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TMI Blog1984 (9) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacture of arrack by distillation is done in the State under the State Control and the entire quantity manufactured by distillation in the State is sold to the State Government which in its turn supplies it to bonded depots in Taluks. Under the Mysore Excise Act, arrack is liable to excise duty at the rates prescribed by the Government. The State does not collect excise duty from the distillers. From the distillery, arrack is transferred to bonded depots and excise duty together with cesses thereon is collected from the contractors who are given the privilege or right to effect retail sale of arrack. The exclusive privilege of retail vending of arrack for each excise year which commences on the first day of July and ends on 30th June, of the following year, is sold by the State by auction. The successful bidders whose bids are accepted are granted licenses for the exclusive privilege of retail vending. The retail selling price of arrack by the licensees is fixed by the State Government at or before the time of notifying sales of the exclusive privilege in respect of each year. The excise duty on arrack together with cesses thereon is collected from the licensees before the date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State Government, can become a part of the price at which the goods are sold by that seller to that purchaser. If that is the true position, we think the State Government cannot, under s. 19 of the Sales Tax Act, collect sales tax on excise duty which is not a part of its selling price." Against the judgment of the High Court, the State preferred an appeal to the Supreme Court, but the appeal was subsequently withdrawn. It appears that during the pendency of the appeal, the privileges of vending liquor in the excise year 1968-69 were sold without any variation in the price of arrack fixed by the Government during the previous year at 55 paise a litre. During the year 1968-69, the State Government collected sales tax computing the same at 6-1/2 per cent of the actual sale price without including therein exercise duty and cess. It may be noticed that although the appellants had obtained an order of stay of payment of the disputed sales tax amount from 27th April, 1966, from the High Court, there were various other contractors who had paid the same computed on the sale price of arrack together with excise duty and the cess. When the decision of the High Court pronouncing the ill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t) Ordinance, 1969 (Mysore Ordinance No. 3 of 1969) is hereby repealed." The Statement of Object and Reasons for the passing of the amendment may appropriately be set out at this stage. The Statement of Object and Reasons runs as follows: "Clause (j) of sub-rule (4) of r. 6 of the Mysore Sales Tax Rules, 1957, provided for the exclusion of excise duty paid by a dealer from the computation of his taxable turnover. By Government Notification No. GSR 882, dt. 16th March, 1966, this clause was deleted from the rules with the object of recovering sales tax even on the excise duty portion of the turnover of dealers. In respect of arrack which falls under entry relating to Sl. No. 39 of the Schedule, sales are made by Government to licensed contractors and sales tax was recovered from them at 6-1/2 per cent on the total amount payable by them including the excise duty from 1st April, 1966. The Mysore High Court in W. P. No. 644 of 1966-Cawasji & Co. vs. State of Mysore [1968] 16 LR 641, held that on the sales of arrack, the sales tax cannot be collected on the total amount but has to be collected only on the basic price excluding excise duty on the ground that the duty in such a case do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted as sales tax from the appellant by raising the amount of tax from 6-1/2 per cent to 45 per cent. the learned counsel contends that the increase in the rate of sales tax form 6-1/2 per cent to 45 with retrospective effect is clearly arbitrary and unreasonable. It is the contention of the learned counsel that if any particular provision of a statute is for some lacuna or defect in the statute declared unconstitutional or invalid, it is open to the Legislature to pass a Validating Act with retrospective effect so that the State may not be saddled with the liability of refund or other consequences which may arise as a result of the particular provision being declared invalid. The learned counsel argues that such a Validating Act with retrospective operation can be passed if the lacuna or the defect, because of which the provision is declared to be unconstitutional and invalid, be properly rectified by the Amending Act which seeks to validate the statutory provision which has been struck down as unconstitutional and invalid. It is his argument that without seeking to remove or rectify the defect or lacuna, no validation can be made to defeat the judgment of the Court striking down ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... position of cess at the enhanced rate. That Court observed at p. 751 of [1970] 3 SCR and at p. 61 of AIR 1971 : "The nature of the amendment made in Act 4 of 1920 has not been indicated. Nor is there anything which enacts that the notifications issued without the sanction of the State Government must be deemed to have been issued validly under s. 51(2) without the sanction of the Local Government. On the words used in the Act, it is plain that the Legislature attempted to overrule or set aside the decision of this Court. That, in our judgment, is not open to the Legislature to do under our constitutional scheme. It is open to the Legislature within certain limits to amend the provisions of an Act retrospectively and to declare what the law shall be deemed to have been, but it is not open to the Legislature to say that a judgment of a Court properly constituted and rendered in exercise of its powers in a matter brought before it shall be deemed to be ineffective and the interpretation of the law shall be otherwise than as declared by the Court." In Municipal Corporation of the City of Ahmedabad vs. New Shorock Spg. & Wvg. Co. Ltd., AIR 1970 SC 1292 ; [1971] 1 SCR 288, the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, before the Corporation could detain any amount collected as property tax, there must be an assessment according to law ; but, in the present case, there were no assessment orders in accordance with the provisions of the 1949 Act and the rules, as amended by the Amending Act, and, therefore, the appellate-Corporation was not entitled to retain the amounts illegally collected. This Court has further held that sub-s. (3) of s. 152A, which commands the Corporation to refuse to refund the amount illegally collected despite the orders of this Court and the High Court, makes a direct inroad into the judicial powers of the State ; and the Legislatures which, under the Constitution, have within prescribed limits powers to make laws prospectively and retrospectively are competent, in exercise of these powers, to remove the basis of a decision passed by a competent Court thereby rendering the decision ineffective, but no Legislature in this country has power to ask the instrumentalities of the State to disobey or disregard the decision given by the Court and s. 152A(3) was repugnant to the Constitution. This Court at p. 295 of [1971] 1 SCR and p. 1296 of AIR 1970, has referred to the fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsel appearing on behalf of the State has submitted that this very contention that the State has sought to enhance the rate of tax without seeking to remove or rectify the lacuna which was there in the earlier Act and for which the earlier provision has been struck down by the High Court, was raised in the writ petition filed in the High Court by the appellant. It is the submission of the learned counsel that this contention has been rejected by the High Court for reasons indicated in the judgment. The learned counsel has referred to the following observations made by the High Court ([1973] 31 STC 445 at 451 (SC)): "This Court has not held that the State is not at all entitled to collect any amount by way of tax on the sale of arrack. The sale price of arrack during the years 1966 to 1969 was fixed at 55 paise a litre. The amount which the State was authorised to collect was six and a half per cent. of 55 paise on the sale of a litre of arrack which comes to about three and a was 20.5 paise a litre. The decision of this Court is that the State without authority of law was collecting excess amounts by way of tax on the sale of arrack. It is relevant to state that under the Act wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales tax on items of excise, health cess and education cess on arrack or special liquor from the appellant became refundable to the appellant. The impugned amendment has been passed, as the Statement of Objects and Reasons which we have earlier set out clearly indicates, override the judgment of the High Court and to enable the State to hold on to the amount collected as sales tax on excise duty, health cess and education cess, if any, on arrack or special liquor. It has to be noted that the said judgment of the High Court in the earlier case had become final and conclusive inasmuch as the special leave petition field against the judgment by the State was withdrawn. The State, instead of seeking to test the correctness and effect of the judgment and order of the High Court, though it fit to have the judgment and order nullified by introducing the impugned amendment. The amendment does not proceed to cure the defect or the lacuna by bringing in an amendment providing for exigibility of sales tax on excise duty, health cess and education cess. The impugned Amending Act may not, therefore, be considered to be a Validating Act. A validating Act seeks to validate the earlier Acts decla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent which became conclusive and binding on the parties to enable the State Government to retain the amount wrongfully and illegally collected as sales tax and this object has been sought to be achieved by the impugned amendment which does not even purport or seek to remedy or remove the defect and lacuna but merely raises the rate of duty from 6 1/2 per cent to 45 per cent and further proceeds to nullify the judgment and order of the High Court. our opinion, the enhancement of the rate of duty from 6 1/2 per cent to 45 per cent with retrospective effect is, in the facts and circumstances of the case, clearly arbitrary and unreasonable. The defect or lacuna is not even sought to be remedied and the only justification for the steep rise in the rate of duty by the amended provision is to nullify the effect of the binding judgment. The vice of illegal collection in the absence of the removal of the illegality which led to the invalidation of the earlier assessments on the basis of illegal levy, continues to taint the earlier levy. In our opinion, this is not a proper ground for imposing the levy at a higher rate with retrospective effect. It may be open to the Legislature to impose the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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