TMI Blog1983 (8) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... ound thai it is arbitrary or irrational discriminatory. 3. For appeciating the petitioners' said challenge, it is necessary to set out the circumstances and the background in which the said Section 52 of the Finance Act came to be enacted giving retrospective effect to Notification No. 22/82 [GSR 77(E)/82] dated 23rd February, 1982. Historically there was no manufacture of safety matches in this country till about the year 1895. They were mainly imported from Sweden and Japan. For the first time a handful of 15 semi-mechanised safety match manufacturing industries came up and functioned during the period 1895 to 1923. In 1923 the Government of India imposed import duty as a revenue raising measure. After the imposition of import duty in 1923, a Swedish match company set up their fully mechanised match factory in India in the name and style of Western India Match Company Ltd. (WIMCO). At about the same time, some industrialists of Sivakasi in Tamil Nadu established a unit for the manufacture of hand-made safety matches in Sivakasi after adopting the know-how obtained from certain Japanese manufacturers who were working in Calcutta. Hand-made match sector gradually increased their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the grant of exemption of excise duty in excess of Rs. 1.60 per gross boxes of 50's matches as against the statutory rate of Rs. 7.20 per gross. The conditions imposed (were) contained in the four provisos to the said notification. The first proviso of the notification imposed a condition that the lowest rate of levy of excise duty would be allowed to a manufacturer whose factory is recommended by the KVIC for exemption under this notification. The proviso also gave the power of identifying the tiny unit to the State where the manufacturer is a member of the co-operative society and consisting exclusively (of) manufacturers of such matches. The second condition is contained in the next proviso which provided that the matches produced or sold by such units are through KVIC or the co-operative society. The third proviso related to the units recommended by the KVIC who have to use labels which are prescribed by KVIC or the co-operative society. This condition was imposed lest the bigger units diversify themselves in small units and become eligible for the purpose of larger concessional rate, available in the notification. The last proviso in the notification dealt with the manner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cess of 37.5 million matches, that the total production of matches in a calendar month should not exceed 15 million matches and annually for the calendar year 1981 the manufacturer should not have cleared in excess of 150 million matches and that the manufacturer should also give a declaration that his clearances for the first quarter of 1982 would not exceed 30 million matches. According to the department these stipulations relating to output were prescribed as to identify the units in the tiny sector. Thereafter, Notification No. 22/82 dated 23rd February, 1982, came to be issued providing for a ceiling limit on the output for claiming a higher exemption. It provided that the manufacturer, in order to have the benefit of concessional levy of excise duty thereunder, should not produce more than 15 million matches per month and the clearance annually should not exceed 150 million. The said notification was originally issued only with prospective operation, the Government thereafter enacted Section 52 of the Finance Act of 1982 giving retrospective effect to the said notification with effect from 19th June, 1980. The object of enacting Section 52 of the Finance Act giving retrospe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fect to certain factual situation which was in existence in the relevant period but which is found by the court to be illegal. But what has been done in this case is not such validation as the old scheme of exemption has been superseded by a new scheme brought into force for the first time on 23rd February, 1982, and it is sought to be given retrospective effect from 19th June, 1980. Thus the alleged validation is not strictly a validation as understood in legal parlance. (4) Even assuming that Section 52 of the Finance Act of 1982 is constitutionally valid, the classification made in the notification dated 23rd February, 1982, for availing the concessional rate of duty is wholly arbitrary, unreasonable and unworkable. There is no difference between manufacturer and manufacturer in the non-mechanised sector, and even assuming that there can be a legitimate classification on the basis of the past production, the adoption of the production during 1979-80 as the base year for determining eligibility for availing of the lower rates of duty in the year 1980-81 or the adoption of the production of 1980-81 as the base year for determining the eligibility for the financial year 1981-82 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiny units and the said notification has been interpreted to mean and Intended to apply not only to the tiny sectors but also to all the manufactures of non-mechanised category, the Government with a view to carry out its intention, has substituted the notification by a fresh notification and removing or rectifying the defects pointed out by this Court and this was done to avoid a substantial loss of revenue to the Government. There is nothing inherently unreasonable in giving retrospective effect to any enactment the object of which is to prevent the loss of revenue to the State which will otherwise occur. There is ho discrimination in the implementation of the retrospective legislation. As per the legislation review in respect of all the assessments in the non-mechanised sector for the past period has been made and wherever the scale of clearance is within the prescribed celling limit, concession is extended overlooking the provisos 1 and 2 to Notification No. 99 of 1980, which conditions have been deleted in the new Notification. The deletion of provisos 1 and 2 and prescribing a limit of production or clearance will itself go to prove that the Government bona fide intended to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f clearance has been adopted as a norm since long and only the quantum has been varying having regard to the development of production in the cottage sector, that the units under the KVIC and co-operative societies were producing about 100 million matches or 120 million matches respectively and taking into account the need for providing some in-built growth for these units; the maximum celling limit has been fixed at 150 million matches with duty liability at the concessional rate restricted to 120 million matches and the excess over 120 million charged at Rs. 4.50 per gross. Therefore, the ceiling limit cannot be questioned as arbitrary. 7. Mr. K.K. Venugopal, the learned counsel for some of the petitioners, does not question the constitutional validity of Section 52 of the Finance Act of 1982 in so far as it operates prospectively. But he is questioning only the validity of Section 52 in so far as it operates retrospectively as that amounts to levy of excise duty retrospectively from a prior date and such a retrospective levy will be arbitrary and violative of Article 19(1)(g) of the constitution of India. Thus, the constitutional validity of Section 52 in so far as it gives re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 1982 has been issued by the Central Government in exercise of their powers under Rule 8 of the rules framed under Section 37 of the Central Excises and Salt Act. Though Notification No. 22 of 1982 has been issued by the Central Government in exercise of the delegated power, the same has been approved and adopted by the legislature as its scheme of exemption to be applied with retrospective effect. In Notification No. 22 of 1982 the method of identification of tiny units has been specified on the basis of the total output. This has been done by the legislature for removal of the defect pointed out by this Court In Devt Match Factory v. Superintendent of Central Excise, Sattur 1983 ELT 99 with reference to the date of Notification No. 99 of 1980 came into force. Thus Section 52 of the Finance Act of 1982 has been given retrospective effect with a view to neutralise the judgment of this Court and to give effect to the legislative intention of giving the benefit of exemption only to cottage industries. It cannot be disputed that the legislature which delegated the power of exemption to the Government can itself take over that power and exercise the power of exemption if it chooses. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e respective State legislatures. (2) The Parliament had passed the Act in question not for the purpose of levying a cess of its own, but for the purpose of enabling the respective States to retain the amounts which they had illegally collected, and therefore, the Act was a colourable piece of legislation. (3) The Act had not been passed for the purpose of the Union of India and the recoveries of cesses which were retrospectively authorised by it were not likely to go into the Consolidated Fund of India. The Supreme Court rejected all the said three contentions on the following reasonings: As per the decision of the Supreme Court Diamond Mills case [1961] 3 SCR 242, it is obvious that the cess in question has outside the legislative competence of the State and the Parliament had the necessary legislative competence to levy such a cess, and therefore, the legislative competence of the Parliament to levy a cess as was imposed by Section 3 of the Sugarcane Cess (Validation) Act, 1961 (Central Act 38 of 1961), has to be upheld. By enacting the said Section 3 the Parliament is not attempting to confer legislative competence on the State Legislatures to enact a law for levy of cess and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and by converting their character from collections; made under the State statutes to that of collections made under its own statute operating retrospectively and to hold otherwise would be to cut down the width and amplitude of the legislative competence conferred on Parliament by article 248 read with entry 97 in List I of the Seventh Schedule. This decision of the Supreme Court has reiterated the well-established principle that the legislature is competent within its field to enact a law with retrospective effect validating the levies and collections already made under an invalid statute by treating the collections as having been made under the law enacted by it operating retrospectively. To deny the Parliament the said power would be cutting down the width and amplitude of the legislative competence conferred on Parliament by article 248 of the Constitution. 9. In Shri Prithvi Cotton Mills Ltd. v. Broach Municipality [1970] 1 SCR 388 the Supreme Court has laid down certain principles on which retrospective validation can be upheld by courts. Section 73 of the Bombay Municipal Boroughs Act, 1925, allowed the municipality to levy a rate on buildings or lands or both situated wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lidity are capable of being removed and are in fact removed and the tax thus made legal. Sometimes 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 re-enacted law. Sometimes the legislature gives its own meaning and interpretation of the law under which the tax was collected and by legislative fiat makes the new meaning binding upon courts. The legislature may follow any one method or all of them and while it does so it may neutralise the effect of the earlier decision of the court which becomes ineffective after the change of the law. Whichever method is adopted it must be within the competence of the legislature and legal and adequate to attain the object of validation. If the legislature has the power over the subject-matter and competence to make a valid law, it can at any time make sucha valid law and make it retrospectively so as to bind even past transactions. The validity of a validating law, therefore, depends upon whether the legislature possesses the competence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rts which functioned under the Special Criminal Courts Ordinance, 1942, the Federal Court observed that the Parliament can take up certain determinations which existed in fact, though made without authority and validate the sentences passed by such courts by conferring jurisdiction on the special courts and authorise them to try the cases and impose sentences, and by so authorising the legislature did not exercise any judicial power. 11. The Supreme Court also referred to the decision in Basanta Chandra Ghose v.The King Emperor [1944] FCR 295 wherein the Federal Court noticed the distinction between a legislative act, and a judicial act and said that neutralising a judicial decision is a legislative act, but to direct that a proceeding before court be discharged is clearly a judicial act. In that case there was an Ordinance which discharged the proceedings before a court of law and that was held to be an exercise of judicial power by the legislature which it has no power to exercise. 12. It is in the light of these decisions we have to consider the grounds of attack raised by the petitioners in these cases. 13. That the legislature has got the powers to make a retrospective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the earlier decisions of the Supreme Court referred to above. In the earlier decisions the Supreme Court consistently held that the legislature has power to make a retrospective law taking away the basis of the judgment and validate any action earlier taken notwithstanding the judgment of courts, but that power is subject to two conditions: (1) The legislature must have the power to make the law. (2) It must take away the basis of the judgment by declaring the law to be otherwise and validating the action taken under the old law, treating those actions as having been taken under the new law notwithstanding any order of court to the contrary. In those decisions, the Supreme Court did not make any reservation in so far as decrees of courts are concerned. Merely because the legislature makes a law which is inconsistent with earlier decisions of courts it cannot be said that it is exercising judicial power. Similarly the legislature cannot be said to exercise judicial it power if changes the law as declared by courts. Any decision contrary thereto should be taken to be null and void, it is well-established that the legislature is supreme and soverign in its field. It is therefore not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passing of that Act the letters patent appeal was not pressed by the Life Insurance Corporation, presumably on the ground that by passing of the said Act, the judgment of the court has been made ineffective. Since the effect of that Act was to deprive Class III and Class IV employees the cash bonus due and payable to them in accordance with the settlement, some of the service associations filed writ petitions before the Supreme Court challenging the constitutional validity of the said Act. It was contended on behalf of the employees that even if the impugned Act rendered Clause 8 of the settlement ineffective with effect from 1st April, 1975, it did not have the effect of absolving the Corporation from its obligation to carry out the writ of mandamus issued by the court and that the right of the employees to get annual cash bonus for the years 1975-76 and 1976-77 under Clause 8 of the settlement already accrued was "property" and as the said Act provided for the compulsory acquisition of that property without payment of compensation, it was violative of Article 31 (2) of the Constitution. The view taken by the majority in that case is that the said Act is violative of Article 31 (2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AIR 1982 SC 1126. In that case the validity of the provisions of the Life Insurance Corporation (Amendment) Act, 1981, which inserted clause (cc) in sub-section (2) and introduced sub-sections (2A), (2B) and (2C) in Section 48 of the Life Insurance Corporation Act, 1956, was challenged. All these provisions had been given retrospective effect. Subsequent to the amending Act the Central Government framed rules called the Life Insurance Corporation of India Class III and Class IV Employees (Bonus and Dearness Allowance) Rules, 1981. Rule 3 therein has been given retrospective effect from 1st July, 1979, and that provided that no Class III or Class IV employee shall be entitled to any profit sharing bonus or any other kind of cash bonus. Sub-rule (2) of Rule 3 states that the said employees shall be entitled to a payment in lieu of bonus for the period commencing from 1st July, 1979, and ending with 31st March, 1980, at the rate of 15 per cent of his salary and thereafter for every year commencing from 1st April and ending with 31st March the following year at such rate and subject to such conditions as the Central Government may determine. The said amending Act was challenged on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 334 proceeded to hold that Rule 3 operating retrospectively cannot nullify the effect of the writ issued in D.J. Bahadur's case AIR 1980 SC 2181 which directed the Life Insurance Corporation to give effect to the terms of the 1974 settlement relating to bonus until superseded by a fresh settlement, an industrial award or relevant legislation. Apart from the fact that Beg, C.J., alone expressed the view in Pathak's case [1978] 3 SCR 334 that Section 3 of the Life Insurance Corporation (Modification of Settlement) Act, 1976, is invalid for trenching up on the judicial power in so far as that section operating retrospectively affects the judgment rendered by courts, the majority did not proceed on that basis. 19. Even assuming that the view taken by Beg, C.J., is the majority view in Pathak's case [1978 3 SCR 334 and that view has also been accepted by the court in Nachane's case AIR 1982 SC 1126, still we are of the opinion that the said view should be taken to be with reference to the peculiar facts of those cases. As already stated, the facts out of which the said two cases arose are somewhat peculiar. There the Life Insurance Corporation has entered into a settlement with its e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnment owed to the petitioners. Section 3 of the Central Excises and Salt Act, 1944, imposes a liability to pay excise duty on all match manufacturers, but a distinction has been made between mechanised units and non-mechanised units and different rates of excise duty have been applied. Even in the non-mechanised sector, the Government thought that protection is necessary for cottage units which were not in a position to compete with the bigger manufacturers of match units whose economy is sound and who have got other facilities to market their produce. For the purpose of helping the cottage units who can carry on the activity of manufacture only with the help of the KVIC or the co-operative societies to get raw materials as well as to sell matches, the Government issued Notification No. 99 of 1980 reducing the excise duty to 1.60 per gross of matches. All the petitioners herein are persons who have cleared their manufactured stock by paying the rate of excise duty at Rs. 4.30 per gross as per Notification No. 98 of 1980. The petitioners and others who do not fall in within the cottage per tiny sector felt themselves aggrieved by Notification No. 99 of 1980 giving a concessional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... another Notification No. 22 of 1982, and give it retrospective effect. This the Parliament had the power to do and there is no question of exercise of any judicial power by the Parliament. What the Parliament has done is to clarify its infentio in providing for the exemption to cottage units under Notification No. 99 of 1980 and take away the basis for the judgment of the court and thus neutralise the decision. That the Parliament has the power to neutralise the judgment by taking away the basis of the judgment by changing the law retrospectively has been laid down by the Supreme Court in a series of cases, one of them being T.R. Rajindra Nath v. State of U.P. AIR 1973 SC 405. The Supreme Court has pointed out time and again in several cases the distinction between encroachment on judicial power and nullifying the effect of judicial decision by changing the law retrospectively. That validation of executive orders is subsidiary or ancillary to the legislative power, has been held in one of the earliest cases of the Federal Court: in United Provinces v. Atiqa Begum AIR 1941 FC 16. On the facts of this case the decision of the Supreme Court neither in D.J. Bahadur's case AIR 1980 SC 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tput as the basis for exemption for the first time, it is unreasonable, arbitrary and violative of article 14 of the Constitution. Even assuming for the sake of argument that Notification No. 99 of 1980 did not provide a ceiling on the output for claiming the exemption thereunder and only under Notification No. 22 of 1982 the exemption was based on the basis of the output, still we are unable to accept the contention of the learned counsel for the petitioners that introduction of a different basis for exemption will make the notification an arbitrary one. While exercising the power of exemption, the State can adopt any reasonable basis and the adoption of output as the basis for exemption cannot be said to be an unreasonable or arbitrary basis. According to the petitioners though normally it is open to the State to adopt output as the basis for exemption, in this case the adoption of that basis for purposes of exemption has been made with retrospective effect for a past period when persons like the petitioners had no opportunity to adjust their production or output suitably for claiming exemption, it becomes arbitrary. In this case we are not concerned with a law imposing a tax bur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . v. Commissioner of Income-tax [1973] 87 ITR 639 and District Co-operative Development Federation Ltd. v. Commissioner of Income-tax [1973] 88 ITR 330, the expression "cottage industry" normally connotes an industrial activity of which a well-recognised feature is that it is commonly located in the cottages or homes of the artisans and it is earned out on a small-scale with a small amount of capital and a small number of workers and has a limited turn over. Thus in common parlance a cottage industry is to be taken as a unit employing a small amount of ^capital and a small number of workers and has a small turnover when compared with other non-mechanised units. The intention behind Notification No. 99 of 1980 is to confer benefit on small or tiny match manufacturing units and not to confer the benefits on all non-mechanised units. It cannot be denied that cottage units can be identified on the basis of output which has been adopted in Notification No. 22 of 1582. 22. Then it is urged by the learned counsel for the petitioners that the retrospective application of exemption Notification No. 22 of 1982 based on output is only a device to withhold the refund of the amounts due to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is placed on the judgment of the Supreme Court in Pathak's case [1978] 3 SCR 334, wherein the Supreme Court struck down the Life Insurance Corporation (Modification of Settlement) Act, 1976, on the ground that it is violative of article 31 (2) of the Constitution. But we are of the view that the said decision should be distinguished on facts. There a debt had accrued due by the Life Insurance Corporation to the employees as per the terms of settlement which is an enforceable contract between the parties and such a debt which has already accrued and became payable by the Life Insurance Corporation cannot be taken away by a legislation unless a provision for compensation is made. That is not the case here. Here it is in pursuance of the judgment of this Court rendered under a particular view of the notification the levy of excise duty on the petitioners was found to be excessive. There is no question of springing into existence a debt as a result of the judgment. Further the finality of the judgment depends upon the view to be taken on the notification by the appellate court and if the appellate court takes a contrary view, then there is no question of any excess levy of excise duty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the legislature or of the Government acting under Rule 8 to exempt a certain category from payment of excise duty is exercised, then necessarily some classification has to be made to distinguish between the persons to whom the exemption is to be granted and persons to whom the exemption is not intended. In this case the Government has chosen to fix 150 million matches as the maximum limit of output for availing of the exemption. Such a classification cannot be attacked by the petitioners on the ground that some other limit which will be beneficial to them should have been prescribed. It is well-established that the legislature has got undoubted power to make a reasonable classification having regard to the object of the legislation, and in making such a classification, the legislature has got a wider discretion in the field of taxation. The legislature, with a view to encourage and benefit the tiny match manufacturing units who are producing less than 150 million matches, brought in and applied Notification No. 22 of 1982 with retrospective effect. The legislative intention is clear that the benefit of exemption will be confined only to persons producing less than 150 million m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally unsustainable. Reliance is placed on the decision of a Division Bench of this Court in S.P. Temple v. Manickam Chettiar 19771 MLJ 425 in support of the contentions that an exemption can only be prospective and not retrospective. However, we find that the said decision cannot support the petitioners' stand. In that case Section 29 of the Tamil Nadu Buildings (Lease and Rent Control) Act, 1960, was held to enable the government to exercise the power of exemption only prospectively. After referring to the language used in Section 29 of the said Act the court expressed the view that the power granted in that section is exercisable by the Government only prospectively, that if any notification is in terms issued with retrospective effect, that notification to that extent would be ultra vires Section 29 and that any notification issued thereunder if its language is natural, it must be construed only as operating prospectively for only by such a construction can the notification be held to be ultra vires the enabling provision of Section 29 and if the language of the notification cannot be read so as to give it retrospective effect, since to do so would be to impute to the Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d retrospectively, it cannot be said that it has resulted in confiscation of any of the petitioners' property rights. The right to have the production adjusted for getting the benefit of exemption cannot be said to be a property in any sense. This contention should, therefore, be rejected. 28. Next it is contended that an exemption notification can confer only benefit but it cannot, in any event, be used as a taxing measure by giving retrospective effect as has been done in this case. According to the petitioners, the retrospective operation of Notification No. 22 of 1982 is intended not to exempt but to restore a charge which has been held to be invalid by the Court. It is said that the exemption notification in this case is intended to benefit the Government by withholding the refund due to the petitioners based on the basis of the judgment rendered by this Court earlier. As already stated, by a retrospective application of Notification No. 22 of 1982 the Government has made its intention dear that the exemption is intended only to tiny sector and not to all the manufacturers within the non-mechanised sector. The notification had been given retrospective effect to see that only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 56,4457, 4458, 3094, 3410 and 3710 of 1983. These petitioners are persons who hold certificates granted by the KVIC certifying that they are bona fide cottage units entitled to the benefit of Notification No. 99 of 1980. The complaint of these petitioners is that as a result of the retrospective application of Notification No. 22 of 1982 they have lost their right of exemption as it is now impossible for them to satisfy the yardstick laid down in the latter notification, that therefore the retrospective application of the notification amounts to confiscation and that in any event, the Government will be estopped by the principle of promissory estoppel from giving retrospective effect to the notification so far as they are concerned. The petitioners proceed on the basis that the right to claim exemption under the earlier notification is a property right and that cannot be taken away by the State by giving the retrospective operation to Notification No. 22 of 1982. The learned counsel for the petitioners refers to the decision of the Supreme Court in Income-tax Commissioner, Calcutta v. B.N. Bhattacharjee AIR 1979 SC 1725 in support of his submission that the State is also bound by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
