Avani Exports vs. CIT (Gujarat High Court)

DATE: (Date of pronouncement)
DATE: July 5, 2012 (Date of publication)

Click here to download the judgement (avani_exports_80HHC_retrospective_amendments.pdf)

Retrospective effect given to 3rd & 4th Provisos to s. 80HHC is ultra vires

The Third & Fourth Provisos to S. 80HHC were inserted by the Taxation Laws (Second Amendment) Act, 2005 with retrospective effect from 1.4.1998 to provide that the deduction in respect of exporters having a turnover of more than Rs.10 Crore would be available only if he has evidence to prove that he had an option to choose either duty drawback or DEPB and that he chose DEPB, even when he was entitled to higher benefit under the duty drawback scheme. The assessee claimed that this was an absurd condition because no sensible person would ever exercise the option to choose a scheme under which he would get lesser benefit. The retrospectivity of the amendment was challenged on the basis that it was arbitrary and discriminatory under Articles 14 & 19 of the Constitution. HELD upholding the challenge:

(i) The assessee’s contention that the classification based on trunover is arbitrary cannot be accepted because this is a recognized way of classification throughout the world. Progressive levy is based on income classification in terms of both, the basis of taxation and the rate of tax is not arbitrary;

(ii) The assessee’s contention that the amendment should be declared ultra vires being violative of the principles of promissory estoppel and legitimate expectation is also not acceptable because there is no estoppel against legislation. The legislature is not bound by the doctrine of promissory estoppel;

(iii) However, the amendment is violative of Article 14 of the Constitution of India because two assessees of the same class are placed on different footing. While some assessees whose export turnover is more than Rs.10 Crore and who have claimed deduction u/s. 80 HHC on DEPB / DFRC in their ROI and the assessments have become final are given the benefit of deduction without compliance of the conditions imposed by the Taxation Laws (Second Amendment) Act, 2005, assessees whose turnover is more than Rs.10 Crore, and who have claimed deduction u/s. 80 HHC on DEPB/DFRC and whose assessments are pending either before the AO or the appellate authority would be required to comply with those two conditions retrospectively. Two assessees of similar description having export turnover of more than Rs.10 Crore are discriminated inasmuch as the assessees whose assessments have become final is not required to comply with the two conditions and would avail deduction u/s. 80 HHC as against the assessees whose assessments are pending and who would be required to comply with the two conditions. A benefit based on pendency of proceedings of assessment and discrimination based thereon definitely violates Article 14 of the Constitution. In the matter of completion of assessment, the assessees have little role to pay. After the assessees have submitted their returns within the time fixed by law, if for any reason the AO delays in making the assessment, taking advantage of their own delay, the Revenue cannot deprive a class of the assessees of the benefit whereas other assessees of the same class whose assessment have already been completed would get the benefit;

(iv) Although in taxing statute laxity is permissible and a benefit given to the assessee can be curtailed, the same must be effective from a future date and not from an earlier point of time. If after inducing a citizen to arrange his business in a manner with a clear stipulation that if the existing statutory conditions are satisfied, in that event, he would get the benefit of taxation and thereafter, the Revenue withdraws such benefit and imposes a new condition which the citizen at that stage is incapable of complying whereas if such promise was not there, the citizen could arrange his affairs in a different way to get similar or at least some benefit, such amendment must be held to be arbitrary and if not, an ingenious artifice opposed to law. Consequently, the amendment is quashed to the extent it is retrospective.

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