SC restricts Maharashtra from Demanding Exempted Tax Refund from Companies

The Supreme Court on Wednesday ruled in favor of companies like Voltas, Ramco Industries, and Prism Cement, stating that the Maharashtra government could not revise tax assessments or demand refunds of exempted taxes due to the non-submission of Form 'C’ and ‘D’ for inter-state sales. 

The court clarified that the requirement to submit these forms applies only prospectively, from May 11, 2002, when amendments were made to the Central Sales Act, 1956. A bench led by Justice PS Narsimha dismissed Maharashtra’s appeal, ruling that the state lacked the authority to revise Prism Cement’s assessments for 2002-2003 to 2004-2005 solely due to missing forms.

Prism Cement was granted sales tax benefits under the 1993 Package Scheme of Incentives, designed to promote industries in backward areas. As per its 1998 eligibility and entitlement certificates, the benefits were available until 2012 or up to Rs. 273.54 crore, whichever came first. The Supreme Court emphasized that the exemption was granted without conditions requiring the submission of Form ‘C’ and ‘D.’ 

Prism Cement had challenged trade circulars and notices issued by Maharashtra’s sales tax department, which sought repayment of the exempted sales tax. The apex court ruled that after the 2002 amendment, the state was not authorized to issue unilateral orders affecting the company’s right to full tax exemption. Since the exemption was granted before the Finance Act, 2002, took effect, the government’s demand was deemed invalid.

The Supreme Court ruled that the requirement to comply with Section 8(4) of the CST Act (1956) for tax exemption benefits arose only after the amendment of Section 8(5) on May 11, 2002, and would apply prospectively to transactions for which eligibility and entitlement certificates were issued thereafter.