Full Judgment Text
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PETITIONER:
D. CAWASJI AND CO. MYSORE
Vs.
RESPONDENT:
THE STATE OF MYSORE AND ANR.
DATE OF JUDGMENT26/09/1984
BENCH:
SEN, AMARENDRA NATH (J)
BENCH:
SEN, AMARENDRA NATH (J)
BHAGWATI, P.N.
MISRA RANGNATH
CITATION:
1984 AIR 1780 1985 SCR (1) 825
1984 SCC Supl. 490 1984 SCALE (2)545
CITATOR INFO :
RF 1988 SC 587 (15)
ACT:
Mysore Sales Tax Act 1957, Mysore Act 25 of 1957-Second
Schedule Column No. 3 Serial No. 39-Provision whether
constitutionally valid.
Arrack-Sale by Government to licensed contractors-
Recovery of sales tax at 6112% on total amount of selling
price-High Court holding provision void and that sales tax
can be collected only on basic price excluding excise duty-
Amendment introduced by the Mysore Sales Tax (Amendment) Act
1969-Rate of tax enhanced to 45% with retrospective effect
from April 1, 1969-Validity of amendment.
Interpretation of Statutes: Amending Act and Validating
Act-Difference between-Explained.
HEADNOTE:
The appellants were Excise Contractors who had secured
the excise privilege of retail sale of Toddy, Arrack or
Special Liquor. The State Government had the monopoly of the
first sale of Arrack which is country liquor other than
Toddy. The manufacture of Arrack by distillation is done in
the State under State control and the entire quantity
manufactured in the State is sold to the State Government
which in its turn supplies it to the bonded depots in
Taluks.
Under the Mysore Excise Act, Arrack is liable to excise
duty at rates prescribed by the Government. The State does
not collect excise duty from the distillers. From the
distillery arrack is transferred to Bonded Depots and excise
duty together with cesses thereon is collected from the
contractors who are given the privilege or right to effect
retail sales of Arrack.
The exclusive privilege of retail vending of Arrack for
each excise year which commences on the first day of July
and ends on 30th June of the following year is sold by the
State by auction. Under the terms and conditions governing
the licenses, granted to the contractor whose bid is
accepted and to whom the licenses for vending arrack is
granted, the licensees were required to deposit in the State
Treasury under separate heads of account the sales tax
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payable to the State Government and the excise duty with
cesses.
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However, with effect from 1.4.1966 the State Government
started collecting sales tax computed on the sale price of
Arrack together with excise duty and cesses payable thereon.
So computed sales tax came to about 24 Paise a litre which
was collected alongwith the price of Arrack sold to the
licensees.
The validity of the collection of the sales tax on the
aforesaid basis was challenged by the appellants. A Division
Bench of the High Court allowed the writ petition, D.
Cawasji and Co. Mysore v. State of Mysore 1969 (1) Mys. L.J.
461, holding that the State Government could not under S.19
of the Sales Tax Act, collect sales tax on excise duty which
is not a part of the selling price of Arrack. The appeal
preferred by the State Government to this Court was
withdrawn.
During the pendency of the appeal the privileges of
vending liquor in the excise year 1968-69 were sold without
any variation in the price of Arrack fixed by the Government
during the previous year at 55 paise a litre. During the
year 1968-69 the State Government collected sales tax
computing the same @ 6.1/2% of the actual sale price without
including therein excise duty and cess.
As the liability of the States to refund the amount
collected as sales tax in excess amounted to lacs of Rupees,
and with the object of avoiding the liability of refund by
the State Government of the excess amount so collected, the
State passed Ordinance No. 3 of 1969 on 17th July, 1969
which was replaced by the Mysore Sales Tax (Amendment) Act,
1969 on 19th July, 1969.
The validity of this Amending Act was challenged by the
appellants on the ground that the Amending Act was
unreasonable and arbitrary but the High Court dismissed the
writ petition.
In the appeal to this Court, it was contended on behalf
of the appellant that the Amending Act does not seek to
rectify or remove the defect or lacuna on the basis of which
the collection of the excess sales tax had been set aside by
the High Court, and that the increase in the rate of sales
tax from 61/2% to 45% with retrospective effect is clearly
arbitrary and unreasonable for if, any particular provision
of the statute is for some lacuna or defect in the statute
declared unconstitutional or invalid, it is open to the
Legislature to pass a Validating Act with retrospective
effect so that the State may not be saddled with liability
of refund or other consequences which may arise as a result
of the particular provision being declared invalid.
On behalf of the respondent-State it was contended that
by the enactment of S.2 of the impugned Act the very basis
of the complaint made by the appellants in the earlier writ
petitions that the State was collecting amounts by way of
tax in excess of what was authorised under the Act had been
removed.
Allowing the Appeals,
827
^
HELD: 1. The only object of enacting the amended
provision it appears is to nullify the effect of the
judgment which became conclusive and binding on the parties
to enable the State Government to retain the amount
wrongfully and illegally collected as sales tax and this
object has been sought to be achieved by the impugned
amendment which does not even purport or seek to remedy or
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remove the defect and lacuna but merely raises the rate of
duty from 6.1/2% to 45% and further proceeds to nullify the
judgment and order of the High Court. [841E-F]
2. The enhancement of the rate of duty from 6.1/2% to
45% with retrospective effect is in the facts and
circumstances of the case clearly arbitrary and
unreasonable. The defect or lacuna is not even sought to be
remedied and the only justification for the steep rise in
the rate of duty by the amended provision is to nullify the
effect of the binding judgment. [841 F]
3. The vice of illegal collection in the absence of the
removal of the illegality which led to the invalidation of
the earlier assessments on the basis of illegal levy.
continues to taint the earlier levy. This is not a proper
ground for imposing the levy at the higher rate with
retrospective effect. [841G]
4. It may be open to the Legislature to impose the levy
at the higher rate with prospective operation but levy of
taxation at higher rate which really amounts to imposition
of tax with retrospective effect has to be justified on
proper and cogent grounds. [841H]
5. The amendment does not proceed to cure the defect or
the lacuna by bringing in an amendment providing for
exigibility of sales tax on excise duty, health cess and
education cess. The impugned Amending Act cannot therefore
be considered to be a Validating Act. A Validating Act seeks
to validate the earlier Acts declared illegal and
unconstitutional by Courts by removing the defect or lacuna
which led to invalidation of the law. With the removal of
the defect or lacuna resulting in the validation of any Act
held invalid by a competent Court, the Act may become valid
if the Validating Act is lawfully enacted. To provide that
no liability may be imposed on the State in respect of acts
done before the passing of the Validating Act making such
act valid, a Validating Act is usually passed with
retrospective effect. The retrospective operation relieves
the State of the consequences of acts done prior to the
passing of the Validating Act. The retrospective operation
of a Validating Act properly passed curing the defects and
lacuna which might have led to the invalidity of any act
done may be upheld, if considered reasonable and legitimate.
[840E-A]
In the instant case, the State instead of remedying the
defect or removing the lacuna has by the impugned amendment
sought to raise the rate of tax from 6.1/2% to 45% with
retrospective effect from the 1st April 1966 to avoid the
liability of refunding the excess amount collected and has
further purported to nullify the judgment and order passed
by the High Court directing the refund of the excess amount
illegally collected by providing that the levy at the higher
828
rate of 45% will have retrospective effect from 1st of April
1966. The judgment of the High Court declaring the levy of
sales tax on excise duty, education cess and health cess to
be bad became conclusive and was binding on the parties. It
may or may not have been competent for the State Legislature
to validly remove the lacuna and remedy the defect in the
earlier levy by seeking to impose sales tax through any
amendment on excise duty, education cess and health cess but
in any event, the State Government has not purported to do
so through the Amending Act. [841A-D]
D. Cawasji & Co. Mysore v. State of Mysore, 1969 (1)
Mys. L.J. 461, D. Cawasji & Co. and Others v. The State of
Mysore 1968 (16) L.R. 641, Janapada Sabha, Chindwara etc. v.
The Central Provinces Syndicate Ltd.,[1970] 3 SCR 745,
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Municipal Corporation of the City of Ahmedabad v. New
Shorock Spq. and Wvg. & Co. Ltd. etc [1971] 1 SCR 288 and
Shri Prithi Cotton Mills Ltd. and Anr. v. The Broach Borough
Municipality and Ors., [1970] 1 SCR 388, referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1353 &
1354 of 1973.
Appeals from the Judgment and Order dated the 6th
December, 1972 of the Mysore High Court in Writ Petitions
Nos. 3964 & 3996/1970.
S.T: Desai, D.N. Mishra and Mrs. Verma for the
Appellants.
M. Veerappa for the Respondents.
The Judgment of the Court was delivered by
AMARENDRA NATH SEN, J. The question of constitutional
validity of the Mysore Sales Tax (Amendment) Act, 1969
(Mysore Act of 1969), (hereinafter referred to as the Act)
falls for determination in these two appeals preferred by
the appellants with certificate granted by the High Court
under Art. 133(1) of the Constitution.
The question arises under the following circumstances:
The appellants are Excise Contractors who had secured
excise privilege of retail sale of Toddy, Arrack or Special
Liquor. The State Government has the monopoly of the first
sale of Arrack which is country liquor other than Toddy. The
manufacture of Arrack by distillation is done in the State
under State control and the entire quantity manufactured by
distillation in the State is sold to the State Government
which in its turn supplies Arrack to bonded depots in
Taluks. Under the Mysore Excise Act Arrack is liable
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to excise duty at the rates prescribed by the Government.
The State does not collect excise duty from the distillers.
From the distillery arrack is transferred to Bonded Depots
and excise duty together with cesses thereon is collected
from the contractors who are given the privilege or right to
effect retail sales of Arrack. The exclusive privilege of
retail vending of Arrack for each excise year which
commences on the first day of July and ends on 30th June of
the following year, is sold by the State by auction. The
successful bidders whose bids are accepted are granted
licences for the exclusive privilege of retail vending. The
retail selling price of Arrack by the licensees is fixed by
the State Government at or before the time of notifying
sales of the exclusive privilege in respect of each year.
The excise duty of arrack together with cesses there on is
collected from the licensees before the date of delivery.
Under the terms and conditions governing the licensees,
granted to the contractors whose bid is accepted and to whom
the license for exclusive privilege of vending arrack is
granted, the licensees were required to deposit in the State
Treasury under separate heads of account the sales tax
payable to the State Government and the excise duty with
cesses. There was no dispute as to the amount of sales tax
payable by the licensees upto 1.4.1966. However, with effect
from 1.4.1966, the State Government started collecting sales
tax computed on the sale price of Arrack together with
excise duty and cesses payable thereon. So computed sales
tax came to about 24 paise a litre which was collected
alongwith the price of Arrack sold to the licensees.
Challenging the validity of the collection of the sales
tax on the aforesaid basis the appellant filed a writ
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petition in the High Court of Mysore at Bangalore being writ
petition No. 644 of 1966. As this writ petition No. 644 of
1966. related to the excise year 1966-67 only, the appellant
filed two other writ petitions being writ petitions nos.
1012 and 1013 both of 1966 for subsequent excise years.
These three writ petitions of the appellant along with
similar writ petitions filed by other contractors were
disposed of by a common judgment by a division Bench of the
Mysore High Court on 12th July, 1968. The Mysore High Court
for reasons recorded in the judgment held:
"We allow the rest of the petitioners only to the
extent of holding that the State Government is not
entitled
830
to collect from the petitioners any amount by way of
Sales Tax on the following, viz., Excise Duty, Health
Cess and Education Cess imposed on arrack or special
liquor. In the said petitions, we hereby issue writs
directing the State Government to forbear from
collecting from the petitioners any amount representing
Sales Tax on the following viz. Excise Duty, Health
Cess and Education Cess imposed on arrack or special
liquor, and to refund to the petitioners any amount
that might have been collected from them, by way of
Sales Tax on items of Excise Duty, Health Cess and
Education Cess on arrack or special Liquor."
The Division Bench in the course of the Judgment in D.
Cawasji & Co. Mysore v. State of Mysore(1), observed at p.
483:-
"It is difficult to see how Excise Duty paid, not by
the seller but by the purchaser, to the State
Government, can become a part of the price at which the
goods are sold by that seller to that purchaser. If
that is the true position, we think the State
Government cannot, under S.19 or the Sales Tax Act,
collect Sales Tax on Excise Duty which is not a part
of its selling price."
Against the judgment of the Mysore Court the State
preferred an appeal to the Supreme Court; but the appeal was
subsequently withdrawn. It appears that during the pendency
of the appeal the privileges of vending liquor in the excise
year 1968-69 were sold without any variation in the price of
Arrack fixed by the Government during the previous year at
55 paise a litre. During the year 1968-69 the State
Government collected Sales Tax computing the same @61/2% of
the actual sale price without including therein excise duty
and cess.
It may be noticed that although the appellants had
obtained an order of stay of payment of the disputed sales
tax amounts from 27.4.1966 from the High Court, there were
various other contractors who had paid the same computed on
the sale price of Arrack together with excise duty and the
cess. When the decision of the
831
High Court pronouncing the illegality of the levy and
collection of sales tax on the price of Arrack, including in
the price the excise duty and cess, became final and
conclusive in consequence of the withdrawal of the appeal
filed by the State in this Court against the said judgment
and decision of the High Court, the State Government became
liable to refund the excess amount of sales tax collected to
the licensees and contractors. It appears that the liability
of the State to refund the amount collected as sales tax in
excess amounted to lacs of Rupees. Faced with this situation
and with the object of avoiding the liability of refund by
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the State Government of the excess amount so collected, the
Governor of the State passed Ordinance No. 3 of 1969 on 17th
July, 1969. The Ordinance was replaced by the impugned Act
which came into force on 19th July, 1969.
It will be convenient at this stage to set out the
provisions of the Act, which is a short one consisting of
four sections, in its entirety. The Act provides as
follows:-
S.1 (1). This Act may be called the Mysore Sales
Tax (Amendment) Act, 1969.
(2). It shall be deemed to have come into force on
the nineteenth day of July, 1969.
S.2. In the Second Schedule to the Mysore Sales
Tax Act, 1957 (Mysore Act 25 of 1957) in Column 3 of
Sl. No. 39, for the words "Six and a half per cent",
the words "Forty-five per cent", shall be and shall be
deemed to have been substituted with effect from the
first day of April, 1966.
S.3. Notwithstanding anything contained in any
judgment, decree or order of any court or other
authority, the sales tax on country liquor other than
toddy levied or collected or purported to have been
levied or collected shall, for all purposes, be deemed
to be and to have always been validly levied or
collected in accordance with law, as if this Act had
been in force at all material times when such tax was
levied or collected and accordingly-
(a) all acts, proceedings or things done or taken
by any
832
authority or officer or person in connection
with the levy or collection of such tax,
shall, for all purposes, be deemed to be and
to have always been done or taken in
accordance with law;
(b) no suit or proceeding shall be entertained,
maintained or continued in any court for the
refund of any tax as paid; and
(c) no court shall enforce any decree or order
directing the refund of any tax so paid.
S.4-The Mysore Sales Tax (Amendment)
Ordinance, 1969 (Mysore Ordinance No. 3 of 1969)
is hereby repealed.
The Statement of objects and Reasons for the passing of
the amendment may appropriately be set out at this stage.
The Statement of Objects and Reasons runs as follows:-
"Clause (j) of sub-rule (4) of Rule 6 of the Mysore
Sales Tax Rules, 1957, provided for the exclusion of excise
duty paid by a dealer from the computation of his taxable
turnover. By Government Notification No. GSR 882, dated 16th
March, 1966, this clause was deleted from the rules with the
object of recovering sales tax even on the excise duty
portion of the turnover of dealers. In respect of arrack
which falls under entry relating to Sl. No. 39 of the
Schedule, sales are made by Government to licensed
contractors and sales tax was recovered from them at 6 1/2%
on the total amount payable by them including the excise
duty from 1st April, 1966. The Mysore High Court in W.P. No.
644 of 1966 D. Cawasji & Co. and Others v. The State of
Mysore,(1) held that on the sales of arrack, the sales tax
cannot be collected on the total amount but has to be
collected only on the basic price excluding excise duty on
the ground that the duty in such a case does not form part
of the sale price but is a separate "levy" made by the
Government at the time of releasing the stocks from the
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Government Bonded warehouses. Consequently, a considerable
amount already recovered may become refundable. In order to
get over the effects of the High Court
833
decision and retain the money already recovered by the
Government, it is proposed to enhance the rate of tax on
arrak to 45% with retrospective effect from 1st April, 1966.
The enhanced rate of tax on the basic price would be
absorbed in the price already recovered, and no additional
tax is expected to be realised from this Bill. Since the
Legislature was not in session and in view of the urgency,
an ordinance was promulgated. The Bill is to replace the
ordinance."
The validity of this Amending Act has been challenged
on the ground that the Amending Act is unreasonable and
arbitrary. The principal contention raised on behalf of the
appellant is that the Amending Act does not seek to rectify
or remove the defect or lacuna on the basis of which the
collection of the excess sales tax had been set aside by the
High Court. It is argued by the learned counsel for the
appellant that the High Court had held that the sales tax
could not be levied on collected on Excise duty Health cess
and Education cess imposed on Arrack or special liquor and
had directed the refund of the amount collected on excise
duty and cess which were included in the selling price of
arrack. The learned counsel has submitted that by the
amendment the said lacuna or defect of including the excise
duty and cess in the price of Arrack on which the sales tax
has been charged has not been sought to be removed, as this
defect or difficulty could not possibly have been removed,
because sales tax could not be levied on excise duty by
virtue of the judgment of the High Court. The learned
counsel points out that the appeal which was filed by the
State Government against the judgment of the High Court had
been withdrawn by the State and as such the judgment of the
High Court has become final and conclusive and on the basis
of the judgment, a large amount has become refundable by the
State to the appellants. It is the submission of the learned
counsel that the amendment has been brought about only for
the purpose of circumventing the judgment of the High Court
with the object of avoiding the liability to refund the
amount wrongfully and illegally collected as sales tax from
the appellant by raising the amount of tax from 6 1/2% to
45%. The learned counsel contends that the increase in the
rate of sales tax from 6 1/2% to 45% with retrospective
effect is clearly arbitrary and unreasonable. It is the
contention of the learned counsel that if any particular
provision of the statute is for some lacuna or defect in the
statute declared unconsti-
834
tutional or invalid, it is open to the legislature to pass a
Validating Act with retrospective effect so that the State
may not be saddled with liability of refund or other
consequences which may arise as a result of the particular
provision being declared invalid. The learned counsel argues
that such a Validating Act with retrospective operation can
be passed if the lacuna or the defect, because of which the
provision is declared to be unconstitutional and invalid, be
properly rectified by the Amending Act which seeks to
validate the statutory provision which has been struck down
as unconstitutional and invalid. It is his argument that
without seeking to remove or rectify the defect or lacuna,
no Validation can be made to defeat the judgment of the
Court striking down any particular statutory provision. The
learned counsel contends that enhancing the rate of tax from
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6 1/2% to 45% with retrospective effect must necessarily be
held to be arbitrary. It is his contention that mere
enhancement of the rate without seeking to validate the
provision by removing or rectifying the defector lacuna
clearly results in retrospective imposition of tax and any
such imposition of tax with retrospective effect must be
held to be unreasonable and arbitrary. In support of the
submissions made, particular reliance has been placed on the
two decisions of this Court in the case of Janapada Subha,
Chindwara etc. v. The Central Provinces Syndicate Ltd(1),
and Municipal Corporation of the City of Ahemdabad v. New
Shorock Spg. & Wvg. Co. Ltd. etc.(2)
The material facts in the case of Janapada Sabha,
Chindwara (supra) may briefly be indicated.
In 1935, the Independent Mining Local Board, Chindwara,
constituted under C.P. Local Self Government Act, 1920,
resolved to levy a cess on coal extracted within the area at
3 pies per ton. The sanction of the Local Government, as
required by S.51 (2) of Act, was obtained for the levy. In
1943, the levy was enhanced to 4 pies, in 1946 to 7 pies and
in 1947 to 9 pies. The validity of the enhanced levy was
challenged and this Court, in appeal, held that the
increased levy would also require the previous sanction of
the Local Government and such sanction not having been
obtained, the levy at a rate higher than 3 pies was illegal.
The State Legislature thereafter enacted the Madhya Pradesh
Koyala Upkar (Manyata
835
karan) Adhinayam, 1964. Section 3(1) provides that
’notwithstanding a judgment of any Court, cesses imposed,
assessed or collected by the Board in pursuance of the
notifications and notices specified in the Schedule shall,
for all purposes, he deemed to be, and to have always been
validly imposed, assessed or collected as if the enactment
under which they were issued stood amended at material times
so as to empower the Board to issue the said notifications.
In the Schedule were specified the three notifications
enhancing the rate of cess. On the question whether the
enhanced levy was validated by the 1964 Act, a five Judge
Bench of this Court held that it did not give legal effect
to the imposition of cess at the enhanced rate. This Court
observed at p. 751:
"The nature of the amendment made in Act 4 of 1920
has not been indicated. Nor is there anything which
enacts that the notifications issued without the
sanction of the State Government must be deemed to have
been issued validly under S.51 (2) without the sanction
of the Local Government. On the words used in the Act,
it is plain that the Legislature attempted to overrule
or set aside the decision of this Court. That, in our
judgment is not open to the Legislature to do under our
constitutional scheme. It is open to the Legislature
within certain limits to amend the provisions of an Act
retrospectively and to declare what the law shall be
deemed to have been, but it is not open to the
Legislature to say that a judgment of a Court properly
constituted and rendered in exercise of its powers in a
matter brought before it shall be deemed to be
ineffective and the interpretation of the law shall be
otherwise than as declared by the Court."
In the Municipal Corporation of the City of Ahmedabad
etc. v. New Shorock Spg. & Wvg. Co. Ltd. etc. (supra) the
appellant corporation assessed the immovable properties of
the respondents to property-tax for the year 1964-65 and
1965-66 on the basis of the ’flat rate’ method under the
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Bombay Provincial Municipal Act. 1949. The assessments were
challenged in the High Court but the petitions were
dismissed. While appeals were pending in this Court, the
Municipal Corporation, initiated proceedings for the
recovery of the taxes and attached the properties of the
assessees. The assessees challenged the attachment
proceedings but their petitions were
836
again dismissed. In appeal against these orders in this
Court the assessees prayed for interim stay, but this Court
did not grant stay because the Municipal Corporation had
undertaken to return the amounts if the respondents
succeeded. This Court thereafter allowed the appeals by the
assessees. Meanwhile an Amending 8 Act called the Bombay
Provincial Municipal Corporation (Gujarat Amendment) Act,
1969 had been passed introducing s. 152 A into the 1949 Act,
but that provision was not brought to the notice of this
Court. However, when the assessees demanded refund of the
amounts illegally collected from the Municipal Corporation
did not comply and hence the assessees moved the High Court
again. These petitions were allowed and the Municipal
Corporation appealed to this Court. While the appeals were
pending the Bombay Provincial Municipal Corporation (Gujarat
Amendment and Validity Provision) Ordinance, 1969, was
passed and sub-s. (3) was introduced in s. 152A.
Sub-section (3) which was introduced by the ordinance
was in the following terms:
"Not withstanding anything contained in any
judgment, decree or order of any Court, it shall be
lawful, and shall be deemed always to have been lawful,
for the Municipal Corporation of the City of Ahmedabad
to withhold refund of the amount already collected of
recovered in respect of any of the property taxes to
which sub-section (1) applies till assessment or
reassessment of such property taxes is made and the
amount of tax to be levied and collected is determined
under sub-section (1):
Provided that the Corporation shall pay simple
interest at the rate of six per cent per annum on the
amount of excess liable to be refunded under subsection
(2), from the date of decree or order of the Court
referred to in subsection (1) to the date on which
excess is refunded,"
This Court held that under. S. 152 A of the Act before
the Corporation could detain any amount collected as
property tax there must be an assessment according to law;
but in the present case there were no assessment orders in
accordance with the provisions of 1949 Act and the rules as
amended by the Amending
837
Act, 1968 and, therefore, the appellant corporation was not
entitled to retain the amount collected as the Section did
not authorise the Corporation to retain the amounts
illegally collected. This Court has further held that sub-
section (3) of S. 152 A which commands the Corporation to
refuse to refund the amount illegally collected despite the
orders of this Court and the High Court. makes a direct
inroad into the judicial powers of the State; and the
Legislatures which under the Constitution have, within
prescribed limits powers to make laws prospectively and
retrospectively are competent in exercise of these powers to
remove the basis of a decision passed by a competent Court
thereby rendering the decision ineffective, but no
legislature in this country has power to ask the
instrumentalities of the State to disobey or disregard the
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decision given by Court and S. 152 A (3) was repugnant to
the Constitution. This Court at p. 295 has referred to the
following observations made in Shri Prithi Cotton Mills Ltd.
and Anr. v. The Broach Borough Municipality and Ors:-
"Before we examine s. 3 to find out whether it is
effective in its purpose or not we may say a few words
about validating statutes in general. When a
legislature sets out to validate a tax declared by a
Court to be illegally collected under an ineffective or
an invalid law, the cause for ineffectiveness or
invalidity must be removed before validation can be
said to take place effectively. The most important
condition of course, is that the legislature must
possess the power to impose the tax, for, if it does
not, the action must ever remain ineffective and
illegal. Granted legislative competence, it is not
sufficient to declare merely that the decision of the
Court shall not bind for that is tantamount to
reversing the decision in exercise of judicial power
which the legislature does not possess or exercise. A
Court’s decision must always bind unless the conditions
on which it is based are so fundamentally altered that
the decision could not have been given in the altered
circumstances. Ordinarily, a Court holds a tax to be
invalidly imposed because the power to tax is wanting
or the statute or the rules or both are invalid or do
not sufficiently create the jurisdiction. Validation of
a tax so declared illegal may be
838
done only if the grounds of illegality or invalidity
are capable of being removed and are in fact removed
and the tax thus made legal. Sometime this is done by
providing for jurisdiction where jurisdiction had not
been properly invested before. Sometimes this is done
by re-enacting retrospectively a valid and legal taxing
provision and then by fiction making the tax already
collected to stand under the reenacted law."
This Court at p. 296 and 297 relied on the earlier decision
of this Court in the case of Janapada Sabha, Chindwara v.
The Central Provinces Syndicate Ltd. (supra). This Court
finally observed at page 297:
"We are clearly of the opinion that sub-section
(3) of S. 152A introduced by the ordinance is repugnant
to our Constitution. That apart, the said provision
authorises the Corporation to retain the amounts
illegally collected and treat them as loans. That is an
authority to collect forced loans. Such conferment of
power is impermissible under our Constitution."
The learned counsel appearing on behalf of the State
has submitted that this very contention that the State has
sought to enhance the rate of tax without seeking to remove
or rectify the lacuna which was there in the earlier Act and
for which the earlier provision has been struck down by the
High Court, was raised in the writ petition filed in the
High Court by the appellant. It is the submission of the
learned counsel that this contention has been rejected by
the High Court for reasons indicated in the judgment. The
learned counsel has referred to the following observation
made by the High Court:-
"This Court has not held that the State is not at
all entitled to collect any amount by way of tax on the
sale of arrack. The sale price of arrack during the
years 1966 to 1969 was fixed at 55 paisa a litre. The
amount which the State was authorised to collect was
six and a half per cent of 55 paise on the sale of a
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litre of arrack which comes to about three and a half
paise; instead, the State collected 24 paise and the
excess collection was 20.5 paise a litre. The
839
decision of this Court is that the State without
authority of law was collecting excess amounts by way
of tax on the sale of arrack. It is relevant to state
that under the Act where the State is deemed to be a
dealer entitled to collect tax under Section 19, there
is no provision for making an assessment of tax by the
assessing authorities as in the case of ordinary
dealers Without making an assessment, the State
Government is entitled to collect amounts by way of tax
in the same manner as any other registered dealer
authorised to do so under Section 1B. By enhancing the
rate of tax from six and half to 45 per cent with
retrospective effect by enacting Section 2 in the
impugned Act, it has to be deemed that the rate of tax
under the Act has always been 45 per cent of the
taxable turnover ever since 1. 4. 66. If the rate of
tax was 45 per cent on the sale price of arrack which
was 55 paise a litre, then the amount the State was
authorised to collect comes to about 25 paise. Thus it
will be seen that by the enactment of Section 2 of the
impugned Act the very basis of the complaint made by
the petitioners before this Court in the earlier writ
petitions as also the basis of the decision of this
Court in Cawasji’s case that the State is collecting
amounts by way of tax in excess of what was authorised
under the Act has been removed. Thus the decision of
this Court has been rendered ineffective."
The learned counsel seeks to adopt the aforesaid
observations of the High Court as his submissions and
contends that in view of the aforesaid reasoning which are
cogent and sound it cannot be said that the impugned
amendment is unconstitutional. He submits that there are no
valid grounds for interfering with the judgment of the High
Court.
In the earlier case between the parties to which
reference has already been made, the High Court issued writs
directing the State Government to fore-bear from collecting
from the appellant any amount representing the sales tax on
the following, namely, excise duty, health cess and
education cess imposed on Arrack or special liquor and to
refund to the appellant what might have been collected from
them by way of sales tax on items of excise, health cess and
education cess on Arrack or special liquor. The High Court
had
840
passed the aforesaid order issuing appropriate writ in view
of the High Court’s finding that sales tax is not payable on
excise duty, health cess and education cess.
In view of the aforesaid judgment and order passed by
the High Court amounts collected by the States by way of
Sales Tax on items of excise, health cess and education cess
on Arrack or special liquor from the appellant became
refundable to the appellant. The impugned amendment has been
passed, as the Statement of objects which we have earlier
set out clearly indicates to over-ride the judgment of the
High Court and to enable the State to hold on to the amount
collected as sales tax on excise duty, health cess and
education cess, if any, on Arrack or special liquor. It has
to be noted that the said judgment of the High Court in the
earlier case had become final and conclusive inasmuch as the
special leave petition filed against the judgment by the
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State was withdrawn. The State instead of seeking to test
the correctness and effect of the judgment and order of the
High Court thought it fit to have the judgment and order
nullified by introducing the impugned amendment. The
amendment does not proceed to cure the defect or the lacuna
by bringing in an amendment providing for exigibility of
sales tax on excise duty, health cess and education cess.
The impugned Amending Act may not, therefore, be considered
to be a Validating Act. A Validating Act seeks to validate
the earlier Acts declared illegal and unconstitutional by
Courts by removing the defect or lacuna which led to
invalidation of the law. With the removal of the defect or
lacuna resulting in the validation of any Act held invalid
by a competent Court, the Act may become valid, if the
Validating Act is lawfully enacted. But the question may
still arise as to what will be the fate of acts done before
the Validating Act curing the defect has been passed. To
meet such a situation and to provide that no liability may
be imposed on the State in respect of such acts done before
the passing of the Validating Act making such act valid, a
Validating Act is usually passed with retrospective effect.
The retrospective operation relieves the State of the
consequences of acts done prior to the passing of the
Validating Act. The retrospective operation of a Validating
Act properly passed curing the defects and lacuna which
might have led to the invalidity of any act done may be
upheld, if considered reasonable and legitimate.
841
In the instant case, the State instead of remedying the
defect or removing the lacuna has by the impugned amendment
sought to raise the rate of tax from 6.1/2% to 45% with
retrospective effect from the Ist April 1966 to avoid the
liability of refunding the excess amount collected and has
further purported to nullify the judgment and order passed
by the High Court directing the refund of the excess amount
illegally collected by providing that the levy at the Higher
rate of 45% will have retrospective effect from Ist of
April, 1966. The judgment of the High Court declaring the
levy of sales tax on excise duty, education cess and health
cess to be bad has become conclusive and is binding on the
parties. It may or may not have been competent for the State
Legislature to validly remove the lacuna and remedy the
defect in the earlier levy by seeking to impose sales tax
through any amendment on excise duty, education cess and
health cess; but in any event, the State Government has not
purported to do so through the Amending Act. As a result of
the judgment of the High Court declaring such levy illegal,
the State became obliged to refund the excess amount
wrongfully and illegally collected by virtue of the specific
direction to that effect in the earlier judgment. It appears
that the only object of enacting the amended provision is to
nullify the effect of the judgment which became conclusive
and binding on the parties to enable the State Government to
retain the amount wrongfully and illegally collected as
sales tax and this object has been sought to be achieved by
the impugned amendment which does not even purport or seek
to remedy or remove the defect and lacuna but merely raises
the rate of duty from 6.1/2% to 45% and further proceeds to
nullify the judgment and order of the High Court. In our
opinion, the enhancement of the rate of duty from 6.1/2% to
45% with retrospective effect is in the facts and
circumstances of the case clearly arbitrary and
unreasonable. The defect or lacuna is not even sought to be
remedied and the only justification for the steep rise in
the rate of duty by the amended provision is to nullify the
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effect of the binding judgment. The vice of illegal
collection in the absence of the removal of the illegality
which led to the invalidation of the earlier assessments on
the basis of illegal levy, continues to taint the earlier
levy. In our opinion, this is not a proper ground for
imposing the levy at the higher rate with retrospective
effect. It may be open to the Legislature to impose the levy
at the higher rate with prospective operation but levy of
taxation at higher rate which really amounts to imposition
of tax with retrospective operation has
842
to be justified on proper and cogent grounds. This aspect of
the matter does not appear to have been properly considered
by the High Court and the High Court in our view was not
right in holding that by the enactment of S. 2 of the
impugned Act the very basis of the complaint made by the
petitioner before this Court in the earlier writ petition as
also the basis of the decision of this Court in Cawasji’s
case that the State is collecting amounts by way of tax in
excess of what was authorised under the Act has been
removed". We, accordingly, set aside the judgment and order
of the High Court to the extent it upholds the validity of
the impugned amendment with retrospective effect from Ist of
April, 1966 and to the extent it seeks to nullify the
earlier judgment of the High Court. We declare that S. 2 of
the impugned amendment to the extent that it imposes the
higher levy of 45% with retrospective effect from the Ist
day of April, 1966 and S. 3 of the impugned Act seeking to
nullify the judgment and order of the High Court are invalid
and unconstitutional.
We accordingly allow the appeals to this extent. The
appellants shall be entitled to costs of these appeals with
one set of hearing fee.
N.V.K. Appeals allowed.
843