Associated Cement Company Limited v. State Of Bihar
2007-06-01
AFTAB ALAM, S.P.SINGH
body2007
DigiLaw.ai
Judgment Aftab Alam, J. 1. Petitioner no.1 is a company incorporated and registered under the Indian Companies Act. It is engaged in the manufacture and sale of cement and one of its cement factories is situate in Sindri which after the division of the erstwhile State of Bihar now forms part of Jharkhand. Petitioner no. 2 is one of the share holder in the company, petitioner no.1. 2. The petitioners seek to challenge the notices, dated 19.5.2006 (Annexure 8 series) issued under the purported exercise of power u/s. 47 of the Bihar Finance Act, 1981 and the review orders, dated 28.8.2006 (passed under the same provision) and the consequent demands (Annexure 9 series). By the impugned orders assessments made earlier in regard to the sales tax payable by the petitioner company for assessment periods 2000-01 to 2004-05 were reviewed and it was held liable to pay an additional sum of around Rs. 31 crores as sales tax on the sales of its produce. It is significant to note here that the Bihar Finance Act, 1981 was repealed with the introduction of the Bihar Value Added Tax Act, 2005 with effect from 1.4.2005. But by Bihar Finance Act, 2006 an amendment was made in the repealed Bihar Finance Act, 1981 by introducing the definition of Bihar retrospectively with effect from 15.11.2000, the date on which the State was divided for the creation of the new State of Jharkhand. The impugned notices and the orders were passed on the basis of the amendment made in the repealed Bihar Finance Act, 1981 . Naturally, therefore, it was the retrospective amendment introduced in the Bihar Finance Act, 1981 after its repeal (rather than the review assessment orders) that came as the main object of challenge. 3. In order to put the controversy in the proper perspective it would be necessary to note some relevant facts. Before the division of the erstwhile State of Bihar under the Bihar Reorganisation Act, 2000, the petitioner company enjoyed exemption from payment of sales tax on sale of its produce/incremental production in terms of the Industrial Policy of the State Govt. that was in force at that time. The exemption certificate granted to it by the revenue authorities was for a period of eight years from 1.4.1998 to 31.3.2006. After the division of the State with effect from 15.11.2000 the Govt.
that was in force at that time. The exemption certificate granted to it by the revenue authorities was for a period of eight years from 1.4.1998 to 31.3.2006. After the division of the State with effect from 15.11.2000 the Govt. of Bihar denied to the petitioner company the benefit of exemption from payment of sales tax on the sale of its produce from its sale depots in Bihar on the ground that the place where its plant was situate was no longer part of Bihar. 4. The petitioner challenged the action of the Govt. of Bihar in denying to it the benefit of tax exemption that was granted in its favour upto 31.3.2006 in CWJC No. 15620 of 2001. A Bench of this court disallowed the petitioners claim for exemption following the division of the State and dismissed the writ petition by the decision reported in 2003 1 BLJR 33 . Against the order of this court the petitioner company preferred appeal (Civil Appeal No. 2450 of 2003) before the Supreme Court. The petitioners appeal alongwith some other analogous appeals against judgments and orders passed by this court and the Jharkhand High Court were heard together and the claims of all the assessees including the present petitioner were allowed by judgment reported as C.C.T. V/s. Swarn Rekha Cokes & Coals (P) Ltd., 2004 6 SCC 689 . In the decision reported in the journal Supreme Court Cases the relevant facts concerning the case of the petitioner company were noted in paras 6 and 18. 5. The decision in Swarn Rekha is based mainly on the interpretation of Sec. 2(f) defining law and Ss. 84 and 85 of the Bihar Reorganisation Act. The Supreme Court noted that exemption was granted to the petitioner under notification no. SO 478, dated 22.12.1995 issued u/s. 7(3)(b) of the Bihar Finance Act, 1981 for giving effect to the Industrial Policy, 1995. The court found and held that in view of the wide definition given to law in Sec. 2(f) of the Reorganisation Act, the notification issued u/s. 7(3)(b) of the Bihar Finance Act, 1981 was law within the meaning of Ss. 84 and 85 of the Act.
The court found and held that in view of the wide definition given to law in Sec. 2(f) of the Reorganisation Act, the notification issued u/s. 7(3)(b) of the Bihar Finance Act, 1981 was law within the meaning of Ss. 84 and 85 of the Act. It further held that by virtue of Sec. 84 of the Reorganisation Act the notification, being law, would continue to operate in the territories of both the States of Bihar and Jharkhand notwithstanding the division of the erstwhile State of Bihar with effect from 15.11.2000. The notification would remain operative and enforceable in both the States because no adaptation and modification was made by any order issued by the appropriate Government within two years from the date of the division and hence, it shall continue to remain operative and enforceable until altered, repealed or amended by a competent legislature or other competent authority as provided u/s. 85 of the Act. 6. After the decision in Swarn Rekha, the Govt. of Bihar allowed exemption to the petitioner company, as it was bound to do, and on 16.5.2006 revised assessment orders were passed with regard to assessment periods in question (Annexure 6 series) and all demands against the petitioner company were dropped. 7. On 1.4.2005 the Bihar Value Added Act, 2005 came into force, Sec. 94 of which repealed the Bihar Finance Act, 1981 from the date of commencement of the VAT Act. Section 94(2)(b) of the VAT Act also brought to end the exemption enjoyed by the petitioner company on payment of sales tax on its finished produce/incremental production though in terms of the certificate granted to it under the repealed Act, the period of exemption extended upto 31.3.2006. 8. On 18.4.2006 the Bihar Finance Act, 2006 was enacted (that was published in the official gazette of 19.4.2006). The Bihar Finance Act, 2006 introduced amendments in six Acts out of which five were subsisting and in force. But one, with which we are concerned in the present case, namely, the Bihar Finance Act, 1981 was already repealed over a year ago.
The Bihar Finance Act, 2006 introduced amendments in six Acts out of which five were subsisting and in force. But one, with which we are concerned in the present case, namely, the Bihar Finance Act, 1981 was already repealed over a year ago. By the amendment a definition of "Bihar" was introduced in the Bihar Finance Act, 1981 stating that prior to 15.11.2000 it would mean the whole of the State of Bihar, including the territories forming part of Jharkhand, following its division from that date but for the period subsequent to that date it would mean the State of Bihar, excluding the territories of Jharkhand, specified in Sec. 3 of the Bihar Reorganisation Act. The Bihar Finance Act, 2006 in Sec. 3(1) (a) further provided that the benefit of exemption u/s. 7(3) of the Bihar Finance Act would not be available to an industry situate outside Bihar as per the newly introduced definition with effect from 15.11.2000. Section 3(1)(d) of the Finance Act, 2006 made the provision for recovery in accordance with the newly added definition of Bihar in Sec. 2 of the repealed Act. 9. The amendment in the repealed Bihar Finance Act, 1981 was made by Part I of the Finance Act, 2006 and since the entire controversy centers on it, it needs to be reproduced here in full: NEEL(1405).htm These are all the facts relevant to appreciate the rival contentions. 10 Dr. Debi Pal, learned counsel appearing on behalf of the petitioners assailed the amendment sought to be made in the repealed Bihar Finance Act, 1981 mainly on the following four grounds: (1) The very idea of amendment in an Act that was earlier repealed was untenable. No amendment was possible in something that was nonexistent. Any amendment in the Bihar Finance Act might have been possible only following its revival. But the Finance Act, 2006 did not say anything about reviving the 1981 Act and hence, the purported amendment had no meaning and it was void and inoperative ab initio. (2) Even assuming that by virtue of the amendment a definition was added to the Bihar Finance Act, 1981 with effect from 15.11.2000, no other part of the 1981 Act was revived and made enforceable.
(2) Even assuming that by virtue of the amendment a definition was added to the Bihar Finance Act, 1981 with effect from 15.11.2000, no other part of the 1981 Act was revived and made enforceable. The machanism of assessment and recovery, including Sec. 47 relating to the power of review provided under the 1981 Act that became dead as a result of its repeal with effect from 1.4.1985 continued to remain lifeless. Hence, notwithstanding the addition of the definition of Bihar, no notice could be issued or order passed u/s. 47 of the 1981 Act since that provision had gone with the repeal of the Act and it was never revived. (3) The retrospectivity given to the newly added definition of Bihar with effect from 15.11.2000 was particularly bad, invalid and unconstitutional for two reasons: (a) It sought to take away the benefit accrued to the petitioner by nullifying the Supreme Court decision in Swam Rekha and amounted to an invasion of the judicial function of the State. (b) It was violative of Arts. 19 and 14 of the Constitution as it unreasonably and arbitrarily sought to take away rights vested in the writ petitioner and to create unforeseen and fresh liabilities from a retrospective date. 11. In support of the first point raised by him, Dr. Pal relied upon two decisions of the Supreme Court, one in Gajraj Singh V/s. State Transport Appellate Tribunal, AIR 1997 SC 412 (paras 22 to 24) and the other in Kolhapur Cane Sugar Works Limited V/s. Union of India, 2000 2 SCC 536 (para 37). In Gajraj Singh the question that came up for consideration was whether the holder of a State carriage permit under the Motor Vehicles Act, 1939 was required to obtain fresh permit under the provisions of the Motor Vehicles Act, 1988 or a mere renewal of the earlier permit under the provisions of the later Act would be valid and legal. It was in that context that the observations were made in paras 22 to 24 of the decision (relied upon by Dr. Pal). The observations undoubtedly explain the consequences of repeal of an Act but the decision does not directly deal with the question whether the legislature was competent to make amendment in a repealed act without its revival. 12.
It was in that context that the observations were made in paras 22 to 24 of the decision (relied upon by Dr. Pal). The observations undoubtedly explain the consequences of repeal of an Act but the decision does not directly deal with the question whether the legislature was competent to make amendment in a repealed act without its revival. 12. In Kolhapur Cane Sugar Works Limited, for recovery of an amount earlier refunded to the appellant, a proceeding was initiated under rules 10 and 10A of the Central Excise Rules. A few days before the final order in the proceeding was passed confirming the demand, Rules 10 and 10A were substituted by a new provision introduced as R. 10. The new R. 10 was in turn substituted by the insertion of Sec. 11A in the Act. A question, therefore, arose whether the recovery proceeding initiated under old Rules 10 and 10A could be continued and the final order passed even after the old rules were repealed by the new provisions. The Supreme Court held that Sec. 6 of the General Clauses Act had no application to the facts of the case. In the new R. 10 or in Sec. 11A there were no saving provisions in favour of pending proceeding. Therefore, action for realisation of the amount refunded could only be taken under the new provision in accordance with the terms thereof. It was in the context of the aforesaid facts that the observation was made in para 37 of the decision with regard to the effect of repeal of a statute. In Kolhapur Cane Sugar Works Ltd. the Supreme Court was not considering the question of amendment in a repealed Act and hence, the observations relied on by Dr. Pal do not have any direct application to this case. 13. Dr. Pal further submitted that in any event a repealed law was first required to be revived before any amendment could be introduced in it. He submitted that Sec. 9 of the Bihar & Orissa General Clauses Act (equal to Sec. 7 of the Central General Clauses Act) required that the reviving enactment should expressly state about the revival of the Act earlier repealed. He further pointed out that in the impugned Bihar Finance Act, 2006, there was no express statement in regard to even a partial revival of the repealed 1981 Act.
He further pointed out that in the impugned Bihar Finance Act, 2006, there was no express statement in regard to even a partial revival of the repealed 1981 Act. He, therefore, submitted that the Act cannot be taken to be even partially revived by the impugned Act and in the absence of any revival there was nothing in which any amendment could be made. In support of the submission Dr. Pal relied upon a Bench decision of the Kerala High Court in K.C. Antony V/s. Sales Tax Officer, Ernakulam, 1964 15 STC 620 . In an earlier case before K.C. Antony the High Court had held that an assessment of the turnover relating to the last purchase of copra was not possible in view of the defective wording employed when the General Sales Tax Act, 1125 was amended by General Sales Tax (Second Amendment) Act, 1958. In order the save the Govt. from the liability to refund the amounts already collected as tax, the General Sales Tax (Validation) Act, 1964 was enacted. In the validation Act it was provided that all taxes assessed, levied or collected on the purchase of cashewnut with or without shells, coconut or copra made on or after the 1.04.1958 and before the 1.04.1963 would for all purposes be valid notwithstanding anything contained in any law or any judgment, decree or order of any court, authority or tribunal. The validating Act was preceded by an Ordinance that was promulgated on 1.01.1964 but before that the General Sales Tax Act, 1125 had been repealed on 1.04.1963. It was, therefore, argued on behalf of the petitioner (K.C. Antony) that as the General Sales Tax Act, 1125 had disappeared by the time the validating Ordinance/ Act were placed on the statute book, it was not possible to amend it and that as a result the validating Ordinance/Act should be considered as totally ineffective for the purpose of getting over the impact of the earlier decision of the court. The court referred to the repeal and saving clause in the Kerala General Sales Tax Act, 1963 (by which the General Sales Tax, 1125 was repealed) and accepted the submission made on behalf of the petitioner and found and held that for lack of a parent Act the General Sales Tax (Validation) Act, 1964 did not effect any amendment as intended. The decision of the Kerala High Court indeed supports Dr.
The decision of the Kerala High Court indeed supports Dr. Pals submission to a certain extent. 14. But a contrary view appears to have been taken by the Supreme Court in State of Rajasthan V/s. Mangilal Pindwal, 1996 5 SCC 60 . In Mangilal Pindwal a rule permitted compulsory retirement of a Govt. servant by paying three months salary. This rule was later repealed by substituting another rule in its place. During the period the earlier rule was in operation, a Govt. servant was retired on payment of an amount as salary but it was found on calculation later to be a little short of three months salary making the retirement invalid. The rule was after its repeal retrospectively amended for the period it was in operation to enable the Govt, to retire a Govt. servant forthwith without paying him three months salary but entitled him to claim three months salary after retirement. This amendment was held to be valid and effective to validate the retirement of the Govt. servant concerned. In the facts of the case a distinction may be pointed out that it was a case where one rule, out of the body of the Rules was substituted by another rule. Later on, the old rule (repealed by substitution by the new provision) was amended retrospectively. But the main framework or the body of the Rules remained in existence in which amendments might have been possible. What is important, however, is not so much the facts of the case but the legal position deduced by the Supreme Court as stated in para 12 of the decision which is as follows: "12. This means that as a result of repeal of a statute the statute as repealed ceases to exist with effect from the date of such repeal but the repeal does not affect the previous operation of the law which has been repealed during period it was operative prior to the date of such repeal. The effect of the amendment that were introduced in sub-rule (2) of R. 244 of the Rules vide notifications dated 2.9.1975 and 26.11.1975 whereby the said sub-rule was substituted with effect from 2.9.1975 is that sub-rule (2) which was introduced on 19.8.1972 ceased to exist with effect from 2.9.1975 but it was operative during the period from 19.8.1972 to 1.9.1975.
The effect of the amendment that were introduced in sub-rule (2) of R. 244 of the Rules vide notifications dated 2.9.1975 and 26.11.1975 whereby the said sub-rule was substituted with effect from 2.9.1975 is that sub-rule (2) which was introduced on 19.8.1972 ceased to exist with effect from 2.9.1975 but it was operative during the period from 19.8.1972 to 1.9.1975. It is settled law that rule made in exercise of the power conferred by Art. 309 of the Constitution can have retroactive operation. Since sub-rule (2) of R. 244 of the Rules, as introduced in August, 1972, was operative during the period from 19.8.1972 to 1.9.1975, it could be amended in exercise of the rule making power under Art. 309 of the Constitution so as to operate during the period from 19.8.1972 to 1.9.1975. The notification dated 11.3.1976, by substituting sub-rule (2) of R. 244 of the Rules, repealed the said provision that was operative during the period from 19.8.1972 to 1.9.1975 and replaced it by another provision which was to be operative during the said period. The said notification cannot be held to be invalid on the basis that the said amendment sought to amend a provision which was not in existence. The statement of law in Sutherland on statutory construction, on which reliance was placed by the learned Judges of the High Court, that a repealed law cannot be amended has no application in the present case." (emphasis added) 15. Apart from the question whether any amendment is possible in a repealed Act (without its revival), the Advocate General contended that it was incorrect to say that the repealed 1981 Act was not revived, to the extent needed, by the Bihar Finance Act, 2006. He submitted that Bihar Finance Act, 2006 manifestly revived, at least partially, the 1981 Act. In support of the submission the Advocate General referred to Sec. 2 of the amendment stating as follows : "Notwithstanding the repeal of the Bihar Finance Act, 1981 .......it shall be deemed to be, and to always have been, for all purpose as validly and effectively in all material times if the said Act had not been repealed." He submitted that the words of the enactment plainly amounted to an express statement regarding the revival of the repealed 1981 Act. 16 Coming to the second point Dr.
16 Coming to the second point Dr. Pal argued that even assuming the amendment to be valid, it did no more than introducing two separate definition of Bihar for the period prior to 15.11.2000 and from 15.11.2000 to 31.3.2005. The remaining parts of the Bihar Finance Act, 1981 continued to remain dead and gone as a consequence of its repeal from 1.4.2006. Therefore, there was no Sec. 47 of the Bihar Finance Act, 1981 or for that matter any other provision of that Act under which a recovery proceeding could be held and the impugned orders of assessment were, therefore, bad and those were passed without any sanction of law. 17. The learned Advocate General contended that the submission was fallacious. He referred to Sec. 94 of the Bihar VAT Act, 2005 that contains the provisions of repeal and savings in regard to the Bihar Finance Act, 1981 . He put great stress on cl. (c) of sub-sec. (2) of Sec. 94 which is reproduced below: "(2) The repeal shall not affect,- "(a)............................. "(b)............................. "(c) The levy, assessment or recovery of any tax or the imposition or recovery of any penalty, in respect of such period, "Under the provisions of the repealed Act; and all proceedings under the repealed Act in respect of matters aforesaid shall be initiated and disposed of or continued and disposed of, as the case may be, as if this Act has not been passed; and for this purpose all taxing authorities or Inspectors appointed u/s. 10, and the Tribunal constituted u/s. 9, shall exercise all powers and perform all duties conferred by or under the repealed Act upon the corresponding authorities appointed u/s. 9 or Sec. 8 thereof." "Provided that............ "Provided further that....." 18. On the basis of the above Mr. Advocate General contended that the levy, assessment or recovery of any tax under the provisions of the repealed Act in respect of such period was expressly saved by Sec. 94 of the VAT Act. 19. I have noted above the submissions made on behalf of the petitioners and the State in regard to the first two points raised by Dr. Pal for the sake of record. But I do not propose to make any conclusive pronouncement on the two points because I feel that the case is fit to succeed on the third point raised by Dr.
Pal for the sake of record. But I do not propose to make any conclusive pronouncement on the two points because I feel that the case is fit to succeed on the third point raised by Dr. Pal with regard to retrospectivity of the amendment. 20. Dr. Pal submitted that in Swarn Rekha the Supreme Court did not declare any law (Act, Rule or Notification) as bad or invalid. On the contrary the court held that as the legal position existed at the material time, the action of the State Govt. in denying exemption to the petitioner was bad and unsustainable. After the decision the State Legislature could have amended the Bihar Finance Act prospectively and in that case exemption could be denied to the petitioner from the date of the amendment. Such a course would have been wholly unexceptionable. But the State Govt. did not follow that course. The judgment in Swarn Rekha was delivered on 7.5.2004. On the basis of the judgment the impugned demand of the State Govt. was dropped, revised assessment orders were passed and assessments for the periods in question were concluded. On 1.4.2005 the Finance Act was repealed and finally on 18.4.2006 the amendment was introduced in the 1981 Act. By the amendment two definitions of Bihar, one relating to the period prior to 15.11.2000 and other relating to the period between 15.11.2000 to 31.3.2005 were inserted retrospectively with effect from 15.11.2000. Learned counsel submitted that by giving retrospectivity to the amendment, the State Govt. was simply trying to putting the clock back and to persist in its action that was held to be bad and illegal by the Supreme Court in view of the law as it existed at the material time. 21. Dr. Pal submitted that the amendment was not intended to cure any defect in the earlier Act or the notification issued under it as none was pointed out by the Supreme Court and hence the amendment in question was not in the nature of a validating Act. He further submitted that the amendment was not aimed at removing the basis that led the court in Swarn Rekha to hold that the exemption notification issued u/s. 7(3)(b) of the Bihar Finance Act, 1981 was law and equally operative and enforceable in territories that went to form Jharkhand on the division of the State on and from 15.11.2000.
He further submitted that the amendment was not aimed at removing the basis that led the court in Swarn Rekha to hold that the exemption notification issued u/s. 7(3)(b) of the Bihar Finance Act, 1981 was law and equally operative and enforceable in territories that went to form Jharkhand on the division of the State on and from 15.11.2000. Learned counsel submitted that the impugned amendment was neither validating nor it changed or altered the basis on which the decision in Swarn Rekha was founded. It simply amounted to an invasion of the judicial power of the State that was entrusted to the court under the Constitution. And on that score alone the retrospectivity of the amendment was unconstitutional and unsustainable. 22. In support of the submission Dr. Pal relied on Supreme Court decisions in Municipal Corporation, Ahmedabad V/s. New S.S. & Wvg. Co., AIR 1970 SC 1292 (para 7) and Re: Cauveri Water Disputes Tribunal, AIR 1992 SC 522 . He also cited the decision in S.R. Bhagwat V/s. State of Mysore, AIR 1996 SC 188 in which the earlier decision in Cauveri Water Disputes Tribunal was referred to and relied upon. 23. in Bhagwat learned counsel particularly relied upon paras 11 and 14 of the decision which are as follows: "11. It is now well settled by a catena of decisions of this court that a binding judicial pronouncement between the parties cannot be made ineffective with the aid of any legislative power by enacting a provision which in substance overrules such judgment and is not in the realm of a legislative enactment which displaces the position or foundation of the judgment and uniformly applies to a class of persons concerned with the entire subject sought to be covered by such an enactment having retrospective effect. We may only refer to two of these judgments. "14. We made note at the very outset that in the present case the High Court had not struck down any legislation which was sought to be reenacted after removing any defect retrospectively by the impugned provisions. This is a case where on interpretation of existing law, the High Court had given certain benefits to the petitioners. That order of mandamus was sought to be nullified by the enactment of the impugned provision in a new statute. This is our view would be clearly impermissible in legislative exercise." 24.
This is a case where on interpretation of existing law, the High Court had given certain benefits to the petitioners. That order of mandamus was sought to be nullified by the enactment of the impugned provision in a new statute. This is our view would be clearly impermissible in legislative exercise." 24. Learned counsel also relied on the decision in K. Sankaran Nair V/s. Devaki Amma Malathi Amma, 1996 11 SCC 428 . 25. Dr. Pal further submitted that apart from being an attempt to overreach the decision of the court in Swam Rekha the retrospectivity given to the amendment made it violative of Arts. 19 and 14 of the Constitution as it unreasonably and arbitrarily sought to take away benefits and rights that had already accrued to the petitioner under a valid law that was in existence at the material time. Dr. Pal submitted that from 15.11.2000 till the repeal of the 1981 Act on and from 1.4.2006 the petitioner enjoyed the benefit of exemption from payment of tax on sale of its produce under law that was expressly held to be good and valid by the Supreme Court. The transactions were over and the assessments for those periods were concluded and completed. By giving retrospective operation to the amendment the State Govt. wanted to take away from the petitioner what had accrued to it under a valid law. 26. Learned counsel further submitted that while enjoying exemption the petitioner had not collected any sales tax on the sale of its produce. As a matter of fact, any collection of sales tax would have been a penal offence and now by giving retrospective operation to the amendment the Govt. had created a completely new and unforeseen liability against the petitioner. The liability was so heavy that it would badly dislocate its finances and would jeopardise its smooth functioning. He submitted that it was another strong ground on which the retrospectivity of the amendment was liable to be struck down. 27. In support of the submission Dr. Pal relied on a Constitution Bench decision of the Supreme Court in the State of Gujarat V/s. Raman Lal Keshav Lal, AIR 1984 SC 161 (para 52 in particular). He also referred to the decision in P. Tulsi Das V/s. Govt, of A.P., 2003 1 SCC 364 in which the decision in Raman Lal Keshav Lal was referred to and relied upon.
He also referred to the decision in P. Tulsi Das V/s. Govt, of A.P., 2003 1 SCC 364 in which the decision in Raman Lal Keshav Lal was referred to and relied upon. In P. Tulsi Das learned counsel specially referred to paras 11 to 14. Reliance was also placed on the Supreme Court decision in Virendra Singh Hooda V/s. State of Haryana, 2004 12 SCC 588 (paras 33,35,49,67,69 and 70) and in Tata Motors V/s. State of Maharashtra, 2004 5 SCC 783 . 28. In support of the point that the retrospectivity of the amendment sought to nullify the decision of the Supreme Court and it also tried to take away from the petitioner a benefit that had accrued to it, reliance was placed on the decision of the Supreme Court in D. Cawasji V/s. State of Mysore, AIR 1984 SC 1780 . In this case the sale price of Arrack during the years 1966 to 1969 was fixed at 55 paise a litre. The State was authorised to collect sales tax @ six and half percent. The State realised sales tax at that rate not only on the basic price of Arrack but by adding to it the amounts of excise duty, health cess and education cess. The High Court found and held that sales tax was not leviable on amount of excise duty, health cess and education cess but only on the basic price. As a result of the High Court judgment the State was faced with the situation where it was required to refund a large amount earlier realised from the dealers as sales tax on Arrack. Against the judgment of the High Court it preferred an appeal before the Supreme Court but later deemed it fit to withdraw it and, thus, the order of the High Court attained finality. In order to avoid the liability of refund by the State Govt. of the excess amount collected as sales tax, the Governor passed an Ordinance which was later replaced by the Mysore Sales Tax (Amendment) Act, 1969. By the amendment Act the rate of sales tax was raised from six and half percent to forty five percent retrospectively with effect from 1.4.1966.
of the excess amount collected as sales tax, the Governor passed an Ordinance which was later replaced by the Mysore Sales Tax (Amendment) Act, 1969. By the amendment Act the rate of sales tax was raised from six and half percent to forty five percent retrospectively with effect from 1.4.1966. The Supreme Court held that the enhancement of the rate of duty from six and half percent to forty five percent with retrospective effect was in the facts and circumstances of the case clearly arbitrary and unreasonable and it amounted to overreaching the decision of the court. In paras 15 and 16 of the decision the Supreme Court observed and held as follows: "15. In view of the aforesaid judgment and order passed by the High Court amounts collected by the State by way of Sales Tax on items of excise, health cess and education cess on Arrack or special liquor from the appellant became refundable to the appellant. The impugned amendment has been passed, as the Statement of Objects which we have earlier set out clearly indicates to override the judgment of the High Court and to enable the State to hold on to the amount collected as sales tax on excise duty, health cess and education cess, if any, on Arrack or special liquor. It has to be noted that the said judgment of the High Court in the earlier case had become final and conclusive inasmuch as the special leave petition filed against the judgment by the State was withdrawn. The State instead of seeking to test the correctness and effect of the judgment and order of the High Court thought it fit to have the judgment and order nullified by introducing the impugned amendment. The amendment does not proceed to cure the defect or the lacuna by bringing in an amendment providing for exigibility of sales tax on excise duty, health cess and education cess. The impugned Amending Act may not, therefore, be considered to be a Validating Act. A Validating Act seeks to validate the earlier Acts declared illegal and unconstitutional by Courts by removing the defect or lacuna which led to invalidation of the law. With the removal of the defect or lacuna resulting in the validation of any Act held invalid by a competent Court, the Act may become valid, if the Validating Act is lawfully enacted.
With the removal of the defect or lacuna resulting in the validation of any Act held invalid by a competent Court, the Act may become valid, if the Validating Act is lawfully enacted. But the question may still arise as to what will be the fate of acts done before the Validating Act curing the defect has been passed. To meet such a situation and to provide that no liability may be imposed on the State in respect of such acts done before the passing of the Validating Act making such act valid, a Validating Act is usually passed with retrospective effect. The retrospective operation relieves the State of the consequences of acts done prior to the passing of the Validating Act. The retrospective operation of a Validating Act properly passed curing the defects and lacuna which might have led to the invalidity of any act done may be upheld, if considered reasonable and legitimate. "16. In the instant case, the State instead of remedying the defect or removing the lacuna has by the impugned amendment sought to raise the rate of tax from 6.5% to 45% with retrospective effect from the 1.04.1966 to avoid the liability of refunding the excess amount of sales tax collected and has further purported to nullify the judgment and order passed by the High Court directing the refund of the excess amount illegally collected by providing that the levy at the higher rate of 45% will have retrospective effect from 1.04.1966. The judgment of the High Court declaring the levy of sales tax on excise duty, education cess and health cess to be bad becomes conclusive and is binding on the parties. It may or may not have been competent for the State Legislature to validly remove the lacuna and remedy the defect in the earlier levy by seeking to impose sales tax through any amendment on excise duty, education cess and health cess; but, in any event, the State Government has not purported to do so through the Amending Act. As a result of the judgment of the High Court declaring such levy illegal, the State became obliged to refund the excess amount wrongfully and illegally collected by virtue of the specific direction to that effect in the earlier judgment.
As a result of the judgment of the High Court declaring such levy illegal, the State became obliged to refund the excess amount wrongfully and illegally collected by virtue of the specific direction to that effect in the earlier judgment. It appears that the only object of enacting the amended provision is to nullify the effect of the judgment which became conclusive and binding on the parties to enable the State Government to retain the amount wrongfully and illegally collected as sales tax and this object has been sought to be achieved by the impugned amendment which does not even purport or seek to remedy or remove the defect and lacuna but merely raises the rate of duty from 6.5% to 45% and further proceeds to nullify the judgment and order of the High Court. In our opinion, the enhancement of the rate of duty from 6.5% to 45% with retrospective effect is in the facts and circumstances of the case clearly arbitrary and unreasonable. The defect or lacuna is not even sought to be remedied and the only justification for the steep rise in the rate of duty by the amended provision is to nullify the effect of the binding judgment. The vice of illegal collection in the absence of the removal of the illegality which led to the invalidation of the earlier assessments on the basis of illegal levy, continues to taint the earlier levy. In our opinion, this is not a proper ground for imposing the levy at the higher rate with retrospective effect. It may be open to the Legislature to impose the levy at the higher rate with prospective operation but levy of taxation at higher rate which really amounts to imposition of tax with retrospective operation has to be justified on proper and cogent grounds.
It may be open to the Legislature to impose the levy at the higher rate with prospective operation but levy of taxation at higher rate which really amounts to imposition of tax with retrospective operation has to be justified on proper and cogent grounds. This aspect of the matter does not appear to have been properly considered by the High Court and the High Court in our view was not right in holding that "by the enactment of Sec. 2 of the impugned Act the very basis of the complaint made by the petitioner before this Court in the earlier writ petition as also the basis of the decision of this Court in Cawasjis case, 1969 1 MysLJ 461 that the State is collecting amounts by way of tax in excess of what was authorised under the act has been removed." We, accordingly, set aside the judgment and order of the High Court to the extent it upholds the validity of the impugned amendment with retrospective effect from 1.04.1966 and to the extent it seeks to nullify the earlier judgment of the High Court. We declare that Sec. 2 of the impugned amendment to the extent that it imposes the higher levy of 45% with retrospective effect from the 1.04.1966 and Sec. 3 of the impugned Act seeking to nullify the judgment and order of the High Court are invalid and unconstitutional." 29. Dr. Pal also relied upon the minority decision of Justice Amrendra Nath Sen in Lohia Machines Ltd. V/s. Union of India, 152 ITR 308. Dr. Pal submitted that the majority decision rejected the petitioners case on a different, larger issue and, therefore, it had no occasion to consider the question of retrospective operation of the amendment. The minority judgment differed with the majority view on larger issue and to that extent the minority view was not a binding precedent. But differing on the larger issue it proceeded to consider the question of retrospective operation of the amendment and held that the retrospectivity given to the amendment was violative of Arts. 19 and 14 of the Constitution. Learned counsel relied upon the passages from pages 376 to 385 of the decision as reported in the journal ITR.
But differing on the larger issue it proceeded to consider the question of retrospective operation of the amendment and held that the retrospectivity given to the amendment was violative of Arts. 19 and 14 of the Constitution. Learned counsel relied upon the passages from pages 376 to 385 of the decision as reported in the journal ITR. He also submitted that on question of retrospectivity the judgment of Justice Amrendra Nath Sen, though constituting the minority view in Lohia Machines was noted with approval and was relied on in later Supreme Court decisions. 30. Mr. Advocate General countered the submissions made on behalf of the petitioners and took the stand that as long as its legislative competence did not come into question the power of the State Legislature to make laws prospectively or retrospectively was beyond any challenge. He also submitted that while making a validating law in order to cure any defect in the earlier Act, the Legislature was fully competent to give the validating Act a retrospective operation in order to cure the defect from the beginning. He maintained that in the present case the Legislature had acted fully within its authority and competence. 31. The Advocate General further submitted that Sec. 9 of the Bihar General Clauses Act enabled the State Legislature to revive a repealed Act either wholly or partially and in the present case the Legislature had partially revived and amended the repealed Act in order to cure the defect pointed out by the Supreme Court. In the VAT Act the repealing and saving provisions as contained in Sec. 94 of the Act kept the machinery of recovery under the repealed Act intact for such an eventuality. 32. In support of the submission he relied upon Supreme Court decisions in Hari Singh V/s. Military Estate Officer, Delhi, AIR 1972 SC 2205 (para 20) and in I.N. Saksena V/s. State of M.P., AIR 1976 SC 2250 (para 23). The Advocate General also submitted that the inability of the dealer to pass on the levy of sales tax to the consumer was no ground to make the levy bad or illegal. In support of the submission he relied upon the decision of the Supreme Court in M/s Hoechst Pharmaceuticals Ltd. V/s. State of Bihar, AIR 1983 SC 1019 (para 86) and in S. Kodar V/s. State of Kerala, AIR 1974 SC 2272 . 33.
In support of the submission he relied upon the decision of the Supreme Court in M/s Hoechst Pharmaceuticals Ltd. V/s. State of Bihar, AIR 1983 SC 1019 (para 86) and in S. Kodar V/s. State of Kerala, AIR 1974 SC 2272 . 33. In the two decisions relied on by the Advocate General it was indeed held by the apex court that in order to constitute a tax on sales of goods it was not necessary that the dealer should be able to pass on the incidence of the tax on sale to the purchaser and therefore it could not be argued that because the dealer was disabled from passing on the incidence of tax to the purchaser, the provision of the Act imposed an unreasonable restriction upon the fundamental rights of the dealer under Arts. 19(1)(g) or 19(1)(f) of the Constitution. But it must be borne in mind that the Supreme Court decisions in S.Kodar and M/s Hoechst Pharmaceuticals Ltd. dealt with the provision of surcharge under the Sales Tax Act. The surcharge provision made the dealers, whose gross turnover was in excess of certain limit, liable to pay an additional amount of tax and at the same time disallowed the dealer to pass on the additional tax burden to the purchaser. In that context the Supreme Court held that though normally the incidence of sales tax was allowed to be passed on to purchaser, it was not a pre-condition or the necessary feature of levy of tax on sales of goods. The observations relied on by the Advocate General were not made in a case where the past transactions that were complete and concluded were sought to be opened by retrospective operation of an amendment Act. 34. On a careful consideration of the submissions made on behalf of the petitioner and the State and on examination of the provisions of the Amendment Act and the authorities of the Supreme Court cited at the bar, I am clearly of the view that the retrospective amendment introduced in the repealed Bihar Finance Act, 1981 by Finance Act, 2006 is bad, invalid and unconstitutional both because it tends to nullify the decision of the Supreme Court in Swarn Rekha and because it aims at reopening concluded transactions under valid law existing at the material time and to take away benefits and rights already accrued to the petitioner.
It is accordingly held and declared that the Bihar Finance Act, 2006 in so far it seeks to amend the Bihar Finance Act, 1981 with retrospective effect is bad, invalid and unconstitutional. Consequently, the notices (Annexure 8 series) and the review assessment orders and the demands (as contained in Annexure 9 series) are quashed. 35. In the result, this writ petition is allowed but with no order as to costs. S.P.Singh, J. 36 I agree.