whole affidavit proceeds on the footing that there is absolutely no substance in this challenge.
18. The two set of matters are argued by two different Co
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kdrop of the object and that is to avoid the cascading effect. We must place reliance on the provision consistent with the object and purpose. It is submitted that merely because a new regime has been brought into force does not mean all the existing rights and conferred under the statute prevailing prior to the new law coming into force should be taken away. In other words, such of the restrictions and conditions as are now imposed cannot be said to be achieving the object and purpose or rather they have no nexus with the object sought to be achieved.
20. It is argued before us and with some vehemence that this condition and which is sought to be imposed ought to be viewed with reference to the time when the goods were cleared from the factory for use as demo machines. At that time, the excise duty was paid by the petitioner. When the goods were removed from the depot, there was no requirement to pay excise duty on the same. Now under the GST regime the petitioner will have to pay GS
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irst stage dealer duly registered under the Central Excise Rules, 2002. The petitioner has been filing quarterly return periodically wherein the details are given and particularly set out at page 64 of the petition. Thus, there is description of goods, central excise tariff number, quantity of excisable goods and the amount of duty.
23. It is, therefore, argued by Mr. Raghuraman that we must peruse the Constitution's 101st Amendment Act, 2016 which brought into effect the CGST Act, 2017 and the transitional provisions. He would submit that the petitioner had divided the grounds of challenge under distinct heads. The argument is that though the provisions allow the petitioner to take credit of CENVAT on the goods lying in stock as on 3062017, subject to certain specified conditions, those conditions and particularly introducing a limit of one year is arbitrary. To that extent, he adopts the argument of Mr. Nankani but elaborates it by urging that the petitioner is a first stage dea
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under an invoice, shall apply mutatis mutandis to the first stage dealer. It is urged that as a first stage dealer, the petitioner had been purchasing various goods and passing on the credit of duty paid on the said goods to the customers by issuing invoice under the provisions of Rule 12 of the Central Excise Rules, 2002. In the scheme of the Central Excise Act, 1944 and the Rules framed thereunder, there was no restriction or prohibition on taking or carrying forward the CENVAT credit on the goods purchased by the first stage dealer irrespective of when the goods have been purchased. It is urged that the period of purchase of goods was not relevant as long as the first stage dealer satisfies the conditions under the CENVAT Credit Rules, 2004 such as receipt of goods by the dealer and specified duty paid documents. In the circumstances, to introduce prohibition on taking of credit on the goods lying in stock as on the appointed date of 172017 would seriously prejudice the petitioner.
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e 19(1)(g) of the Constitution of India. That is subjected to only reasonable restrictions but the restrictions as prescribed, cannot be termed as reasonable.
24. Inviting our attention to Section 174 of the CGST Act, 2017, it is urged that this provision saves the rights and privileges accrued under the existing law. The argument is that the right to avail CENVAT credit is a matter of right accrued under the repealed Act, namely, the Central Excise Act, 1944. Once the right is accrued, the new enactment or repeal of the old Act cannot debar or disentitle the petitioner of the accrued right. It represents a vested right accrued or acquired by the petitioner under the existing law. It is in these circumstances, taking away such a right would be violative of the mandate of Article 300A of the Constitution of India.
25. Then it is urged that the first stage dealers were specifically eligible to pass on the CENVAT credit to their customers by issuing invoices with excise duty as per Rule
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mpilation for our perusal which would include the relevant legal provisions and the case law pointbypoint.
27. Mr. Raghuraman inter alia relied upon the Judgment of the Hon'ble Supreme Court and a very recently delivered and reported in (2017) 9 SCC 1. This is a Judgment delivered on the point of constitutionality and validity of Triple Talaq {Shayara Bano v. Union of India & Others}. It is submitted that in this Judgment the arbitrariness of the legislation is taken to be very much a facet of unreasonableness in terms of Article 19(2) to (6) and there is no reason why arbitrariness cannot be raised to strike down the legislation under Article 14 of the Constitution of India.
28. Prior thereto, in support of the argument that Article 14 is salutary in its application, it is urged that the Judgments in the compilation would throw light on these propositions canvassed. Our attention was specifically invited to a Judgment in the case of Elcher Motors Ltd. v. Union of India, reported
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stantive provisions.
30. Our attention has been invited by Mr. Anil Singh to the settled principle that insofar as economic legislation is concerned, the grounds on which its constitutionality can be challenged are extremely limited. In the sense, if that legislation incorporates a policy measure, then the wisdom thereof cannot be questioned by this Court. Mr. Anil Singh would submit that this matter is of a concession or relaxation. Nobody can claim a vested right in such measures evolved by the Legislature. It is entirely for the Legislature to make a provision and restrict the benefit or concession or relaxation either to a class of persons or even if it extends to all, it can restrict the term or period or limit up to which the concession can be availed of. In the instant case, the period of twelve months is provided as a safeguard against potential misuse of availment of credit during the transition period by placing restriction on availing credit based on documents which are not
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y prescription. Mr. Anil Singh would submit that it is entirely for the Legislature to make such a provision and its power in that behalf is not questioned. If there is no challenge to the impugned condition on the ground of competence of the Legislature, then, the competent Legislature could have made a restrictive provision and which is precisely the intent. The transition from the old regime to the new one should be smooth and expedient. Hence, a reasonable period of twelve months has been provided. Why it is only twelve months and why it does not date back to the stage, the petitioners in these petitions would deem it fit and proper, is not the test which can be evolved and applied for considering the constitutionality of the legislation. Ultimately, it is the Legislature which is the best Judge and in its wisdom, insofar as fiscal policies are concerned, it has imposed this condition. That is, therefore, reasonable and as explained in the affidavit in reply. On all counts, therefo
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neral by urging that the input tax credit under the GST is an integral part of the GST law. It cannot be termed as a concession by the Government. Further, the attempt is to harmonise the indirect tax structure across the country. In the Constitution 122nd Amendment Bill, 2014, the Objects and Reasons clearly set out that it is intended to remove the cascading effect of taxes and to bring out a nation wide taxation system. Therefore, there is a clear intention to have input tax credit as a nationwide objective at the Constitutional level. Hence, all the decisions prior to the CGST would not be applicable to the extent they term this as a concession. In this regard, he would read out certain paragraphs from the Statement of Objects and Reasons and heavily rely upon the principle that assuming, but without admitting, that input tax credit was in the nature of concession granted by the Government, but such concession has already been availed of by the petitioners on all the goods held in
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own. Insofar as the CGST Act is concerned, Section 18(2) is in pari materia with Rule 4(7) of the CENVAT Credit Rules, 2004. Both deal with fresh credits. Therefore, the comparison is erroneous.
34. Heavy reliance is placed on the Judgment of Elcher Motors (supra) wherein it was held that credit is a indefeasible right.
35. An attempt was made by Mr. Anil Singh to rely upon the Judgments in the case of Osram Surya (P) Ltd. v. Commissioner of Central Excise, Indore, reported in 2002 (142) E.L.T. 5 (SC) and Samtel India Ltd. v. Commissioner of Central Excise, Jaipur, reported in 2003 (155) E.L.T. 14 (SC). Mr. Raghuraman submitted that these were cases of fresh availment of credit and not accumulated or transitional credit. In these Judgments it was clarified that the legality or validity of the Rules was never questioned and in any event the subrule impugned therein did not operate retrospectively. In the sense, it did not cancel the credits nor it affected the rights of those persons
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39. The same is an Act to make a provision for levy and collection of tax of interState supply of goods or services or both by the Central Government and for matters connected therewith or incidental thereto. Chapter I contains preliminary provisions. The Section 2 is a definition section and unless the context otherwise requires, the definitions would operate. By Section 2, Clause (21), the term “central tax” is defined to mean central goods and services tax levied under Section 9. The expression “existing law” is defined in Section 2, Clause (48) to mean any law, notification, order, rule or regulation relating to levy and collection of duty or tax on goods or services or both passed or made before the commencement of the Act by Parliament or any Authority or person having the power to make such law, notification, order, rule or regulation. The term “input service” is defined in Section 2, Clause (60) to mean any service used or intended to be used by a supplier in the course or furt
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or made available, or to whom possession or use of the goods is given or made available, and where no consideration is payable for the supply of a service, the person to whom the service is rendered. The term “registered person” is defined in Section 2, Clause (94) to mean a person who is registered under Section 25 but does not include a person having a Unique Identity Number. Then there are various words/terms which are defined and there are in all 121 Clauses to Section 2. Chapter II deals with administration and therein falls Section 9, which reads as under:
“9. (1) Subject to the provisions of subsection (2), there shall be levied a tax called the central goods and services tax on all intraState supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent, as may be notified by the Government on the recommendations of the Council and collected in s
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ovisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.
(5) The Government may, on the recommendations of the Council, by notification, specify categories of services the tax on intraState supplies of which shall be paid by the electronic commerce operator if such services are supplied through it, and all the provisions of this Act shall apply to such electronic commerce operator as if he is the supplier liable for paying the tax in relation to the supply of such services:
Provided that where an electronic commerce operator does not have a physical presence in the taxable territory, any person representing such electronic commerce operator for any purpose in the taxable territory shall be liable to pay tax:
Provided further that where an electronic commerce operator does not have a physical presence in the taxable territory and also he does not have a representative in the
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erson shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,-
(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;
(b) he has received the goods or services or both.
Explanation.For the purposes of this clause, it shall be deemed that the registered person has received the goods where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;
(c) subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and
(d) he has furnished the retu
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on on the tax component of the cost of capital goods and plant and machinery under the provisions of the Incometax Act, 1961, the input tax credit on the said tax component shall not be allowed.
(4) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier.”
40. A perusal of this Section would enable us to hold that, every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in Section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and
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ce or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier.
42. So much therefore for the argument that input tax credit in the new regime is unconditional or without any restriction. Thus the conditional input tax credit, as can be availed of and strictly within the four corners of the statute, particularly the substantive provisions, is not questioned nor the validity and legality of these provisions put in issue. Pertinently, by Section 17 apportionment of credit and blocked credits is dealt with and by Section 18, the availability of credit in special circumstances is provided. There as well as subsection (1) of Section 18 says that it is subject to such conditions and restrictions as may be prescribed. By subsection (2) of Section 18, it is evident that a registered person shall not be entitled to take input tax credit under subsection (1) in respect of any supply of goods or services or both to him after the expiry of one
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s to avail of the benefits of the legislation, including the input tax credit. A comprehensive chapter titled as Accounts and Records is inserted (Chapter VIII).
44. Chapter IX is titled as Returns and the whole mechanism of filing it is set out therein. Chapter X provides for Payment of Tax and Chapter XI deals with Refunds. Chapter XII titled as Assessment contains the provisions enabling assessment of levy/tax. Chapter XIII is titled as Audit and Chapter XIV is titled as Inspection, Search, Seizure and Arrest. Chapter XV is titled as Demands and Recovery and which contains provisions would enable the Legislature to indicate the liability to pay in certain cases (Chapter XVI). There is a special chapter for advance ruling, namely, Chapter XVII. Then follows the adjudicatory mechanism of appeals and revision carved out by Chapter XVIII. We have then Chapter XIX titled as Offences and Penalties and which contains Sections 122 to 138. Chapter XX is titled as Transitional Provisions. Th
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er:
“140. (1) A registered person, other than a person opting to pay tax under section 10, shall be entitled to take, in his electronic credit ledger, the amount of CENVAT credit carried forward in the return relating to the period ending with the day immediately preceding the appointed day, furnished by him under the existing law in such manner as may be prescribed:
Provided that the registered person shall not be allowed to take credit in the following circumstances, namely:
(i) where the said amount of credit is not admissible as input tax credit under this Act; or
(ii) where he has not furnished all the returns required under the existing law for the period of six months immediately preceding the appointed date; or
(iii) where the said amount of credit relates to goods manufactured and cleared under such exemption notifications as are notified by the Government.
(2) A registered person, other than a person opting to pay tax under section 10, shall be entitled to ta
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as engaged in the manufacture of exempted goods or provision of exempted services, or who was providing works contract service and was availing of the benefit of notification No. 26/2012Service Tax, dated the 20th June, 2012 or a first stage dealer or a second stage dealer or a registered importer or a depot of a manufacturer, shall be entitled to take, in his electronic credit ledger, credit of eligible duties in respect of inputs held in stock and inputs contained in semifinished or finished goods held in stock on the appointed day subject to the following conditions, namely:-
(i) such inputs or goods are used or intended to be used for making taxable supplies under this Act;
(ii) the said registered person is eligible for input tax credit on such inputs under this Act;
(iii) the said registered person is in possession of invoice or other prescribed documents evidencing payment of duty under the existing law in respect of such inputs;
(iv) such invoices or other prescribe
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e, in his electronic credit ledger,
(a) the amount of CENVAT credit carried forward in a return furnished under the existing law by him in accordance with the provisions of subsection (1); and
(b) the amount of CENVAT credit of eligible duties in respect of inputs held in stock and inputs contained in semifinished or finished goods held in stock on the appointed day, relating to such exempted goods or services, in accordance with the provisions of subsection (3).
(5) A registered person shall be entitled to take, in his electronic credit ledger, credit of eligible duties and taxes in respect of inputs or input services received on or after the appointed day but the duty or tax in respect of which has been paid by the supplier under the existing law, subject to the condition that the invoice or any other duty or tax paying document of the same was recorded in the books of account of such person within a period of thirty days from the appointed day:
Provided that the period o
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d registered person is in possession of invoice or other prescribed documents evidencing payment of duty under the existing law in respect of inputs; and
(v) such invoices or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day.
(7) Notwithstanding anything to the contrary contained in this Act, the input tax credit on account of any services received prior to the appointed day by an Input Service Distributor shall be eligible for distribution as credit under this Act even if the invoices relating to such services are received on or after the appointed day.
(8) Where a registered person having centralised registration under the existing law has obtained a registration under this Act, such person shall be allowed to take, in his electronic credit ledger, credit of the amount of CENVAT credit carried forward in a return, furnished under the existing law by him, in respect of the period ending with the day immediately prece
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ject to the condition that the registered person has made the payment of the consideration for that supply of services within a period of three months from the appointed day.
(10) The amount of credit under subsections (3), (4) and (6) shall be calculated in such manner as may be prescribed.
Explanation 1.For the purposes of subsections (3), (4) and (6), the expression “eligible duties” means-
(i) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957;
(ii) the additional duty leviable under subsection (1) of section 3 of the Customs Tariff Act, 1975;
(iii) the additional duty leviable under subsection (5) of section 3 of the Customs Tariff Act, 1975;
(iv) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act, 1978;
(v) the duty of excise specified in the First Schedule to the Central Excise Tariff Act, 1985;
(vi) the
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t, 1985;
(vi) the duty of excise specified in the Second Schedule to the Central Excise Tariff Act, 1985;
(vii) the National Calamity Contingent Duty leviable under section 136 of the Finance Act, 2001; and
(viii) the service tax leviable under section 66B of the Finance Act, 1994,
in respect of inputs and input services received on or after the appointed day.”
A bare perusal thereof would indicate that transitional arrangements for input tax credit are set out therein. Pertinently, subsection (1) deals with a registered person, other than a person opting to pay tax under Section 10. He shall be entitled to take, in his electronic credit ledger, the amount of CENVAT carried forward in the return relating to the period ending with the day immediately preceding the appointed day, furnished by him under the existing law in such manner as may be prescribed. The proviso to subsection (1), however, says that the registered person shall not be allowed to take credit in the circu
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service and was availing of the benefit of Notification No.26/2012, dated 2062012 or a first stage dealer or a second stage dealer or a registered importer or a depot of a manufacturer, and he shall be entitled to take, in his electronic credit ledger, credit of eligible duties in respect of inputs held in stock and inputs contained in semifinished or finished goods held in stock on the appointed day, subject to the conditions inserted in Clauses (i) to (v). Out of all those who have been brought within the transitional arrangements for availing input tax credit, it is only some of them particularly the first stage dealer or a depot of a manufacturer who seem to question the stipulation in Clause (iii) of subsection (3) of Section 140. They are happy with the other clauses for they know that inputs or goods used or intended to be used for making taxable supplies under this Act meaning the CGST Act, the registered person under the CGST Act is eligible for input tax credit on such inputs
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of the law are not questioned. There are various other compliances which have to be made by the law which is now brought in and equally they are not questioned. In this behalf a reference can usefully be made to Section 140(4), (5), (6) and pertinently the Clauses of subSection 6 which contain similar conditions. The persons covered therein are not aggrieved nor are complaining about the conditions or restrictions all of which are to be found in a Taxing Statute. Secondly, they are inserted in a transitional provisions. Thirdly, while judging their legality and validity we are bound by the settled legal principles. In the case of P. M. Ashwathanarayana Setty and Others vs. State of Karnataka and Others reported in AIR 1989 SC 100 and in the case of Kerala Hotel and Restaurant Association and Ors. vs. State of Kerala and Ors., reported in AIR 1990 SC 913 the principles are summarised as Under:
AIR 1989 SC 100
“30. The problem is, indeed, a complex one not free from its own peculiar
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ioned on the ground of lack of legislative wisdom or that the method adopted is not the best or that there were better ways of adjusting the competing interests and claims. The Legislature possesses the greatest freedom in such areas. The analogy of principles of the burden of tax may not also be inapposite in dealing with the validity of the distribution of the burden of a `fee' as well.
AIR 1990 SC 913
24. The scope for classification permitted in taxation is greater and unless the classification made can be termed to be palpably arbitrary, it must be left to the legislative wisdom to choose the yardstick for classification, in the background of the fiscal policy of the State to promote economic equality as well. It cannot be doubted that if the classification is made with the object of taxing only the economically stronger while leaving out the economically weaker sections of society, that would be a good reason to uphold the classification if it does not otherwise offend a
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hall not
(a) revive anything not in force or existing at the time of such amendment or repeal; or
(b) affect the previous operation of the amended Act or repealed Acts and orders or anything duly done or suffered thereunder; or
(c) affect any right, privilege, obligation, or liability acquired, accrued or incurred under the amended Act or repealed Acts or orders under such repealed or amended Acts:
Provided that any tax exemption granted as an incentive against investment through a notification shall not continue as privilege if the said notification is rescinded on or after the appointed day; or
(d) affect any duty, tax, surcharge, fine, penalty, interest as are due or may become due or any forfeiture or punishment incurred or inflicted in respect of any offence or violation committed against the provisions of the amended Act or repealed Acts; or
(e) affect any investigation, inquiry, verification (including scrutiny and audit), assessment proceedings, adjudication a
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erred to in subsections (1) and (2) shall not be held to prejudice or affect the general application of section 6 of the General Clauses Act, 1897 with regard to the effect of repeal.”
49. Thus, the repeal of the Acts mentioned in subsection (1) of Section 174 would not affect any right, privilege, obligation, or liability acquired, accrued or incurred under the amended Act or repealed Acts or orders made under such repealed or amended Acts. That is saved and except the proviso below subsection (2) of Section 174.
50. Ordinarily, the expression “accrued right” means a matured right, a right that is ripe for enforcement (as through) {See: the Advanced Law Lexicon by P. Ramanatha Aiyar.}. The expression “vested right” means an absolute or indefeasible right.
51. It is too wellsettled that right to take advantage of a statutory provision cannot be said to be an accrued right and similarly a right which would, if allowed to be asserted, will affect adversely the larger public interest
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he lands by reason of the legal fiction contained in Clause (b) thereof, The Court was therefore dealing with a case where the tenants had acquired a vested right to purchase the lands and the case had gone beyond the stage of a mere application under Section 18(1). The Court accordingly held that the death of Teja, the large landholder, during the pendency of the appeal before the Financial Commissioner, on the happening of which event inheritance opened resulting in his legal heirs becoming small landholders, would not nullify or annul the order made by the Prescribed Authority in favour of the tenant who had acquired a vested right to the grant of relief on the day they made their application under Section 18(1) of the Act. The observations made by Krishna lyer, J. that the right of parties are determined by the facts as they exist on the date the action is instituted must be read in the context in which they were made and do not lay down any rule of universal application. The decis
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came small landholders, could not impair the vested rights acquired by the tenants by virtue of the order passed by the Prescribed Authority and the deposit by them of the first instalment of the purchase price as required under Section 18(4)(a).”
52. We are concerned in this case with an argument that the petitioners, be they a depot of a manufacturer or a first stage dealer, had secured a right to claim CENVAT credit or input tax credit. That right had accrued to them in terms of the existing law and that could have been claimed without any restriction or conditions. Once under the existing law no such preconditions were imposed for the enjoyment or availment of that right, then, the present regime which seeks to impose a condition which is unreasonable and arbitrary, therefore, would make the statutory provision violative of Articles 14 and 19(1)(g) of the Constitution of India.
53. What is asserted before us is a right and flowing from the provisions of the CENVAT Credit Rules.
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e Rule 10 obligates maintenance of daily stock account and Rule 11 provides for removal of goods on invoice. Thereafter, there are further provisions enabling filing of return, etc..
55. The CENVAT Credit Rules, 2004, after the definitions and particularly of the phrases “exempted goods”, “exempted service”, “final product” define “first stage dealer” to mean a dealer, who purchases the goods directly from the manufacturer under the cover of an invoice issued in terms of the provisions of Central Excise Rules, 2002 or from the depot of the said manufacturer, or from premises of the consignment agent of the said manufacturer or from any other premises from where the goods are sold by or on behalf of the said manufacturer, under cover of an invoice, or an importer or from the depot of an importer or from the premises of the consignment agent of the importer, under cover of an invoice. The expression “input” is defined in Rule 2, Clause (k) to mean all goods used in the factory by the ma
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t on input service. By subrule (4) of Rule 3, CENVAT credit is permitted to be utilised and with the provisos thereto. What then follows and which is relied upon is Rule 4 of these Rules. This Rule sets out conditions for allowing CENVAT credit. One of the conditions and which is heavily relied upon by the learned Additional Solicitor General is to be found in subrule (7) of Rule 4. It is, therefore, evident that the fifth proviso to subrule (7) of Rule 4 would indicate that availment of CENVAT credit is conditional upon the satisfaction of all the provisos. Thus, there is a period stipulated for availment of this CENVAT credit. In addition thereto, there are conditions imposed for the availment.
56. To our mind, therefore, the learned Additional Solicitor General is right in his contention that a CENVAT credit is a mere concession and it cannot be claimed as a matter of right. If the CENVAT Credit Rules under the existing legislation themselves stipulate and provide for conditions fo
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condition vide Clause (iv) is arbitrary, unreasonable and violative of Articles 14 and 19(1)(g) of the Constitution of India.
57. We would refer to the Judgments which are heavily relied upon in this context. It is stated that the rights and privileges accrued during the existing law have been specifically saved under Section 174 of the CGST Act, 2017. If what are saved are the rights and privileges of the nature noted above, then it cannot be said de hors the conditions or de hors the restriction on availment or enjoyment of that right they have been saved by the CGST Act. In other words, if rights are conferred with conditions under the existing law, then, they are saved by the CGST Act with such conditions and not otherwise. There must be clear provision to grant it otherwise than in terms of the existing Law or in other words, the restrictions or conditons on availment of that right are removed totally. No such provision has been brought to our notice. It is clear that if right t
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vernment has no power under Section 37 of the Central Excise Act, 1944 or any other provision thereof to frame such a Rule. The impugned Rule is arbitrary and unreasonable as the same has been framed without due application of mind to the relevant facts and it has been exercised on the basis of nonexistent facts or which are patently erroneous. Then, the argument was that Section 37 of the Act does not enable the Central Government to frame a Rule enabling the lapsing of the balance in MODVAT account and is, therefore, ultra vires the rule making power. The argument of the other side was that the impugned Rule is only a part of the scheme providing for giving concessions under the taxation enactment. That cannot be continued for all times to come and could be put to an end at any time.
60. In para 5 of this Judgment, the introduction was traced and it was held that if on the inputs the assessee had already paid the taxes on the basis that when the goods are utilised in the manufacture
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to continue the earlier or erstwhile arrangement by terming it as a transition or transitional one. That continuation was with conditions and one of the conditions which is questioned here is consistent with the conditions imposed under the existing law. Such a situation was not dealt with in Elcher Motors. Thus, the decision is clearly distinguishable.
62. Reliance is then placed on another decision in the case of Jayam & Company (supra). Once again we must see what was dealt with in Jayam & Company. The argument before the Hon'ble Supreme Court in Jayam & Company was whether subsection (20) of Section 19 of the Tamil Nadu Value Added Tax Act, 2006 could be given retrospective effect. The appellants were dealers and registered as such under the provisions of the above VAT Act. They argued that they had dealt in electronic home appliances. They purchased them from local registered dealers on payment of VAT under the VAT invoice issued by the vendors. Thereafter, there was a resal
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to reverse the amount of input tax credit over and above the output tax of those goods. It was such an issue which was considered and in considering that the definitions and substantive provisions of the Tamil Nadu Value Added Tax Act, 2006 were referred. The Supreme Court noted that input tax credit is a form of concession provided by the Legislature. It is not permissible to all kinds of sales and certain specified sales are specifically excluded. The concession of input tax credit is available on certain conditions mentioned in this section, namely, Section 19 and one of the most important condition was that, in order to enable the dealer to claim that credit it has to produce the original tax invoice, complete in all respect, evidencing the amount of input tax. It is in these circumstances that the Hon'ble Supreme Court held that the challenge to the constitutional validity had to fail. It clearly held that when there was a concession given by the statute, the Legislature has t
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ere would have been no concession at all. Thus, one cannot pick and choose a condition for challenge by alleging that the availment is undisputedly conditional but one of the conditions, though having nexus with the availment, is unconstitutional or arbitrary and excessive. The nature of that condition, its placement consistent with the scheme is then conveniently ignored. We cannot allow this argument to be built on the basis of reliance on para 18 of the Judgment in Jayam (supra)
63. Once we take this view, we do not think that the Judgment in the case of Shayara Bano (supra) or some paragraphs therefrom can be of any assistance. True it is that arbitrariness in legislation is termed to be very much a facet of unreasonableness, and arbitrariness can be used to strike down the legislation when it is challenged as violative of Article 14 of the Constitution of India. However, once we find nothing arbitrary in the legislation, then, we cannot take assistance of this principle. This is
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fore us, there cannot be a estoppel against a statute. Apart therefrom, we do not find any promise which was absolute and unconditional from inception having been breached or resiled by the Executive or the State. From inception, the concession or right based on the same was extended but with conditions. Now that the new regime has taken over and which does away with all the existing laws on the subject, then, in the transitional phase and for the transition to be smooth and proper necessary provisions are inserted in the New Law. With these in place, even the conditional arrangement under the existing laws is saved for a particular duration. To our mind, therefore, we do not see how when the imposition of the condition has a clear nexus with the object sought to be achieved, then, that can be termed as violative of the principle of promissory estoppel either. In this behalf a reference can usefully be made to the principles emerging from several Judgments of the Hon'ble Supreme Co
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e permitted to go back upon it, if it would be inequitable to allow him to do so, having regard to the dealing, which have taken place or are intended to take between the parties.
13. It has been settled by the Court that the doctrine of promissory estoppel is applicable against the Government also particularly where it is necessary to prevent fraud or manifest injustice. The doctrine, however, cannot be pressed into aid to compel the Government or the 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.” There is preponderance of judicial opinion that to invoke the doctrine of promissory estoppel clear sound and positive foundation must be laid in the petition itself by the party invoking the doctrine and that bald expressions, without any supporting material, to the effect that the doctrine is attracted because the party invoking the doctr
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Court starting with Union of India v. Anglo Afgan Agencies Pvt. Limited (AIR 1968 SC 718). Reference in this connection may be made with advantage to Century Spinning & Manufacturing Co. Ltd. and Anr. v. The Ulhasnagar Municipal Council and Anr. (AIR 1971 SC 1021); Motilal Padampat Sugar Mills Co. (P) Ltd. v. State of UP and Ors. (AIR 1979 SC 621); Jit Ram Shiv Kumar and Ors. etc v. State of Haryana and Anr. (AIR 1980 SC 1285); Union of India v. Godfrey Philips India Ltd. (AIR 1986 SC 806); Indian Express Newspapers (Bom) Pvt. Ltd. and Ors. v. Union of India and Ors. (AIR AIR 1986 SC 515); Pornami Oil Mills and Ors. v. State of Kerala and Anr. [1986] Supp. SCC 728 : Bakul Oil Industries and Anr. v. State of Gujarat and Anr. (AIR 1987 SC 142); Asst. Commissioner of Commercial Taxes & Ors v. Dharmendra Trading Co. and Ors. (AIR 1988 SC 1247); Amrit Banaspati Co. Ltd. and Anr. v. State of Punjab and Anr. (1992 AIR SCW 953 and Union of India and Ors. v. Hindustan Development Corporation an
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this Court observed :
“The fact that sales of country liquor had been exempted from sales tax vide Notification No. ST 1149/X-802 (33)- 51 dated April 6, 1959 could not operate as an estoppel against the State Government and preclude it from subjecting the sales to tax if it felt impelled to do so in the interest of the Revenues of the State which are required for execution of the plans designed to meet the ever increasing pressing needs of the developing society. It is now well settled by catena of decisions that there can be no question of estoppel against the Government in the exercise of its legislative, sovereign or executive powers.”
Prof. S.A. De Smith in his celebrated treatise “Judicial Review of Administrative Action”, 3rd Edn. at p.279 sums up the position thus : “Contracts and Covenants entered into by the Crown are not to be construed as being subject to implied terms that would exclude the exercise of general discretionary powers for the public good: On the contrary t
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“In Statutes like Customs Act and Customs Tariff Act one has also to keep in mind that such legislation can be properly administered only by constantly adjusting it to the needs of the situation. This calls for a goods amount of discretion to be allowed to the delegate. As is often pointed out 'flexibility is essential (in law-making) and it is one of the advantages of rules and regulations that they can be altered much more quickly and easily than can Acts of Parliament.” We have pointed out hereinbefore the necessity of constant and continuous monitoring of the nation's economy by the Government (and its various institutions) and the relevance of these enactments as a means of ensuring a proper and healthy growth.”
16. The learned Judge went on to opine (para 12 of AIR):
“The Parliament has appointed two authorities i.e., Central Government and the Board to make rules/regulations to carry out the purposes of the Act generally. The character of Rules and of the Regulati
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0. The facts of the appeals before us are not analogous to the facts in Anglo Afgan Agencies (AIR 1968 SC 718) (supra) or M. P. Sugar Mills (AIR 1979 SC 621) (supra). In the first case the petitioner therein had acted upon the unequivocal promises held out to it and exported goods on the specific assurance given to it and it was in that fact situation that it was held that Textile Commissioner who had enunciated the scheme was bound by the assurances thereof and obliged to carry out the promise made thereunder. As already noticed, in the present batch of cases neither the Notification is of an executive character nor does it represents a scheme designed to achieve a particular purpose. It was a Notification issued in public interest and again withdrawn in public interest. So far as the second case (M. P. Sugar Mills case) is concerned the facts were totally different. In the correspondence exchanged between the State and the petitioners therein it was held out to the petitioners that t
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able to such duty. It only suspends the levy and collection of customs duty etc., wholly or partially and subject to such conditions as may be laid down in the Notification by the Government in “public interest”. Such an exemption by its very nature is susceptible of being revoked or modified or subjected to other conditions. The supersession or revocation of an exemption notification, in the “public interest”, is an exercise of the statutory power of the State under the law itself as is obvious from the language of Section 25 of the Act. Under the General Clauses Act an authority which has the power to issue a notification has the undoubted power to rescind or modify the notification in a like manner. From the very nature of power of exemption granted to the Government under Section 25 of the Act, it follows that the same is with a view to enabling the Government to regulate, control and promote the industries and industrial production in the country. Notification No. 66 of 1979 in ou
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ivocal promise by the Government which was intended to create any legal relationship between the Government and the party drawing benefit flowing from the said Notification. It is, therefore, futile to contend that even if the public interest so demanded and the Central Government was satisfied that the exemption did not require to be extended any further, it could still not withdraw the exemption.
22. The argument on behalf of the appellants, vehemently pressed by Mr.Ashoka Desai and Mr. Harish Salve, their learned senior advocates, is to the effect that since the Notification 66/79 had itself indicated that it shall be operative till 31st March 1981, the Government could not withdraw the same before the expiry of the date. It was argued that the appellants had placed orders for the import of PVC resin relying upon the exemption Notification on the understanding that it was to remain operative till 31st March 1981 and had made arrangements for importing the goods accordingly and th
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was to remain operative till 31st March 1981, it could not be rescinded or modified before the expiry of that date would amount to prohibiting the Government from discharging its statutory obligation under Section 25(1) of the Act, if it was satisfied that it was in the “public interest” to withdraw, modify or rescind the earlier Notification. The plain language of Section 25 of the Act is indicative of the position that it is the public interest and public interest alone which is the dominant factor. It is not the case of the appellants that the withdrawal of Notification 66/79 by the impugned Notification was not 'public interest'. Their case, however, is that relying upon the earlier Notifications they had acted and the Government should not be permitted to go back on its assurance as otherwise they would be put to huge loss. The courts have to balance the equities between the parties and indeed the courts would bind the Government by its promise “to prevent manifest injust
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t with which the Notification had been issued. The withdrawal of exemption “in public interest” is a matter of policy and the court would not bind the Government to its policy decisions for all times to come, irrespective of the satisfaction of the Government that a change in the policy was necessary in the “public interest”. The courts, do not interfere with the fiscal policy where the Government acts in “public interest” and neither any fraud or lack of bonafides is alleged much less established. The Government has to be left free to determine the priorities in the matter of utilisation of finances and to act in the public interest while issuing or modifying or withdrawing an exemption Notification under Section 25(1) of the Act.”
66. In fact, we have found from the scheme of the new law that the object and purpose sought to be achieved after its introduction of the new law is of not permitting the existing law arrangement to continue endlessly. Some day or some time has been stipu
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