1972 (9) TMI 111 - SC - VAT and Sales Tax

Whether the provisions of the Madras General Sales Tax (Third Amendment) Act, 1967 (Act No. 19 of 1967) are invalid on the ground that they seek to impose sales tax with retrospective effect in an unreasonable manner? Held that - Appeal dismissed. The attack on the validity of section 3 of that Act was repelled and it was held that the Parliament could, in exercise of its legislative competence, pass a law retrospectively validating the collections made under the State statutes. The present case is on a stronger footing from the point of view of the respondents because we are dealing in this case with retrospective legislation made by the same Legislature which had enacted the earlier law. We are, therefore, of the opinion that the impugned provisions are a valid piece of legislation and do not contravene article 19 of the Constitution.

Issues Involved:
1. Validity of the Madras General Sales Tax (Third Amendment) Act, 1967, with retrospective effect.
2. Whether the retrospective imposition of sales tax violates Articles 14 and 19 of the Constitution.
3. Legislative competence to enact retrospective tax laws.
4. Reasonableness of the restriction imposed by the retrospective tax laws.

Detailed Analysis:

1. Validity of the Madras General Sales Tax (Third Amendment) Act, 1967, with Retrospective Effect:
The primary issue in these appeals is the validity of the Madras General Sales Tax (Third Amendment) Act, 1967, which imposed sales tax retrospectively. The appellants challenged the retrospective imposition of a single-point tax on furnace oil and other non-lubricating oils for the period prior to January 5, 1968, claiming it was illegal and violated constitutional rights. The court examined whether the provisions of the amending Act were invalid due to their retrospective effect.

2. Whether the Retrospective Imposition of Sales Tax Violates Articles 14 and 19 of the Constitution:
The appellants argued that the retrospective imposition of sales tax violated Articles 14 and 19 of the Constitution, particularly Article 19(1)(g), which guarantees the right to practice any profession or to carry on any occupation, trade, or business. The court noted that while the Legislature can pass laws with retrospective effect, the reasonableness of such retrospective operation must be considered. It was argued that the retrospective operation constituted an unreasonable restriction on the appellants' right to carry on their trade and business.

3. Legislative Competence to Enact Retrospective Tax Laws:
The court reiterated that the legislative power to enact laws includes the power to make them retrospective. This includes the power to validate laws that have been found invalid by the courts. The court cited previous rulings, such as Rai Ramkrishna v. State of Bihar, to support the view that the Legislature can cure infirmities in laws through retrospective amendments and validating acts. The court emphasized that the legislative power conferred on Legislatures to enact laws in respect of topics covered by the entries in the three lists can be exercised both prospectively and retrospectively.

4. Reasonableness of the Restriction Imposed by the Retrospective Tax Laws:
The court examined the reasonableness of the retrospective operation of the amending Act. It found that the retrospective operation did not impose an unreasonable restriction on the appellants' rights. The court observed that the amending Act was intended to cure an infirmity revealed by the judgment of the Madras High Court and to validate the past levy and collection of tax on non-lubricating mineral oils, including furnace oil. The court noted that the retrospective operation aimed to effectuate the original legislative intent and prevent the refund of sales tax already collected.

The court referred to several precedents, including Assistant Commissioner of Urban Land Tax v. The Buckingham & Carnatic Co. Ltd., to support the view that retrospective legislation to cure defects and validate past actions is a permissible mode of legislation. The court also addressed the appellants' argument that they did not realize the sales tax at the rate of 6% during some part of the retrospective period. The court held that this fact did not affect the competence of the Legislature to enact a law imposing sales tax retrospectively, as it was a matter of legislative policy.

Conclusion:
The court concluded that the impugned provisions of the Madras General Sales Tax (Third Amendment) Act, 1967, were valid and did not contravene Article 19 of the Constitution. The appeals were dismissed with costs, affirming the legislative competence to enact retrospective tax laws and the reasonableness of the restrictions imposed by such laws. The judgment emphasized that retrospective legislation to cure defects and validate past actions is a common and permissible practice in fiscal enactments.

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