TMI Blog2000 (10) TMI 936X X X X Extracts X X X X X X X X Extracts X X X X ..... (for short "the Entry Tax Act") to certain areas. They were argued together before us at the same time. The facts giving rise to the additional points raised in W.A. Nos. 8191-93 of 1999 would be referred to in the latter part of the judgment. Facts in W.A. Nos. 1717-1721 of 1999: 2.. The appellants are dealers registered under the provisions of the Karnataka Entry Tax Act, 1979. During the period April 1, 1994 to January 6, 1998, the appellants, among other goods, caused the entry of machinery and its parts and accessories thereof, packing materials and raw materials from outside the State of Karnataka into their respective local areas for use and consumption. The appellants also caused the entry of the abovementioned goods into their respective local areas from places outside the local area but from within the State of Karnataka for use and consumption. 3.. Under the provisions of the Act, section 3(1) of the said Act is the charging section which reads as under: "3. Levy of tax.-(1) There shall be levied and collected a tax on entry of any goods specified in the First Schedule into a local area for consumption, use or sale therein, at such rates not exceeding five per ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up for hearing referred them to the division Bench. During the pendency of the writ petitions before the division Bench, Government of Karnataka in exercise of its powers under section 3(1) of the Act read with section 21 of the Mysore General Clauses Act, 1899, amended the notification dated March 30, 1994, by substituting for the words "from any place outside the State for consumption or use", the words, "where such entry is for consumption or use of such goods and where such goods have not suffered tax under the Karnataka Sales Tax Act, 1957 (Karnataka Act 25 of 1957)" with effect from April 1, 1994. The change was brought by issuing Notification No. FD 109 CET 97(8) dated March 31, 1997. Some of the petitioners whose writ petitions were pending before the division Bench filed interlocutory applications with a prayer to permit the petitioners to amend the petitions to challenge the notification dated March 30, 1997. The court permitted the applications for amendment and the petitioners challenged the notification dated March 31, 1997, by incorporating the following ground, among other grounds: "The notification dated March 31, 1997 to the extent its operation has been retrospe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court approached the Supreme Court by filing special leave petitions questioning the correctness of the decision rendered by the division Bench. Special leave was granted and the appeals were registered as Civil Appeals Nos. 75697575 of 1997. The applications for stay of operation of the judgment of the High Court filed by the State of Karnataka were declined, but instead the Supreme Court passed an interim order directing the State of Karnataka not to refund any amount already collected under the impugned notifications, pending disposal of the appeals. 9.. One of the petitioner in the batch of cases that came to be disposed of by the division Bench in Avinyl Polymers case [1998] 109 STC 26 (Kar) filed a special leave petition to the Supreme Court questioning the correctness of the decision rendered by the division Bench in Avinyl Polymers case [1998] 109 STC 26 (Kar) to the extent the same pertained to negativing the third contention of the assessees canvassed before the High Court. The S.L.P. filed by the assessee (M/s. Sharavathy Petro Chemicals Pvt. Ltd., who was appellant in W.P. No. 41966 of 1995) also came to be admitted by the Supreme Court and the same was registered as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under section 3(1) and as such retrospective effect could have been given. 4.. Notification dated September 23, 1998 cannot be considered to be invalid on the ground that it was not in force on the date of issue and was made applicable for past transactions only. 5.. Notification dated September 23, 1998 is a valid piece of legislation. It is however declared that tax shall not be levied or collected for the period from April 1, 1994 to January 6, 1998 for entry of goods in local area when the goods are brought from other areas of the State of Karnataka and also when the goods have been imported from outside the State of Karnataka and are meant for sale. 6.. Entry 2-A by notification dated November 9, 1998 prescribing rate of tax at 8 per cent from April 1, 1995 is ultra vires the power of section 3(1) of the Act. 7.. In cases where assessments were already framed, the assessee would be free to file appeals within four weeks and where notice alone has been issued, they may submit objections within the aforesaid period." 12.. A reading of the conclusions arrived at by the single Judge would show that excepting for the observations made to the effect that "it is however d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g so, the appeals filed by the State of Karnataka have become academic and nothing more survives. As far as the appeals filed by the respondents are concerned, the same relate to the finding of the High Court to the effect that the entry tax was compensatory in nature. Learned Advocate-General agrees that without going into the merits this finding may be set aside and the High Court will be at liberty to go into this question afresh while deciding the writ petition which have been filed challenging the subsequent notifications. Ordered accordingly. The High Court while deciding the fresh writ petitions will not be bound by its earlier decision. The appeals are disposed of. No order as to costs." 15.. Though before the single Judge a number of points were raised, but before us the counsel appearing for the appellants have confined their challenge to a few points which are enumerated below. The findings recorded by the single Judge on other points were not challenged before us. The contention raised by the counsel for the appellants may be summarised as under: 1.. Since the impugned notification operates with effect from April 1, 1994 and up to January 6, 1998, the same is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the First Schedule appended to the Act inasmuch as the wordings employed by the Legislature at entry No. 80 of the First Schedule appended to the Act is different from the language employed at item No. 4 of the impugned notification. 4.. That the impugned notification to the extent it seeks to impose fresh taxes with effect from retrospective effect, i.e., August 4, 1997 to January 6, 1998 is violative of articles 14 to 19(1)(g). 5.. That the notification dated September 23, 1998 has become ultra vires of article 304(a) of the Constitution of India having regard to the declaration made by the learned single Judge at para 32(5) (at page 140 of 117 STC) of the order impugned in the appeals. 6.. Without prejudice to the other contentions tax cannot be levied for a period from August 4, 1997 to January 6, 1998 since it causes great hardship to the dealers and it is inequitable to do so. 16.. Before examining the validity of the various contentions raised, a brief legislative history of the Act may be noticed. 17.. The State of Karnataka came into being on November 1, 1956 pursuant to the reorganisation of the States in India. Municipal laws prevailing in different areas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s sanction of the President and not having also subsequently received the assent of the President is unconstitutional and void. 21.. Part XIII of the Constitution of India deals with trade, commerce and intercourse within the territory of India. Article 301 provides that subject to the other provisions of Part XIII, trade, commerce and intercourse throughout the territory of India shall be free. Article 302 deals with the powers of the Parliament to impose restrictions on the freedom of trade, commerce or intercourse. Article 303 deals with the legislative powers of the Union and the State Government with regard to the trade and commerce. Article 304 provides that notwithstanding anything in articles 301 and 303, the Legislature of the State may by law: (a) impose on goods imported from other States any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced; Clause (b) authorises State Legislature to impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommerce clearly falls within it. Reliance was placed on the judgment of the Supreme Court in Hansa Corporation case AIR 1981 SC 463, in which it was held: ".......................To the extent the impugned tax is levied on the entry of goods in a local area it cannot be gainsaid that its immediate impact would be on movement of goods and the measure would fall within the inhibition of article 301..................." 24.. After detailed discussion on the point, it was held that provisions of section 7(1)(a) and 7(15) of the amending Act No. 13 of 1982 impose additional restrictions on the freedom of trade and commerce under article 301 and even if these additional restrictions can be held to be reasonable and in public interest the legislative measure would attract and require compliance with article 304(b). That there having been no such compliance with article 304(b) of the Constitution the provisions of section 7(1)(a) and 7(15) of the amending Act No. 13 of 1982 are unenforceable until such compliance is shown. 25.. The counsel for the appellant fairly brought to our notice another division Bench judgment of this Court reported in Ferro Concrete Company of India (Steels) L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assumed that the President had given his assent to the earlier amending Act No. 3 of 1981 as well. It was observed: "The 1984 Act, which is a later Act, had received the assent of the President is not in dispute. Before giving his assent to a later amending Act, as the 1984 Act, we must assume that the President had examined the whole Act, all the earlier amendments made before and their Constitutional effect also and on being fully satisfied with the requirements of the Constitution would have given his assent to the same. Without being satisfied with the earlier amendments, it is even inconceivable to hold that the President would give his assent to a later amendment. If this is the true position, then it follows, the President in law had given his assent to the earlier amendments made to the Act and in particular to the 1981 Act with which only we are concerned. Any other construction would not be in consonance with the high constitutional position of the President under our Constitution. Even otherwise, this conclusion of ours is set at rest by the Supreme Court." 27.. Coming to the facts of the present case, Act No. 8 of 1993 was neither introduced with the prior approva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notification is not traceable to section 3(1) of the Act as the power given is to issue notification either prospectively or retrospectively, but this power could not be construed to mean that the rule-making authority could bring out a notification for filling up a hiatus specifying that the notification would be operated for a fixed period between April 1, 1994 to January 6, 1998. The State Government is not empowered to issue notification to levy tax for the past periods. For a notification said to have been validly issued, it is necessary for the rule-making authority to see that the notification is effective as on the date of issuance. 30.. The legislative power conferred on the appropriate Legislatures to enact law in respect of topics covered in three Lists can be exercised both prospectively and retrospectively. When the Legislature enacts a valid law it may provide not only for the prospective operation of the provision of the Act, but it can also provide for the retrospective operation of the said provisions. It is also well-established that the legislative power conferred on Legislature includes the power to validate the laws which have been struck down or invalidated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 98 was issued. As pointed out earlier the Legislature had empowered the State Government to impose tax by issuing a notification either retrospectively or prospectively. If the Legislature is empowered to make a law with retrospective effect it is appropriate to make the law effective for such anterior period as it thinks appropriate. It cannot be said that unless the levy is kept alive on the date the law is enacted, such a levy would be incompetent. It would amount to laying a principle unknown to law and create a fetter on the Legislature for which there is no basis in principle. The Legislature accepted the law declared by this Court and accordingly enacted the laws bringing it in conformity with the judgment of this Court. The contention raised by the counsel for the appellant that the State Government could not issue a notification to levy tax for the past period cannot be accepted. The power to enact laws retrospectively would include the power to enact laws for a fixed past period as well and especially when it is done for validating the laws which were declared to be invalid by a judgment of the court by bringing the laws in conformity with the law so pronounced. 32.. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enged and the proceedings were pending in the courts of law. The challenge was ultimately sustained and the statute was struck down. The valid statute was brought in operation to cover up the periods for which the earlier notification had been issued from April 1, 1994 to August 4, 1997 and for a short duration of 5 months when no notification was in operation and for the prospective period the notification dated January 7, 1998 was issued to levy taxes for the future period. It would be inappropriate to hold that retrospective operation cover a long period, therefore the law is bad or unreasonable cannot be accepted. 34.. Supreme Court of India in Indian Aluminium Co. v. State of Kerala AIR 1996 SC 1431; (1996) 2 JT SC 85, while examining the question regarding validity of the validating Act after considering the various judgments observed in paragraph 56 that the following principles emerged: "(1) The adjudication of the rights of the parties is the essential judicial function. Legislature has to lay down the norms of conduct or rules which will govern the parties and the transactions and require the court to give effect to them; (2) The Constitution delineated delicate bal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t from a particular date. The Legislature can change the character of the tax or duty from impermissible to permissible tax but the tax or levy should answer such character and the Legislature is competent to recover the invalid tax validating such a tax or removing the invalid base for recovery from the subject or render the recovery from the State ineffectual. It is competent for the Legislature to enact the law with retrospective effect and authorise its agencies to levy and collect the tax on that basis, make the imposition of levy collected and recovery of the tax made valid, notwithstanding the declaration by the court or the direction given for recovery thereof. (9) The consistent thread that runs through all the decisions of this Court is that the Legislature cannot directly overrule the decision or make a direction as not binding on it but has power to make the decision ineffective by removing the base on which the decision was rendered, consistent with the law of the Constitution and the Legislature must have competence to do the same." 35.. The Supreme Court in P. Kannadasan v. State of Tamil Nadu AIR 1996 SC 2560, examined the position whether the Legislature had th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f taxes already collected. Indeed, if the section were so construed, it would lead to discriminatory consequences. Take two persons 'A' and 'B'. Both are equally liable to pay the cess on minerals levied by, say the Madras Legislature. One pays the tax according to law and the other does not. If the argument of appellants-petitioners is to be accepted, the man who paid will be worseoff than the person who did not pay because no tax can now be collected from the person who did not pay. No such unreasonable intention can be attributed to Parliament. It would not be reasonable to assume that the Parliament intended such discriminatory treatment between two similarly placed persons and for no reason. Some of the counsel for appellants-petitioners sought to argue that the above situation cannot be described as discriminatory. According to them, there is a reasonable classification between the person who does not pay, comes to the court and succeeds in his challenge and the person who does not come to the court but quietly pays the tax and sits at home. This illustration proceeds on the assumption that only a person not paying the tax comes to the court. That may not always be true. A pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Clause 4 of the notification reads: "Raw materials, component parts and inputs which are used in the manufacture of an intermediate or finished product." 38.. The submission is that clause 4 of the impugned notification was ultra vires the entry to the Act inasmuch as the wording employed by the Legislature at entry 80 of the First Schedule appended to the Act is different from the language employed in clause 4 of the impugned notification. 39. The words "other than those specified in the Second Schedule" in entry 80 of the First Schedule do not find mention in clause 4 of the impugned notification dated September 23, 1998. It is argued that by virtue of clause 4 of the impugned notification the State Government has tried to tax the goods mentioned in the Second Schedule which is prohibited by section 3(6) of the Act as well as entry 80 of the First Schedule. As per section 3(6) and entry 80 tax on the raw materials, component parts or inputs which were used in the manufacture of an intermediate or finished products mentioned in the Second Schedule cannot be levied. 40.. There is no force in this submission. Explanation I to the notification dated September 23, 1998 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch of this Court in W.A. No. 2000 of 1997 and other connected matters dated September 2, 1999 where the contentions were rejected by recording the following reasons: "The purpose of framing this legislation, i.e., 5(1-A) was to levy the tax on every sale and to give a set-off of the tax paid on previous sale. This Court has taken the interpretation that the set-off of the tax paid also on the previous sale is permissible. By the amendment it is sought to be made clear that set-off to the extent of tax paid will not be permissible. It cannot be disputed that the Legislature has preliminary powers to define the turnover or the taxable turnover or even the computation thereof. The constitutional provision authorises levy of tax on sales as well as purchases. Tax could be levied on sale at single point, multiple point or last point. Even in a case of multiple point of taxation, the Legislature may give the credit of the tax amount already paid or may not give. The provisions of section 5(1-A) therefore do not suffer from any incompetency in the State Legislature. Once it is considered that the Legislature is competent then that proviso can be made prospectively or retrospectively as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ior Advocate appearing for one of the appellants, contended that in view of the declaration made by single Judge in para 32(5) (at page 140 of 117 STC) that tax shall not be levied or collected for the period from April 1, 1994 to January 6, 1998 for entry of goods in local area when the goods are brought from other areas of the State of Karnataka and also when the goods have been imported from outside the State of Karnataka and are meant for sale, the notification dated September 23, 1998 becomes ultra vires of article 304(a) of the Constitution of India and the law declared by this Court in Avinyl Polymers case [1998] 109 STC 26 (Kar) comes into force. In the earlier notification tax was imposed on goods meant for consumption or use. One of the defects pointed out by the division Bench in Avinyl Polymers case [1998] 109 STC 26 (Kar), was that the notifications issued were discriminatory in nature as on the raw materials brought from outside the State of Karnataka tax was levied for entry of goods into the local area whereas for the similar goods produced in the State, no tax had been prescribed. That there was a clear discrimination between the two and therefore it offended the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of the notification by this Court on August 4, 1997 the dealers would be put to great hardship if they are required to pay the tax for the period for which the tax was not collected. The Supreme Court in British Physical Lab's case [2000] 119 STC 6; (1999) 1 SCC 170 and the A.P. High Court in Coromandel Fertilisers Ltd. case [1992] 85 STC 212 no doubt has directed the State Government not to collect taxes as it would cause undue hardship. But in the present case none of the petitioners have stated that they had stopped collecting the tax immediately after the striking down of the earlier notification by this Court on August 4, 1997. In the absence of any such averment and in view of the subsequent notification issued, it cannot be assumed that the dealers did not collect the taxes. Intention of the State to charge the tax was clear and immediately after the rendering of the judgment by this Court, the State had filed S.L.Ps along with the application to stay the operation of the order impugned before the Supreme Court. On the refusal to stay the operation of the order of the High Court by the Supreme Court, the Legislature issued the notification on January 7, 1998 levying th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is situated within an industrial area declared under section 3 of the KIAD Act, the Entry Tax Act is inapplicable to them. They therefore did not file the return as required under section 7 of the Entry Tax Act. The assessing authority issued notices dated May 22, 1999 under section 7(3) of the Act proposing to complete the provisional assessment for the period April 1, 1999 to April 30, 1999. In response to the said notice the appellants filed their reply dated May 20, 1999, June 7, 1999 and June 14, 1999 showing the return of the turnover. It was asserted that the appellants were not liable to pay the tax under the Entry Tax Act. The plea taken by the appellants was that as the unit is situated in an industrial area, the same would not fall within the definition of local area as defined under the Entry Tax Act. 51.. Elaborating further it was argued the "industrial area" in which the appellant is carrying on its manufacturing and business activities having not been included in the definition of "local area" under clause (5) of section 2(A) of the Entry Tax Act, no tax on entry of raw materials and other scheduled goods into the appellant's area can be levied with tax under En ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e matter is covered by the decision of the division Bench in Samyuktha Karnataka's case [1998] 110 STC 226 (Kar). Counsel appearing for both the parties seek to derive support from the judgment of the division Bench in Samyuktha Karnataka's case [1998] 110 STC 226 (Kar). 56.. To settle the controversy, the background in which the matter came up for consideration before the division Bench in Samyuktha Karnataka's case [1998] 110 STC 226 (Kar) requires to be noticed. 57.. The appellants were having their industries in the industrial area at Hosur, Bangalore. The said area is developed and administered by the Karnataka Industrial Area Development Board as declared under section 3 of the Karnataka Industrial Areas Development Act, 1966. The appellants' goods entered into the Karnataka industrial area. The controversy between the parties was that since the factories located were covered by the Karnataka Industrial Areas Development Act, the same did not fall within the definition of the "local areas" as defined under section 2(5) of the Entry Tax Act. Alternatively, that, if the KIADB area which is defined as industrial area under section 3 of the KIAD Act, within which the KIADB ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndered in Samyuktha Karnataka's case [1998] 110 STC 226 (Kar). The division Bench after referring to the decision of the Supreme Court in Housing Board of Haryana v. Haryana Housing Board Employees' Union (1996) 1 SCC 95 and the decision in Union of India v. R.C. Jain AIR 1981 SC 951 and the provisions of the KIAD Act, held that the KIADB could not be held to be a "Local Authority" or "Local Board". But the contention of the appellants therein that the provisions of the Act did not apply to industrial units situated in KIADB industrial areas was rejected with the following observations: "Therefore, it is held that 'industrial area' declared under the Industrial Areas Act is not a 'local area' and therefore, its non-inclusion in the definition of 'local area' under clause (5) of section 2(A) of the Act is of no consequence. It is further held that the appellants are liable to be taxed on entry of goods in the local areas as defined under the said clause." 59.. The division Bench summed up the decision on several points and allowed the appeals in part. The same is extracted below: "(i) the impugned three notifications did not cease to be operative because of the expiry of the K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "local authority" and whether the industrial areas established and administered by KIADB was a "local area ". The contentions were rejected and it was held that though the industrial area declared under the Industrial Areas Act is not a "local area" but its noninclusion within the definition of "local area" under section 2(A)(5) of the Act was of no consequence. Specific finding was recorded that appellants were liable to be taxed on entry of goods into the local areas as defined under the said clause. 62.. Whether an "industrial area " is a "local area" as defined under the Entry Tax Act or not is of no consequence. Irrespective of the fact whether an "industrial area" was by itself a "local area" or not, if the industrial area formed part of a municipal corporation area or a municipal area or a panchayat area or other local area as defined under section 2(A) of the Act, then, any goods brought for consumption, use or sale to the industrial area would become exigible to payment of tax under the Entry Tax Act. If the industrial areas are situated within the municipal areas/panchayat/local area as defined under section 2(A), they become exigible to pay the tax as the tax is on th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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