1956 (8) TMI 33 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of Act VII of 1956
2. Legislative competence of Parliament to validate State laws
3. Retrospective application of Parliamentary legislation
4. Interpretation of "levy and collection" in the context of the validating Act

Detailed Analysis:

1. Validity of Act VII of 1956:
The petitioner challenged the validity of Act VII of 1956, arguing that it was beyond the competence of Parliament to validate State laws imposing taxes on inter-State trade or commerce. The court analyzed the legislative competence of Parliament and the State Legislature under the Constitution, particularly focusing on Article 286 and the Seventh Schedule. The court concluded that Parliament was exercising its legislative competence under Article 286(2) to remove the restriction on the legislative competence of the State Legislature to tax inter-State sales or purchases. The Act was deemed a valid exercise of Parliament's power to remove the ban and validate State laws for a specific period.

2. Legislative Competence of Parliament to Validate State Laws:
The court addressed the argument that Parliament cannot validate what the Constitution prohibits. It clarified that there is no absolute prohibition on State Legislatures taxing inter-State sales; rather, there is a restriction that Parliament can remove. The court emphasized that Parliament was not ratifying the acts of an agent but exercising its constitutional power to remove restrictions under Article 286(2). The court rejected the argument that the principle of validation is akin to ratification, stating that Parliament's action was a legitimate exercise of its legislative power.

3. Retrospective Application of Parliamentary Legislation:
The court considered whether Parliament's power under Article 286(2) could be exercised retrospectively. It held that a sovereign Legislature, such as Parliament, has the power to legislate both prospectively and retrospectively unless explicitly restricted by the Constitution. The court found no language in Article 286(2) that precludes retrospective legislation. It also dismissed the argument that the legislative process must first involve lifting the ban before State legislation, stating that the removal of the restriction could be retrospective, validating prior State laws.

4. Interpretation of "Levy and Collection":
The court analyzed the phrase "levy and collection" in section 2 of Act VII of 1956. It acknowledged the complexity and potential ambiguity of the phrase. The court concluded that "levy" includes any steps or proceedings initiated to determine the liability of the assessee and ultimately collect the tax. The court held that if no steps were taken before the specified period ended on 6th September 1955, the tax could not be validly levied. However, if proceedings were initiated before that date, the tax could be levied even if the assessment order was made later. The court emphasized that the validating Act must be construed to give effect to both parts of section 2, ensuring that the validation applied to actions taken within the specified period.

Conclusion:
The court dismissed the petition, upholding the validity of Act VII of 1956 and confirming that Parliament had the competence to validate State laws retrospectively. It clarified the interpretation of "levy and collection" and ensured that the validating Act applied to actions taken within the specified period. The petitioner was ordered to pay the costs of the respondents, fixed at Rs. 1,000 for each party.