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2003 DIGILAW 697 (ALL)

KAJARIA CERAMICS LIMITED v. STATE OF U. P.

2003-03-31

M.KATJU, PRAKASH KRISHNA

body2003
Judgment : ALLAHABAD HIGH COURT What is the effect of the amendment in section 9 of the Central Sales Tax Act by Finance Act, 2000 is the question involved in the present bunch of writ petitions ? The petitioners have prayed for writ of mandamus and prohibition restraining and prohibiting the respondents from realising interest under the Central Sales Tax Act, 1956 in respect of the period prior to May 12, 2000. It is necessary to give background of the case. The Supreme Court in the case of India Carbon Ltd. v. State of Assam [1997] 106 STC 460; [1998] UPTC 1 interpreted section 9(2) of the Central Sales Tax Act. It was held that the provisions relating to interest and later part of section 9(2) of the Central Sales Tax Act can be employed by the State sales tax authorities only if the Central Act makes a substantive provision for the levy and charge of interest on Central sales tax. It was further held that in the absence of a substantive provision for the levy and charge of interest, resort to State Sales Tax Act cannot be had as such the imposition of interest on the Central sales tax on the analogy of State sales tax is illegal. The relevant portions of the aforesaid judgment for the purpose of the present case are quoted below : "13. There is no substantive provision in the Central Act requiring the payment of interest on Central sales tax. There is, therefore, no substantive provision in the Central Act which obliges the assessee to pay interest on delayed payments of Central sales tax. 14. ... There being no substantive provision in the Central Act requiring the payment of interest on Central sales tax, the States' sales tax authorities cannot, for the purpose of collecting and enforcing payment of Central sales tax, charge interest thereon." Subsequently, the Parliament intervened in the matter and enacted Finance Act of 2000 (Act No. 10 of 2000). The said Act received the assent of the President of India on May 12, 2000. By the aforesaid amendment section 9(2) and section 9(2A) of the Central Sales Tax Act were amended. It also inserted sub-section (2B) after sub-section (2A) in section 9. The said Act received the assent of the President of India on May 12, 2000. By the aforesaid amendment section 9(2) and section 9(2A) of the Central Sales Tax Act were amended. It also inserted sub-section (2B) after sub-section (2A) in section 9. Section 9(2B) is quoted below : "(2B) If the tax payable by any dealer under this Act is not paid in time, the dealer shall be liable to pay interest for delayed payment of such tax and all the provisions for delayed payment of such tax and all the provisions relating to due date for payment of tax, rate of interest for delayed payment of tax and assessment and collection of interest for delayed payment of tax, of the general sales tax law of each State, shall apply in relation to due date for payment of tax, rate of interest for delayed payment of tax, and assessment and collection of interest for delayed payment of tax under this Act in such States as if the tax and the interest payable under this Act were a tax and an interest under such sales tax law." In sub-section (3) of section 9 for the words "including any penalty" the words "including any interest or penalty" were substituted. The aforesaid amendments were carried on by section 119 of the Finance Act. Section 120 of the Finance Act contains validation clause. The said section reads as follows : "120. Validation. - (1) The provisions of section 9 of the Central Sales Tax Act, 1956 (74 of 1956) (hereafter in this section referred to as the Central Sales Tax Act), shall have effect, and shall be deemed always to have had effect, as if that section also provided - (a) that all the provisions relating to interest of the general sales tax law of each State shall, with necessary modifications, apply in relation to - (i) the assessment, reassessment, collection and enforcement of payment of any tax required to be collected under the Central Sales Tax Act, in such State; and (ii) any process connected with such assessment, reassessment, collection or enforcement of payment; and (b) that for the purposes of the application of the provisions of such law, the tax under the Central Sales Tax Act shall be deemed to be tax under such law. (2) Notwithstanding anything contained in any judgment, decree or order of any court, Tribunal or other authority, general sales tax law of any State imposed or purporting to have been imposed in pursuance of the provisions of section 9 of the Central Sales Tax Act, and all proceedings, acts or things taken or done for the purposes of, or in relation to, the imposition or collection of such interest, before the commencement of this section, shall, for all purposes, be deemed to be and to have always been imposed, taken or done as validly and effectively as if the provisions of sub-section (1) had been in force when such interest was imposed or proceedings or acts or things were taken or done and, accordingly, - (a) no suit or other proceedings shall be maintained or continued in, or before, any court, Tribunal or other authority for the refund of any amount received or realised by way of such interest; (b) no court, Tribunal or other authority shall enforce any decree or order directing the refund of any amount received or realised by way of such interest; (c) where any amount which had been received or realised by way of such interest is refunded before the date on which the Finance Act, 2000 receives the assent of the President and such refund would not have been allowed if the provisions of sub-section (1) had been in force on the date on which the order for such refund was passed, the amount so refunded may be recovered as an arrear of tax under the Central Sales Tax Act; (d) any proceeding, act or thing which could have been validly taken, continued or done for the imposition or collection of such interest at any time before the commencement of the section if the provisions of sub-section (1) had then been in force but which had not been taken, continued or done, may, after such commencement, be taken, continued or done. (3) Nothing in sub-section (2) shall be construed as preventing any person, - (a) from questioning the imposition or collection of any interest or any proceedings, act or thing in connection therewith, or (b) from claiming any refund, in accordance with the provisions of the Central Sales Tax Act, read with sub-section (1). Explanation. (3) Nothing in sub-section (2) shall be construed as preventing any person, - (a) from questioning the imposition or collection of any interest or any proceedings, act or thing in connection therewith, or (b) from claiming any refund, in accordance with the provisions of the Central Sales Tax Act, read with sub-section (1). Explanation. - For the purposes of this section, 'general sales tax law' shall have the same meaning assigned to it in the Central Sales Tax Act." The grievances of the petitioners are two-fold. Firstly, that the aforesaid amendments made by the Finance Act of 2000 are not retrospective and according to the petitioners they are prospective, meaning thereby that the liability for payment of interest will be for the period on or after May 12, 2000 when the Finance Act received the assent of the President. According to the petitioners, interest on unpaid Central sales tax dues for the period prior to May 12, 2000 cannot be levied in view of the judgment of the Supreme Court in the case of India Carbon Ltd. [1997] 106 STC 460; [1998] UPTC 1. Secondly, the validation clause has no application inasmuch as there was no illegality earlier in the Central Sales Tax Act and as such the validation clause will not override the judgment of the Supreme Court given in the case of India Carbon Ltd. [1997] 106 STC 460 (SC); [1998] UPTC 1. Thus, the following two questions arise for our determination in this group of writ petitions : (1) Whether sub-section (2B) of section 9 inserted on May 12, 2000 by the Finance Act is retrospective or prospective ? (2) Whether section 120 of the Finance Act is invalid as it purports to validate a provision which never existed in the statute ? We, have heard Sri Bharatji Agrawal, Senior Advocate, Kunwar Sexena and Rakesh Ranjan Agarwal, counsel for the petitioners and Sri S. P. Kesarwani, Standing Counsel for the respondents. Leading argument was made by Sri Bharatji Agarwal. He submitted that whenever any provision is sought to be amended, it has been specifically provided in the Act itself. He drew our attention towards various sections of the Finance Act such as sections 4, 5, 6, 7, 8, 10, 13, 62, 63, 64, 75, 76 and 119 of the Finance Act, 2000. He submitted that whenever any provision is sought to be amended, it has been specifically provided in the Act itself. He drew our attention towards various sections of the Finance Act such as sections 4, 5, 6, 7, 8, 10, 13, 62, 63, 64, 75, 76 and 119 of the Finance Act, 2000. According to him whenever Parliament wanted to amend any provision with retrospective effect, it was specifically and clearly so mentioned in the Finance Bill itself such as section 48 of the Income-tax Act, amended by the aforesaid Finance Act, which was made retrospective with effect from April 1, 1993. Similarly, it was submitted, that no such retrospective effect was specifically mentioned in regard to the introduction of sub-section (2B) of section 9 of the Central Sales Tax Act. Consequently, it was submitted that section 119 of the Finance Act would take effect from the date on which the Finance Bill, 2000 received the assent of the President, i.e., May 12, 2000. Further when by the same Amending Act various provisions of the Act are amended and some of the provisions are given retrospective effect while others or not, then such a provision has to be taken as prospective. In support of the aforesaid argument reliance has been placed on Commissioner of Sales Tax v. Sada Nand Arya [1979] UPTC 816 and Sales Tax Officer, Moradabad v. Oriental Coal Corporation [1988] 68 STC 398 (SC); [1988] UPTC 513 (SC). On the other hand, Sri S. P. Kesarwani, learned Standing Counsel, submitted that the provisions of the Finance Act are quite clear. From the plain language of the Amending Act and specially section 120 of the Amending Act, which contains validation clause, the intention of the Parliament is crystal clear. According to him in view of judgment of the Supreme Court in the case of Shiv Dutt Rai Fateh Chand v. Union of India [1983] 53 STC 289; [1983] UPTC 920 only one conclusion is possible and that is that the amendment in the Central Sales Tax Act will also apply to the unpaid Central sales tax dues even for the period prior to May 12, 2000. Section 120 of the Finance Act makes the amendment by the aforesaid Amending Act in the Central Sales Tax Act retrospective. Section 120 of the Finance Act makes the amendment by the aforesaid Amending Act in the Central Sales Tax Act retrospective. Much reliance has been placed by the petitioners in the case of Sales Tax Officer, Ward - 2, Moradabad v. Oriental Coal Corporation [1988] 68 STC 398 (SC); [1988] UPTC 513 (SC). The Supreme Court was considering various amendments made in the Central Sales Tax Act by Central Amendment Act No. 103 of 1976, which received the assent of the President of India on September 7, 1976. The said case is quite distinguishable. The Amending Act amended section 9 of the Central Sales Tax Act. It amended several sections of the Central Sales Tax Act. It was further provided that the provisions added thereto "shall be inserted and shall always be deemed to have been inserted with effect from April 1, 1976". The amendments to sections 2, 7, 14 and 15 of the Principal Act were held by the Supreme Court only to be prospective. In the case in hand section 120 of the Amending Act says that the provisions of section 9 of the Central Act shall have effect, and shall be deemed to always to have had effect as if that section also provided that all the provisions relating to interest of the general sales tax law of each State. The validation clause does not limit any period. On the contrary, on the plain language of the validation clause, i.e. section 120 of the Finance Act it is evident that it gives full retrospective effect to the provisions of section 9 of the Central Sales Tax Act by providing that section 9 of the Central Sales Tax Act shall be deemed to always have had effect. In this connection it is relevant to interpret sections 119 and 120 of the Amending Act. A plain reading of both these sections shows that by section 119 of the Amending Act word "penalty" was substituted with the words "interest or penalty". In this connection it is relevant to interpret sections 119 and 120 of the Amending Act. A plain reading of both these sections shows that by section 119 of the Amending Act word "penalty" was substituted with the words "interest or penalty". The various clauses of sub-section (2) of section 120 provide that notwithstanding anything contained in any judgment, decree or order of any court, Tribunal or other authority, general sales tax law of any State imposed or purporting to have been imposed in pursuance of the provisions of section 9 of the Central Sales Tax Act shall, for all purposes, be deemed to be and to have always been imposed, taken or done as validly and effectively as if the provisions of sub-section (1) had been in force when such interest was imposed or proceedings or acts or things were taken or done. Further it has been provided that no suit or other proceedings shall be maintained or continued in or before any court, Tribunal or other authority for the refund of any amount received or realized by way of such interest. Not only this clause (c) of section 120(2) provides that where any amount which had been received or realized by way of such interest, is refunded before the date on which the Finance Act, 2000 receives the assent of the President and such refund could not be allowed if the provisions of sub-section (1) had been in force on the date on which the order for such refund was passed, the amount so refunded should be recovered as arrears of tax under the Sales Tax Act. Clause (d) further provides that any proceeding which could have been validly taken, continued or done for the imposition or collection of such interest at any time before the commencement of the validation clause if the provisions of sub-section (1) had then been in force, but which had not been taken, continued or done, after such commencement, be taken, continued or done. A perusal of the aforesaid provisions clearly shows that the Parliament not only provided that even if the amount of interest collected by the department has been refunded to the dealer under the unamended section, the said amount so refunded, may be recovered as an arrear of tax under the Central Sales Tax Act, meaning thereby that even the closed transactions under unamended section have been reopened. Further it has been provided that the proceedings taken, continued or done for the imposition or collection of such interest after the commencement of the Amending Act shall be taken, continued or done. The argument of the petitioners' counsel that since under section 119 of the Amending Act no such deeming clause has been provided, therefore, the intention of the Parliament was clear that the amendment is prospective has no force in view of section 120 of the said Act. Section 120 of the Amending Act gives full retrospective effect to the amendment made by section 119 of the Amending Act. It is well-settled law that while interpreting a statute, the statute should be read as a whole. Section 119 of the Amending Act does not show in any manner that it will have overriding effect upon section 120 of the said Act. Every word in a statute should be given some meaning. So far as the arguments of counsel for the petitioners that since no retrospective effect was specifically mentioned in regard to insertion of sub-section (2B) of section 9 of the Central Sales Tax Act hence it should be presumed to be prospective as in the Amending Act against some of the provisions date of enforcement of the amended provisions has been mentioned is concerned, the same has no force. The Supreme Court in the case of Additional Commissioner (Legal) v. Jyoti Traders [1999] 112 STC 277 (SC); [1999] UPTC 45; [1998] JT 8 SC 60 has considered this controversy. The Supreme Court was considering the amendment in section 21 of the U.P. Trade Tax Act. The said amendment was held to be prospective by the High Court. In the said case proviso to section 21(2) of the U.P. Trade Tax Act was amended and the period of limitation for reopening of the assessment was provided as eight years but with the sanction of the Commissioner. In paragraph 5 of the judgment it was mentioned that the U.P. Trade Tax Act was extensively amended by the U.P. Sales Tax (Amendment and Validation) Act, 1991. The Amending Act received the assent of the Governor of Uttar Pradesh on August 19, 1991. Different dates were prescribed for coming into force of various provisions of the Amending Act. In paragraph 5 of the judgment it was mentioned that the U.P. Trade Tax Act was extensively amended by the U.P. Sales Tax (Amendment and Validation) Act, 1991. The Amending Act received the assent of the Governor of Uttar Pradesh on August 19, 1991. Different dates were prescribed for coming into force of various provisions of the Amending Act. Section 21 of the Act also underwent an amendment and the amendment which was under consideration before the Supreme Court came into force with effect from February, 1991. The Supreme Court, while reversing the judgment of our court has held that the date, of commencement of the proviso to section 21(2) of the Act does not control its retrospective operation. It was further held that the proviso is operative from February, 1991 and a bare reading of the proviso shows that the operation of this proviso relates and encompasses back to previous eight assessment years. The amendment in proviso to section 21(2) was clear and the intention of the Legislature was unambiguous. There is no dispute that a fiscal statute can have retrospective operation. If we accept the submissions of the petitioners then section 120 of the Amending Act would become nugatory, which cannot be the intention of the Parliament. The enactment of the Amending Act and specially of section 120 of the said Act clarifies the intention of the Parliament without any pale of doubt. Suffice it to say that in the present case the petitioners have in paragraphs 2 and 3 of the writ petition admitted that they have deposited the tax under the Central Sales Tax Act with some delay. The interest amount deposited by them was directed to be refunded by the order dated March 31, 1998 for the assessment year 1994-95 and by the orders dated December 15, 1998 for the assessment year 1995-96 vide paragraph 3 of the writ petition. By the impugned notices issued under section 22 of the U.P. Trade Tax Act read with section 9(2B) of the Central Sales Tax Act, the petitioners have been directed to deposit the interest for the assessment years 1994-95 and 1995-96. By the impugned notices issued under section 22 of the U.P. Trade Tax Act read with section 9(2B) of the Central Sales Tax Act, the petitioners have been directed to deposit the interest for the assessment years 1994-95 and 1995-96. The law has been amended and the lacunae which was pointed out by the Supreme Court in the case of India Carbon Ltd. [1997] 106 STC 460 (SC); [1998] UPTC 1 has been filled up by the Parliament by making necessary amendments in the Central Sales Tax Act. In view of above, we do not find any merit in the first submission advanced on behalf of the petitioners. Now we take up the second point urged by the petitioners. The submission of the petitioners on this point is that as there was no invalidity in section 9 of the Central Sales Tax Act, the amendment made by the said Amending Act is of no avail to the trade tax department. Proceeding further, it has been submitted that since sub-section (2B) has been inserted with prospective effect there being no substantive provision relating to levy of interest, no validating Act can be enacted in respect of a provision which never existed. We do not find any force in this point also. Reliance has been placed upon a judgment of the Supreme Court in Delhi Cloth and General Mills Co. Ltd. v. State of Rajasthan AIR 1996 SC 2930 . It was held that a validating provision will only be effective and validating if it cures the defects in the substantive provision of the Act, which is essential requirement for passing validating statute. There is no quarrel to this proposition and the said case has no application to the facts of the present case. The Parliament in the case in hand, by amending section 9(2) of the Central Sales Tax Act has removed the defect pointed out by the Supreme Court. By making the necessary amendments in the Central Sales Tax Act, the provision for charge of interest on unpaid Central sales tax has been added. The defect as pointed out by the Supreme Court in the case of India Carbon Ltd. [1997] 106 STC 460 (SC); [1998] UPTC 1 has been sought to be removed by section 119 of the Amending Act. The defect as pointed out by the Supreme Court in the case of India Carbon Ltd. [1997] 106 STC 460 (SC); [1998] UPTC 1 has been sought to be removed by section 119 of the Amending Act. Sections 119 and 120 of the Amending Act have cured the defects in the substantive provisions of the Central Sales Tax Act. The Supreme Court very recently in Welfare Association A.R.P. Maharashtra v. Ranjit P. Gohil [2003] 2 JT 335 SC following its earlier judgment in Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality [1971] 79 ITR 136; AIR 1970 SC 192 has held that it is permissible for the Legislature, subject to its legislative competence otherwise, to enact a law which will withdraw or fundamentally alter the very basis on which a judicial pronouncement has proceeded and create a situation which if it had existed earlier, the court would not have made the pronouncement. The relevant portion of the judgment of the Supreme Court in the case of Shri Prithvi Cotton Mills Ltd. [1971] 79 ITR 136; AIR 1970 SC 192 is quoted below : "... Granted legislative competence, it is not sufficient to declare merely that the decision of the court shall not bind, for that is tantamount to reversing the decision in exercise of judicial power which the Legislature does not possess or exercise. A court's decision must always bind unless the conditions on which it is based are so fundamentally altered that the decision could not have been given in the altered circumstances. Ordinarily, a court holds a tax to be invalidly imposed because the power to tax is wanting or the statute or the rules or both are invalid or do not sufficiently create the jurisdiction. Validation of a tax so declared illegal may be done only if the grounds of illegality or invalidity 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. 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 such a 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 which it claims over the subject-matter and whether in making the validation it removes the defect which the court had found in the existing law and makes adequate provisions in the validating law for a valid imposition of the tax." In the present case the legislative competence of the Parliament to enact the Finance Act and section 120 of the Finance Act has not been disputed. Sri Bharatji Agarwal has placed reliance upon the case of I. N. Saksena v. State of Madhya Pradesh [1976] 4 SCC 750. The said ruling has no application to the facts of the present case. In paragraph 14 of the said judgment it was held that by administrative instructions a statutory rule cannot be amended. Reliance was placed on paragraph 35 of the judgment, but we do not find that the controversy involved in the case in hand was the subject-matter of the aforesaid ruling and the said ruling is distinguishable. For the reasons given above, the judgments of the Supreme Court given in (1) State of Haryana v. Karnal Co-op. Farmers' Society Limited [1993] 2 SCC 363, (2) Janapada Sabha, Chhindwara v. Central Provinces Syndicate Ltd. AIR 1971 SC 57 , (3) Commissioner of Trade Tax, U.P. v. Upper Doab Sugar Mills Ltd. [2000] 118 STC 422 (SC); [2000] UPTC 496; [2000] 3 JT 355 SC and other cases relied upon are distinguishable. Farmers' Society Limited [1993] 2 SCC 363, (2) Janapada Sabha, Chhindwara v. Central Provinces Syndicate Ltd. AIR 1971 SC 57 , (3) Commissioner of Trade Tax, U.P. v. Upper Doab Sugar Mills Ltd. [2000] 118 STC 422 (SC); [2000] UPTC 496; [2000] 3 JT 355 SC and other cases relied upon are distinguishable. In Commissioner of Trade Tax, U.P. v. Upper Doab Sugar Mills Ltd. [2000] 118 STC 422 (SC); [2000] UPTC 496 (SC); [2000] 3 JT 355 SC it was held that a Validating Act can render ineffective judgments and orders of a competent court or authority provided by retrospective legislation it removes the cause of invalidity or the basis which has led to those judgments. As mentioned above, the Parliament has made a substantive provision by the Amending Act by amending section 9(2B) of the Central Sales Tax Act so far as the levy of interest is concerned. It was the only defect which was pointed out by the apex court in the case of India Carbon Ltd. [1997] 106 STC 460 (SC); [1998] UPTC 1. The defect having been removed by the Parliament, there is no illegality in the Validating Act. In the result, the writ petitions have no force and are liable to be dismissed and they are, accordingly, dismissed.