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TMI Blog1998 (11) TMI 647X X X X Extracts X X X X X X X X Extracts X X X X ..... Home Industries v. State of Karnataka [1987] 64 STC 254 and Ferro Concrete Company of India (Steels) Ltd. v. State of Karnataka [1987] 64 STC 352. It is further submitted that in view of the judgment given in the case of D.K. Trivedi and Sons v. State of Gujarat AIR 1986 SC 1323 since the controversy is pending before the apex Court the matter may be deferred. 5.. So far as the question of validity of section 3(1) is concerned the matter was examined in detail by a division Bench of this Court in the case of Avinyl Polymers Pvt. Ltd. v. State of Karnataka [1998] 109 STC 26. It was considered that entry tax is regulatory and compensatory in nature not affecting the movement of goods and therefore the prior sanction or assent of the President of India is not necessary. This view was taken on the basis of the judgment given by the apex Court in the case of State of Karnataka v. Hansa Corporation AIR 1981 SC 463. In the decision of this Court in Avinyl Polymers Pvt. Ltd. [1998] 109 STC 26 the decision in Bhagatram Rajeev Kumar v. Commissioner of Sales Tax, Madhya Pradesh [1995] 96 STC 654 (SC) was also taken into consideration which has referred to the decision in State of Karnatak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision is given by the apex Court. This Court in the case of Karnataka Handloom Development Corporation Ltd. v. Addl. Deputy Commissioner of Commercial Taxes ILR 1994 Kar 2697 observed that in appropriate cases the writ petition can be kept pending. I do not consider that the present one is an appropriate case for keeping the writ petition pending. The facts of D.K. Trivedi AIR 1986 SC 1323, are also not otherwise applicable to the present case because in that case the High Court of Gujarat directed the petitioners to approach the Supreme Court since similar matters were pending there. No such directions are being given by this Court to the petitioner to approach the Supreme Court. In my view since the matter stands concluded by the division Bench decision of this Court, the prayer for deferring the writ petition from hearing is not accepted. 8.. Provisions of section 3 of the Act have also been challenged on the ground that section 3 does not provide guidelines regarding issue of notification, fixing the rate of tax and thus it is unconstitutional. Number of items in the First Schedule have been increased to 103 also. Mr. Sarangan, learned counsel submitted that in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limit is not the proper guidance. In Municipal Corporation of Delhi v. Birla Cotton, Spinning and Weaving Mills AIR 1968 SC 1232 the distinction was drawn between the power to be exercised by the State Government and local authorities. It was observed that there is in our opinion a clear distinction between delegation of fixing the rate of tax like sales tax to the State Government and delegation of fixing rates of certain taxes for purposes of local taxation. The needs of the State are unlimited and the purposes for which the State exists are also unlimited. The result of making delegation of a tax like sales tax to the State Government means a power to fix the tax without any limit even if the needs and purposes of the State are to be taken into account. On the other hand, in the case of a municipality, however large may be the amount required by it for its purposes it cannot be unlimited, for the amount that a municipality can spend is limited by the purposes for which it is created. A municipality cannot spend anything for any purposes other than those specified in the Act which creates it. Therefore in the case of a municipal body, however large may be its needs, there is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpowering the State Government to notify different rates of entry tax for different commodities mentioned in the Schedule subject to ceiling of 5 per cent was held not arbitrary or with unguided power regarding specification of rate of tax [State of Bihar v. Bihar Chamber of Commerce [1996] 103 STC 1 (SC)]. This contention therefore has no force and is rejected. 10.. Notification dated March 31, 1998 (in W.P. Nos. 33148 of 1998 and 33154 to 33158 of 1998): So far as the validity of notification dated March 31, 1998 is concerned it may be observed that it was on account of various defects which were found by this Court that the notification starting from March 31, 1994 was struck down. In order to have compliance of the judgment of this Court notification dated January 7, 1998 was issued which provided rate of tax on entry of goods into a local area for consumption, use or sale therein. This was brought in consonance with the judgment given by this Court and as such this notification remained in force from January 7, 1998 to March 31, 1998. On March 31, 1998 another notification was issued providing levy of tax for entry of goods into local area for consumption, use or sale ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons. In respect of motor vehicles for which tax is sought to be levied on persons then a notification under section 4-B is necessary, but if the tax is to be restricted on dealers alone, then that power could be exercised under section 3(1). The non obstante clause will operate only if there is conflict between sections 3 and 4-B. The decision in the case of South India Corporation (P.) Ltd. v. Secretary, Board of Revenue, Trivandrum [1964] 15 STC 74 (SC); AIR 1964 SC 207 and decision in the case of Union of India v. G.M. Kokil AIR 1984 SC 1022 relied on by the learned counsel have no application because the two provisions are operating in different fields and there is no conflict in the two clauses. The effect of the word notwithstanding in section 4-B is that this section will operate in its own sphere and section 3 will not be impediment in its operation. Section 3 is to yield to section 4-B. The notification dated September 23, 1998 cannot be considered to have been issued under section 4-B under which power for retrospective amendment is not available. In these circumstances, I do not consider that the notification dated September 23, 1998 is to be considered under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the judgments given in the cases of State of Kerala v. Mega Traders [1997] 107 STC 1 (Ker); Shri Krishna Enterprises v. State of Andhra Pradesh [1990] 76 STC 67 (SC), Shew Bhagwan Goenka v. Commercial Tax Officer [1973] 32 STC 368 (Cal), State of A.P. v. V.V. Rama Rao and Company [1989] 74 STC 190 AP), Mega Traders v. State of Kerala [1991] 83 STC 59 (Ker), Krishnamurthi and Co. v. State of Madras [1973] 31 STC 190 (SC) and Bengal Paper Mill Co. Ltd. v. Commercial Tax Officer, Calcutta [1976] 38 STC 163 (Cal). 15.. The notification is stated to impose a fresh levy in respect of entry of goods from other local areas of the State of Karnataka into the local area and also for the goods which are imported from outside and are meant for sale. Reliance is placed on the decision reported in D. Cawasji Co. v. State of Mysore [1985] 58 STC 1 (SC) wherein it was observed that it may be open to the Legislature to impose levy at higher rate with retrospective effect, but levy of tax at higher rate which really amounts to imposition of tax with retrospective operation has to be justified on a proper and cogent ground. It was found in this case that the State Government instead of remo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd consumption only. This Court found that the notification is discriminating between the goods which are manufactured in the State and outside the State. Similar goods manufactured in other local areas were not subjected to tax if they were brought in the local area while goods from outside the State were brought to tax. This was considered violative of article 301 of the Constitution. It was found that the provisions of section 3(1) authorises the delegated authority to levy tax when goods are brought in the local area for consumption, use and sale. The word sale was not used in the notification and as such the notification was considered bad in law. This defect which was pointed out by the judgment was also rectified in the notification dated September 23, 1998. The Legislature is competent to enact a provision retrospectively or prospectively. Delegated authority can exercise its power for levy of tax retrospectively when it is so authorised by the statute. Delegation of power to make retrospective subordinate legislation is not in dispute. The exercise of that power cannot be successfully challenged under article 19(1)(g). Amendment by Act No. 8 of 1993 in section 3(1) to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alidation of laws is of particular significance and utility and is quite often applied in taxing statutes. It is necessary that the Legislature should be able to cure defects in statutes. No individual can acquire a vested right from a defect in a statute and seek a windfall from the Legislature s mistakes. Validity of legislations retroactively curing defects in taxing statutes is well-recognised and courts, except under extraordinary circumstances, would be reluctant to override the legislative judgment as to the need for, and the wisdom of, the retrospective legislation. In Empire Industries Limited v. Union of India [1987] 64 STC 42 at page 67; [1985] Supp 1 SCR 292 at page 327 (AIR 1986 SC 662 at page 678) this Court observed: .........not only because of the paramount governmental interest in obtaining adequate revenues, but also because taxes are not in the nature of a penalty or a contractual obligation but rather a means of apportioning the costs of Government among those who benefit from it. In testing whether a retrospective imposition of a tax operates so harshly as to violate the fundamental rights under article 19(1)(g), the factors considered relevant include t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose specified in the Second Schedule is not mentioned in respect of raw material. This contention also has no force because there is an explanation below the notification dated September 23, 1998 and the said notification has further been amended retrospectively by notification dated November 9, 1998 and in the explanation it is provided do not include exempted goods which are specified in the Second Schedule . This is substantial compliance and as such this contention has no force. 19.. Mr. Sarangan submits that notification dated January 7, 1998 was issued prospectively and this also affirms the intention of the Government that there is no intention to levy tax with retrospective effect. By notification dated March 31, 1998, notification dated January 7, 1998 has been cancelled and a fresh notification levying tax from April 1, 1998 has been issued specifying all the goods as were specified in the notification dated January 7, 1998 except parts and accessories of motor vehicles which also affirms the intention of the Government not to charge the levy of entry tax with retrospective effect. Another notification No. FD 225 CET 98, dated November 9, 1998 has been issued with ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notification dated September 23, 1998 is only a clarificatory notification that even the goods which are specified in the Second Schedule if are used as raw material no tax would be levied. The delegated authority has not encroached upon the legislative power of the Legislature and this contention has no force. Even if the matter is pending in court, the State Government is not precluded to issue fresh notification during the pendency of the matter before the apex Court. 20.. It is further submitted that in the second proviso of notification dated March 31, 1998 it is mentioned that the raw material, component parts and other inputs will not include certain items mentioned therein and such other goods as may be notified by the State Government from time to time. The proviso is generally an exception to the main clause. Item No. 3 refers to raw material, component parts and other inputs which are used in the manufacture of intermediate or finished products, etc. The second proviso which has excluded number of items and such other goods as may be notified by the State Government from time to time, is an exception to those goods which fall under First Schedule and are raw material, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the discretion must be exercised reasonably. Now what does that mean? Lawyers familiar with the phraseology commonly used in relation to exercise of statutory discretions often use the word unreasonable in a rather comprehensive sense. It has frequently been used and is frequently used as a general description of the things that must not be done. For instance, a person entrusted with a discretion must, so to speak, direct himself properly in law. He must call his own attention to the matters which he is bound to consider. He must exclude from his consideration matters which are irrelevant to what he has to consider. If he does not obey those rules, he may truly be said, and often is said to be acting unreasonably . Similarly, there may be something so absurd that no sensible person could ever dream that it lay within the powers of the authority. Warrington, L.J. in Short v. Poole Corporation (1926) 1 Ch. 66 gave the example of the red-haired teacher dismissed because she had red hair. That is unreasonable in one sense. In another sense it is taking into consideration extraneous matters. It is so unreasonable that it might almost be described as being done in bad faith; and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court cannot for obvious reasons meticulously scrutinise the burden of different persons or interest [Khandige Sham Bhat v. Agricultural Income-tax Officer [1963] 48 ITR 21 (SC)]. 28.. The power of Legislature to enact the law with reference to topics entrusted to it is subject to only limitations imposed by the Constitution in exercise of such power and such power was upheld and can be exercised either prospective or retrospective [see Rai Ramkrishna v. State of Bihar [1963] 50 ITR 171 (SC); AIR 1963 SC 1667 and J.K. Jute Mills Co. Ltd. v. State of Uttar Pradesh [1961] 12 STC 429 (SC); AIR 1961 SC 1534]. This Court in Karnataka Seeds v. State of Karnataka [1992] 86 STC 491 held that Legislature has full power to enact taxing law with retrospective operation and simply because the dealer did not collect tax from the purchaser would not affect his liability to pay tax and will not invalidate the levy of tax with retrospective effect. In Y.V. Srinivasamurthy v. State of Mysore AIR 1959 SC 894 it was observed that the courts have no concern with the wisdom of the Legislature and it was found dangerous precedent to allow the view of the members of the court. In Assistant Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us made legal. Sometimes this is done by providing for jurisdiction where jurisdiction had not been properly invested before. Sometimes this is done by re-enacting retrospectively a valid and legal taxing provision and then by fiction making the tax already collected to stand under the re-enacted law. Sometimes the Legislature gives its own meaning and interpretation of the law under which the tax was collected and by legislative fiat makes the new meaning binding upon courts. The Legislature may follow any one method or all of them and while it does so it may neutralise the effect of the earlier decision of the court which becomes ineffective after the change of the law. Whichever method is adopted it must be within the competence of the Legislature and legal and adequate to attain the object of validation. If the Legislature has the power over the subject-matter and competence to make a valid law, it can at any time make such a valid law and make it retrospectively so as to bind even past transactions. The validity of a validating law, therefore, depends upon whether the Legislature possesses the competence which it claims over the subject-matter and whether in making the valid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1998: The validity of notification dated November 9, 1998 is also assailed. In that notification motor vehicles of all kinds and parts and accessories thereof including chassis of motor vehicles have been subjected to tax at 5 per cent for the period from April 1, 1994 to March 31, 1995. Subject to the observations made above there is no incongruity in the notification in this regard. However, entry 2A has prescribed rate of tax on parts and accessories of motor vehicles, but excluding parts and accessories of tractors and power tillers at 8 per cent for the period from April 1, 1995. This power which has been exercised under section 3 of the Act of 1979 could not be exercised. The maximum limit of rate of tax for which notification can be issued under section 3 is 5 per cent and therefore entry 2A is declared ultra vires the powers of section 3(1) of the Act. 32.. The writ petitions are disposed of with the following observations: (1) The provisions of section 3(1) of the Act are not ultra vires of the Constitution of India on the ground that no guidelines for prescribing rate of tax has been given and the provisions are compensatory in nature and do not require the assent ..... X X X X Extracts X X X X X X X X Extracts X X X X
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