Summary

State of Maharashtra & Ors. v. Prism Cement Ltd. & Anr.

Citation: 2025 INSC 199
Court: Supreme Court of India
Judges: Pamidighantam Sri Narasimha, J. & Pankaj Mithal, J.
Jurisdiction: Civil Appellate

HEADNOTES

1. Taxation – Withdrawal of Exemptions – Application of Amended Law

• Held: Amendments to tax laws cannot operate retrospectively to revoke benefits already granted under a previous exemption scheme. The Maharashtra Government’s attempt to withdraw exemptions granted under the Package Scheme of Incentives, 1993 (PSI 1993) after a 2002 amendment to the Central Sales Tax Act (CST Act) was unlawful.

2. Industrial Incentives – Legitimacy of Government Commitments

• Held: Incentives granted under a legitimate government policy create vested rights for industrial units. The State Government cannot unilaterally revoke such benefits without prior notice and an opportunity to be heard.

3. Interpretation of Fiscal Statutes – Strict Construction of Exemption Clauses

• Held: Exemptions under tax statutes must be strictly interpreted, and once granted, they cannot be revoked arbitrarily. The Finance Act, 2002, which amended Section 8(5) of the CST Act, was prospective in effect and could not be used to deny previously granted exemptions.

4. Judicial Review – Validity of Trade Circulars & Tax Notices

• Held: The Trade Circulars and tax notices issued by the Maharashtra Government were invalid as they were based on a misinterpretation of the CST Act amendments. The High Court was correct in quashing them.

FACTUAL BACKGROUND

• Prism Cement Ltd. (Respondent) was granted tax exemptions under the PSI 1993 to promote industrial growth in backward areas of Maharashtra.

• The exemption was granted via an Eligibility Certificate (20.02.1998) and an Entitlement Certificate (24.03.1998), allowing tax relief up to Rs. 273.54 crore or until 2012, whichever was earlier.

• The Finance Act, 2002, amended Section 8(5) of the CST Act, requiring submission of Form ‘C’ and ‘D’ for claiming tax exemptions.

• The Maharashtra Government, relying on this amendment, issued Trade Circulars (27.05.2002, 20.07.2002, 08.02.2007) and tax notices demanding repayment of previously exempted tax.

• Prism Cement challenged these actions in the Bombay High Court, which quashed the circulars and notices, ruling that the amendment could not apply retrospectively.

• The State of Maharashtra appealed to the Supreme Court, arguing that the amendment invalidated prior tax benefits.

LEGAL ISSUES

1. Could the State of Maharashtra retrospectively withdraw tax exemptions granted under the PSI 1993?

2. Did the Finance Act, 2002, impose new conditions on previously granted incentives?

3. Was the High Court correct in quashing the Trade Circulars and tax notices?

COURT’S ANALYSIS

1. Tax Exemptions Granted Before 2002 Could Not Be Revoked Retroactively

• The Supreme Court reaffirmed that fiscal laws should not be interpreted to have retrospective effects unless explicitly stated.

• The amendment to Section 8(5) of the CST Act introduced a requirement to submit Form ‘C’ and ‘D’, but this applied only to new exemptions granted after 11.05.2002.

• Since Prism Cement had already secured its exemption before this date, the State could not impose new conditions retroactively.

2. Government Cannot Unilaterally Revoke Industrial Incentives

• The Court held that government-issued incentives create vested rights that cannot be withdrawn arbitrarily.

• It cited MRF Ltd. v. Assistant Commissioner (2006) 8 SCC 702, which ruled that once an industrial exemption is granted, it must be honored for its full term unless revoked through due process.

3. Trade Circulars and Tax Notices Were Invalid

• The Maharashtra Government misinterpreted the amendment and wrongly assumed that it nullified prior exemptions.

• The Court ruled that these circulars had no legal basis and must be set aside.

• Precedents cited:

  • Southern Petrochemical Industries v. Electricity Inspector (2007) 5 SCC 447 – Government policies must be predictable to maintain investor confidence.

  • Darshan Singh v. Ram Pal Singh (AIR 1991 SC 1654) – Laws should not affect previously granted rights unless explicitly stated.

CONCLUSION & FINAL ORDER

1. The Supreme Court dismissed the appeal and upheld the Bombay High Court’s decision.

2. The Maharashtra Government’s attempt to revoke tax exemptions was ruled illegal.

3. The Trade Circulars and tax notices issued after 2002 were quashed.

4. Prism Cement Ltd. retained its tax exemptions up to Rs. 273.54 crore or until 2012, whichever was earlier.

Final Disposition: Appeal Dismissed, Exemptions Restored

This judgment reinforces that governments cannot retroactively withdraw incentives granted to industries and that tax laws must be applied prospectively. It sets a crucial precedent for protecting businesses from arbitrary state actions.