80HHC-2005 amendment is not retrospective - Gujarat High Court

[tusharhemani]

The assessee challenged the constitutional validity and vires of retrospective insertion of conditions in third proviso to Section 80HHC(3) of the Income Tax Act, 1961 by the amendment of Taxation Laws (Second Amendment) Act, 2005. It was stated that the amendment sought to retrospectively take away the benefit after the period of granting such benefit having expired on 31st March 2004. It was also contended that the impugned portion of the said amendment discriminates between the assessees falling in the same class which is prohibited by Article 14 of the Constitution. It was further contended that the impugned portion of the amendment also imposes conditions retrospectively for being eligible to deduction under Section 80 HHC which were not the preconditions at the relevant time. The assessee stated that the said amendment further denies retrospectively, the deduction u/s. 80 HHC to exporters having turnover of more than Rs.10 Crores although as evident from the history of deduction u/s. 80 HHC, the exporters were encouraged to increase the turnover as an incentive to avail the deduction u/s. 80 HHC. It was stated that the amendment grants deduction with respect to exporters having turnover of more than Rs.10 Crores whose products are notified/eligible for both duty drawback scheme and Duty Entitlement Pass Book Scheme and the rate of duty drawback is higher than DEPB while the rest of the exporters were singled out without their being any rational connection for making the aforesaid classification. It was also contended that such an amendment is against the principle of promissory estoppel. It was contended that the sole purpose of the said amendment was to settle the law laid down by the Tribunal.
Held:-
The amendment is held to be violative of Article 14 of the Constitution of India. Hon'ble the Court observed thus:
"13. After hearing the learned counsel for the parties, we are of the view that the benefit based on pendency of the proceedings of assessment and discrimination based thereon definitely violates Article 14 of the Constitution of India. 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 respondent 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. We, therefore, find that discrimination based on two classes, first, whose assessments have become final and secondly, whose assessment are pending, definitely violates Article 14 of the Constitution of India as there is no rationale nexus with the object of the amendment, and, therefore, such classification fails the test of Article 14 of the Constitution, being a case of 'palpable arbitrariness'.
14. We fully agree with the submissions made by the learned counsel for the petitioners that the burden was upon the Revenue to prove that the restrictions imposed by the amending Act are reasonable. We find that the Revenue has failed to discharge that burden by pointing out the reason for making classification based on the above two aspects which have no reasonable connection with the object of amendment."

Hon'ble the Court further held that in order to overcome adverse decision of the any Court of Tribunal, the legislature cannot delete a valid piece of legislation and incorporate a totally new one with retrospective effect. Hon'ble Court further held that the amendment cannot have retrospective operation in so far as the same is operating against the assessee. In other words, the amendment in so far as it grants benefit to the assessees having export turnover below 10 crs would not be affected. The Court observed thus:
"20. After hearing the learned counsel for the parties and after going through the decisions cited at the bar, we are of the view that although in taxing statute laxity is permissible and after giving a benefit to the assessee based on some specific conditions, such benefit can definitely be curtailed but 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. In the case before us, the object of the amendment, as it appears from the statements of the Finance Minister while moving the bill, is to get rid of the alleged wrong decision of the Tribunal interpreting the then provision of the Statute in a way beneficial to the assesses, which according to the Finance Minister, was never the intention of the legislature. If such be the position, the Revenue has definitely right to challenge the decision of the Tribunal as a wrong one before the higher forum; but on a plea of delay in disposal of appeal if filed, without challenging the decision of the Tribunal before High Court or Supreme Court, the Revenue cannot curtail such benefits by proposing amendment, incorporating a new provisions in the Statute from an anterior date. According to the existing law enacted by the Parliament itself, wrong orders passed by a Tribunal should be challenged by the aggrieved party before the appropriate High Court and if such party is still aggrieved by the order of the High Court, he should move the Supreme Court.
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21.1 In the case before us, there is no defect in the original legislation but the Tribunal has interpreted the language of the valid piece of legislation in a way, which benefits the assessee. In such a case, for overcoming the adverse decision of the Tribunal, the legislature cannot delete a valid piece of legislation and incorporate a totally new one with retrospective effect. The effect of this amendment is that it is bypassing the existing law enacted by the Parliament of preferring appeal against the order passed by the Tribunal, which is still the law of the land.
22. We, however, are, not for a moment, disputing the power of the legislature to curtail the benefit of a taxing statute conferred upon the assessee by prospective legislation but such curtailment with retrospective effect cannot be made for overcoming the effect of a judicial decision without taking recourse to the provision of appeal prescribed by law on the plea of delay. Moreover, we find that the present amendment has been made at a point of time when the application of section 80HHC has already been exhausted and the same was not even in the statute book. In such situation, it is not permissible to take away the benefit already granted through a concluded scheme by introducing fresh amendment by virtue of which an expired scheme has been revived with benefit conferred upon only a limited section and snatching the same from some other sections.
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In the present case, according to the Finance Minister presenting the Bill, a valid piece of legislation has been wrongly interpreted by the Tribunal. We have already pointed out that according to the existing law, if a valid piece of legislation is wrongly interpreted by the Tribunal, the aggrieved party should move higher judicial forum for correct interpretation. As pointed by the Apex Court in the case of Pritvi Cotton Mills Ltd (supra), the legislature does not possess or exercise power to reverse the decision in exercise of judicial power. Thus, we are of the view that the principles laid down in the case of R. C. Tobacco (P) Ltd. (supra) has no application to the facts of the present case. The impugned amendment granting benefit restricting it to a class of assessee whose turnover is less than Rs. 10 Crore is permissible prospectively but the way it has been enacted, it takes away an enjoyed right of a class of citizen who availed of the benefit by complying with the requirements of the then provisions of law.
26. On consideration of the entire materials on record, we, therefore, find substance in the contention of the learned counsel for the petitioners that the impugned amendment is violative for its retrospective operation in order to overcome the decision of the Tribunal, and at the same time, for depriving the benefit earlier granted to a class of the assessees whose assessments were still pending although such benefit will be available to the assessees whose assessments have already been concluded. In other words, in this type of substantive amendment, retrospective operation can be given only if it is for the benefit of the assessee but not in a case where it affects even a fewer section of the assesses.
27. We, accordingly, quash the impugned amendment only to this extent that the operation of the said section could be given effect from the date of amendment and not in respect of earlier assessment years of the assessees whose export turnover is above Rs. 10 Crore. In other words, the retrospective amendment should not be detrimental to any of the assesses."

http://www.lexpertsonline.com/home/Portals/0/HC/80HHC-2005.pdf

[shobha nagrani]

Sir, what is your opinion about whether this will apply to s. 9 retrospective amendments.