Karnataka High Court
Shaw Wallace & Co. Ltd. vs State Of Karnataka on 27 March, 1992
Equivalent citations: ILR1992KAR1494
Author: Shivaraj V. Patil
Bench: Shivaraj V. Patil
JUDGMENT K. Shivashankar Bhat, J.
1. The following question has been referred for the consideration of the Full Bench, by a Division Bench of this Court :
"Whether a notification issued by the State Government in exercise of the power conferred by section 8-A of the Karnataka Sales Tax Act, 1957, is impliedly repealed or rendered ineffective when the Legislature amends the Act and introduces an entry in the Schedule to the Act, which relates to the class of goods to which exemption is given by the notification ?"
2. The relevant facts and the basis of the reference are found in the order of reference made by the Division Bench, which reads thus :
"In this sales tax revision petition, we are concerned with entry 48-A(ii) of the Second Schedule of the Karnataka Sales Tax Act, 1957, which was inserted by Act No. 23 of 1983 (with retrospective effect from 1st July, 1974). Prior to the introduction of this entry, the rate of tax applicable to chemical fertiliser mixtures was governed by a notification issued under the provisions of section 8-A of the Act, and to that notification dated 12th August, 1971, was added a proviso, with effect from 1st June, 1972, on 21st March, 1972. The proviso provided that if the chemical fertiliser mixture includes any component which is not chemical fertiliser, then the tax on such component shall be levied at the same rate and subject to the same conditions as if that component had been sold independently as a commodity.
One of the arguments advanced before us on behalf of the sales tax authorities is that the said notification with its proviso continues to remain effective in spite of the introduction of entry 48-A(ii) so that that entry must be construed with reference to the terms of the proviso and a component of a chemical fertiliser mixture, which is not a chemical fertiliser must be taxed at the same rate and subject to the same conditions as if that component had been sold independently as a commodity. In support of this contention our attention has been drawn to the Division Bench judgment of this Court in Janardhana Acharya v. State of Karnataka . The Division Bench held that a notification under section 8-A(1) of the Act continued to be in force until it was modified or cancelled by the State Government by a notification issued under section 8-A(3). The Division Bench took the view that the decision of the single Judge that a notification issued under section 8-A(1) became invalid by enhancement of the rate of tax on the goods specified in the notification by a subsequent amendment on the ground of inconsistency was wrong. Such a notification did not in any way become inconsistent with the provisions of the Act.
We have considered the view taken by the Division Bench. We have also read the judgment which was overruled by the Division Bench. We have noted that on an earlier occasion a Division Bench had found it difficult to follow the judgment in Janardhana Acharya's case and had formulated a question for determination by a Full Bench. The Full Bench, by the order dated 27th June, 1991 in Sandvik Asia Ltd. v. State of Karnataka (W.P. No. 7085 of 1986 and connected writ petitions), had not found it necessary to answer the question because of a certain amendment to the Act.
Our attention has also been drawn on behalf of the assessee to the judgment of the Supreme Court in Commissioner, Sales Tax, U.P. v. Agra Belting Works . By a majority, the Supreme Court held that when, after a notification under section 4 granting exemption from liability to sales tax in respect of a certain class of goods, a subsequent notification under section 3A prescribed the rate of tax leviable on an item of that class, the intention was to withdraw the exemption and make the sale liable to tax at the rate prescribed in the notification. The power both of granting exemption and of varying the rate of tax vests in the State Government and a notification recalling the exemption was not a condition precedent to the imposition of tax at any prescribed rate by a valid notification."
3. Under section 5 of the Act the Legislature has created a charge and directs that every dealer shall pay a tax at the rate specified. The specifications are found in the various Schedules to the Act read with some of the provisos and other provisions of the Act. However, the application of the Second Schedule, the relevant provision is section 5(3). There is a legislative mandate that the tax shall be levied in the case of the sale of any of the goods mentioned in column (2) of the Second Schedule by the dealer as stated therein. This legislative mandate will have to be normally respected by the executive and it must collect the tax accordingly. However, section 8-A empowers the State Government to notify exemptions from the reductions of, the tax to be levied.
4. In Janardhana Acharya's case , the purchase turnover of old gold and silver articles, from the levy of tax under section 6 of the Act, was exempted. Thereafter section 5(1) was amended enhancing the rate of tax payable on general goods from 3 to 3 1/2 per cent. Question was whether the earlier notification, granting exemption from the levy of tax under section 6 ceased to be operative. The Bench held that the exemption notification, exempting the levy of tax under section 6, continued to be in force despite the amendment to section 5(1) of the Act. At page 378, the Bench held :
"Sub-section (1) of section 8-A of the Act confers power on the State Government either to reduce the rate of tax payable on any goods under the Act or to exempt the tax payable on any specified goods under the Act by the issue of a notification to that effect. Sub-section (3) of section 8-A confers power on the State Government to cancel or vary a notification issued under sub-section (1) by the issue of a notification. Therefore, a notification issued under section 8-A(1) of the Act either reducing the rate of tax or exempting the tax payable on any specified goods continues to be in force until it is modified or cancelled by the State Government by a notification issued under sub-section (3) of section 8-A. We are unable to agree with the view taken by the single Judge in the Shrishailappa's case [1975] 36 STC 223 that a notification issued under section 8-A(1) becomes invalid by the enhancement of rate of tax on the goods specified in the notification by any subsequent amending Act on the ground of inconsistency. In our view, such a notification does not in any way become inconsistent with the provisions of the Act by the mere enhancement of the rate of tax, by an amendment made subsequent to the issue of a notification unless the amending Act clearly shows that it should be effective, notwithstanding a notification already issue under section 8-A of the Act or that it took away the power of the State Government under section 8-A of the Act, generally or in respect of such items. There is nothing in the amending Act 5 of 1972 which could be considered as having affected the validity of the notification issued under section 8-A of the Act."
The Bench disagreed with the view expressed by a learned single Judge in Shrishailappa v. Commercial Tax Officer [1975] 36 STC 223.
5. In Shrishailappa's case [1975] 36 STC 223, the petitioner, a dealer in dyes, was liable to pay sales tax on the turnover relating to dyes at 6 per cent under entry 97 of the Second Schedule to the Karnataka Sales Tax Act, 1957. By a notification dated 10th September, 1970, issued under section 8-A, the State Government reduced the rate of tax on dyes to 4 per cent and by the Karnataka Sales Tax (Amendment) Act, 1974, the rate was enhanced to 8 per cent with effect from 1st April, 1974. Again by another notification issued by the State Government on 7th June, 1974, the rate of tax was reduced to 4 per cent with effect from 1st July, 1974. Relying on section 24 of the Karnataka General Clauses Act, 1899, the petitioner contended that notwithstanding the passing of the Karnataka Sales Tax (Amendment) Act, 1974, he was liable to pay sales tax in respect of the turnover relating to dyes at 4 per cent only and not at the rate of 8 per cent during the period 1st April, 1974 to 1st July, 1974. The question was whether the amendment Act enhancing the rate of tax to 8 per cent affected the earlier notification reducing the tax rate to 4 per cent, which was issued when the rate of tax prescribed under the statute was 6 per cent. Justice E. S. Venkataramaiah (as he then was) held that the earlier notification ceased to be effective when the rate of tax was amended by the Legislature. At page 224, the learned Judge observed :
"It is no doubt true that the State Government in exercise of its power under section 8-A of the Act had reduced the liability of a dealer to 4 per cent of his turnover in respect of dyes by the notification dated 10th September, 1970. That notification could be in operation till 1st April, 1974, on which date the Amendment Act No. 14 of 1974 came into force. The Legislature, which is the highest legislative body in the State, declared on and after 1st April, 1974, that the turnover relating to dyes should be subject to tax at the rate of 8 per cent of the turnover. The notification issued earlier by the State Government which was inconsistent with the legislative declaration cannot be held to prevail over the amending Act. Section 24 of the General Clauses Act would be of no avail to the petitioner because the said section can be pressed into service only when there is no inconsistency between the notification issued earlier and the subsequent legislative declaration."
6. In this connection, the decision of the Supreme Court in Commissioner, Sales Tax v. Agra Belting Works requires to be referred. Section 3A of the U.P. Act empowered the Government to vary the rate of tax, prescribed under section 3 of the Act. Section 4 empowered the Government to grant exemption from liability to tax in respect of certain classes of goods. U.P. Government has granted the exemption by issuing a notification under section 4. Subsequently, in respect of the same goods, rate of tax was notified under section 4A. This subsequent notification was held as resulting in withdrawing the exemption notification. At page 3, Supreme Court held :
"All the three sections are parts of the taxing scheme incorporated in the Act and the power both under section 3A as also under section 4 is exercisable by the State Government only. When, after a notification under section 4 granting exemption from liability, a subsequent notification under section 3-A prescribed the rate of tax, it is beyond doubt that the intention is to withdraw the exemption and make the sale liable to tax at the rate prescribed in the notification. As the power both for the grant of exemption and the variation of the rate of tax vests in the State Government and it is not the requirement of the statute that a notification to recall of exemption is a condition precedent to imposing tax at any prescribed rate by a valid notification under section 3-A, we see no force in the contention of the assessee which has been upheld by the High Court. In fact, the second notification can easily be treated as a combined notification - both for withdrawal of exemption and also for providing higher tax."
The first part of the above observation would be equally applicable to the instant case; an intention to erase the earlier notification could easily be attributed in the legislative act altering the rate of tax as otherwise, no useful purpose is served by the Legislature in prescribing a different rate of tax. The legislative will being superior to that of the State Government, former would always override the latter. Similarly, when the Legislature introduces an entry in the Schedule to the act relating to a particular class of goods, intention of the Legislature as on the said day of the introduction is quite clear, to treat the class of goods only in the particular manner stated in the entry; it is not possible to infer an implied intention on the part of the Legislature to treat the goods in any other manner, contrary to the express intention in the amending Act; necessarily, the earlier notification would cease to be effective, automatically.
7. If the Legislature enacts on a particular date that specified goods shall be taxed in a particular manner, it is clear that at least on the said date, the Legislature had a clear intention to levy the tax on the goods in question at that particular rate. The Legislature is presumed to be aware of the prevailing circumstances relevant to the subject-matter in question as it existed when the law was enacted. Therefore, when entry 48-A was amended retrospectively with the insertion of sub-entry (ii), it is clear that the Legislature intended that the tax under section 5 will have to be levied in terms of said entry 48-A, with retrospective effect from 1st July, 1974. While inserting sub-entry (ii) by Act No. 23 of 1983 the Legislature has not found it necessary to save the operation of the notification issued by the State Government. If actually the intention of the Legislature was to keep alive the tax structure envisaged by the exemption notification issued by the State Government, an appropriate saving provision would have been found. While exercising the power under section 8-A of the Act the State Government functions as the delegate of the State Legislature. The exercise of the power by the delegate cannot be in conflict with the mandate prescribed by the State Legislature.
8. Section 24 of the Karnataka General Clauses Act states that if any law is repealed or re-enacted, then, unless it is otherwise expressly provided, any notification, etc., issued under the repealed law shall, "so far as it is not inconsistent with the provisions re-enacted, continue in force, etc." If the amending law expressly provides for the repeal or amendment or continuation of the notification, there is no difficulty; in other cases, the question whether the earlier notification would continue in force would depend essentially on its compatibility with the amended provision; if the earlier notification is inconsistent with the amended provision, the notification cannot be kept alive by enforcing it.
9. Decision rendered in Krishna and Company v. State of Karnataka was entirely based on the memo filed on behalf of the respondents and has no bearing on the question before us. Another decision of a Division Bench of this Court in Indian Tool Manufacturers Ltd. v. State of Karnataka [1990] 79 STC 396 is in harmony with our view stated above. By a notification of the year 1975, rate of tax on all specified goods was reduced to 4 per cent, at a time when the Act had levied the tax on them at the rate of 8 per cent. In the year 1980, Act was amended, enhancing the rate to 10 per cent, by the Legislature. In view of this amendment to the Act, the Bench held that the earlier notification got automatically cancelled.
10. Mr. Kumar referred to section 8-A(3-A) of the Act which reads :
"If the rate of tax payable under this Act in respect of any goods or class of goods get modified by an amendment to this Act, notification, if any, issued in respect of such goods or class of goods under clause (a) of sub-section (1), shall, with effect from the date from which such amendment comes into force be deemed to be cancelled to the extent it relates to such goods or class of goods."
Above sub-section (3-A) was inserted with retrospective effect by Karnataka Act 7 of 1981. Mr. Kumar pointed out that this retrospective insertion of sub-section (3-A) was to get over the effect of the decision in Janardhana Acharya's case ; however, subsequently, by section 5 of the Karnataka Act 8 of 1984, this sub-section (3-A) was omitted. Karnataka Act 8 of 1984 came into force from 1st April, 1984. Mr. Kumar contended that this legislative history of sub-section (3-A) is a clear pointer to the legislative intention to restore the ratio of Janardhana Acharya's case . It was contended that while in the year 1981 the Legislature resolved to erase the declaration of the law made in Janardhana Acharya's case by enacting sub-section (3A), with effect from 1st April, 1984, it decided to omit this sub-section; therefore, it is inevitable to hold that the law as declared in Janardhana Acharya's case was intended to be revived. A decision of the Supreme Court in State of Tamil Nadu v. Nellai Cotton Mills (1990) 2 MLJ 5 (SC) was cited in support of this proposition. While deciding the validity of the Act the High Court held, inter alia, that a part of section 3(2) of the Tamil Nadu Industrial Establishments (Conferment of Permanent Status to Workmen) Act, 1981, as invalid. During the pendency of the appeal against this decision, the Legislature amended the Act in several respects, including the provisions of section 3(2); the Legislature also inserted a validating provision, to validate all the acts done or proceedings taken under the principal Act. While amending section 3(2), the Legislature did not touch the part of it which was struck down by the High Court; therefore, it was contended that the Legislature accepted the law declared by the High Court as to the invalidity of part of section 3(2). The Statement of Objects and Reasons accompanying the amending Act was referred. Thereafter, the Supreme Court observed :
"When the Act has been judicially interpreted, courts may study the subsequent action or inaction of the Legislature for clues as to legislative approval or disapproval, of judicial interpretation. After the statute has been judicially interpreted in a certain way and if the Legislature by taking note of the judgment amended the statute appropriately as to give it a different meaning from the one asserted by the courts, or not giving any different meaning for the view taken by the court, it may be argued with some justification that the Legislature has expressly or by implication ratified the judicial interpretation. In the instant case, the Legislature has expressly taken note of the High Court verdict and removed the practical difficulties caused thereby in implementing the provisions of the Act by appropriate amendments. No provision, however, was inserted to rewrite and validate the portion which was struck down by the High Court. It could therefore, by reasonably held that the Legislature has accepted the judgment of the High Court to the extent indicated."
11. A close reading of the aforesaid decision shows that the Supreme Court was concerned with the entire Tamil Nadu Act and its amendment and the language used by the Legislature while amending section 3(2). Question was whether the amended section 3(2) in any way reflected the legislative intention to undo the nullification of the relevant part of section 3(2) by the High Court.
12. In the instant case before us, except deleting sub-section (3-A) from section 8A of the Act, we have no other clue towards the legislative intention justifying an inference that the Legislature intended to revive the ratio of the decision in Janardhana Acharya's case .
13. The ratio in Janardhana Acharya's case is cited in support of the general proposition that a notification issued under the provisions of section 8(3) remains operative although the relevant portion of the Act itself has been subsequently amended. We do not find it possible to accept this proposition and must so declare.
14. Section 8-A(3) empowers the State Government, by notification, to cancel or vary a notification issued under sub-section (1). The words of sub-section (3) empower the State Government to cancel or vary notification issued under section 8-A(1) but they cannot be read to mean that a notification issued under section 8-A(1) continues to be operative although the relevant portion of the Act itself is amended. The delegate, the State Government, has to issue a notification to supersede an earlier notification. The delegate's notification is impliedly superseded when the parent Legislature amends the concerned parts of the Act.
15. Therefore, we answer the question referred to us in the affirmative; we are of the opinion that a notification issued under section 8-A of the Act will be impliedly repealed or rendered ineffective when the Legislature amends the Act and introduces an entry in the Schedule to the Act which relates to the class of goods to which exemption is given by the notification.
16. Reference answered in the affirmative.