Bombay High Court
Tata Engineering & Locomotive Company ... vs State Of Maharashtra And Others on 22 June, 1997
Author: A.P. Shah
Bench: A.P. Shah, B.B. Vagyani
JUDGMENT A.P. Shah, J.
1. This is a petition by the assessee arising out of the proceedings under the Bombay Sales Tax Act, 1959 (hereinafter called "the Act"). The assessee is a company registered under the Companies Act and engaged in manufacture of motor vehicle chassis and spare parts. The assessee claimed certain set-off against the sales tax payable by them for the period from April 1, 1982 to March 31, 1983 invoking the provisions of rules 41D and 41E framed under the Act as they stood at the relevant time. The set-off claimed by the assessee was in terms of section 42 and rules 41D and 41E, which may now be referred to :
Section 42 reads thus :
"42. Drawback, set-off, refund, etc. - (1) The State Government may by rules provide that -
(a) in such circumstances and subject to such conditions as may be specified in the rules a drawback, set-off or refund of the whole or any part of the tax, ....................
(ii) paid or levied or leviable in respect of any earlier sale or purchase of goods under this Act or any earlier law, be granted to the purchasing dealer."
Rule 41D in so far as is relevant for our present purpose reads as follows :
"41D. Drawback, set-off, etc., of tax paid by a manufacturer in respect of purchases made on or after the notified day. - (1) In assessing the amount of tax payable in respect of any period by a registered dealer who manufactures taxable goods for sale or export (hereinafter in this rule referred to as 'claimant dealer') the Commissioner shall, in respect of purchases made by claimant dealer on or after the notified day, of any goods specified in Part II of Schedule C and used by him within the State :
(i).................
(ii)................
(2) For the purpose of this rule the expression 'export' shall include -
(i) and (ii)
(iii) Despatches made by the claimant dealer to his own place of business or to his agent outside the State where the claimant dealer produces certificate in form 31C issued by his manager, or as the case may be, his agent declaring, inter alia, that the goods will in fact be sold by him or will be used by him in the manufacture of goods which will in fact be sold by him and that he, his manager or, as the case may be, his agent is registered under the Central Sales Tax Act (74 of 1956) in respect of that place of business.
(3) The aggregate of the sums referred to in sub-rule (1) shall be reduced by -
(a) 5 per cent of the purchase price representing the sums in respect of the goods which are despatched in the manner referred to in clause (iii) of sub-rule (2), and Provided that, with effect from the 1st day of July, 1982, the aggregate of such sum shall be reduced by 6 per cent of such purchase price :
(b)..............."
The relevant portion of rule 41E, which has been invoked by the assessee, reads as follows :
"41E. Drawback, set-off, etc., of tax paid by a manufacturer of goods specified in Schedule B. - In assessing the amount of tax payable in respect of any period by a registered dealer (hereinafter in this rule referred to as 'the claimant dealer') the Commissioner shall, in respect of the purchases made by the claimant dealer on or after the notified day, of goods specified in any entry of Schedule B which were used by him in the manufacture of goods specified in the same entry of Schedule B, for sale or export, grant him a drawback, set-off or, as the case may be, a refund, of the aggregate of the sums determined in accordance with the provisions of rule 44D."
By the Maharashtra Sales Tax Laws (Levy, Amendment and Repeal) Act, 1989 the provisions of rule 41E, as they existed during the period July 1, 1981 to March 31, 1984, were deemed to have been re-enacted in the same form as they then existed but with certain modifications as follows :
"41E. Drawback, set-off, etc., of tax paid by a manufacturer of goods specified in Schedule B. - In assessing the amount of tax payable in respect of any period by a registered dealer (hereinafter in this rule referred to as 'the claimant dealer') the Commissioner, shall, in respect of the purchases made by the claimant dealer on or after the notified day, of goods specified in any entry of Schedule B which were used by him in the manufacture of goods (not being waste goods or scrap goods or by-products) specified in the same entry of Schedule B, for sale or export, grant him a drawback, set-off, or as the case may be, a refund, of the aggregate of the sums determined in accordance with the provisions of rule 44 D."
The assessee has challenged non-deduction of the amount of set-off under rule 41E for the purpose of computation of additional tax under section 15-A(1) of the Act. Section 15-A reads as follows :
'Section 15-A(1) of the BST Act : Levy of additional tax in the case of dealers whose turnover exceeds Rs. 10,00,000 a year. - (1) With effect from the 1st day of April, 1975, for the purpose of raising the resources for implementing the Employment Guarantee Scheme (under the Maharashtra Employment Guarantee Act, 1977), where the turnover of either of all sales or of all purchases by any dealer liable to pay tax under section 3 has exceeded ten lakhs of rupees in any year, the tax payable by him shall be increased by the levy of an additional tax at the rate of 6 per cent of the tax payable by him for that year under the other provisions of this Act. Such additional tax shall be paid by the dealer in addition to the tax levied and payable by him under the other provisions of this Act :"
The main points which are raised in the petition may be summarised as follows :
(a) The validity of retrospective amendment of rule 41D by the Bombay Sales Tax (Third Amendment) Rules, 1983 and the assessee's entitlement for set-off under rule 41D.
(b) Set-off under rule 41D before transfer of stock to the regional sales office of the assessee at Silvassa, Dadra and Nagar Haveli (Union Territory).
(c) Non-deduction of the amount of set-off under rule 41E made by the Maharashtra Sales Tax Laws (Levy, Amendment and Repeal) Act, 1989.
(e) Set-off under rule 41E read with rule 44D in respect of purchases made by the assessee of goods specified in Schedule B of the Act which were used by the assessee in the manufacture of goods specified in the same entry of Schedule B for sale.
2. Re. point (a) :
The assessee has purchased goods specified in Part II of Schedule C and used the said goods within the State of Maharashtra for the manufacture of taxable goods for sale and there is no dispute that the goods were in fact sold and exported within the meaning of rule 41D of the Rules. The assessee has claimed set-off of the sum determined in accordance with the provisions of rule 41D the rule 44D of the Rules. Under the unamended sub-rule (3) of rule 41D the aggregate of the sum referred to in sub-rule (1) was liable to be reduced by 5 per cent of the purchase price representing the sum in respect of the goods which are despatched in the manner referred to in clause (iii) of sub-rule (2). By sub-rule (a) of rule 6 of the Bombay Sales Tax (Third Amendment) Rules, 1983 a proviso was inserted in sub-rule (3) to the effect that the aggregate of the sums referred to in sub-rule (1) of rule 41D would be reduced by 6 per cent of the purchase price instead of 5 per cent of the purchase price from 1st July, 1982. The assessee has sought to challenge the amendment mainly on the ground that the authority exercising subordinate legislative functions cannot make a rule which would operate with retrospective effect unless the statute either expressly or by necessary implications or intendment empowers the authority to do so. Shri Jetley brought to our notice the decision of the division Bench in Tata Engineering and Locomotive Company Ltd. v. State of Maharashtra [1992] 86 STC 180 (Bom) wherein the division Bench has held that proviso to sub-rule (3)(a) of rule 41D which provides for a reduction from the aggregate of the sum of drawback, set-off or refund allowable to the dealer at the rate of 6 per cent from July 1, 1982, instead of at 5 per cent of the purchase price, although valid, can come into force only from the date of publication of Government notification dated August 10, 1983, and cannot have retrospective effect from July 1, 1982. It was held that section 42 of the Bombay Sales Tax Act, 1959, which enables the State Government to provide by rules for drawback, set-off or refund, etc., nor section 74 either specifically or by implication confers power to make rules with retrospective effect. In view of the said decision of the Division Bench [Tata Engineering and Locomotive Company Ltd. v. State of Maharashtra [1992] 86 STC 180 (Bom)], point (a) is answered in favour of the assessee.
3. Re. point (b) :
In his assessment order the assessing authority did not allow set-off under clause (iii) of sub-rule (2) of rule 41D on the purchase of goods which were transferred to the assessee's branch at Silvassa on the ground that the said branch was not registered under the Central Sales Tax Act, 1956 ("the CST Act", for short). The argument of the Shri Jetley is that at the relevant time the CST Act was not applicable to Dadra and Nagar Haveli. It was made applicable for the first time by notification dated 30th November, 1983 issued by the Central Government under sub-section (1) of section 6 of the CST Act with effect from 1st January, 1984. Shri Jetley argues that the fact that there was a despatch of the goods by the assessee is not disputed. Further in the certificate in form 31C it has been clearly stated that the goods which are despatched to the regional sales office of the assessee at Silvassa will be sold by such regional office and will not be given away as sample or otherwise or will be used by the said regional sales office in the manufacture of goods, and in fact the goods were sold by the regional sales office. Shri Jetley argues that thus the assessee has substantially complied with the requirement of rule 41D(2)(iii). He relies on the judgment of the Kerala High Court in the Deputy Commissioner of Sales Tax v. K. A. Karim & Sons [1978] 41 STC 358. He also relies upon a decision of this Court in the Commissioner of Sales Tax, Maharashtra v. Hindustan Silk Mills [1972] 29 STC 99. The arguments of Shri Jetley are opposed by the Shri Zambre. Shri Zambre contends that rule 41 D clearly shows that requirement of registration under the CST Act is a mandatory provision and non-compliance thereof would disentitle the assessee from claiming any relief under the relevant rule.
4. We do not find any merit in the arguments of Shri Jetley. A bare reading of rule 41D shows that the despatches made by the assessee to their branch office are admissible to set-off subject to condition that such branch office is registered under the CST Act. The language of the rule clearly indicates that the said condition is of mandatory nature. The fact that at the relevant time the CST Act was not applicable to Dadra and Nagar Haveli does not make any difference to this legal position. The two decisions relied upon by Shri Jetley are not of much assistance to him. In the first case decided by the Kerala High Court Deputy Commissioner of Sales Tax v. K. A. Karim & Sons [1978] 41 STC 358 the facts were that purchases of cashew kernel did not attract purchase tax, but section 3 of the Kernel Sales Tax (Levy and Validation) Act, 1965, imposed tax on the purchase of cashew kernel retrospectively. Exemption from tax was, however, granted under the second proviso to that section if tax had already been levied on the purchase of cashewnut out of which the kernel was produced, but the assessee had to produce declaration in form No. 25 in support of the claim for exemption. The question was whether during the period from 21st June, 1962 to 31st March, 1963, the assessee's purchase turnover of cashew kernel was, even in the absence of declarations in form No. 25, exempt from tax. It was held by the Kerala High Court that for the purpose of claiming exemption it was not reasonable to expect the assessee to produce the declaration in form No. 25 for an anterior period when there was no tax on the purchase of cashew kernel. Therefore, notwithstanding the retrospective operation of the Act, the assessee was not obliged to produce the declaration for the purpose of claiming exemption from tax under the second proviso to section 3(1).
5. In the second judgment relied upon by Shri Jetley [Commissioner of Sales Tax v. Hindustan Silk Mills [1972] 29 STC 99 (Bom)], the Sales Tax Officer called upon the assessee to produce the declarations in the prescribed form or their duplicated in support of the claim. Being unable to do so, the assessee produced consolidated declarations containing the various particulars mentioned in the prescribed form. It was found that every bit of information which the prescribed form required was furnished by the assessee; but the department contended that as the information was written out in an exercise book, it could not be said to have information was written out in an exercise book, it could not be said to have been supplied in the prescribed form. The division Bench noticed that the forms were not supplied by the Government but were prepared or procured by the dealers independently. It was held that the genuineness of the exercise book not having been challenged or doubted, it made no difference whether the information was supplied separately in regard to every sale or whether it was supplied in a consolidated form. The situation in the present case is completely different. Here the mandatory requirement of the relevant rule is that the agent or the branch office, as the case may be, must be registered under the CST Act. Under these circumstances, there is no illegality committed by the assessing officer in rejecting the assessee's claim under rule 41D in respect of the despatches made by them to Silvassa.
6. Re. point (c) :
The assessee has contended that the assessing authority wrongly and arbitrarily determined the quantum of additional tax under section 15-A(1) without deducting the set-off under rule 41E. The additional tax under section 15-A(1) is payable on the net amount of tax payable by the dealer. The point raised by the assessee is squarely covered by the decision of this Court in Tata Engineering & Locomotive Company Ltd. v. State of Maharashtra [1992] 85 STC 507. It has been held by the Division Bench that additional tax under section 15-A(1) of the Act will be payable on the net amount of tax payable by the dealer, after adjustment of set-off, drawbacks, etc., available to the dealer under any of the provisions of the Acts and the Rules, and the department was bound to determine the liability of additional duty accordingly. In that view of the matter, point (c) is answered in favour of the assessee.
7. Re. point (d) :
Shri Jetley submits that retrospective operation of the amending Act of 1989 is unreasonable, arbitrary and violative of articles 14 and 19(1)(g) of the Constitution. The main argument of Shri Jetley is that the withdrawal of relief granted by the statute before the present amendment of Shri Jetley is that the withdrawal of relief granted by the statute before the present amendments and lawfully enjoyed by the assessee during all these years and thereby imposing on the assessee an unjust, unmerited and accumulated huge financial liability, cannot be considered to be reasonable. Shri Jetley argues that the direct result of the amending Act will be that the assessee will be liable to suffer unforeseen and irrecoverable huge tax burden after a considerable lapse of time. Shri Jetley argues that by seeking to amend rule 41E retrospectively by a period of almost 8 years, the petitioners are precluded from passing on the extra tax burden to their customers. Shri Jetley argues that the withdrawal of relief lawfully granted and properly enjoyed by the assesses after this long lapse of time cannot be said to be in public interest and must be held to be unreasonable, arbitrary and violative of articles 14 and 19 of the Constitution. On the other hand, Shri Zambre submits that it was never the intention of the Legislature to grant the benefit of set-off to the scrap generated in the course of manufacture or to any by-product. However, in view of the judgment of this Court in Commissioner of Sales Tax v. Burmah Shell Refineries Limited [1978] 41 STC 337 which was followed by the Tribunal in the case of Taparia Tools Limited, the intention of the Legislature was defeated. As such it became necessary to amend the provision with a view to clearly bring out the true intention of the Legislature. Shri Zambre submits that by the amending Act of 1989 the lacuna which was revealed in the rule was removed to bring out clearly the intention of the Legislature. Shri Zambre submits that it was always competent to the Legislature to make legislative intention explicity clear by amending law and making it effective retrospectively. Unless the legislature act is palpably arbitrary, unreasonable, or or mala fide, the court should not interfere with the legislative wisdom. Regarding the alleged financial hardship that may be caused to the assessee, Shri Zambre submits that the same is not at all relevant. Assuming that it results into some harshness or injustice, it is for the Legislature to consider the balancing of individual hardship or injustice and the public good, viz., avoiding loss to the public revenue.
8. It can hardly be disputed that under the Constitution, Legislatures have powers to legislate both prospectively and retrospectively except in specific cases, as for example, cases contemplated in article 20. No restriction has been imposed by the Constitution on the powers of the Legislatures to enact laws with restrospective operations. In Raghubar Dayal v. Union of India it was expressly recognised that the Constitution while making provision against ex post facto laws in article 20(1) and against titles in article 18(1) studiously refrained from introducing any bar against restrospective legislation. At page 274 of the reports Ayyangar, J., speaking for the court said :
"It cannot be therefore predicated off-hand and as a matter of law that every restriction which operates with restrospective affects rights obtained under the pre-existing law, is unconstitutional as obnoxious to the freedom guaranteed by sub-clause (f) or (g) of clause (1) of article 19."
9. In Rai Ramkrishna v. State of Bihar , Gajendragadkar, J., observed :
"The other point on which there is no dispute before us is that the legislative power conferred on the appropriate Legislatures to enact law in respect of topics covered by the several entries in the three Lists can be exercised both prospectively and retrospectively. Where the Legislatures can make a valid law, it may provide not only for the prospective operation of the material provisions of the said law but it can also provide for the restrospective operation of the said provisions. Similarly, there is no doubt that the legislative power in question includes the subsidiary or the auxiliary power to validate laws which have been found to be invalid. If a passed by a Legislature is struck down by the courts as being invalid for one infirmity or another, it would be competent to the appropriate Legislature to cure the said infirmity and pass a validating law so as to make the provisions of the said law effective from the date when it was passed. This position is treated as firmly established since the decision of the Federal Court in the case of United Provinces v. Mst. Atiqa Begum ."
10. One of the contentions raised by Shri Jetley is that the assessee is almost precluded from passing the extra tax burden to their customers. In J. K. Jute Mills Co. Ltd. v. State of Uttar Pradesh the Supreme Court observed in paragraph 13 of the said judgment as follows (page 437 of STC) :
"And then it is argued that a sales tax being an indirect tax, the seller who pays that tax has the right to pass it on to the customer, that a law which imposes a sales tax long after the sales had taken place deprives him of that right, that retrospective operation is, in consequence, an incident inconsistent with the true character of a sales tax law, and that the Validation Act is therefore not a law in respect of tax on the sale of goods, as recognised, and it is ultra vires entry 54. We see no force in this contention. It is no doubt true that a sales tax is, according to accepted notions, intended to be passed on to the buyer, and provisions authorising and regulating the collection of sales tax by the seller from the purchaser are a usual feature of sales tax legislation. But it is not an essential characteristic of a sales tax that the seller must have the right to pass 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 a law 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 above paragraph makes it clear that it is not an essential characteristic of a sales tax that the seller must have the right to pass 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 tax from the purchasers. The Supreme Court observed that "whether a law 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."
11. In [1985] 58 STC 12 K. M. Mohamed Abdul Khader Firm v. State of Tamil Nadu, the Supreme Court has observed :
"As regards the second contention that the provisions of the Act are violative of the fundamental rights of the appellants under articles 19(1)(f) and 19(1)(g), as the tax is upon the sales of goods and is not shown to be confiscatory, it cannot be said that the provisions of the Act impose any unreasonable restrictions upon the appellants' right to carry on trade. It is, no doubt, true that every tax imposes some restriction upon the right to carry on a business; but it would not follow that the imposition of the tax in question is an unreasonable restriction upon the appellants' fundamental right to carry on trade. Generally speaking, 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.
But it was contended that as the dealer is prohibited from passing on the incidence of tax to the purchaser, the additional tax, unlike sales tax, is a tax on income of the dealer which he must pay whether he makes any profit or not and is, therefore, an unreasonable restriction on his fundamental rights under article 19(1)(g).
The legal incidence of a tax on sales of goods, under the Tamil Nadu General Sales Tax Act, 1959, falls squarely on the dealer. It may be that he can add the tax to the price of the goods sold and thus pass it on to the purchaser. But it is not necessary that the dealer should be enabled to pass on the incidence of the tax on sales to the purchaser in order that it might be a tax on sales of goods."
12. Again in Hira Rattan Lal v. Sales Tax Officer, Section III, Kanpur , the Supreme Court has observed (page 186 of STC) :
"A feeble attempt was made to show that the retrospective levy made under the Act is violative of article 19(1)(f) and (g). But we see no substance in that contention. As seen earlier, the amendment of the Act was necessitated because of the Legislature's failure to bring out clearly in the principal Act its intention to separate the processed or split pulses from the unsplit or unprocessed pulses. Further the retrospective amendment became necessary as otherwise the State would have to refund large sums of money. The contention that the retrospective levy did not afford any opportunity to the dealers to pass on the tax payable to the consumers, has not much validity. The tax is levied on the dealer; the fact that he is allowed to pass on the tax to the consumers or he is generally in a position to pass on the same to the consumer has no relevance when we consider the legislative competence."
13. Reference may also be made to the decision of the Supreme Court in Konduri Buchirajalingam v. State of Hyderabad wherein it was held that in law a sales tax need not be an indirect tax and that a tax can be a sales tax though the primary liability for it is put upon a person without giving him any power to recoup the amount of the tax payable from any other party.
14. Shri Jetley has argued that the impugned amendment make the modified rule 41E retrospectively operative almost 8 years prior to the coming into force of the amending Act. The interval of 8 years comprises of an inordinate period of time and is so remote as to make any financial recovery from the petitioners' customers virtually impossible. In this connection reference may be made to the observations of the Supreme Court in Rai Ramkrishna's case . In paragraph 17, the Supreme Court observed that "it is conceivable that cases may arise in which the retrospective operation of a taxing or other statute may introduce such an element of unreasonableness that the restrictions imposed by it may be open to serious challenge as unconstitutional; but the test of the length of time covered by the retrospective operative cannot, by itself, necessarily be a decisive test". The Supreme Court further observed that "we may have a statute whose retrospective operation covers a comparatively short period and yet it is possible that the nature of the restriction impose by it may be of such a character as to introduce a serious infirmity in the retrospective operation. On the other hand, we may get cases where the period covered by the retrospective operation of the statute, though long, will not introduce any such infirmity". The Supreme Court further observed as follows :
"Take the case of a Validating Act. If a statute passed by the Legislature is challenged in proceedings before a court and the challenge is ultimately sustained and the statute is struck down, it is not unlikely that the judicial proceedings may occupy a fairly long period and the Legislature may well decide to await the final decision in the said proceedings before it uses its legislative power to cure the alleged infirmity in earlier Act. In such a case, if after the final judicial verdict is pronounced in the matter the Legislature passes a Validating Act, it may well cover a long period taken by the judicial proceedings in court and yet it would be inappropriate to hold that because the retrospective operation covers a long period, therefore, the restriction imposed by it is unreasonable...."
15. Again in J. K. Cotton Spinning and Weaving Mills Ltd. v. Union of India [1988] 68 STC 421, the Supreme Court has observed as follows :
"It is not disputed that the Legislature is competent to make laws both prospectively and retrospectively. But, as pointed out by this Court in Jawaharmal v. State of Rajasthan , the cases may conceivably occur where the court may have to consider the question as to whether excessive retrospective operation prescribed by a taxing statute amounts to the contravention of the citizens' fundamental rights; and in dealing with such a question the court may have to take into account all the relevant and surrounding facts and circumstances in relation to the taxation. Again in Rai Ramkrishna v. State of Bihar this Court has pointed out that if the retrospective feature of a law is arbitrary and burdensome, the statute will not be sustained and the reasonableness of each retrospective statute will depend on the circumstances of each case; and the test of the length of time covered by the retrospective operation cannot, by itself, necessarily be a decisive test."
16. Shri Jetley brought to our notice the observations made by Sen. J., in Lohia Machines Ltd. v. Union of India . Shri Jetley argued that although the judgment of Sen, J., in so far as it strikes down the retrospective operation of the amendment is a minority judgment, the observation of Sen, J., on the nature of amendment and circumstance in which it may or may not be upheld, cannot be considered as only a minority view, because the majority having held that the amendment was only clarificatory, was not required to decide in what circumstances a retrospective amendment will be struck down. On page 383 of the judgment Sen. J., observed as follows :
"The withdrawal with retropsective effect of any relief granted by a valid statutory provision to an assessee, depriving the assessee of the benefit of the relief vested in the assessee, stands on a footing entirely different from the footing which may necessitate the passing of a Validating Act seeking to validate any statutory provision declared unconstitutional. When Parliament passes an amendment validating any provision which might have been declared invalid for some defect or lacuna, Parliament seeks to enforce its intention which was already there by removing the defect or lacuna... However, the withdrawal or modification with retrospective effect of the relief properly granted by the statute to an assessee which the assessee has lawfully enjoyed or is entitled to enjoy as his vested statutory right, depriving the assessee of the vested statutory right has the effect of imposing a levy with retrospective effect for the years for which there was no such levy and cannot, unless there be strong and exceptional circumstances justifying such withdrawal or modification, be held to be reasonable or in public interest."
17. Shri Jetley also brought to our notice the decision of the Supreme Court in D. Cawasji & Co. v. State of Mysore . In that case the Supreme Court observed that in the case before it, the State instead of remedying the defect or removing the lacuna has by the impugned amendment sought to raise the rate of tax from six-and-half per cent to 45 per cent with retrospective effect from April 1, 1966, to avoid the liability of refunding the excess amount of sales tax collected and has further purported to nullify the judgment and order passed by the High Court directing refund of the excess amount illegally collected by providing that the levy at the higher rate of 45 per cent will have retrospective effect from April 1, 1966. The Supreme Court observed that the judgment of the High Court declaring the levy of sales tax on excise duty, education cess and health cess to be bad become conclusive and is binding on the parties. It may or may not have been competent for the State Legislature to validly remove the lacuna and remedy the defect in the earlier levy by seeking to impose sales tax through any amendment on excise duty, education cess and health cess; but, in any event, the State Government has not purported to do so through the amending Act. As a result of the judgment of the High Court declaring such levy illegal, the State Government has not purported to do so through the amending Act. As a result of the judgment of the High Court declaring such levy illegal, the State Government became obliged to refund the excess amount wrongfully and illegally collected by virtue of the specific direction to that effect in the earlier judgment. It appears that the only object of enacting the amended provision is to nullify the effect of the judgment 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 six-and-half per cent to 45 per cent and further proceeds to nullify the judgment and order of the High Court. The Supreme Court observed that in its opinion, the enhancement of the rate of duty from six-and-half per cent to 45 per cent with retrospective effect is in the facts and circumstances of the case clearly arbitrary and unreasonable. The Supreme Court further observed that 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, the ratio of this case may not be attracted inasmuch as the Legislature in the facts of the case before us, clearly seeks to remove the defect and lacuna after the judgment in Taparia's case.
18. Shri Jetley next relied upon the judgment of the division Bench of the Calcutta High Court in Bengal Paper Mills Co. Ltd. v. Commercial Tax Officer, Calcutta [1976] 38 STC 163. The question which arose before the division Bench of the Calcutta High Court was whether the provisions of section 4 of the West Bengal Taxation Laws (Amendment) Acts of 1968 and 1969 giving retrospective operation to the definition of "business" was valid. The division Bench concluded that the amendment had sought to impose fresh taxes on transactions of certain types and on certain articles of merchandise with effect from the date of commencement of the statute, an unreasonably long period of time. In respect of periods prior to the insertion of section 64A in the Sales of Goods Act, 1930, it would not be possible for the dealers to recover from the buyers the tax sought to be imposed by the amending Act. As for the subsequent periods, the dealer might be entitled in law to recover sales tax but the long lapse of time would render it impossible for him to recover anything from his buyers. Moreover, the rate of sales tax had steadily increased over the years. The retrospective imposition, without any limitation of time, of fresh taxes, which could not be recovered by the dealer from his buyer's would make an appreciable impact on his finances and imposed unreasonable restrictions on the fundamental rights guaranteed by article 19(1)(f) and (g) of the Constitution. Shri Jetley also relied upon the decision of the Kerala High Court in M. M. Nagalingam Nadar Sons v. State of Kerala [1993] 91 STC 61 and the decision of the Rajasthan High Court in Union of India v. State of Rajasthan [1993] 91 STC 284. Both these decisions deal with the Government's power to withdraw the benefit already granted with retrospective effect. It has been held that the State Government can issue notification granting retrospection but it has no power to withdraw the exemption retrospectively.
19. We find considerable merit in the argument of Shri Zambre that the amending Act of 1989 was introduced in order to remove lacuna which was revealed to bring out clearly the intention of the Legislature. It is always open for the Legislature to amend the law retrospectively to remove any doubt as to it interpretation. Such retrospective amendment is clarificatory in nature. It declares the legal position when there was some ambiguity about it in the existing law. Such retrospective amendment have been upheld, because in effect there is no substantial change in the law. When it is discovered by the Legislature that the law as enacted does not fully carry out the legislative intent, any curative amendment to remove such lacuna and to bring out the legislative intent, even if it is enacted retrospectively, cannot be considered as not justified. These types of amendments have been often referred to as "small repairs". The challenge raised by Sri Jetley against the retropsective operation must, therefore, be rejected.
20. Re. point (e) :
Rule 41E read with rule 44D provides set-off in respect of purchases made by the assessee of goods specified in Schedule B to the Act which was used by the assessee in the manufacture of goods specified in the same entry of Schedule B. The assessee purchased iron and steel in the form of tubes, bars, sheets, plates, castings and forgings amongst others which fall under entry No. 6 of Schedule B to the Act. While the assessee produces predominantly motor vehicle chassis and spares thereof, scrap is also produced in the course of such manufacture, as a by-product and scrap which is so produced in the course of such manufacture, as a by-product and the scrap which is so produced is in fact sold by the assessee in the course of business. It was claimed before the assessing officer that the scrap which was so produced and sold also falls under the same entry No. 6 of Schedule B and, therefore, the assessee is entitled to avail of set-off under rule 41E read with rule 42 of the Rules. The assessee has relied upon the decision of the Tribunal in the case of Taparia Tolls Ltd. v. State of Maharashtra. The contention of the assessee was accepted by the assessing authority. However, the assessing authority calculated the set-off on the basis of the sales tax paid on the sale price instead of purchase price, as claimed by the assessee. The assessing officer has fixed the quantum of set-off allowable to the assessee at Rs. 5,81,8000 as against the amount of Rs. 38,64,996 claimed by the assessee. The assessee has mainly challenged the method of calculation adopted by the assessing officer. It is contended that set-off has to be granted on the basis of the purchase price and not on the sales price of the scrap. We find some substance in the grievance made by the assessee. It seems that the assessing authority has equated sales tax on sales of scrap by the assessee with the sales tax paid by the assessee to their suppliers on purchase of iron and steel which iron and steel went mainly into the production of motor vehicle chassis and to a certain extent in the by-products. In our opinion, set-off is liable to be granted on the basis of the purchase price and not the sale price. However, we clarify that the entitlement of the set-off under 41E in respect of by-products of the assessee will have to be ascertained on the basis of the amended rule 41E.
21. In the result, petition is partly allowed. The matter is remitted back to the assessing authority for granting appropriate reliefs to the assessee in the light of the observations made in this judgment.
22. Petition partly allowed.