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TMI Blog1997 (8) TMI 484X X X X Extracts X X X X X X X X Extracts X X X X ..... ticides, etc. The new entry related to pesticides concentrate or technical grade pesticide used by the registered manufacturers in the State. The rate of tax remained at the same rate of 4 per cent. Accordingly, the petitioners collected tax on medicines and drugs as also on pesticides, etc., either at 9 per cent or at 4 per cent as the case may be. Act 27 of 1996 was enacted on October 17, 1996 increasing the rate of tax, under section 21, by one per cent, so that the tax on drugs and medicines has been raised to 10 per cent and that on pesticides and insecticides has become 5 per cent. The Act having been given retrospective effect from the date of Ordinance, steps are being taken for demanding the higher rate of tax from the petitioners. An earlier Writ Petition No. 2425 of 1997 in which the same question was raised was disposed of on February 14, 1997 by a Division Bench of this Court (to which one of us, honourable Sri Justice Lingaraja Rath, was a party) rejecting the case taking the view of there being no merit in the case as the Legislature has the right to make a retrospective levy. In reaching the conclusion reliance was placed on the decisions in Rai Ramkrishna v. State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of attack is that though sales tax is an indirect tax and under the scheme of the Act is intended to be passed on to the customer, yet because of the retrospective character of the levy, the petitioners are deprived of the benefit of collecting the tax from the customers. The retrospectivity of the levy being against the very scheme of the Act, should be held ultra vires of the Act as also of the Constitution being ex facie unreasonable. 4.. In the counter-affidavit filed by the State, the levy is justified contending that in the Ordinance No. 19 of 1996, section 5-A was inserted to the Act levying turnover tax on goods classified under entry No. 37. But before the Ordinance was replaced by an Act, various associations involved in pharmaceutical trade had approached the Government raising the question claiming that introduction of turnover tax on the sale of pharmaceuticals would cause great harm to their trade inasmuch as the price of pharmaceuticals was fixed under various price control orders. Discussion with various officials of the Government was held in the matter and a suggestion was advanced by the association that any loss of revenue arising out of exemption under the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me prior to April, 1950 was not liable to be charged under the provisions of any law validly in force in Rajasthan. It was pointed out by the apex Court that while the Constitution is not retrospective, yet it is a different thing to say that Parliament in exercising the powers under articles 245 and 246 read with Schedule VII is precluded from making a retroactive law. The question must depend upon the scope of the powers conferred and that must be determined with reference to the terms of the instrument by which, affirmatively, the legislative powers were created and by which, negatively, they were restricted. The articles read with entry No. 82 of List I of the Seventh Schedule empower the Parliament to make laws with respect to taxes on income for the whole of the territory of India and no limitation or restriction is imposed in regard to retroactive legislation. The Parliament is, therefore, competent to make a law imposing tax on the income of any year prior to the commencement of the Constitution. 7.. The decision was reiterated in Sundararamier Co. v. State of Andhra Pradesh [1958] 9 STC 298 (SC); AIR 1958 SC 468 that the power conferred upon the Parliament carried with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and from the 1st March, 1951 and accordingly: (a) refund shall be made of all duties collected which would not have been collected, if the amendment had come into force on that day, and (b) recoveries shall be made of all duties which have not been collected but which would have been collected if the amendment had so come into force. 9.. In pursuance of the Finance Act, demand was made upon the appellants for payment of the duty payable by them after giving credit for the refund of the duty paid on biris which had been deleted by the Act. The demand was contested by filing writ petitions in the High Court urging retrospective operation of section 7(1) and sub-section (2) as illegal, ultra vires and unconstitutional. The matter ultimately came before the apex Court. Negativing the contention advanced that retrospective levy is per se unreasonable and violative of articles 19(1)(f) read with article 19(5), the court took the view that the fact that imposition of duty retrospectively deprived the right of passing it on to others, did not make an unreasonable restriction on the exercise of the fundamental right to hold property and that under the Indian Constitution infraction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ras v. Buckingham and Carnatic Co. Ltd. AIR 1970 SC 169, are apt in the context: It is not possible to put the test of reasonableness into the strait-jacket of a narrow formula. The objects to be taxed, the quantum of tax to be levied, the condition subject to which it is levied and the social and economic policies which a tax is designed to subserve are all matters of political character and these matters have been entrusted to the Legislature and not to the courts. In applying the test of reasonableness it is also essential to notice that the power of taxation is generally regarded as an essential attribute of sovereignty and constitutional provisions relating to the power of taxation are regarded not as grant of power but as limitation upon the power which would otherwise be practically without limit. 12.. In Rai Ramkrishna v. State of Bihar AIR 1963 SC 1667, their Lordships observed as under: .........Where for instance it appears that the taxing statute is plainly discriminatory, or provides no procedural machinery for assessment and levy of the tax, or that it is confiscatory, courts, would be justified in striking down the impugned statute as unconstitutional. In su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4] 15 STC 461 (SC); AIR 1964 SC 1581, it was held that while it is true that in considering the question as to whether legislative power to pass an Act retrospectively has been reasonably exercised or not, it is relevant to enquire how the retrospective operation operates. But it would be difficult to accept the argument that because the retrospective operation may operate harshly in some cases, the legislation itself is invalid. 15.. The question as to whether a long period of retrospectivity would make a statute unreasonable was considered in the decision in Rai Ramkrishna v. State of Bihar AIR 1963 SC 1667. It was argued that where the length of the retrospectivity was long, i.e., 11 years, the restriction was unreasonable. The court observed: We do not think that such a mechanical test can be applied in determining the validity of the retrospective operation of the Act........... That is why we think the test of the length of time covered by the retrospective operation cannot by itself be treated as a decisive test. 16.. Jawaharmal v. State of Rajasthan AIR 1966 SC 764, was again a case where the challenge to the retrospectivity on the ground of such statute as involvin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e when the Act was enacted to replace the Ordinance, corrective measures were taken to re-coup the loss because of the exemption granted. 19.. Taxation is not merely a process of raising revenue, but is also a tool in social engineering which may be adopted in the wisdom of the Legislature, to classify the tax-payers into different grades and to collect higher tax from one group in comparison to the other. There is nothing wrong in the Legislature choosing to shift the higher portion of the burden of tax to one group, considering the harshness and its relative hardship, in comparison to be suffered by the other. It is of course true that it is possible to be urged by the group from whom the exaction is made that the disadvantageous treatment is not sustainable because of the basis of the classification itself being faulty and unreal. But such a question does not arise. No attempt has been made to show how the shifting of the burden to compensate the loss in the turnover tax is unreasonable. 20.. It was observed by the Constitution Bench in S. Kodar v. State of Kerala [1974] 34 STC 73 (SC); AIR 1974 SC 2272, justifying graded system of tax: And, to make his tax heavier, both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich the Constitution might impose, and in the exercise of that power, it would be competent for the Legislature to impose tax on sales which had taken place prior to the enactment of the legislation. The court pointed out that though sales tax is intended to be passed on to the consumer, yet it is not an essential characteristic of a sales tax that the seller must have a right of passing it on to the consumer, nor is the power of the Legislature to impose a tax on sales conditional on its making a provision for sellers to collect the tax from the purchasers. Whether the laws should be enacted, imposing a sales tax or validating the imposition of sales tax, when the seller is not in a position to pass it on to the consumer, is a matter of policy and does not affect the competence of the Legislature. The court approved its earlier decision, in the context in Tata Iron and Steel Co. Ltd. v. State of Bihar [1958] 9 STC 267 (SC); AIR 1958 SC 452. The court answered the question saying: It was finally urged on the basis of sections 8-A, 14 and rule 23 of the U.P. Sales Tax Act that they contemplated only a prospective legislation and that those sections would be impossible of complia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection III, Kanpur [1973] 31 STC 178 (SC); AIR 1973 SC 1034 while also rejecting retrospective levying being violative of article 19(1)(g). 25.. In S. Kodar v. State of Kerala [1974] 34 STC 73 (SC); AIR 1974 SC 2272, the Court while negativing the challenge to retrospective levy ruled that the amount or rate of tax is a matter exclusively within the legislative judgment and as long as a tax retains its avowed character and does not confiscate property to the State under the guise of a tax, its reasonableness is outside the judicial ken. This decision reaffirmed the decision in J.K. Jute Mills Co. Ltd. v. State of U.P. [1961] 12 STC 429 (SC); AIR 1961 SC 1534. 26.. Shri Krishna Enterprises v. State of Andhra Pradesh [1990] 76 STC 67 (SC), has been placed reliance upon by Mr. M.V.K. Murthy where it was observed that the incidence of sales tax is ordinarily passed on to the customer and in the event of accepting the retrospective amendment a liability would be created without affording any opportunity to the assessee to pass on the incident of the tax and in such circumstances, there was no justification for review of the judgment it had earlier rendered. In the judgment the court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er case in Entertainment Tax Officer v. Ambae Picture Palace [1995] 96 STC 338 (SC); (1994) 27 STA 323 (SC); (1994) 1 SCC 209. While explaining the background in which the observations in D. Cawasji s case [1985] 58 STC 1 (SC), were made, the court observed as under: Though it is not for the State to justify or explain the necessity for the amendment even in relation to retrospectivity of the Act but obviously, on the face of it, there appeared to be a change of policy by a succeeding Government on the policy pursued by its predecessor. Surely the successor Government can have different rules from their predecessor including the matters relating to taxation or mode of taxation or basis of taxation or objects of taxation, etc. No explanation was required from the State for the amending Act having retrospective effect. 29.. The decision in Empire Industries Limited v. Union of India [1987] 64 STC 42 (SC), relied upon by Sri S. Krishnamurthy does not say anything different than what has been discussed earlier and indeed it reiterates the same view that imposition of tax by legislation makes the subject pay taxes, that it is well recognised that tax may be imposed retrospectively ..... X X X X Extracts X X X X X X X X Extracts X X X X
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