K. M. Oil Industries Ltd v. The State Of Kerala — 1994 DIGILAW 440 (KER)

JUDGMENT M.M. Pareed Pillay, Ag.C.J. 1. Petitioners are consumers of electricity from the Kerala State Electricity Board. As common questions of law are involved in all the Original Petitions, they are heard together. 2. To give effect to the financial proposals of the Central Government for the financial year 1978-79, the Parliament enacted Finance Act, 1978. By its S.36, the Central Excise and Salt Act, 1944 was amended to impose 'central excise duty' on electricity. First Schedule to the Central Excise and Salt Act (hereinafter referred to as 'the Central Excise Act') was amended by introducing 'electricity' as an excisable goods as item 11-E in the First Schedule and the excise duty on the electricity was fixed at 2 Paise per kilowatt hour. As a result of the imposition of excise duty, Kerala State Electricity Board (3rd respondent) became liable to pay the duty on electricity generated or produced by it. Excise duty being a tax on the manufacture or production of goods the liability to pay the same was on the 3rd respondent which generated electricity. To enable the 3rd respondent to recoup itself from the consumers, the amount of excise duty payable under the Central Excise Act, Government of Kerala (1st respondent) issued Order under S.3 of the Kerala Essential Articles Control (Temporary Powers) Act, 1961, by Notification (Ext. P-1) dated 6th April 1979. As per clause (4) of Ext. P-1, surcharge at the rate of 2.5 Paise per unit of electrical energy was levied on supplies of all electrical energy made by the 3rd respondent, either directly and through licensees to Extra High Tension and High Tension consumers. The levy of surcharge was declared for, the purpose of realising the excise duty charged by the Central Government. Respondent No. 3 began collecting the amount at the rate of 2"5 paise per unit from the Extra High Tension and High Tension consumers of electricity supplied by it. 3. The Government of India decided to discontinue the realisation, of the excise duty on electricity with effect from 1st October 1984. On the withdrawal or discontinuation of the levy of excise duty, petitioners contend that there was no basis, ground or justification for continuation of this levy and collection of any surcharge under Ext. P-1. According to them, Ext. 3. The Government of India decided to discontinue the realisation, of the excise duty on electricity with effect from 1st October 1984. On the withdrawal or discontinuation of the levy of excise duty, petitioners contend that there was no basis, ground or justification for continuation of this levy and collection of any surcharge under Ext. P-1. According to them, Ext. P-1 surcharge order which was issued in purported exercise of powers under the Kerala Essential Articles Control (Temporary Powers) Act, 1961 ceased to have any legal basis and validity consequent to j the extinguishment and disappearance of the very purpose and object of the said levy. It is contended by them that the ground for exercise of power by the State Government under the Kerala Essential Articles Control (Temporary Powers) Act, 1961, ceased to exist and despite that the first respondent issued Order dated 24th October 1984 to levy surcharge at the rate of 2.5 paise per unit in purported exercise of its powers under S.3 of the Kerala Essential Articles Control Ordinance, 1984. The said order (Ext. P-2) was issued in supersession of Ext. P-1 order. 4. The surcharge levied under Ext. P-2 order was to be collected by the third respondent and to be remitted to the State of Kerala. In the Explanatory Note given to Ext. P-2 order, it is stated that the Government of India imposed an excise duty of 2 paise per unit of generation of electricity and by Ext. P-1 Notification. 1st respondent had imposed a surcharge on all Extra High Tension and High Tension consumers to facilitate realisation of the said excise duty. In Ext. P-2 it. is stated that the excise duty so collected was being passed on to the State and that the Government of India had decided to discontinue the realisation of the excise duty from 1st October 1984 and since the State Government is financing the 3rd respondent for the generation, maintenance and supply of electricity, the State Government (1st respondent) would be at a loss when the levy of surcharge is abolished. In order to make good the above loss the 1st respondent had decided to impose a new surcharge specifying that the amounts so collected shall be paid to the state as per order under S.3 of the Kerala Essential Articles Control Ordinance 1984. In order to make good the above loss the 1st respondent had decided to impose a new surcharge specifying that the amounts so collected shall be paid to the state as per order under S.3 of the Kerala Essential Articles Control Ordinance 1984. The reason for the levy is stated to be on account of the fact that the excise duty that was imposed by the Finance Act, 1978 by the Union Government under the Central Excise Act was being passed on to the Government of Kerala and that on discontinuance of the said Central Excise Duty, the State Government suffered financially and in order to make good the loss, the Government had issued Ext. P-2 order. 5. The duty of excise imposed under the Finance Act, 1978, on electricity by the Parliament was made in exercise of its legislative powers under Entry 84 of List I (Union List) of the Constitution which empowers the Central Legislature to levy duty of excise on goods manufactured or produced in India except alcoholic liquors, opium, etc. 6. Petitioners contend that it is totally impermissible under the Constitution for any State to usurp or arrogate to itself the exclusive legislative power of the Central Legislature, directly of even indirectly. It is contended that in effect, the State of Kerala continued to enforce duty of excise unconstitutionally and beyond its legislative competence. According to the petitioners, what cannot directly be done by the State under the constitutional scheme cannot be carried out indirectly in any manner by the State. According to them, a substantial liability was imposed on them by reason of Ext. P-2 order. The State Government had in effect and substance continued the imposition of excise duty as an unconstitutional levy in purported exercise of its powers under the Kerala Essential Articles Control (Temporary Powers) Act. 7. Petitioners and other consumers challenged Ext. P-2 order before this Court. This Court in Chackolas Spinning and Weaving Mills Ltd. v. Kerala State Electricity Board 1988 (2) KLT 680 held Ext. P-2 order ultra vires, unconstitutional and void and ordered refund of the surcharge collected to the petitioners. The attempt of the State to take up the matter to the Supreme Court was unsuccessful by refusal of Special Leave. It is contended that instead of acting upon the directions of this Court, Ordinance dated 4th May 1989 (Ext. P-2 order ultra vires, unconstitutional and void and ordered refund of the surcharge collected to the petitioners. The attempt of the State to take up the matter to the Supreme Court was unsuccessful by refusal of Special Leave. It is contended that instead of acting upon the directions of this Court, Ordinance dated 4th May 1989 (Ext. P-4) was promulgated by the State, compelling the petitioners to approach this Court once again. 8. Ext. P-4 ordinance provides for the levy and collection of surcharge on Extra High Tension and High Tension supplies of energy by the Kerala State Electricity Board and for validation of such collection from 1984 onwards. S.3 reads "3. Levy and collection of surcharge. -- (1) Notwithstanding anything to the contrary contained in any agreement entered into with any consumer or the conditions of service agreed to by the Board, the Government may, by notified order provide for, (a) the levy and collection of a surcharge on all high tension arid extra high tension supplies of energy made by the Board either directly or through other licensees at such rate not exceeding three paise per unit, as may be specified therein; (b) the levy and collection of surcharge on energy supplied to the States of Karnataka and Tamilnadu by the Board, at such rate not exceeding two paise per unit, as may be specified therein; (c) the remittance to the Government, of the surcharge collected by the Board, either directly or through other licensees, and the amount which can be retained by the Board or such licensees, by way of collection charges; (d) the period within which the surcharge collected by other licensees to be remitted to the Board and the rate of interest payable by such licensees for belated remittance, not exceeding twelve per cent per annum. (2) The Board or the other licensees receiving from the Board bulk supply of energy shall collect the price for the energy supplied by them inclusive of the surcharge leviable under the notified order." S.11 specifies that notwithstanding anything to the contrary contained in any judgment, decree or order of any Court, the levy and collection of surcharge by the Board or other licensees on or after the 1st day of October, 1984 and before the 1st day of August, 1988 under the Kerala State Electricity Supply (Kerala State Electricity Board and Licensees Areas) Surcharge Order, 1984 shall be deemed to be, and deemed always to have been validly levied and collected as if the said order was a notified order under S.3 of the ordinance. It enacts further that no suit or proceeding shall be maintained or continued in any court for the refund of any such surcharge and that no court shall enforce a decree or order directing the refund of any such surcharge. S.11 enacts, to be specific, as hereunder: "11." Validation. -(1) Notwithstanding anything to the contrary contained in any judgment, decree or order of any court, the levy, and collection of surcharge by the Board or other licensees on or after the 1st day of October, 1984 and before the 1st day of August, 1988 under the Kerala State Electricity Supply (Kerala State Electricity Board and Licensees Areas) Surcharge Order, 1984 shall be deemed to be, and deemed always to have been validly levied and collected as if the said order was a notified order under S.3 of this ordinance; and accordingly - (a) all acts, proceedings or things done by the Board or other licensees in connection with such levy, collection and remittance of surcharge shall, for all purposes be deemed to be, and deemed always to have been done or taken in accordance with this Ordinance; (b) no suit or other proceeding shall be maintained or continued in any court for the refund of any such surcharge; and (c) no court shall enforce a decree or order directing the refund of any such surcharge. (2) For the removal of doubts it is hereby declared that nothing in sub-s.(1) shall be considered as preventing any person from claiming refund of any surcharge already paid in excess of the amount due from him under the order referred to in sub-s.(1)." 9. (2) For the removal of doubts it is hereby declared that nothing in sub-s.(1) shall be considered as preventing any person from claiming refund of any surcharge already paid in excess of the amount due from him under the order referred to in sub-s.(1)." 9. The contention raised in regard to this situation is that the ordinance amounts to nullification of the writ of mandamus issued by this Court in O. P. No. 1303 of 1987-(1988-2-K.L.T. 680) which received finality by refusal of Special Leave by the Supreme Court. It is contended that the rights of the citizen against the State which had passed into those embodied in a judgment and became the basis of a Mandamus from this Court cannot be allowed to be taken away in indirect fashion by enacting such an Ordinance by the State. Heavy reliance was placed on the decision of the Supreme Court in M. M. Pathak v. Union of India AIR 1978 SC 802 . 10. It is contended that ordinance (Ext. P-4) and the Act replacing it would be invalid and unconstitutional as the final, binding and conclusive judgment of this Court issuing a writ of mandamus cannot in law be nullified and/ or overridden by the promulgation of the Ordinance and the consequent enactment. It is impermissible for the Legislature to direct the Executive or any instrumentality or agency of the State to disregard Mandamus issued, by this Court 11. As a consequence, it is urged: (a) that the Ordinance/Act would be a fraud on the constitution and a colourable piece of legislation; (b) that the duty of excise could be only under Central Entry No. 84 of List I to be imposed under the Finance Act, and consequently, under the garb and guise of a surcharge under the Kerala Essential Articles Control Ordinance/Act cannot be justified by the 2nd respondent; and (c) that the imposition of the surcharge is a clear situation of legislative encroachment by the State on the legislative power of the Parliament referable to Entry 84-List I, and can never relate or refer to Entry No. 53 List II of the Constitution. In support, it is urged that State Legislature has already enacted, under Entry No.53 List II by enacting the Kerala Electricity Duty Act, 1963 and it is also further amended by Ordinance 17 of 1988 and then by the Amendment Act, 1988 (Ext. P-5). 12. In support, it is urged that State Legislature has already enacted, under Entry No.53 List II by enacting the Kerala Electricity Duty Act, 1963 and it is also further amended by Ordinance 17 of 1988 and then by the Amendment Act, 1988 (Ext. P-5). 12. Illustratively, it is also pointed out that in July, 1988, to be effective from August 1, 1988, the existing 30 per cent of electricity duty, finding that it would be burdensome on the one hand, being oppressive on the industries was reduced to the fixed rate of 10 paise per unit. On the representations made by the Association of Extra High Tension and High Tension consumers, the levy of surcharge levied earlier was discontinued, taking into consideration that anything in excess would be heavy and unbearable load to the concerned industry. It is urged that the surcharge imposed is nothing but in essence a levy of excise duty that can be legally and constitutionally imposed under Entry 84-List I of the Constitution by the Parliament. 13. Consequential submissions are that as a subordinate delegated authority the State Government has no power and that too to recover surcharge retrospectively, from October 1, 1984 and on that court Ext. P-6 dated May 29, 1989 empowering recovery retrospectively is not sustainable on any court. Consequently the demand based on such notification would be liable to be struck down and set aside, together with the threat of imposition of penal interest at the rate of 18 per cent per annum, as threatened in the demand by the 3rd respondent Board. 14. On these broad submissions, it is prayed that the Ordinance and the Act (Ext. P-4) and Orders and demands issued on that basis (Exts. P-6, P-7 and P-8) be quashed and set aside as unconstitutional, invalid and inoperative by the necessary writ, order and/or appropriate directions. 15. The contentions in reply placed for our consideration can be summarised as hereunder: (A) As the excise duty levied by the Central Government was passed on to the State Government was discontinued with effect from October 1, 1984, the situation of discontinuance was a substantial loss to be suffered by the State Government, which was the reason for issuance of Ext. P-2 with effect from October 1, 1984 as surcharge. P-2 with effect from October 1, 1984 as surcharge. (B) The Kerala State Electricity Board although an autonomous body, works under the executive power of the State Government and it is the State Government that renders substantial financial assistance to the Board. This was the dire need and necessity to continue the collection of the surcharge on EHT and HT consumers. (C) The State Legislature has acted within its legislative competence and there is no attempt or intention to nullify or override the decision of this Court in 1988-2-KLT 680. Holding that there is no enabling provision to levy duty on commodities, refund was ordered. The State Government, due to the responsibilities in financing the Kerala Electricity Board in generating and distributing electricity, has with Legislative competence acted under Entry No. 53 List II and it was validated by the Legislative enactment. (D) Entry 53-List 2-7th Schedule of the Constitution enables the State to levy tax on consumption said sale of electricity and it is, therefore competently introduced, and nomenclature in regard thereto is not relevant or important factor in the matter of locating legislative competence as per the established principles over many years. (E) On May 8, 1989, by introducing the Ordinance, thereafter replaced by Act 22 of 1989 deemed to have come into force on 1st October 1989, by S.11 thereof the levy and collection of surcharge under the Kerala State Electricity Supply (K.S.E. Board and Licensees Areas) Surcharge Older, 1984 has only been validated. There is legislative competence. 16. In a federal Constitution, there is division of legislative powers between the Central and State Legislatures, and in regard thereto controversies whether one or other legislature is not exceeding its own powers and encroaching on other's constitutional or legislative powers are inevitable. In such situations the Courts unhesitatingly apply the principle that it is not the name of the terminology, but its real nature, its "pith and substance" as it is sometimes said, which must determine its categorisation. The use of the terms "Duty", "Levy", "Tax", "Excise" on such occasions must be considered on the test of "pith and substance" in the context of. the situation in which the terms operate in consequences. The context determines the category. Levy of the concerned payment at times relates to manufacture or production of the article in question. At other times it relates to the sales. the situation in which the terms operate in consequences. The context determines the category. Levy of the concerned payment at times relates to manufacture or production of the article in question. At other times it relates to the sales. The two incidences manufacture and sale may in one sense overlap. But in law there is no overlapping. In fact, they are separate and distinct. In the matter of levy and collection, the authority may find it convenient to impose and collect, at the point of time when the article leaves the factory or workshop for the first time or when the sale occurs. 17. Even the nature or mode may manifest differently in different situations. To an economist it is certainly a direct tax to be imposed on the purchaser on sales. However, in practice, it is included in the final price. It becomes a saleable article only on its manufacture or production but he becomes liable because he sells it and not because he manufactures. It would be seen that different terms used and employed in the context of the process of taxation, levies of duties and excise arc required to be understood and appreciated for its correct and legal imposition on application of the test of the doctrine of "pith and substance". 18. In the context of examination of the legislative competence, the language used in the relevant legislative entries in the constitution require interpretation in a broad and liberal way so as to give the widest amplitude of power to the legislature to legislate and not in a narrow and pedantic sense. When there is basic and inherent likelihood of confusion and therefore, there is inherent requirement for the Court, on the established principles enunciated above, the Court would also require to approach the question keeping in mind the genuine and real need to consider the "pith and substance" of the situation while determining the legislative competence of the State Legislature in the context of the problems raised by the batch of these petitions. 19. To consider the submissions of rival sides, it is to be seen, as stated above that it is immaterial as to which is the label or terminology used to consider legislative competence. 19. To consider the submissions of rival sides, it is to be seen, as stated above that it is immaterial as to which is the label or terminology used to consider legislative competence. The Learned Advocate General with justification submitted that the State Government can always act when a mistake is pointed out in a Statute by the Court and when it is pointed out by the judgment (1988-2-K.L.T. 680) by the Court and a consequential writ is issued, it can be corrected when there is power to legislate. It is urged that there cannot be any judicial interference on the legislative power. Legislature can enact a Statute to cure a defect and then it cannot be urged justifiably that it is enacted to circumvent or to negative the effect of a writ of mandamus. The same result could have been received by filing a Review petition to point out that under Entry 53 List-II of the 7th schedule, the surcharge can be justified as nomenclature is not important but what is required to be seen is the substance of the situation. 20. The Learned Advocate General placed reliance on the decision of the Supreme Court in I. N. Saksena v. State of M. P. AIR 1976 SC 2250 where the Supreme Court observed: "While, in view of this distinction between legislative and judicial functions, the legislature cannot by a bare declaration, without more, directly overrule, reverse or override a judicial decision, it may, at any time in exercise of the plenary powers conferred on it by Art.245 and 246 of the Constitution render a judicial decision ineffective by enacting a valid law on a topic within its legislative field fundamentally altering or changing with retrospective, curative or neutralising effect the conditions on which such decision is based. As pointed out by Ray, C. J. in Indira Nehru Gandhi v. Raj Narain (1975 SCC-Supp. 1 AIR. 1975 SC 2299) the rendering ineffective of judgments or orders of competent courts and tribunals by changing their basis by legislative enactment is a well known pattern of all validating Acts. Such validating legislation which removes the causes for ineffectiveness or invalidity of actions or proceedings is not an encroachment on judicial power." Thus, the legislation removing ineffectiveness or invalidity of actions, does not acquire the character of encroachment on the judicial field and acquire the effect of nullifying or circumventing the judgment. 21. Such validating legislation which removes the causes for ineffectiveness or invalidity of actions or proceedings is not an encroachment on judicial power." Thus, the legislation removing ineffectiveness or invalidity of actions, does not acquire the character of encroachment on the judicial field and acquire the effect of nullifying or circumventing the judgment. 21. It is well settled that excise duty is a tax on items produced or manufactured and yet laws are to be found imposing the said tax at stages subsequent to its manufacture or production at subsequent stages and could be introduced at stages and occasion which could be provided by the charging provisions. Entry No. 53 List-II of the 7th Schedule of the Constitution clearly confers legislative competence on the State Legislature with regard to "Tax on the consumption or sale of electricity". 22. The State legislature considered the mistake and cured it by the impugned Ordinance. Such a course was clearly permissible to the state legislature. For correcting the mistake Retrospectively legislature amended the law by providing imposition of the tax named as surcharge. In our judgment, reliance placed on the decisions of the supreme Court Patel Gordhandas v. Municipal Commissioner AIR 1973 S.C. 1742 and Madan Palhak v. Union of India AIR 1978 SC 803 requires acceptance as it cannot be said that the Ordinance and the Act are enacted to get over the effect of the judgment. 23. It is not that laws passed must always be prospective. When an Act is struck down, the Legislature can re-enact that Act and give it retrospective effect. The character of the tax does not change by its retrospective character and such circumstances would not show or exhibit the alleged colourable ness of the legislation or would amount to a fraud on the constitution. If it is clear that there is legislative competence, which is obvious from Entry 53 List-II of the 7th Schedule of the constitution empowering the State Legislature to legislate, the relevant wisdom of the legislature is beyond province of the Court and lies in. the perfect domain under what is known as the Castle of Legislative wisdom. It is well settled that the power to legislate carries with it the power to legislate retrospectively. the perfect domain under what is known as the Castle of Legislative wisdom. It is well settled that the power to legislate carries with it the power to legislate retrospectively. The following observations from the decision of the supreme Court in Kisrilal Jain v. State of Orissa AIR 1977 SC 1686 would clearly support our conclusion: "Art.304(b) of the Constitution does not require that laws passed under it must always be prospective. Nor was it correct to say that once the State Legislature passes an Act without recourse to that article and that Act is struck down, the Legislature cannot re-enact that Act under that article and give it retrospective effect. The mere fact that a validating taxing statute has retrospective operation does not change the character of the tax nor can it justify the Act being branded as a colourable piece of legislation in any sense, * * * * * * * * * * * * * * * * since it is well settled that the power to legislate carries with it the power to legislate retrospectively as much as prospectively, the circumstance that an enactment operates entirely in the past and has no prospective life cannot affect the competence of the legislature to pass the enactment, if it falls within the list on which that competence can operate. As regards the power to pass a validating Act that power is essentially subsidiary to the legislative competence to pass a law under an appropriate entry of the relevant list. Thus the impugned enactment is a valid exercise of legislative power and is in no sense a fraud on the Constitution. * * * * * * * * * * * * * * * * * * * * The Act cures the constitutional vice from which the Act of 1959 suffered by obtaining the requisite sanction of the president and thus armed, it imposes a new tax, though with retrospective effect. * * * * * * * * * * * * * * * * * * * * The Act cures the constitutional vice from which the Act of 1959 suffered by obtaining the requisite sanction of the president and thus armed, it imposes a new tax, though with retrospective effect. Imposition of taxes or validation of action taken under void laws is not the function of the judiciary and therefore, by taking these steps the legislature cannot be accused of trespassing on the preserve of the judiciary," Thus it is clear that when the Act is struck down by the Court, the State Legislature, with Legislative competence, can always enact a new law for retrospective validation also and the submission that it enacted to nullify or negative the decisions of the Court thereby gets straightway rejected. In this context the record of history of legislation provides more than enough instances of enactments legally and validly passed after the judgments of the Court. The legislature is sovereign in this regard. Several such occasions pointed out by the Learned Advocate General need no mention here. 24. In these circumstances, for the above reasons, we hold that the Ordinance and the Act have passed the test of legislative competence under Entry 53, List-II of 7th Schedule of the Constitution and it operates retrospectively with effect from October 1, 1984 and that it is neither a colourable piece of legislation nor a fraud on the Constitution as alleged by the petitioners. The petitions, therefore, would stand dismissed as a consequence. 25. However, it is justifiably submitted that if S.11 of the Ordinance is considered and examined validation relates to the period from October 1, 1984 upto August 1, 1988 only, it is clear that from August 1, 1988 upto the date of Ordinance May 6, 1989, there was no law on the Statute and therefore, during the above period, even as per the Ordinance there is no power of recovery. This is the admitted and uncontroverted position. Consequently, as a legitimate consequence of the judgment of this Court in Chakolas Spinning and Weaving Mills Ltd. v. K. S. E. Board 1988 (2) KLT 680 with regard to the period from August 1, 1988 upto May 6, 1989, the petitioners would be entitled to their refund and the concerned respondents (respondents land 3) are hereby directed accordingly. Consequently, as a legitimate consequence of the judgment of this Court in Chakolas Spinning and Weaving Mills Ltd. v. K. S. E. Board 1988 (2) KLT 680 with regard to the period from August 1, 1988 upto May 6, 1989, the petitioners would be entitled to their refund and the concerned respondents (respondents land 3) are hereby directed accordingly. For the above reasons the petitions are dismissed subject to the refund mentioned in para 25. In the circumstances, there shall be no order as to costs.