TMI Blog1996 (12) TMI 359X X X X Extracts X X X X X X X X Extracts X X X X ..... ugned provisions imposed sales tax on "agarbathis" and "garlic" at the rates mentioned in the relevant entries in the First Schedule with retrospective effect. As per the judgment, the learned single Judge has found that though the Legislature has legislative competence to enact the impugned provisions retrospectively, they are, in the facts and circumstances, totally unreasonable and arbitrary in nature in so far as it imposes heavy sales tax liability retrospectively on transactions which were concluded long before the enactment of the law itself. The learned Judge has accordingly quashed the impugned provisions to the extent it has been given retrospective effect. The judgment of the learned single Judge is under challenge in the writ appeals. 3.. In the two tax revision cases which relate to the provisions imposing tax liability on "garlic" retrospectively, the State is challenging the correctness of the decision rendered by the statutory authorities following the view taken by the Division Bench of this Court in Deputy Commissioner of Sales Tax v. Hassim Trading Co. [1987] 66 STC 240 ; [1987] 1 KLT 710 that "garlic" is not taxable as "spices" and is exempt from taxation. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions contained in the Finance Act of 1984, published on July 28, 1984, entry 80-B was introduced in the First Schedule with effect from April 1, 1984, which reads as follows: "80-B Raw bathis At the point of first sale in the State by a dealer who is liable to tax under section 5. 10 per cent." Even as per the new entry, the Legislature did not expressly include "agarbathis" and "scented sticks" as specific items in the First Schedule. Later, by virtue of the Finance Act 18 of 1987, the original entry 80-B was renumbered as entry 155 without any change. Still later, presumably to overcome the legal bar created by the decision in Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes) v. K.A. Latheef [1988] 69 STC 29 (Ker) and the dismissal of the Special Leave Petition by the Supreme Court in the matter of imposing tax at 10 per cent on "agarbathis", the Legislature took steps to amend the First Schedule bringing in necessary amendments in entry 155 by the Ordinance published in the Gazette on September 28, 1989. In the Ordinance, clause 6(d) was incorporated to amend entry 155 adding the words "agarbathis and other scented sticks" after the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a dealer who is liable to tax under section 5. 8 per cent." Subsequent to the amendment introduced by Act 18 of 1987, "spices" became entry 179 in the First Schedule. The entry is almost identical with the earlier entry. The amended entry came into force from July 1, 1987. After promulgation of the Ordinance, entry 179, as amended, now reads as follows: "197 'Spices' (including chillies, garlic and coriander seed) not falling under any other entry in this Schedule. 8 per cent" The amendment effected by clause 6(e) of the Ordinance was given retrospective operation from April 1, 1984 as per clause 1(2) of the Ordinance. The retrospectivity given to the amendment of the provisions in entry 179 by the Ordinance and the amending Act was under challenge in the original petitions. 9. We may here itself refer to the relevant portion of the Statement of Objects and Reasons given at the end of the body of the amending Bill which was passed as the impugned Act: "Government in G.O. (Rt) 344/82/TD dated May 20, 1982 clarified that agarbathi is a perfumery. Accordingly assessments were completed treating agarbathi as a perfumery taxa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iginal petitions. In the place of an Act or Ordinance there was an order issued in exercise of the power conferred under section 59-A of the Act which was found to be illegal by this Court and it was to effectuate the unsuccessful actions taken to impose tax on agarbathis made earlier under the 1982 order that the Ordinance and the amending Act was brought into force. The basic assumption made by the learned single Judge to the effect that tax was sought to be imposed on agarbathis for the first time only after the promulgation of the Ordinance is not correct in the light of Government Order dated May 20, 1982, issued under the provisions contained in section 59-A of the Act. So long as the clarification issued as per Government Order dated May 20, 1982 was in force, the dealers cannot be heard to say at least in regard to agarbathis that they have not collected tax from their customers as provided therein. The Government Order was found to be invalid only as per the decision in Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes) v. K.A. Latheef [1988] 69 STC 29 (Ker) and finally by the Supreme Court on March 10, 1987 when it dismissed the Special Leave Petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose under challenge in the original petitions cannot be treated or equated to validating Acts and has submitted that there is no scope for application of the principles applied by the courts while determining the reasonableness and constitutionality of the validating Acts to the instant cases. It was strongly submitted that there was no valid law made by the Legislature imposing tax on agarbathis and garlic prior to the promulgation of the Ordinance. As such, the learned single Judge was perfectly justified in proceeding on the basis that there was no legislation valid or otherwise subjecting the above two items of goods to tax prior to the Ordinance and the amending Act challenged in the original petitions. It was also submitted that though absence of any opportunity to collect tax from the consumers and passing on to the State may not be decisive factor while deciding the question of constitutionality of a taxation statute, it is a very relevant consideration while considering the question of reasonableness of the enactment. It will amount to imposition of an unreasonable and harsh burden on the dealers. In such circumstances, tax imposed can only be considered as a penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e: Union of India v. Madan Gopal Kabra [1954] 25 ITR 58 (SC); AIR 1954 SC 158, J.K. Jute Mills Co. Ltd. v. State of Uttar Pradesh [1961] 12 STC 429 (SC); AIR 1961 SC 1534, Krishnamurthi and Co. v. State of Madras [1973] 31 STC 190 (SC); AIR 1972 SC 2455, Ujagar Prints v. Union of India [1989] 74 STC 401 (SC); AIR 1989 SC 516 and Entertainment Tax Officer-I v. Ambae Picture Palace [1995] 96 STC 338 (SC)]. Inability of the dealer to realise the sales tax from his customers during the period covered by retrospective operation of law is not a factor which affects the competence of the Legislature to enact a law imposing sales tax retrospectively [see: J.K. Jute Mills Co. Ltd. v. State of Uttar Pradesh [1961] 12 STC 429 (SC); AIR 1961 SC 1534 and Krishnamurthi and Co. v. State of Madras [1973] 31 STC 190 (SC); AIR 1972 SC 2455]. Where retrospective legislation has been undertaken mainly for the reason that the Legislature or the delegated authority has failed to bring out its intention clearly in the principal Act, such legislation is not normally open to attack either on the ground of legislative competence or on the ground of violation of article 19(1)(g) of the Constitution of India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eclaration, without anything more, cannot directly overrule, revise or override a judicial decision. It can render judicial decision ineffective by enacting valid law on the topic within its legislative field fundamentally altering or changing its character retrospectively. The changed or altered conditions are such that the previous decision would not have been rendered by the court, if those conditions had existed at the time of declaring the law as invalid. It is also empowered to give effect to retrospective legislation with a deeming date or with effect 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes) v. K.A. Latheef [1988] 69 STC 29 has declared that the phrase perfumeries and cosmetics occurring in entry 80 of the First Schedule will not take in agarbathis and as such turnover on agarbathis cannot be taxed at 10 per cent. It is also true that later section 59-A of the Act was found to be unconstitutional as per the judgment dated November 15, 1990 in the case reported in T.C.M. Co. Ltd. v. State of Kerala [1991] 81 STC 313 (Ker); [1991] 1 KLT 196. The specific case of the State set up in the counter-affidavit in the original petitions is that it is to effectuate the unsuccessful actions taken under the 1982 order to tax agarbathis and to avoid reopening of closed assessments that the amending Act was passed by the Legislature. 17.. It is relevant to note that the object and reasons stated for retrospectively amending entries 155 and 179 was to avoid reopening of completed assessments regarding turnover of agarbathis and garlic as a result of the decisions reported in Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes) v. K.A. Latheef [1988] 69 STC 29 (Ker) and Deputy Commissioner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... larification prior to August 29, 1989 which was struck down or invalidated by any court or imperfect or defective on account of mistakes committed by the Legislature which the Legislature wanted to cure as minor repairs . On the above basis, the learned Judge further held that tax was sought to be imposed on agarbathis for the first time as per the Ordinance with retrospective effect from April 1, 1984. Proceeding on the above assumptions, the learned Judge has found that for the first time tax was imposed retrospectively for a considerably long period of five years and four months. According to the learned Judge, such imposition was bound to have the effect of imposing an unreasonable and unexpected burden and in many cases, such an imposition of tax which cannot be passed on to the buyer may result in the business being closed down. 20.. As regards the decisions relied upon by the learned Government Pleader dealing with statutes having retrospective effect, the learned Judge found that they fall into three categories of cases. In paragraph 24 of his judgment, the learned Judge has indicated the three different classes thus: (1) Cases where the Legislature has attempted to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hoteliers as unconstitutional. As per section 6 of the amending Act, supplies provided by eating houses to consumers were treated as sale assessable to tax for the first time with a further provision exempting assessees from such liability in cases where assessees are able to establish that they have not collected tax on supplies made by them to customers on the ground that no such tax could have been levied or collected at that time, at any time on or after the 7th day of September, 1978 and before the commencement of the amending Act. On the basis of the Forty-sixth amendment, the Andhra Pradesh Sales Tax Act was amended and the amending provisions came into force only on 13th September, 1985 with a provision corresponding to section 6 of the Constitution Amendment Act. Till the passing of the State Act, there was no law or executive action or notification authorising the imposition of tax on eatables supplied and it was for that reason the Supreme Court has dismissed the review rejecting the contention that subsequent enactment would validate the imposition of tax observing that as there was no law imposing a liability on the supplies made by eating houses to its customers prior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the High Court. The important distinction which we discern in the two cases in State of A.P. v. V.V. Rama Rao and Company [1989] 74 STC 190 (AP) and Deputy Commissioner of Sales Tax (Law) v. K.A. Latheef [1988] 69 STC 29 (Ker) is the existence of a notification or Government Order as the basis of the executive actions taken for imposing tax from 1982 onwards which were ineffectuated by the judicial decisions rendered by this Court in the case of Deputy Commissioner of Sales Tax (Law) v. K.A. Latheef [1988] 69 STC 29 and the absence of any such executive notification or actions in the case of State of A.P. v. V.V. Rama Rao and Company [1989] 74 STC 190 (AP). As analysed above, we find that the learned Judge was not justified in applying the principles laid down in the above three decisions to the facts and circumstances of the cases on hand and deciding the issue on that basis. 24.. Examined in the light of what is discussed above, we find that the main or basic assumption that there was no enactment, law or circular imposing tax on agarbathis prior to August 29, 1989 and that it is for the first time as per the Ordinance tax was imposed retrospectively with effect from April 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in force, no dealer could have normally ignored to act according to the clarification contained in it. If he had ignored it, it can only be at his peril. There is no apparent reason to think that dealers were not acting in accordance with it. Though after the invalidation of section 59-A of the Act by the decision of this Court, the Government Order issued under that section should be deemed as still born in law as observed by the learned single Judge, still for the purpose of determining the nature of the subsequent enactment and to see whether it is a validating enactment or not, it should legitimately be considered as a law or at least as an executive action or notification which existed at the relevant time and on the basis of which tax was actually imposed and assessments were completed and tax collected on agarbathis till it was struck down by this Court later. As such, we cannot also agree with the view of the learned single Judge that there is no possibility for the State claiming that the present Ordinance 7 of 1989 and Act 3 of 1990 are in the nature of clarification or validating earlier legal position . 25.. Analysing the factual and legal situation existing as o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judicial decisions rendered by this Court ineffectuating or invalidating such actions that the Legislature has brought in the impugned provisions in the Ordinance and the amending Act with retrospective effect. If this be the true legal position, we are inclined to take the view that what the Legislature has done in this case, by bringing in the Ordinance and the amending Act, is to render the judicial decisions ineffective by enacting a valid law on the topic within its legislative sphere curing the defects or removing the reasons for which this Court has invalidated the Government Order and the actions taken by the executive on the basis of the Government Order for imposing and collecting tax on agarbathis from May 20, 1982 onwards with retrospective effect from April 1, 1984. The defect which existed in the law or executive action earlier was the absence of a proper entry in the First Schedule of the Act including agarbathis therein. It was in the absence of a proper provision imposing tax that the levy and collection of tax was held illegal as per its decision in spite of the clarification issued as per the Government Order. Further, in Dadha Pharma Pvt. Ltd. v. State o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cent retrospectively from April 1, 1984 is unreasonable and arbitrary and as such unconstitutional. In the light of the Government Order dated May 20, 1982 by which the delegated authority has sought to impose tax on agarbathis , it cannot also be said that tax was imposed retrospectively for the first time from August 29, 1989 and there was no attempt even to collect tax on agarbathis . The fact that this Court has invalidated the Government Order and ultimately the provisions contained in section 59-A of the Act itself may not be a sufficient ground to find that the retrospectivity given to the impugned provisions is unreasonable and arbitrary so long as the legislative competence to enact a retrospective enactment like the one challenged by the dealers in this case is conceded, in the light of the Government Order which was invalidated or ineffectuated by this Court later. Avoiding the legal effect of judicial decisions invalidating the enactments and the actions taken for the purpose of imposing tax and reopening of completed assessments is a well-known object or purpose for which validating enactments can be brought in legally with retrospective effect by a competent Legisla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and as such unconstitutional finding that it will result in imposing an unexpected, unjust and unduly heavy financial burden on the dealers or that they will be compelled to close down their business if the provision is upheld as such. If at all, such hardships and losses can only be ventilated before the Government for the purpose of invoking its power to grant exemptions individually or on a general basis, if circumstances justify such exercise of power vested in the Government. 28.. We would, accordingly, set aside the decision of the learned single Judge in cases relating to agarbathis and would allow all writ appeals challenging such decisions. Accordingly, Writ Appeal Nos. 177, 181, 184, 195, 326, 327, 328, 391, 396, 485, 662, 695, 730, 735, 748, 815, 829 and 1395 of 1991 and 1687 of 1995 and 268 of 1996 would stand allowed, and Original Petitions Nos. 433 of 1990, 1092 of 1990, 1022 of 1990, 9375 of 1989, 7571 of 1990, 10385 of 1989, 1059 of 1990, 7682 of 1990, 2439 of 1990, 10378 of 1989, 9264 of 1990, 722 of 1990, 10114 of 1989, 6529 of 1990, 1114 of 1990, 2035 of 1991, 2680 of 1991, 3412 of 1990, 9473 of 1990 and 10907 of 1990 would stand dismissed, but without cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uarely within the principles laid down in the decisions reported in Shri Krishna Enterprises v. State of Andhra Pradesh [1990] 76 STC 67 (SC), Shew Bhagwan Goenka v. Commercial Tax Officer [1973] 32 STC 368 (Cal) and State of A.P. v. V.V. Rama Rao and Company [1989] 74 STC 190 (AP) as held by the learned single Judge. In this view, as regards garlic , we are in full agreement with the reasoning and conclusion reached by the learned single Judge and would, accordingly, uphold the decision in all the original petitions in which retrospective imposition of tax on garlic is challenged. 31.. In the result, we would dismiss Writ Appeal Nos. 323, 354, 369, 372, 393, 394, 395, 525, 579, 660, 711, 728, 731, 734, 746, 772, 773, 783, 798, 814, 949, 991 and 1358 of 1991 with no order as to costs. 32.. Four identically similar questions referred for decision in the two tax revision cases relating to assessability of turnover of garlic are the following: 1. Whether, the Tribunal is justified in law in holding that the respondentassessee is not liable to be taxed on the sales turnover of garlic under assessment year 1984-85? 2.. Has not the Tribunal erred in law in confirming the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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