Amendment to CST s.8(5) Is Prospective; State Cannot Withdraw Previously Granted Inter‑State Tax Exemptions

A Bench of Justices Pamidighantam Sri Narasimha and Pankaj Mithal heard appeals by the State of Maharashtra challenging a Bombay High Court order which had quashed three trade circulars and several assessment revision notices issued under Section 38 of the Bombay Sales Tax Act. The appeals arose from writ petitions filed by Prism Cement Ltd. contesting notices that sought to revise assessments for assessment years 2002‑03 to 2004‑05 and to demand tax on inter‑state sales for which exemption had been granted under the Package Scheme of Incentives, 1993 (PSI 1993).

The Supreme Court dismissed the appeals and upheld the High Court's relief. The Court held that the Finance Act, 2002 amendment to Section 8(5) of the Central Sales Tax Act, effective 11.05.2002, which made grant of exemptions subject to compliance with Section 8(4) (production of Form C/D), operated prospectively and did not extinguish substantive rights already accrued under unamended law. The Court emphasised that where an entitlement certificate granted absolute exemption before the amendment, "a substantive right had accrued" to the assessee which could not be unilaterally taken away without revocation and opportunity of hearing. The Court, in its reasoning, observed: “The aforesaid amendment clearly reveals that the State Government though continues to have the power in public interest to grant exemption/partial exemption of tax on inter‑State sale, trade or commerce but the same is subject to fulfilment of the requirements laid down under Sub‑Section (4) of Section 8 of the CST Act which means that henceforth the exemption so granted would be admissible only if Form ‘C’ and ‘D’ are supplied by the dealer in context with the aforesaid interstate sale, trade and commerce.” The Court further noted that the amendment was "prospective in nature" and the restriction would apply only to transactions after 11.05.2002.

Background Prism Cement obtained Eligibility and Entitlement certificates in 1998 under PSI 1993, issued in exercise of powers under Section 8(5) of the CST Act, entitling it to exemption from CST/BST up to Rs. 273.54 crore or till 2012. The assessee availed exemptions for sales in assessment years 2002‑03 to 2004‑05. After the Finance Act, 2002 amended Section 8(5) to require that exemptions to registered dealers or the Government were available only where the dealer furnished declarations in Form C or D as mandated by Section 8(4), the State issued trade circulars and later notices under Section 38 purporting to revise assessments and demand tax on the ground that Prism had not produced Forms C/D for certain inter‑state sales.

The High Court allowed Prism's writ petition on 30.08.2012, holding that the State had incorrectly treated the amendment as affecting pre‑existing entitlements. On appeal, the Supreme Court examined the text and legislative history of Section 8 as it stood before and after amendment, earlier precedent including Shree Digvijay Cement Co. Ltd. (which had earlier held that Section 8(5) could dispense with Form C/D), and principles on prospectivity of statutory amendments. The Court relied on settled principles that statutes are prima facie prospective and that repeal or amendment does not, "unless a different intention appears", affect rights already accrued. Applying these principles and precedents (including Darshan Singh, MRF Ltd., and Southern Petrochemical), the Court concluded that the entitlement certificates issued in 1998 conferred a substantive right which the State could not withdraw by retrospective application of the 2002 amendment without revoking the certificates and affording notice and opportunity. The Supreme Court dismissed the appeals, leaving the High Court order intact and directing no costs.

Case No.: Civil Appeal No. 13928 of 2015 (2025 INSC 199) Case Title: The State of Maharashtra & Ors. v. Prism Cement Limited & Anr. Appearances: For the Petitioner(s): [Not indicated in the judgment text] For the Respondent(s): [Not indicated in the judgment text]