Case Details:
Case Name:- The State of Maharashtra & Ors. vs. Prism Cement Limited
Case Number:- Civil Appeal No. 13928 of 2015
Date: 12/02/2025
Quorum: Justice Pamidighantam Sri Narasimha & Justice Pankaj Mithal”
FACTS
Prism Cement Limited, which is a company limited by shares, objected to three trade circulars issued by the Commissioner of Sales Tax, Maharashtra. The High Court held in favour of Prism Cement that Maharashtra had unjustifiably presumed it had lost jurisdiction to grant exemptions under Section 8(5) of the Central Sales Tax Act, 1956 (CST Act) following the amendment of 2002. The Maharashtra government appealed to the Supreme Court, arguing that the amendment to Section 8(5) of the CST Act restricted tax exemptions for inter-state sales and required submission of Form ‘C’ or ‘D’ as a condition for exemption. The issue before the Supreme Court was whether the amendment could retrospectively revoke benefits granted under PSI 1993 and whether the tax exemptions could be withdrawn for past transactions.”
ISSUES OF THE CASE
- Whether the amendment to Section 8(5) of the CST Act in 2002 could be applied retrospectively to revoke tax exemptions granted under PSI 1993?
- Whether the Maharashtra government was justified in issuing notices demanding back taxes for transactions completed before the 2002 amendment?
- Whether the exemption granted through Eligibility and Entitlement Certificates under PSI 1993 was subject to submission of Form ‘C’ or ‘D’?
LEGAL PROVISIONS
- Section 8(5) of the CST Act, 1956 – Empowers states to exempt inter-state sales from sales tax. The 2002 amendment introduced conditions mandating Form ‘C’ or ‘D’ for exemptions.
- Section 38 of the Bombay Sales Tax Act, 1959 – Gives powers to the tax authorities to reassess and recover defaulting taxes.
- Package Scheme of Incentives (PSI) 1993 – Maharashtra government policy offering tax incentives for the purpose of stimulating industrial development in backward regions.
ARGUMENTS BY THE APPELLANT (STATE OF MAHARASHTRA)
The Maharashtra government argued that the Finance Act, 2002 amended Section 8(5) of the CST Act, making it mandatory for companies to submit Form ‘C’ or ‘D’ to qualify for tax exemptions. Since Prism Cement had not furnished these forms, it had no right to claim exemptions. The government contended that after the amendment, it no longer had the power to grant unconditional tax exemptions for inter-state sales.
The state further argued that the tax benefits under PSI 1993 were not absolute and were subject to conditions. It maintained that tax exemptions granted before the amendment could be revoked if they did not comply with the amended provisions. The revision notices were, therefore, valid, as they were issued to correct an error in granting exemptions without Form ‘C’ or ‘D’.
ARGUMENTS BY THE RESPONDENT
It was contended that the state government could not retrospectively withdraw tax exemptions that had been granted under PSI 1993 before the 2002 amendment. The company had been issued an Eligibility Certificate in 1998 and an Entitlement Certificate in 1998, allowing it to avail tax exemptions until 2012 or up to ₹273.54 crores, whichever came first.
The company argued that the amendment to Section 8(5) of the CST Act applied prospectively and could not nullify the benefits already granted. Prism Cement also highlighted that its tax exemption had no conditions requiring Form ‘C’ or ‘D’, and the government’s attempt to impose this requirement later was illegal.
ANALYSIS
The Supreme Court examined whether the 2002 amendment to Section 8(5) of the CST Act could retrospectively alter the tax benefits under PSI 1993. It observed that PSI 1993 was brought in to induce industrial investment in backward regions, and the exemptions provided under this policy were safeguarded by Eligibility and Entitlement Certificates.
The Supreme Court also held that the amendment of 2002 was prospective in nature and did not include any clause stating its retrospective effect. Therefore, the Maharashtra government’s decision to impose the requirement of Form ‘C’ or ‘D’ on past transactions was legally untenable. The Court concluded that the state could not demand repayment of taxes from companies that had lawfully availed exemptions before the amendment.
JUDGMENT
The Supreme Court upheld the High Court’s ruling and dismissed the appeal filed by the Maharashtra government. It held that the amendment to Section 8(5) of the CST Act in 2002 could not be applied retrospectively to revoke tax exemptions already granted under PSI 1993. The Court ruled that Prism Cement’s entitlement to tax benefits remained valid as per the original terms of its Eligibility and Entitlement Certificates.
The Court struck down the trade circulars and tax revision notices, holding that they were premised on a flawed belief that the Maharashtra government had lost its authority to grant exemptions after 2002. It reiterated that businesses that had received tax benefits prior to the amendment could not be forced to meet new conditions that did not exist at the time.
CONCLUSION
The ruling protects Prism Cement from the sweeping stroke of a retroactive legislative change. Along with the government’s incentive scheme, these measures ensure that enterprises are not subjected to the uncertainty of granular policies that contradict industrial advancement. The decision upholds the principle in question that tax law changes affecting substantive rights may only be prospective if the legislation fails to specify otherwise.
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WRITTEN BY SUBRAT ASHISH KHARE
