TMI Blog1983 (8) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and clearance also on the ground that it is arbitrary or irrational and discriminatory. 3. For appreciating the petitioners' said challenge, it is necessary to set out the circumstances and the background in which the said Section 53 of the Finance Act came to be enacted giving retrospective effect to Notification No. 23/82 [GSR 77(E)/82] dated 23-2-1982. Historically there was no manufacture of safety matches in this country till about the year 1895. They were mainly imported from Swedon 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 mechanized match factories in India in the name and style of Western India Match Company Ltd., (WIMCO). At about the same time, two 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. Handmade match secto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d certain conditions 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 are contained in the Four provisions 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 assisting exclusively 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 or the co-operative Society. This condition was imposed lest the bigger units diversify themselves in small units and become eligible for the larger consessional rate, available in the notification. The last proviso in the notification deal with the manner in which the matches should be manufactured. The s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in excess of 150 million matches and that the manufacturer should also give a declaration that his clearances for the first quarter 1982 would 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. 6.Thereafter, notification No. 22/1982 dated 23-2-1982 came to be issued providing for a ceiling limit on 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 No. 22/1982 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 retrospective effect to Notification No. 22 of 1982 with effect from 19th June, 1980 was to meet the demand of persons like the peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een superseded by a new scheme brought into force for the first time on 23-2-1982 and it is sought to be given retrospective effect from 19-6-1980. Thus the alleged validation is not strictly a validation as understood in legal parlance. (4) Even assuming that notification dated 23-2-1982 for availing the concessional rate of duty is wholly arbitrary, unreasonable and is unworkable. There is no difference between manufacturer and manufacturer in the non-mechanised section, and even assuming that there can be a legitimate classification on the basis of the past production, the adopting 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 financial year 1981-82 is perse unreasonable, since the very notification has been given retrospective effect during the said period for meeting certain contingency arising out of the scheme which positively gave up any limits on production and having held out such a promise and goarded or lulled the manufacturers into the belief that they would be entitled to avail of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fication 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 no discrimination in the implementation of the retrospective legislation. As per the legislation a 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 ceiling limit, concession is extended overlooking the provisos 1 and 2 to Notification No. 99 of 1980, which condition 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 Govt. bona fide intended to comply with the observations of the High Court simultaneously taking care to prevent unintended enrichment occurring to the bigger units, by prescribing the ceiling limit in the notification itself. Section 52 seeks to validate the levy after making good the om ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some in built growth for these units, the maximum ceiling 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 at Rs. 4.50 per gross. Therefore, the ceiling limit cannot be questioned as arbitrary. 9.Mr. K.K. Venugopal, learned counsel for some of the petitioners does not question the constitutional validity of section 52 of the Finance Act of 1982 insofar as it operates prospectively. But he is questioning only the validity of section 52 insofar as it operates retrospective 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 of (1)(g) of the Constitution of India. Thus the constitutional validity of Section 52 insofar as it gives retrospective effect to Notification No. 22 of 1982 is alone under challenge. It is by now well established that the Parliament has got the power to make a law on a topic in respect of which it is competent to enact a law both prospectively and retrospectively, and such a power to make a law retrospectively is more freely exercised by the Legislature in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Devi Match Factory and Others v. Superintendent of Central Excise, Sattur [1983 (12) E.L.T. 99 (Mad.)] 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 given 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 choses. Instead of the legislature itself issuing a fresh exemption notification of its own, it chose to take the existing notification issued by the Government and adopted and applied the same as its own from an enterior period from the purpose of removing the anomalies or the defects pointed out by this Court in Notification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 authorize 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 reasoning. As per the decision of the Supreme Court in Diamond Mills case (1961) 3 SCR 243 it is obvious that the cess in question was 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, 1951 (Central Act 16 of 1961) has to be upheld 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 thus validate the invalid state statutes and to provide that the said law shall come into operation retrospectively the parliament should be taken to know that the relevant State Acts were invalid because the State Legislatures were not competent to enact them and that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ament 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 a 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 apptitude of the legislative competence conferred on Parliament by Article 248 of the Constitution. In Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality - 2000 (123) E.L.T. 3 (S.C.) = (1970) 1 S.C.R 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 situate within the Municipality. The rules under the Act applied the rates on the basis of the percentage on the capital value of lands and buildings. In Patel Gordhandas Hargovidas v. Municipal Commissioner, Ahmedabad - (1964) 2 S.C.R. 608 the Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 courts. The Legislature may follow any one method or all of them and while it does so it may neutralize the effect of the earlier decision of the court which become 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 such a valid law and make it retrospectively so as to bind even past transactions. The validity of a Validating law, therefore, depending upon whether the legislature possesses the competence which it claim over the subject-matter and whether in making the validation it removes the defect which the courts had found in the existing law and makes adequate provisions in Validating law for a valid imposition of the tax." Thus in that case the expression "rate" occurrin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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. 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 that neutralizing a judicial decision is legislative before a 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. It is in the light of these decisions we have to consider the grounds of attack raised by the petitioners in these cases. 12.That the Legislature has got the power to make a retrospective law on a subject within its filled has not been questioned before us. The petitioners seek to question sec. 52 so far as it operate retrospectively on the ground of violation of Article 14 and Article 9(1) of the Constitution. The learned counsel for the petitioners, however, states that though the legislature has got the power to make a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave 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 so far as the 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 power if it charges 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 sovereign in its field. It is therefore not possible to invalidate Section 52 of the Finance Act of 1982 in so far as it seeks to affect or nullify the decision of the court to the contrary on the ground that it is an exercise of judicial power by the legislature and hence it should be taken to be invalid. 13.The learned counsel then refers, in support of his submission, the decisions rendered by the Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iation 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 April 1, 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 accoused 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) of the Constitution, that the liability to pay cash bonus to its employees by the corporation has accrued and it has become a debt due by the Corporation to its employees, and that such a debt cannot be wiped out or extinguished without payment of compensation. This decision of the Court rested on the violation of Article 31(2) of the Constitution not on the lack of power for the leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led the Life Insurance Corporation of India Class III and Class IV Employees (Bonus and Dearness allowances) Rules 1981. Rules 3 therein has been given retrospective effect from 1-7-1979 and that provided that no class III or Class IV employees 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 July 1, 1979 and ending with March 31, 1980 at the rate of 15% 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 following grounds : (1) That the rules are violative of Articles 14, 19(1)(g) and 21 of the Constitution. (2) That the amending Act was invalid on the ground of excessive delegation of legislative function. (3) Sub-Section (2C) of section 48 was invalid to the extent it directed retrospective operation to override the decision of the Supreme Court in D.J. Bahadur's case (AIR 1980 SC 2181). The Supreme Court held that the amending A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication of Settlement) Act, 1976 is invalid for trenching upon the judicial power insofar as that section operating retrospectively affect the judgment rendered by Courts, the majority did not proceed on that basis. 17.Even assuming that the view taken by Beg, C.J. is the majority view in Pathak's case and that view has also been accepted by the Court in Nichane's Case (AIR 1983 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 employees for payment of cash bonus. Since the Life Insurance Corporation did not pay the cash bonus as required by the terms of the settlement, the affected employees have gone before the Court and obtained writs of mandamus directing the Life Insurance Corporation to pay them cash bonus which has accrued and which has become a debt due by the Life Insurance Corporation to its employees. On the basis that the debt has already accrued, the court directed that whatever happens in the future, the debt already accru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her 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 the notification No. 98 of 1980. The petitioners and others who do not fall in within the cottage or tiny sector felt themselves aggrieved by the Notification No. 99 of 1980 giving a concessional rate of excise duty to the cottage or tiny sector and attacked it on the ground that there is no need for making a distinction as between persons in the non-mechanised sector, and that in any event in so far as it impose certain conditions which are impossible of performance it has to be read without those conditions and if so read, they will also get the benefit of the said notification. This contention of the petitioners have been accepted by this Court in Devi Match Factory and Ohers v. Superintendent of Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis 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. Rajindranath 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 the 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 U.P v. Atiga Begum (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 2181), nor in Nachane's case (AIR 1982 SC 1126) will apply here. We have to, therefore, hold that section 52 of the Finance Act of 1982 is well within the legislative competence of the Parliament. 19.Then the further question if whether section 52 of the Finance Act, 1982 which adopted and applied notification No. 22 of 1982 with retrospective effect violates Articles 14, 19(1)(g) or 300 (A) of the Constitution as contented by the petitioners. It is urged by their learned counsel that retrospective leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 become arbitrary. In this case we are not concerned with a law imposing a tax burden for the first time so that the petitioners may say that an imposition has been made retrospectively which they could not have anticipated or contemplated or which they could not pass on to consumers. There is already a charge under section 3 of the Central Excise and Salt Act and it is only the question of exemption from that charge either in whole or in part. The State intended to benefit the cottage sector by granting exemption under notification 99 of 1980. That has been he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the 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 1982. 20.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 the petitioners and, therefore, the retrospective operation of the notification No. 22 of 1982 should be taken to be for an oblique purpose and as a stratagem to defeat the rights of the petitioners to get refund. It is said that there is no question of any unjust enrichment on the part of the petitioners in seeking a refund of the excess excise duty paid as has been wrongly assumed by the State. We do not see how we can accept the said contention. The purpose of validation Acts is always to make vali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. In such circumstances, the judgment of this court cannot by itself create a debt and, therefore, such a right which cannot be equated to a debt cannot be taken to be the property of the petitioners. Therefore section 52 of the Finance Act of 1982 cannot be said to violate Article 300A of the Constitution which has taken the place of Article 31 by the 44th Constitution Amendment. 22.Then we come to the attack based on the alleged violation of Article 19(1)(g) in so far as the exemption noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oners 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 matches and that the exemption will not be available to those producing more than 150 million matches. It may be possible to think of a different ceiling limit. But that is not a ground for questioning the wisdom and discretion of the legislature which has chosen to confer the benefit to persons producing less than 150 million matches. We cannot, therefore, hold that the yardstick even if it is taken to be introduced for the first time in notification No. 22 of 1982 is arbitrary as conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 there under 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 a power to grant exemption with retrospective effect, which the Government does not possess on a true construction of section 29. On the basis of this decision it could be said that the power of exemption under rule 8 of the Central Excise Rules can only be prospective and not retrospective, for rule 8 can be understood as only conferring power on the Government to issue an exemption notification prospectively. But in this case, though notification No. 22 of 1982 was issued originally by the Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the petitioner, 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 the notification No. 22 of 1982 the Government has made its intention clear 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 the tiny sector whose maximum output is less than 150 million matches alone gets the benefit of exemption from the date of notification 99/80 and persons in the other non-mechanised sectors do not get the benefit of the exemption. That might have resulted in the petitioners not getting the benefit of exemption and consequently they had lost the right to get the refund on the basis of the judgment of this Court. But on that ground it cannot be said to be a taxing measure. The petitioners' furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive 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 property right and that cannot be taken away by the State by giving 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 the principle of promissory estoppel not to apply the new notification so far as the petitioners are concerned as it will have the effect of withdrawing the exemption given to them. In that case the Supreme Court has observed that the rule of estoppel is a rule of equity which forbids truth being pleaded, or representation, on which faith, another has acted to his detriment being retracted and even extending the rule into the new fangled empire of promissory estoppel, it cannot go beyond the limits cont ..... X X X X Extracts X X X X X X X X Extracts X X X X
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