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TMI Blog1970 (10) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... r called the Act. Against the said order of assessment, the petitioner preferred an appeal to the 1st respondent, who, by his order dated 26th October, 1965, following the decision of the Supreme Court in State of Mysore v. Yaddalam Lakshminarasimhiah Setty & Sons[1965] 16 S.T.C. 231 (S.C.). set aside the assessment made by the Commercial Tax Officer. Consequent on the said order, the Commercial Tax Officer refunded to the petitioner the tax collected on the basis of the assessment order which was set aside on appeal. The Act was amended by the Central Sales Tax (Amendment) Ordinance, 1969, which was promulgated by the Vice-President acting as President on 9th June, 1969. The said Ordinance amended the Act with retrospective effect and validated the assessments made earlier. On the basis of the said Ordinance, the Commercial Tax Officer, Hubli, issued a notice of demand dated 25th July, 1969, demanding from the petitioner the payment of the sum of Rs. 1,702.16 being the tax amount that had been refunded to the petitioner. The said notice of demand was challenged by the petitioner before this court in W.P. No. 6317 of 1969. This court by its order dated 7th January, 1970, quashed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds to be confirmed. You are, therefore, required to file objections, if any, within 10 days from the date of receipt of this notice as to why the above appeal order should not be rectified and why the order of the Commercial Tax Officer should not be restored. In case you fail to file objections, the proposed action will be confirmed. Sd./(M. Marappa Reddy) Deputy Commissioner of Commercial Taxes, Belgaum Division I, Dharwar. To M/s. H. Basappa & Bros., New Cotton Market, Hubli." On receipt of the said notice, the petitioner preferred the above writ petition on 25th of February, 1970, praying for a writ in the nature of a writ of prohibition. In the affidavit filed in support of the writ petition the petitioner contended that the provisions of rule 38 have not been adopted under the Act and therefore the 1st respondent has no jurisdiction to rectify his order made in the appeal. It was also contended that rule 38 is violative of article 14 of the Constitution of India. During the pendency of the writ petition, the Governor of Mysore promulgated on the 9th day of June, 1970, the Mysore Sales Tax (Amendment) Ordinance, 1970, by which the Mysore Sales Tax Act, 1957, hereinafter c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs under section 25A of the Mysore Act. We now proceed to consider the grounds in the above order. Re. GROUND No. I.-It was urged that since the period covered by the retrospective amendment of the Act is a long period of over 12 years, it should be held that the restrictions imposed thereunder are unreasonable and so the Amendment Act should be struck down in regard to its retrospective operation on the ground that it violates the fundamental rights guaranteed under article 19(1)(f) and (g) of the Constitution of India. The power to make a law carries with it the power to give retrospective operation to the law. It is settled law that taxing statutes are not immune from challenge on the ground of violation of the fundamental rights guaranteed under articles 14 and 19(1)(f) and (g) of the Constitution of India. Although the Legislature is competent to give retrospective operation to its taxing statutes, the reasonableness of the retrospective operation of the law can be scrutinised by the court. It is conceivable that cases may arise in which the retrospective operation of a taxing statute may introduce such an element of unreasonableness that the restrictions imposed by it may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot think that such a mechanical test can be applied in determining the validity of the retrospective operation of the Act. It is conceivable that cases may arise in which the retrospective operation of a taxing or other statute may introduce such an element of unreasonableness that the restrictions imposed by it may be open to serious challenge as unconstitutional; but the test of the length of time covered by the retrospective operation cannot, by itself, necessarily be a decisive test. We may have a statute whose retrospective operation covers a comparatively short period and yet it is possible that the nature of the restriction imposed by it may be of such a character as to introduce a serious infirmity in the retrospective operation. On the other hand, we may get cases where the period covered by the retrospective operation of the statute, though long, will not introduce any such infirmity. Take the case of a Validating Act. If a statute passed by the Legislature is challenged in proceedings before a court and the challenge is ultimately sustained and the statute is struck down, it is not unlikely that the judicial proceedings may occupy a fairly long period and the Legislature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right to acquire, hold and dispose of property. In rejecting the contention, this is what the Supreme Court has stated: ".....It is contended on behalf of the petitioners that the retrospective operation of the law from 1st July, 1963, would make it unreasonable. We are unable to accept the argument of the petitioners as correct. It is not right to say as a general proposition that the imposition of tax with retrospective effect per se render the law unconstitutional. In applying the test of reasonableness to a taxing statute it is of course a relevant consideration that the tax is being enforced with retrospective effect but that is not conclusive in itself. Taking into account the legislative history of the present Act we are of opinion that there is no unreasonableness in respect of the retrospective operation of the new Act....." In the light of the principles laid down by the Supreme Court we have to consider whether the retrospective operation given to the Amendment Act makes it unreasonable on the facts and circumstances of the case. The Act came into force on 5th January, 1957, but the charging section, viz., section 6 came into effect on 1st July, 1957. The object of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in Yaddalam's case[1965] 16 S.T.C. 231 (S.C.). After the decision of the Supreme Court in Yaddalam's case[1965] 16 S.T.C. 231 (S.C.)., the dealers could not have foreseen that sales effected in the course of inter-State trade or commerce would be chargeable to tax under the Act and they would not have collected tax from the buyers. In order to relieve the hardship that might be caused to the dealers by the retrospective operation of the Amendment Act, section 10 of the Amendment Act provided for exemption of sales effected in the course of inter-State trade or commerce between 10th November, 1964, and 9th June, 1969, provided the dealers have not collected any tax. In view of the exemption provided under section 10, no hardship would be caused to dealers who have effected sales after the date of the decision of the Supreme Court. Therefore, the retrospective operation of the Act during the period between 10th November, 1964, and 9th June, 1969, cannot be said to have imposed unreasonable restrictions on the fundamental rights guaranteed under article 19(1)(f) and (g) of the Constitution. With regard to the period prior to 10th November, 1964, the dealers who have not collec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct is to cure the defective language of the provisions of the Act with retrospective effect so that sales effected in the course of inter-State trade or commerce after 1st July, 1957, are charged to tax notwithstanding the decision in Yaddalam's case[1965] 16 S.T.C. 231 (S.C.). By section 10 of the Amendment Act, however, exemption is given to dealers who have effected sales after 10th November, 1964, and have not collected tax under the Act. The question is whether section 10 of the Amendment Act violates article 14 of the Constitution? The Legislature has a broad discretion in the matter of classification. In taxation statutes there is broader power of classification than in other kinds of legislation. (Vide Khandige Sham Bhat v. Agricultural Income-tax Officer[1963] 48 I.T.R. 21 (S.C.); A.I.R. 1963 S.C. 591 at 594. So long as the Legislature refrains from clear and hostile discrimination against particular persons or classes, courts have permitted an extremely wide discretion in the matter of classification for tax purposes. The principles governing the reasonableness of classification in tax legislation have been stated in Cooley on Taxation, Volume 1, at page 334 thus: "1. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the matter is very broad and covers a wide range. In this connection it has been variously, said that in taxation there is a broader power of classification than in some other exercises of legislation, that it is not necessary that the basis of a classification of property for tax purposes be deducible from the nature of things classified, and that the legislature, in classifying subjects for taxation, cannot be required to state the grounds of the classification. Legislative classifications in tax matters are presumptively valid, the burden being on the challenger to prove that such a classification does not rest upon a reasonable basis and will not be disturbed by the judiciary in the absence of unreasonable, discriminatory, or arbitrary action. To justify judicial interference, it has been said, the classification adopted must be based on an invidious and unreasonable distinction or difference with respect to the subject of the tax. Where, however, it clearly appears that a classification adopted by the legislature in a tax statute is arbitrary and unlawful, it is the right and duty of the courts to pronounce the statute unconstitutional." In paragraph 177 at pages 237-238 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould have foreseen that their sales would be charged to tax and therefore could have made appropriate provision to meet the tax liability. By the classification made under section 10, it cannot be said that any dealer has been selected for hostile treatment. In our judgment, the classification for purposes of exemption resting on the date of the decision in Yaddalam's case(1) is a reasonable classification. Therefore, the second ground urged by the petitioner's learned counsel is untenable and it is rejected. Re. GROUND No. III.-The learned counsel for the petitioner next urged that section 25A of the Mysore Act is not a procedural provision but a substantive provision, that the Act by section 9(2) has not adopted the provisions of section 25A and if the said section has not been adopted under the Act, respondent No. 1 has no jurisdiction to rectify his earlier order. The learned Advocate-General submitted that the word "assess" in section 9(2) of the Act comprehends within its ambit rectification proceedings, and that in any event, the provisions of section 25A are provisions relating to "review" and as such by virtue of section 9(2) of the Act, the first respondent is entitled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prehensive sense and includes all the proceedings starting from the filing of the returns or issue of a notice and ending with the determination of the tax payable by the assessee. In Sankappa v. Income-tax Officer[1968] 68 I.T.R. 760 (S.C.); A.I.R. 1968 S.C. 816., the Supreme Court has held that the proceedings taken for rectification of assessment to tax either under section 35(1) or 35(5) of the Indian Income-tax Act, 1922, must be held to be proceedings for assessment. Section 25A provides for rectification of mistakes apparent from the record. Sub-section (1) of the said section reads: "(1) With a view to rectifying any mistake apparent from the record, the assessing authority, appellate authority or revising authority, may, at any time, within five years from the date of an order passed by it, amend such order: Provided that an amendment which has the effect of enhancing an assessment or otherwise increasing the liability of the assessee shall not be made unless the assessing authority, appellate authority or revising authority, as the case may be, has given notice to the assessee of its intention to do so and has allowed the assessee a reasonable opportunity of being heard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Central Sales Tax Act, 1956, if a transaction of sale or purchase of goods sold in the course of inter-State trade or commerce, is exempt from tax generally (sic) no Central sales tax at the point of purchase under the Mysore Sales Tax Act, 1957, the sale is exempt from tax generally. Whenever goods are taxable at the point of sale, the transaction of purchase is exempt from tax generally. Therefore no Central sales tax can be levied in respect of inter-State sales. There is a conflict between section 8(2A) and section 6(1A) of the Central Sales Tax Act, 1956. Section 6 deals with charge. Section 8 deals with the rate of taxation. Both operate on the same field. Section 8(2A) is notwithstanding anything contained in section 6(1A). Therefore section 8(2A) must prevail over section 6(1A)." Sub-section (2A) of section 8 on which the petitioner's learned counsel relies reads: "8. (2A) Notwithstanding anything contained in [sub-section (IA) of section 6 or] sub-section (1) or sub-section (2) of this section, if under the sales tax law of the appropriate State the sale or purchase, as the case may be, of any goods by a dealer is exempt from tax generally or is subject to tax ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all sales effected in the course of inter-State trade or commerce, not only in Mysore State but throughout India, will be exempt from tax under the Act by virtue of sub-section (2A) of section 8. There will be no occasion for levying tax at lower rates as provided in the latter part of sub-section (2A) of section 8 since all sales will be exempt from tax under the Act. On the construction contended for by the learned counsel for the petitioner, section 6(1 A) would become wholly nugatory and if we accept his contention we must hold that although the Parliament enacted section 6(1A) with the object of superseding the judgment of the Supreme Court in Yaddalam's case[1965] 16 S.T.C. 231 (S.C.)., it signally failed to achieve its object. A construction which leads to such a result must, if that is possible, be avoided: vide Commissioner of Income-tax v. Teja Singh[1959] 35 I.T.R. 408 (S.C.); (4) S.T.R.P. Nos. 63 and 64 of 1964. A.I.R. 1959 S.C. 352. A statute is designed to be workable and the interpretation thereof by a court should be to secure that object, unless crucial omission or clear direction makes that end unattainable. In our opinion, the object of sub-section (2A) of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te trade or commerce referred to in sub-section (1) of section 8 and that the said proviso laid down "that if the sale transaction dealt with in section 8(1) is exempt from taxation under the appropriate State law or if the purchase transaction leading to that sale transaction is exempt from taxation under that law, in either case, no tax can be levied under section 8(1)." The decision in Mysore Silk House case(1) was followed in Peirce Leslie's caseS.T.R.P. Nos. 63 and 64 of 1964. The assessee in Peirce Leslie's case(2) was a dealer in cashew kernel and the assessment related to the years 1958-59 and 1959-60. Section 8 of the Act was amended by Central Act No. 31 of 1958 by which the proviso to sub-section (1) of section 8 was deleted and the said provision was inserted as sub-section (2A) of section 8. In Peirce Leslie's case(2), it was held that since under the Mysore Act tax was levied on cashew kernel at the point of purchase, the sale of cashew kernel in inter-State sales was not taxable under the Act. It was observed that sub-section (2A) of section 8 is in Pari materia with the proviso to sub-section (1) of section 8 and therefore the decision in Mysore Silk House case(1) g ..... X X X X Extracts X X X X X X X X Extracts X X X X
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