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TMI Blog1992 (2) TMI 348X X X X Extracts X X X X X X X X Extracts X X X X ..... known as FL 15 licence and the other was retail licence known as FL 24 licence. The wholesale licenceholder was authorised to import liquor and beer from outside the State on which the licensee pays the prescribed countervailing duty. The holder of licence in form FL 15 is permitted to sell liquor in quantities of not less than 9 litres in sealed or capsuled bottles at any time and in any single transaction to licensees holding the licences in form FL 24 (retail licence), FL 17 (bar licence), etc. He is not permitted to carry on retail sale or allow consumption of liquor in the licensed premises (vide rule 23 of the A.P. Foreign Liquor and Indian Liquor Rules, 1970). The retail licence holder in form FL 24 is permitted to sell liquor obtained only from the wholesale licensees. Prior to July 8, 1983, beer and liquor were exigible to tax under items 25 and 26 of the A.P. General Sales Tax Act at the point of first sale in the State. By A.P. Ordinance 19 of 1983, items 25 and 26 were removed from the First Schedule. By the said Ordinance, the taxation of liquor and country liquor (which includes beer as per the definition) was dealt with by the newly introduced provision, viz., secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (1) of section 40 confers power on the State Government to alter, add to or cancel any of the Schedules by means of a notification. In exercise of the said power, the State Government issued G.O. Ms. No. 376, Revenue (CT) Department, dated April 25, 1987 amending, inter alia, the Sixth Schedule to the APGST Act with effect from May 1, 1987. The amendments are to the following effect: In the Sixth Schedule to the APGST Act, for items 1 and 2, the following item and, entries relating to rates are substituted: "All liquors other (a) At every point of sale other than at 25 paise in the than toddy and the point of last sale in the State. rupee. arrack. (b) At the point of last sale in the State. 5 paise in the rupee." Explanation I was omitted. As a result of omission of explanation I, explanation II became the only "explanation" to the Schedule. In the explanation, the second sentence, namely, "in the case of a dealer holding a wholesale-cum-retail licence, it shall be his sale to individual consumer as specified in the said rule" was omitted. The gist of the amendment brought about by G.O. Ms. No. 376 was to place all liquors including beer in one entry which attracts tax at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on.-For the purpose of this Schedule, (a) 'point of first sale' shall mean sale of liquor effected by a dealer who manufactures liquor in the State or imports liquor from outside the State to any other dealer or person; (b) 'point of last sale' shall mean sale of liquor to a person by a dealer who purchased liquor from another dealer in the State." Section 15 was given retrospective effect with effect from July 8, 1983, by a deeming provision. Section 16 substituted the following Schedule: "SIXTH SCHEDULE Goods in respect of which tax is leviable under section 5(2)(d): ------------------------------------------------------------------------------- Description of the Point of levy Rate of tax goods ------------------------------------------------------------------------------- (1) (2) (3) ------------------------------------------------------------------------------- All liquors other than (a) At every point of sale other than 25 paise in the toddy and arrack at the point of last sale in the rupee. State (b) At the point of last sale in the 5 paise in the State rupee. " ------------------------------------------------------------------------------- The proviso providin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Supreme Court recognised the power of the Legislature to enact laws including tax laws both prospectively and retrospectively. The power to legislate retrospectively embraces within its scope the power to validate a law which had been declared invalid by courts provided the infirmities or vitiating factors are removed or cured. (Vide Union of India v. Madan Gopal Kabra [1954] 25 ITR 58 (SC); AIR 1954 SC 158, J.K. Jute Mills Co. Ltd. v. State of Uttar Pradesh [1961] 12 STC 429 (SC); AIR 1961 SC 1534, Rai Ramkrishna v. State of Bihar [1963] 50 ITR 171 (SC); AIR 1963 SC 1667, Krishnamurthi & Co. v. State of Madras [1973] 31 STC 190 (SC); AIR 1972 SC 2455 and Ujagar Prints v. Union of India [1989] 74 STC 401 (SC); AIR 1989 SC 516. The following passage in 73 Harvard Law Review 692 at 705 cited with approval by a Constitution Bench of the Supreme Court in Assistant Commissioner of Urban Land Tax v. Buckingham and Carnatic Co. Ltd. [1970] 75 ITR 603; AIR 1970 SC 169, forcefully brings out the need and justification for retrospective taxation: "It is necessary that the Legislature should be able to cure inadvertent defects in statutes or their administration by making what has been ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en imposed for the past period, etc. (Per Venkatachalaiah, J., in Ujagar Prints v. Union of India [1989] 74 STC 401 (SC); AIR 1989 SC 516.) (4) Where the retrospective legislation has been undertaken for the reason that the Legislature or the delegated authority failed to brine, out its intention clearly in the Principal Act, such legislation is not normally open to attack either on the ground of legislative competence or on the ground of violation of article 19(1)(g). (Vide [lira Lal Rattan Lal v. Sales Tax Officer [1973] 31 STC 178 (SC); AIR 1973 SC 1034 and Epari Chinna Krishna Moorthy v. State of Orissa [1964] 15 STC 461 (SC); AIR 1964 SC 1581.) (5) The test of the length of time covered by retrospective operation cannot by itself be a decisive test (vide Rai Ramkrishna case [1963] 50 ITR 171 (SC); AIR 1963 SC 1667 and Shiv Dutt Rai Fateh Chand v. Union of India [1983] 53 STC 289 (SC); AIR 1984 SC 1194. Most often retrospective operation will be given to statutes to overcome a defect or lacuna pointed out by the courts and to validate the past actions notwithstanding the judgment of a court to the contrary. Retrospective legislation is also resorted to to plug a loophole in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er discretion to the Legislature in the matter of classification, so long it adheres to the fundamental principles underlying the said doctrine. The power of the Legislature to classify is of 'wide range and flexibility' so that it can adjust its system of taxation in all proper and reasonable ways ......... It is true taxation law cannot claim immunity from the equality clause of the Constitution. The taxation statute shall not also be arbitrary and oppressive, but at the same time the court cannot, for obvious reasons, meticulously scrutinize the impact of its burden on different persons or interests. Where there is more than one method of assessing tax and the Legislature selects one out of them, the court will not be justified to strike down the law on the ground that the Legislature should have adopted another method which, in the opinion of the court, is more reasonable, unless it is covinced that the method adopted is capricious, fanciful, arbitrary or clearly unjust." The Supreme Court, speaking through Gajendragadkar, J., expounded the law on this aspect almost in the same tone in Rai Ramkrishna's case [1963] 50 ITR 171 (SC); AIR 1963 SC 1667 vide para 12 of the judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w was passed to give effect to this intention. Dealing with the contention that it was not open to the Legislature to take away the exemption granted by the State Government retrospectively, the Supreme Court held: "We are not impressed by this argument. What the Legislature has purported to do by section 2 of the impugned Act is to make the intention of the notification clear. Section 2 in substance declares that the intention of the delegate in issuing the notification granting exemption was to confine the benefit of the said exemption only to persons who actually produce gold ornaments or employ artisans for that purpose. We do not see how any question of legislative incompetence can come in the present discussion. And, if the State Government was given the power either to grant or withdraw the exemption, that cannot possibly affect the Legislature's competence to make any provision in that behalf either prospectively or retrospectively." Dealing with the contention whether the retrospective operation of the impugned section imposes an unreasonable restriction on the petitioners' fundamental right to carry on business, the Supreme Court observed: "........ It is true that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e normal course, the wholesaler should have paid 25 per cent tax when he sold the imported liquor to other dealers, bars, clubs, etc., in huge quantities. The purchasers from the wholesale licensees, in their turn, would have sold the liquor to consumers by paying 5 per cent tax on the differential sale value. Now the wholesale licensees, by virtue of transfer of stocks to their retail shops, were paying a mere, 5 per cent tax on the whole. An unintended advantage was thus derived by the wholesale licensees who were also having retail licences. This led to an anomalous situation affecting the public revenues. It could not have been the intention of the Legislature or the State Government that a wholesaler selling imported liquor through his retail shop should be treated as last seller and subjected to tax at so low a rate as 5 per cent. The anomaly resulting from this situation becomes transparent when we notice the fact that without there being any anterior sale, straightway, a wholesaler is able to make a "last sale". The so-called last sale is in substance a first sale, but by a device of tax avoidance made possible by deficient language in the explanation and by the factum of h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll repairs" so as to dispel the doubts and to fully effectuate the legislative intent underlying the entry in the Sixth Schedule from its inception. It has not made any radical departure from the pre-existing scheme of levy. The competence of the Legislature to make such retrospective provision cannot be doubted. It is argued that the retrospectivity extending up to a period of five years operates harshly on the petitioners and introduces an element of unreasonableness in the impugned law. We do not see any merit in this argument for more than one reason. As already noticed, the Supreme Court held that the test of the length of time covered by retrospective operation of law is not a decisive test. In Krishnamurthi's case [1973] 31 STC 190 (SC); AIR 1972 SC 2455 a retrospective provision taking away the benefit of exemption of sales tax was upheld though the retrospective operation covered a period of twelve years. In Shiv Dutt Rai Fateh Chand case [1983] 53 STC 289 (SC); AIR 1984 SC 1194 the amendment to section 9 of the Central Sales Tax Act in the year 1976 and giving retrospective effect thereto right from its inception-that is from 1957 so as to enable the levy of penalties in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stitution Bench in Krishnamurthi's case [1973] 31 STC 190 (SC); AIR 1972 SC 2455 cited supra. Viewed in this background, we are not in a position to say that the retrospective operation of law for a period of five years had an oppressive effect on the petitioners' business or that the petitioners suffered irretrievable hardship on that account. We therefore hold that the retrospectivity given to the explanation to the Sixth Schedule by A.P. Act 25 of 1988 is perfectly within the legislative competence and does not violate article 14 of the Constitution on the ground of unreasonableness or otherwise. The learned counsel for the petitioners referred to the judgment of a Division Bench of the Bombay High Court reported in Commissioner of Income-tax v. Mico Products Pvt. Ltd. [1991] 187 ITR 517. In that case, the amendment to the Income-tax Act made in the year 1980 with retrospective effect from April 1, 1962, depriving the assessee of the benefit of depreciation in any year was held to violate article 19(1)(g) of the Constitution. The retrospective amendment was also held to be violative of article 14 on the ground that it discriminated between the assessments completed prior to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o force from May 1, 1987, but it ceased to have effect by reason of the Bill introduced to give effect to G.O. Ms. No. 376 not having been enacted within the stipulated time. Thus it is really not a case of imposing a higher rate of tax for the first time. We, therefore, see no relevancy in the aforementioned observations of the Supreme Court. The second contention advanced by the learned counsel for the petitioners is devoid of any substance. Relying upon Weston Electroniks v. State of Gujarat [1988] 70 STC 52 (SC); AIR 1988 SC 2038, the learned counsel submits that the explanation to the Sixth Schedule introduced by A.P. Act 25 of 1988 discriminates between liquor imported from other States and liquor of local origin thereby violating articles 301 and 304(a) of the Constitution. The petitioners contend that the sale of liquor imported from outside the State is chosen for special treatment for the purpose of imposing higher tax liability. There is an obvious fallacy in this contention. Under clause (a) of the explanation, sale of liquor effected by a manufacturing dealer in the State or sale of imported liquor are both treated alike. No higher rate of tax is sought to be imposed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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