Full Judgment Text
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CASE NO.:
Appeal (civil) 3545-3562 of 1991
Appeal (civil) 12094-12258 of 1996
Appeal (civil) 827-833 of 1995
PETITIONER:
The State of Himachal Pradesh & others etc.
The State of Himachal Pradesh & others etc.
State of Himachal Pradesh & another etc.
RESPONDENT:
Yash Pal Garg (dead) by LRs & others etc.
M/s H.H. Exporters etc.
M/s Jai Mata Rolled Glass Ltd. & another etc.
DATE OF JUDGMENT: 30/04/2003
BENCH:
M.B. SHAH & ARUN KUMAR.
JUDGMENT:
J U D G M E N T
Shah, J.
The High Court of Himachal Pradesh by judgment and order
dated 10.12.1990 allowed Civil Writ Petitions No.58 of 1978 etc. filed
by the respondents challenging the validity of the provisions of the
H.P. Taxation (On certain Goods carried by Road) Act, 1976 (No. 34
of 1976) (hereinafter referred to as "the 1976 Act") and held that the
said provisions were unconstitutional and invalid. The Court held
thus:
"We have seen earlier that by the impugned
provision, there is a direct levy upon the carriage of
goods by road and water ways. It is not the case of the
respondent State that the levy was compensatory or
regulatory in character. In any case, we do not find any
mention in the reply filed by the State of any facts which
may bring the levy in either of the two categories.
On the averments made in the petition, noticed by
us earlier, which have not been effectively denied on
behalf of the State, there is hardly any scope for saying
that the levy does not amount to restriction within the
meaning of Article 301 of the Constitution of India.
The levy could only have been saved, in case the
restriction brought about by it purported to be in public
interest, and that too, if the assent of the President had
been obtained either by way of previous sanction or even
by obtaining his assent to the Act subsequently to bring it
within the four corners of Article 255. Admittedly, there
is no sanction of the President at any stage."
The High Court also directed that the amount deposited towards
the tax be refunded in terms of interim orders.
That judgment and order is challenged by the State of Himachal
Pradesh by filing Civil Appeal Nos.3545/91 and others.
It appears that being aggrieved by the said judgment and order
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and in order to avoid delay in recovering the road tax, apart from
filing appeals, the State enacted the Himachal Pradesh Taxation (On
Certain Goods carried by Road) Act, 1991 (Act No.10 of 1991)
(hereinafter referred to as "the 1991 Act"). The objects and reasons of
the 1991 Act read thus: -
"The Himachal Pradesh Taxation (On Certain
Goods Carried by Road) Act, 1976 was enacted under
Entry 56, List II of the Seventh Schedule to the
Constitution of India to levy a tax on certain goods
which are carried by road within the State of Himachal
Pradesh. The charging Section 3 of this Act
categorically declared the levy of tax to be in addition to
the tax levied or leviable under the Himachal Pradesh
Passengers and Goods Taxation Act, 1955. The
conspicuous distinction between the taxes imposed by
the Act of 1955 and Act of 1976 is that while under the
former Act the tax is calculation with reference to the
fare or freight charged or chargeable, whereas under
the Act of 1976, it is calculated with reference to weight
or volume of goods carried by road. Nevertheless in
both these enactments there exists identity of inextricable
nexus with the carriage of goods by road.
2. In various writ petitions, the Hon’ble High Court
of Himachal Pradesh has held that the tax levied under
the aforesaid Act is a direct levy upon the carriage of
goods by road and waterways and it is constitutionally
invalid being violative of Article 301 read with Article
304(b) of the Constitution of India. The High Court has
further ordered that the State Govt. shall refund, along
with interest, the amount of tax deposited towards tax by
the petitioners. This judgment, therefore, went against
the basic intention underlying the enactment of the H.P.
Taxation (On Certain Goods Carried by Road) Act, 1976,
namely, a compensation for the huge expenditure
incurred each year by the Govt. on construction,
development and maintenance of roads and bridges
within the State.
3. The Hon’ble Supreme Court in its various
judgments has held that measures imposing
compensatory taxes, do not come within the purview of
restrictions contemplated by Article 301 and such
measures need not comply with the requirements of the
proviso to Article 304(b) of the Constitution. The Court
has also clearly declared that the tax imposed under Entry
56, ibid, is of a regulatory and compensatory character.
The power to levy taxes on goods and passengers carried
by road or inland waterways belongs exclusively to the
State Legislature.
4. The invalidation of the Act is attributable
principally to the unclear statement of objectives
appended to its Bill and inadequate or feeble defence to
prove that it was, in fact, a compensatory taxation
measure. In the absence of effective reply the Hon’ble
Court did not have the occasion to go to the
compensatory character of this enactment. In the
proposed Bill, the levy has been rationalized by making
it chargeable on the slabs of mileage of roads actually
used for carrying of goods within the State and the
method or machinery of collection has also been
suitably modified to remove the defects existing in the
Himachal Pradesh Taxation (On Certain Goods Carried
by Road) Act, 1976.
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5. It is well known that the roads and bridges are
life line in the hilly terrain of Himachal Pradesh and
every year the State Government has to devote a
sizeable chunk of its budget exclusively to the
construction, development, repair, upkeep and
maintenance of roads and bridges, without which any
development is unthinkable. Besides loss of a recurring
income of revenue of nearly Rs.9 crores each year, to the
State Exchequer, the impending refund of tax will drain
out not less than Rs.42 crores from the State exchequer,
which will mean absolute halt to the construction,
maintenance and development of roads and bridges for
many years to come for want of funds. Hence, in order
to ensure availability of sufficient funds for construction,
development, upkeep and maintenance of roads and
bridges in the State, it has become necessary to levy the
tax on certain goods carried by road within the State. It
is also essential to validate the tax imposed and collected
by the State Govt. right from the date of commencement
of the aforesaid Act.
6. The Bill seeks to achieve the aforesaid objectives."
The aforesaid Act was also challenged by filing Civil Writ
Petition No.377/91 etc. before the High Court. By judgment and
order dated 13th December, 1994, the writ petitions were allowed and
the 1991 Act was also declared ultra vires and void ab initio. The
State Government was directed to refund the tax already collected.
The Court after considering various decisions rendered by this court
held that the impugned Act would attract application of Article 301
and require compliance of Article 304(b) of the Constitution of India.
The Court also observed that the Act under consideration merely
because it was referable to Entry 56 of State List in the Constitution
would by itself not be sufficient to hold that it is regulatory or
compensatory in nature and that the nature of the law is not what its
Preamble states it to be. The Court thereafter referred to the earlier
decision rendered by it in M/s Yashpal Garg’s case and held that it
was not permissible to the State Legislature to overrule the said
decision pending appeal before the Supreme Court. The Court
observed that the effect of Court’s judgment holding the 1976 Act
constitutionally invalid was to obliterate the same from the statute
book and hence, there was nothing to be repealed by the State
Legislature. Hence, the writ petitions were allowed.
SUBMISSIONS:
The learned counsel appearing for the appellant submitted that
the High Court materially erred in arriving at the conclusion that the
State has failed to prove that the impugned road tax was not
regulatory or compensatory in nature. It is his contention that the State
of Himachal Pradesh is entirely hilly State and the cost of construction
of roads and bridges is many times high as compared to other places
and that roads are the only mode of transport and, therefore, in order
to provide roads, bridges and repair thereof, the State Legislature had
levied the tax to mobilise additional sources for developmental
purposes. The said tax is by exercise of its power under Entry 56 of
List 11 of Seventh Schedule to the Constitution.
As against this, the learned counsel for the respondents
submitted that in the Writ Petition No.58/78 etc., the State of
Himachal Pradesh failed to contend and prove that the impugned tax
was compensatory or regulatory and as the assent of the President was
not obtained as contemplated under Article 304(b), the High Court
rightly arrived at the conclusion that ’the 1991 Act’ was invalid. It
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was contended that validation by the State Legislature without having
assent of the President of India is also unconstitutional.
FINDINGS:
Before dealing with the contentions of the parties, we would
first refer to the objects and reasons of 1991 Act wherein it has been
specifically inter alia stated that:
(a) the roads and bridges are the lifeline in the hilly terrain of
Himachal Pradesh and the State is not connected by
railway;
(b) the State has to devote sizeable chunk of its budget
exclusively to the construction, development, repair,
upkeep and maintenance of roads and bridges without
which any development is unthinkable.
(c) in such activities the State is having recurring loss of
nearly nine crores.
For this purpose, learned counsel for the appellant has pointed
out the chart revealing revenue accruals under the Act and the
expenditure incurred on the trading facilities in the shape of roads and
bridges during the periods 1976-77 to 1990-91 which is as under: -
Year
1976-77
1977-78
1978-79
1979-80
1980-81
1981-82
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
Amount
Collected
50,11,226
66,12,664
1,21,49,137
1,37,31,528
1,03,64,058
1,81,22,000
1,16,12,100
1,48,51,000
1,24,00,000
2,65,89,000
4,52,26,000
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4,46,50,000
4,88,00,000
7,04,54,000
6,51,82,000
Amount spent on
Maintenance of
Roads and
Bridges
4,49,85,411
4,81,23,104
7,17,57,370
8,35,90,831
6,86,93,317
7,76,99,475
11,83,92,845
9,58,34,413
13,60,75,532
16,89,00,219
14,59,31,541
24,18,16,260
17,08,11,484
18,77,53,395
20,11,34,322
Amount spent on
The construction
of roads and
Bridges
10,22,94,116
14,66,00,276
17,72,06,696
19,87,61,550
22,00,60,880
23,38,17,971
21,77,13,747
23,72,85,634
30,45,65,517
33,03,42,790
34,28,37,240
43,49,07,583
41,61,11,873
41,51,33,999
40,87,80,510
After referring to above-stated figures and the objects and
reasons which clarified that the intention underlying 1976 Act was to
compensate the State for the huge expenditure incurred each year on
construction, development and maintenance of roads and bridges
within the State, the High Court observed thus:
"In para 5 thereof, it is mentioned that the State
spends a sizeable chunk of its budget exclusively to the
construction, development, repair, upkeep and
maintenance of road and bridges without which any
development is unthinkable. The learned Advocate
General has also filed additional affidavit in this court
indicating the amount spent by the respondent-State in
construction and maintenance of roads and bridges. It is
stated in the aforesaid affidavit that a sum of
Rs.20,11,34,322 was spent on the maintenance of roads
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and bridges and Rs.40,87,80,510 on construction of
roads and bridges during 1990-91 whereas only an
amount of Rs.6,51,81,000 was collected as levy under
the Act. It would, therefore, appear that though the
respondent-State had spent about 61 crores of rupees in
construction and maintenance of roads and bridges, it
recovered only a sum of Rs.6 crores from the levy
under the Act. Apparently, the levy is not
compensatory in the sense stated by the learned
Advocate General. It seeks to recover only a part of
the expenses incurred in construction and
maintenance of roads and bridges. This position has
been, more or less, the same from the year 1976
onwards. In the context of these figures, it is submitted
that the levy has been compensatory from 1976 and
hence it is wrong to hold that it is directly affecting free
flow of trade or commerce throughout the territory of
India, as guaranteed under Article 301 of the
Constitution."
The aforesaid reason recorded by the High Court that as the
State Government recovers only a part of the expenses incurred in
construction and maintenance of roads and bridges, the levy is not
compensatory is, on the face of it, erroneous and cannot be sustained.
For levy to be compensatory, it is not required that entire amount of
cost incurred should be recovered. The State can and may incur the
cost of construction and maintenance of roads and bridges from other
revenue but that would not justify in holding that levy of tax is not
compensatory. It is also settled that there can be no bar to inter-
mingling of the revenue realised from regulatory and compensatory
taxes and from other taxes of general nature, nor can there be any
objection to more or less expenditure being incurred in case of
compensatory and regulatory levy.
Further, in our view, the question involved in this appeal is
squarely covered by number of decisions rendered by this Court.
In M/s Sainik Motors, Jodhpur & Others v. The State of
Rajasthan [(1962) 1 SCR 517] the Court considered the provisions of
the Rajasthan Passengers and Goods Taxation Act which provided
that where passengers and goods were carried by motor vehicle from
any place outside the State to any place within the State or from any
place within the State to any place outside the State, tax was leviable
on the fare or freight at a rate proportionate to the distance covered in
the State when compared with the total distance of the journey. The
Constitution Bench of this Court in such a situation held that by levy
of such tax, no inter-State trade, commerce or intercourse is affected.
The tax was for purpose of State, and falls upon passengers and goods
carried by motor vehicles within the State. Such levy of tax cannot be
said to offend Articles 301 and 304 of the Constitution.
It appears that the High Court solely relied upon the decision
render by this Court in Atiabari Tea Co. Ltd. v. The State of Assam &
others [(1961) 1 SCR 809] without considering the ratio laid down by
a larger Bench of Seven Judges in The Automobile Transport
(Rajasthan) Ltd. v. The State of Rajasthan and others [(1963)1 SCR
491]. In Automobile Transport case, this Court exhaustively
considered the decision rendered in Atiabari Tea Co.’s case and held
as under (as per majority) (page 522): -
"Nobody doubts that the application of rules like
the above does not really affect the freedom of trade and
commerce; on the contrary they facilitate the free flow of
trade and commerce. The reason is that these rules
cannot fairly be said to impose a burden on a trader or
deter him from trading: it would be absurd, for example,
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to suggest that freedom of trade is impaired or hindered
by laws which require a motor vehicle to keep to the left
of the road and not drive in a manner dangerous to the
pubic. If the word ’free’ in Art. 301 means ’freedom to
do whatever one wants to do, then chaos may be the
result; for example, one owner of a motor vehicle may
wish to drive on the left of the road while another may
wish to drive on the right of the road. If they come from
opposite directions, there will be an inevitable clash.
Another class of examples relates to making a charge for
the use of trading facilities, such as, roads, bridges and
aerodromes etc. The collection of a toll or a tax for the
use of a road or for the use of a bridge or for the use of
an aerodrome is no barrier or burden or deterrent to
traders who, in their absence, may have to take a longer
or less convenient or more expensive route. Such
compensatory taxes are no hindrance to anybody’s
freedom so long as they remain reasonable; but they
could of course be converted into a hindrance to the
freedom of trade. If the authorities concerned really
wanted to hamper anybody’s trade, they could easily raise
the amount of tax or toll to an amount which would be
prohibitive or deterrent or create other impediments
which instead of facilitating trade and commerce would
hamper them. It is here that the contrast, between
’freedom’ (Art. 301) and ’restrictions’ (Arts. 302 and
304) clearly appears: that which in reality facilitates trade
and commerce is not a restriction, and that which in
reality hampers or burdens trade and commerce is a
restriction. It is the reality or substance of the matter
that has to be determined. It is not possible a priori to
draw a dividing line between that which would really be
a charge for a facility provided and that which would
really be a deterrent to a trade; but the distinction if it has
to be drawn, is real and clear. For the tax to become a
prohibited tax it has to be a direct tax the effect of which
is to hinder the movement part of trade. So long as a tax
remains compensatory or regulatory it cannot operate
as a hindrance."
The Court further held that the interpretation which was
accepted by the majority in Atiabari Tea Co.’s case, subject to the
following clarification, was correct:
"Regulatory measures or measures imposing
compensatory taxes for the use of trading facilities do not
come within the purview of the restrictions contemplated
by Art. 301 and such measures need not comply with the
requirements of the proviso to Art. 304(b) of the
Constitution."
Even the view of minority rendered in the said case by
Hidaytullah, J. (as he then was), it has been specifically held that
"freedom in Article 301 does not mean anarchy. Similarly a demand
for a tax from the traders in common with others is not a restriction of
the right to carry on trade and commerce".
This aspect is highlighted in Khyerbari Tea Co. Ltd. &
Another v. The State of Assam [(1964) 5 SCR 975], wherein the
Court held thus:
"It would immediately be noticed that though the
majority view in the Automobile Transport (Rajasthan)
case substantially agreed with the majority decision in
the case of Atiabari Tea Co., there would be a clear
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difference between the said two views in relation to the
scope and effect of the provisions of Article 304(b).
According to the majority view in the case of Atiabari
Tea Co., if an Act is passed under Article 304(b) and its
validity is impeached, then the State may seek to justify
the Act on the ground that the restrictions imposed by it
are reasonable and in the public interest, and in doing so,
it may, for instance, rely on the fact that the taxes levied
by the impugned Act are compensatory in character. On
the other hand, according to the majority decision in
the Automobile Transport (Rajasthan) case,
compensatory taxation would be outside Article 301 and
cannot, therefore, fall under Article 304 (b)."
The aforesaid case is relied upon in State of Karnataka and
another v. M/s Hansa Corporation [(1980) 4 SCC 697], wherein the
Court observed thus:
"27. On a conspectus of these decisions it appears
well settled that if a tax is compensatory in character it
would be immune from the challenge under Article 301.
If on the other hand the tax is not shown to be
compensatory in character it would be necessary for the
party seeking to sustain the validity of the tax law to
show that the requirements of Article 304 have been
satisfied.
The Court also observed:
30. . The effect of Article 304(a) is to treat
imported goods on the same basis as goods manufactured
or produced in a State. This Article further enables the
State to levy tax on such imported goods in the same
manner and to the same extent as may be levied on the
goods manufactured or produced inside the State. If a
State tax law accords identical treatment in the matter of
levy and collection of tax on the goods manufactured
within the State and identical goods imported from
outside the State, Article 304(a) would be complied with.
There is an underlying assumption in Article 304(a)
that such a tax when levied within the constraints of
Article 304(a) would not be violative of Article 301 and
State legislature has the power to levy such tax."
Similarly, in International Tourist Corporation etc. v. State of
Haryana and Others [(1981) 2 SCR 364] the Court negatived the
contention that levy of tax on passengers and goods passing through
the State of Haryana, from a place outside the State to a place outside
the State interfered with the freedom of trade, commerce and
intercourse throughout the territory of India and so it was violative of
Article 301 of the Constitution. The Court considered the objection
that no expenditure was incurred in connection with the development,
construction, improvement and maintenance of National Highway in
the State of Haryana and observed thus:
"We have pointed out in our judgment that the
State Government incurs expenditure in connection with
National Highways not by directly constructing or
maintaining National Highways but by facilitating the
transport of goods and passengers along the National
Highways in various other ways such as lighting, traffic
control, amenities for passengers, halting places for
buses and trucks etc.etc.
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And not by eastern windows only,
When daylight comes, comes in the light;
In front the sun climbs slow, how slowly!
But westward, look, the land is bright!
The petition is, therefore, dismissed."
Thereafter, in Maharaja Tourist Service etc. v. State of
Gujarat [(1991) 2 SCR 524], the Court upheld the validity of the
Punjab Motor Vehicle Taxation Rules and similar rules framed by the
States of Gujarat, Rajasthan and Madhya Pradesh and held that the
working test for deciding whether a tax is compensatory or not is to
inquire whether the trades people are having the use of certain
facilities for the better conduct of their business and paying not
patently much more than what is required for providing the
facilities.
The aforesaid decisions and others were considered and
followed by this Court in Sharma Transport v. Government of A.P.
and Others [(2002) 2 SCC 188] and similar contentions were
negatived by observing: -
"For the tax to become a prohibited tax it has to
be a direct tax the effect of which is to hinder the
movement part of trade. So long as a tax remains
compensatory it cannot operate as a hindrance."
From the judgments as discussed above, it can be held:
(a) A demand for tax from the traders in common with
others is not a restriction on the right to carry on trade,
commerce and intercourse.
(b) Such tax would not come within the purview of the
restrictions contemplated under Article 301 unless it is
established that in reality, it hampers or burdens the trade
and commerce.
(c) So long as the tax remains compensatory or regulatory, it
cannot operate as a hindrance.
(d) If a State tax law accords identical treatment in the matter
of levy and collection of tax on the goods manufactured
within the State and identical goods imported from
outside the State, Article 304(a) would be complied with.
There is an underlying assumption in Article 304(a) that
such a tax when levied within the constraints of Article
304(a) would not be violative of Article 301 and State
legislature has the power to levy such tax.
In the present case, after the judgment rendered by the High
Court in Writ Petition No.58/1978, the State Legislature enacted the
1991 Act wherein in Preamble, it is specifically stated that it was
incurring much more expenditure than the revenue from the road tax.
Necessary affidavit stating the expenditure incurred for construction
and maintenance of roads and bridges as well as the total amount
collected on the basis of tax was filed before the High Court.
Undisputedly, most part of the State of Himachal Pradesh is not
connected by railway. For a hilly area having heavy downpour every
year, the roads require more expenditure for maintenance. For trade,
commerce and intercourse, lying down of additional roads is also the
necessity. The aforesaid facts were pointed out to the High Court, but
the Court surprisingly arrived at the conclusion that as the State
Government recovers only a part of the expenses incurred in
construction and maintenance of roads and bridges, levy is not
compensatory. As stated above, this reasoning cannot be sustained. In
the present case, it is required to be held that the tax is compensatory
in nature for giving better facilities to the passengers and traders,
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therefore, it would not come within the purview of restrictions
contemplated under Article 301. Hence, there is no question of
complying with the requirement of proviso to Article 304(b) of the
Constitution of obtaining previous sanction of the President.
REVALIDATING ACT:
The High Court also held that 1991 Act was ultra vires the
power of the legislature as it has over-ruled the decision rendered in
earlier writ petition in case of M/s Yash Pal Garg. This reason also
cannot be sustained as it is settled law that the Legislature can change
the basis on which a decision is rendered invalidating the Act and
thereby validating the legislation which has been declared to be null
and void. The cause for invalidating the Act can be removed and if
such cause is removed, it cannot be said that the Legislature had acted
beyond its competence.
The Legislature under the Constitution has within the
prescribed limits powers to make laws prospectively as well as
retrospectively. By exercise of its powers, the Legislature can remove
the basis of a decision rendered by a competent Court thereby
rendering that decision ineffective. {Re. The Municipal Corporation
of the City of Ahmedabad and Another etc. etc. v. The New Shrock
Spg. And Wvg. Co. Ltd. etc. etc. [(1970) 2 SCC 280]}. In Re.
Cauvery Water Disputes Tribunal [(1993) Supp 1 SCC 96 (II)], same
view is taken.
Further, while deciding the first case, i.e. Writ Petition No 58 of
1978 and others, the Court arrived at the conclusion that such a tax
amounts to restriction of trade, commerce and intercourse among the
States without considering its effect. The Court was required to
determine whether the impugned provisions amounted to a restriction
directly or indirectly on the movement of trade and commerce.
Therefore, the said decision is also against the settled legal position
and requires to be set aside.
However, pending appeals before this Court as the State
Legislature has passed ’the 1991 Act’, ’the 1976 Act’ would not
survive. The 1991 Act as discussed above was held to be ultra vires
mainly on the ground that the State Legislature was not competent to
enact a law so as to overrule the decision rendered by the High Court.
The State Legislature enacted a new law by specifically stating that
levy of tax was compensatory and that the revenue recovered from the
tax was much less than the expenditure incurred by it for construction,
maintenance and repair of roads and bridges is a hilly area. By
pointing out these facts, it cannot be said that the Legislature was
overruling the decision rendered in M/s Yashpal Garg’s case. This
only makes it clear that levy of road tax was compensatory.
Competence of legislature to pass such law is not at all challenged and
cannot be challenged.
Hence, these appeals are allowed and the impugned judgment
and order passed by the High Court holding the H.P. Taxation (On
Certain Goods Carried by Road) Act, 1991 (Act No.10 of 1991) as
ultra vires is quashed and set aside. It is also held that as the 1976
Act does not survive because of its repeal and by enactment of the
Himachal Pradesh Taxation (On Certain Goods carried by Road) Act,
1991 (Act No.10 of 1991), no further declaration is required to be
granted. Ordered accordingly. There shall be no order as to costs.
IA No.28 of 2001 in CA NOs.3545-3562 of 1991.
In view of the order passed above, the intervention application
is rejected.
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