In a significant judgment delivered on February 12, 2025, the Supreme Court addressed the implications of the 2002 amendment to Section 8(5) of the Central Sales Tax (CST) Act, 1956, particularly concerning the powers of State Governments to grant tax exemptions. The bench, comprising Justices P.S. Narasimha and Pankaj Mithal, held that while the amendment curtailed the States' authority to provide unconditional tax exemptions on inter-state sales, this change would apply prospectively and not affect exemptions granted prior to the amendment.
Background of the Case
The respondent in the case was a beneficiary of the Maharashtra Government's Package Scheme of Incentives, which, under the unamended Section 8(5) of the CST Act, allowed State Governments to grant partial or full exemptions from sales tax on inter-state transactions. This provision also permitted the waiver of the requirement to furnish declarations in Form 'C' or 'D' as mandated by Section 8(4) of the Act. The respondent had been issued an Eligibility Certificate under this scheme, entitling them to the specified tax exemptions.
The 2002 Amendment and Its Implications
The CST Act was amended by the Finance Act of 2002, altering the scope of Section 8(5). Post-amendment, while State Governments retained the power to grant tax exemptions in the public interest, such exemptions became conditional upon the fulfillment of requirements outlined in Section 8(4), notably the submission of Form 'C' or 'D'. This marked a departure from the earlier provision, which allowed States to grant exemptions without such stipulations.
Dispute Leading to the Supreme Court
Following the amendment, the Commissioner of Sales Tax in Mumbai issued trade circulars revising assessments and demanding that the respondent refund the previously exempted tax amounts. The basis for this demand was the respondent's failure to submit the requisite declarations in Form 'C' or 'D'. The respondent challenged these circulars, leading to the present litigation.
Supreme Court's Analysis and Conclusion
The Supreme Court examined whether the 2002 amendment had retrospective effect, thereby nullifying exemptions granted before its enactment. The Court emphasized the legal principle that statutes are presumed to operate prospectively unless explicitly stated otherwise. It observed that the amended Act did not contain any provision indicating that previously accrued rights or granted exemptions were revoked.
The bench stated, "The amended Act nowhere stipulates that rights previously accrued stand nullified or all previous exemptions stand cancelled or revoked." Consequently, it concluded that the 2002 amendment to Section 8(5) of the CST Act does not affect exemptions that were granted prior to its enactment. Therefore, the respondent's entitlement to the tax exemption under the original scheme remained valid, and the retrospective application of the amended provisions was impermissible.
Implications of the Judgment
This ruling provides clarity on the temporal application of tax law amendments, reinforcing the principle that, in the absence of explicit legislative intent, amendments do not have retrospective effect. It upholds the sanctity of rights and exemptions that have already accrued under existing laws, offering assurance to businesses and entities that such benefits will not be withdrawn retrospectively due to subsequent legislative changes.
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