Full Judgment Text
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PETITIONER:
STATE OF TAMIL NADU
Vs.
RESPONDENT:
THIRUMAGAL MILLS LTD. ETC.
DATE OF JUDGMENT17/11/1971
BENCH:
GROVER, A.N.
BENCH:
GROVER, A.N.
HEGDE, K.S.
CITATION:
1972 AIR 1148 1972 SCR (2) 395
1972 SCC (1) 176
CITATOR INFO :
RF 1973 SC1045 (3)
F 1985 SC1748 (6)
ACT:
Madras General Sales Tax Act, 1959, s. 2(d) as amended by
Madras General Sales Tax (Second Amendment) Act, 1964-If
retrospective-- Effect of s. 9.
HEADNOTE:
The assessee was a spinning mill. It opened a fair price
shop to provide an amenity to its workmen so that
commodities may be made available to them at fair prices.
For the assessment year 1960-61 the assessing authority
under the Madras General Sales Tax Act, 1959, included in
the assessee’s turnover the sale value of groceries sold in
the fair price shop. The Tribunal held in favour of the
assessee and the High Court, on reference, found that the
assessee was not carrying on ’business’ within the meaning
of the Act in the fair price shop and confirmed the orders.
In appeal to this Court it was contended that the Second
Amendment Act. 1964, substituted a new definition of
’business’ in the Act, which, read with s. 9 of the Act, had
retrospective effect.
Dismissing the appeal,
HELD : Validation of tax which has been declared to be
illegal may be done only if the ground of illegality or
invalidity are capable of being removed and are in fact
removed. The Legislature can give its own meaning and
interpretation of law under which the tax was collected and
by legislative flat make the new meaning binding upon the
courts. [399 C-D]
But in the present case, none of the methods for validating
a tax has been adopted. Although the definition of
’business’ was amended it was not made retrospective by the
usual words that it should be deemed to have been always
substituted nor was any other language employed to show that
the substantive provision was being amended retrospectively.
On the contrary, the definition of the word ’business’ was
amended only prospectively. In the absence of retrospective
effect being given to the definition, s. 9 was of no
avail to the Revenue. [399 E-G]
State of Tamil Nadu v. M. Rayappa Gounder, A.I.R. 1971 S.C.
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231, Shri Prithvi Cotton Mills v. Broach Borough
Municipality, [1970] 1 S.C. R. 388; 79 I.T.R. 136, followed.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 1454 of
1969 and 148 of 1971.
Appeals by special leave from the judgments and orders dated
April 6, 1967 and January 22, 1969 of the Madras High Court
in Tax Cases Nos. 152 of 1964, and 300 of 1968 respectively.
S. T. Desai and A. V. Rangam, for the appellant (in both
the appeals)
--L500 Sup.CI/72
396
K. Parasaran, T. Vadivel, R. Shanmughan and K. Jayaram,
for the respondent (in C.A. No. 1454/69).
T. A. Ramachandran, for the respondent (in C.A. No.
148/71).
B Sen, S. P. Mitra and G. S. Chatterjee, for intervener (in
C.A. No. 1454 of 1969).
The Judgment of the Court was delivered by
Grover, J. These appeals by special leave from a judgment of
the Madras High Court involve a common question.
The facts in the first of these appeals may be stated. The
assessee, who is the respondent herein, is a spinning mill
manufacturing cotton yarn. It was assessed to sales tax
under the Madras General Sales Tax Act, 1959, hereinafter
called the ’Act’. For the assessment year 1960-61 the
assessing authority included in the taxable turnover certain
amounts representing the sale value of foodgrains and
groceries sold in the fair price shop run by the mills and
the amount realised by sale of articles of food in the
canteen which was run for its employees. The assessee filed
an appeal questioning its liability to pay tax on these
items The appellate authority dismissed that appeal. The
assessee thereupon filed a further appeal to the Sales tax
Appellate Tribunal which allowed the appeal and directed
that the turnover in question be deleted. The Revenue went
up in revision to the High Court of Madras. A division
bench of that court dismissed the revision.
The Appellate Tribunal had found that the fair price shop
and the canteen were run exclusively for the benefit of the
employees and there was no profit motive in running the
same. The High Court referred to the relevant statutory
provisions and expressed the view that the primary requisite
of ’business’ as defined by the Act should be a trade or
commerce or adventure in the nature of trade or commerce.
Presence or absence of profit was not material but the
activity must be of a commercial character in the course of
trade or commerce. It was found that the assessee had not
been carrying on business in the fair price shop. The High
Court looked into the articles of association of the
assessee and found no article empowering it to carry on
business in fair price shop. The assessee had opened that
shop only to provide an amenity to its workmen so that
commodities may be made available to them at fair prices.
According to the High Court if as a matter of fact, some
profit accrued that would be wholly immaterial because the
assessee never intended to run the fair price shop as a
business having an element of commercial activity.
397
Section 2 of the Act ’gives the definitions. The
definitions of "business" given in cl. (d), of "dealer" as
given in cl. (g) and of "sale" as given in cl. (n) are
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reproduced below:
(d) "business" includes any trade, commerce
or manufacture or any adventure or concern in
the nature of trade, commerce or manufacture
whether or not any profit accrues from such
trade, commerce, manufacture, adventure or
concern."
(g) "dealer" means any person who carries on
the business of buying, selling, supplying or
distributing goods, directly or otherwise,
whether for cash or for deferred payment or
for commission, remuneration or other valuable
consideration and includes-
(i).....................
(iii) a commission agent, a broker or a del
credere agent, or an auctioneer or any other
mercantile agent, by whatever name called, who
carries on the business of buying, selling,
supplying or distributing goods on behalf of
any principal.
(iv)
(n) "sale" with all its grammatical
variations and cognate expressions means every
transfer of the property in goods by one
person to another in the course of business
for cash or for deferred payment or other
valuable consideration, and includes a
transfer of property in goods involved in the
execution of a works contract, but does not
include a mortgage, hypothecation, charge or
pledge".
By the Madras General Sales Tax (Second
Amendment) Act, 1964, clause (d) of s. 2 was
substituted by the following clause
"business" includes-
(i) any trade, commerce or manufacture or
any adventure or concern in the nature of
trade, commerce or manufacture whether or not
such trade, commerce, manufacture, adventure
or concern is carried on with a motive to make
gain or profit and whether or not any profit
accrues from such trade, commerce,
manufacture, adventure or concern and
(ii) any transaction in connection with or
incidental or ancillary to, such trade,
commerce, manufacture,, adventure or concern".
398
Section 9 validated the levy and collection of certain taxes
in the following terms :
S.9. "Notwithstanding anything contained in
any judgment, decree or order of any Court, no
levy or collection of any tax under the
provisions of the principal Act and of rules
made thereunder in respect of sales in the
course of business, whether or not it is
carried on with a motive to make gain or
profit shall be deemed to be invalid or ever
to have been invalid on the ground only that
such levy or collection was not in accordance
with law and such tax levied or collected or
purporting to have been levied or collected
shall, for all purposes, be deemed to be and
always to have been validly levied or
collected and accordingly--
(a) all acts, proceedings or things done or
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taken by the State Government or by any
officer of the State Government or by any
other authority 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 other proceedings shall be
maintained or continued in any Court against
the State Government or any person or
authority whatsoever for the refund of any tax
so paid; and
(c) no Court shall enforce any decree or
order directing the refund of any tax so paid;
(d) any such tax levied under the principal
Act, before the commencement of this Act but
not collected before such commencement or any
such tax leviable under the Principal Act but
not levied before such commencement may be
collected (after levy of the tax
wherever
necessary) in the manner provided in the
principal Act)".
It has not been contended before us on behalf of the Revenue
that the turnover of the sales by the fair price shop and
the canteen could be included in the taxable turnover
according to the definition of "business" as it stood in the
original Act. The contention raised is that S. 2 of the
Second Amendment Act 1964 substituted the new definition of
"business" with retrospective effect. This result flows, it
is said, from the language of S. 9 although in S. 2 of that
Act no such language has been used as can give retrospective
operation to the amendment made. We are unable to agree
that S. 9 by itself would make the definition of "business"
as substituted in s. 2 retrospective. In State of Tamil
Nadu &
399
Another v. M. Rayappa Gounder etc.(1) s. 7 of the Madras
Entertainment Tax (Amendment) Act 1966 which was similar to
S. 9 mentioned above came up for consideration. The question
was whether the assessments were validly protected by that
section. Reliance was place on certain decisions of this
Court which laid down that it is open to the legislature
within certain limits to amend the provisions of the Act
retrospectively and to declare what the law shall be deemed
to have been but it was not open to the legislature to say
that a judgment of a court properly constituted and rendered
shall be deemed to be ineffective. Hence it was held that
the impugned assessment in that case could not be sustained.
The principle which has been laid down clearly is that
validation of tax which has been declared to be illegal may
be done only if the grounds of illegality or invalidity are
capable of being removed and are in fact removed. Sometimes
this is done by providing for jurisdiction where
jurisdiction had not been properly invested before.
Sometimes this is achieved by reenacting retrospectively a
valid and legal taxing provision and then by fiction making
the tax already collected to stand under the reenacted law.
The legislature can give its own meaning and interpretation
of the law under which the tax was collected and by
legislative fiat make the new meaning binding upon the
courts. None of these methods has been adopted in the
present case. [see Shri Prithvi Cotton Mills Ltd. v. Broach
Borough Municipality & Ors.(2)].
Although the definition of "business’ was substituted
by the Second Amendment Act of 1964 it was not made
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retrospective by the usual words that it should be deemed to
have been always substituted nor was any other language
employed to show that the substantive provision, namely, the
definition of "business" was being amended retrospectively.
Section 9, therefore, can be of no avail to the Revenue. It
has been pointed out that in the other decision rendered by
this Court in which similar validation provision appeared
the substantive section had not been amended at all. That,
in our judgment will not make any difference because the
essence of the matter is that the definition of the word
"business" which was material was amended only prospectively
and not with retrospective effect. It is common ground and
has not been disputed that if retrospective operation is not
given to S. 2(d) of the Second Amendment Act 1964 the
Revenue must fail in these appeals. We may add that we have
not considered the question of the liability of the assessee
to be Assessed subsequent to the amendment made by the
Second Amendment Act of 1964.
In the result the appeals are dismissed with costs.
V.P.S. Appeals dismissed.
(1) A.I.R. 1971 S.C. 231.
(2) [1970] 1 S.C.R. 388; 79 I.T.R. 136.
400