CASE NO.: Appeal (civil) 4093 of 1991 PETITIONER: SOMAIYA ORGANICS (INDIA) LTD. & ANR. RESPONDENT: STATE OF UTTAR PRADESH & ANR. DATE OF JUDGMENT: 17/04/2001 BENCH: B.N. Kirpal & Syed Shah Mohammed Quadri & M.B. Shah & Ruma Pal & K.G. Balakrishnan JUDGMENT:
JUDGMENT
Delivered by:
B.N.KIRPAL, J
RUMA PAL, J
with
SLP (C) No. 20018 of 1991, C.A. Nos. 324 of 1981,
455, 2795, 1604 of 1980, 624, 625, 125, 2049 of 1981, I.A.
Nos. 1 & 3 in W.P (C) No. 1892 of 973, C.A. Nos. 1122,
181 of 1981, SLP (C) Nos. 4181, 4297- 4298 of 1980, C.A.
Nos. 215, 341 of 1981, T.C. Nos. 37-39 of 1989, C.A.
Nos. 2777 of 1981 and 1607 of 1980
KIRPAL, J.
Civil Appeal No. 4093 of 1991 and
C.A. No. 2853 of 2001
( Arising out of SLP (C) No. 20018 of 1991)
Leave granted in SLP (C) No. 20018 of 1991.
These appeals are sequel to a judgment of this Court in
Synthetics and Chemicals Ltd. and Others vs. State of U.P.
and Others wherein it was held that in respect of industrial
alcohol the States were not authorised to impose the impost
they had purported to do. By that judgment delivered on
25th October, 1989 the Court overruled its earlier decision
in State of U.P. and Others vs. Synthetics and Chemicals
Ltd. and Others wherein the validity of such an impost had
been upheld. By the second Synthetics case it was declared
that the impugned provisions were illegal prospectively.
The question which arises for consideration in these
appeals is whether the vend fee which had been levied by the
appropriate State enactments, but not collected whether by
reasons of the orders of the Court or otherwise, can be
collected now when the said provisions by the said judgment
dated 25th October, 1989 have been held to be invalid
prospectively.
For the sake of convenience, we shall briefly refer to
the facts in C.A. No. 4093 of 1991 Somaiya Organics
(India) Ltd. vs. State of U.P. & Anr. The said company
had established a plant at Barabanki for manufacture of
intermediaries out of industrial alcohol. Its promoter
company had sold and transferred to the appellant industry
distillery located at Captainganj. The industrial alcohol
manufactured by the distillery at Captainganj was captively
consumed. On 8th October, 1970 the appellant had been
exempted from paying vend fee which was leviable under the
U.P. Excise Act, 1910. On 9th October, 1979, the State of
U.P. withdrew the exemption from payment of vend
fee/purchase tax on industrial alcohol. This was challenged
by the appellant by filing writ petitions in the Allahabad
High Court. During the pendency of the writ petitions
interim orders were passed by the High Court whereby the
petitioners before it were required to give a bank guarantee
and/or pay to the State the amounts directed by the Court
which, in an earlier order, the High Court had directed that
it should be kept by the State in a separate account.
As noticed hereinabove, vide decision of a Division
Bench of this Court in first Synthetics & Chemicals case
rendered on 19th December, 1979 the validity of the impost
was upheld. Subsequently, on the matter being referred to a
Bench of Seven Judges, by the second Synthetics case
decision in 1989, the validity of the provisions of the said
Acts permitting levy of excise duty in the form of vend fee
was struck down prospectively.
The High Court by the impugned judgment dated 29th
August, 1990 in Somaiyas case interpreted the direction in
the second Synthetics case relating to prospective
declaration to mean that for the period prior to 25th
October, 1989 the amount payable in respect thereto could be
recovered. It held that once the levy for the period prior
to 25th October, 1989 was saved further steps consequent
upon such levy were equally saved and recovery in respect of
the dues prior to 25th October, 1989 could be effected by
the State. The State was held to be entitled to realise the
vend fee for the period prior to 25th October, 1989.
When these appeals against the said decision came up for
hearing in this Court a Division Bench vide its order dated
26th April, 1994 in Hindustan Sugar Mills Ltd. vs. State
of U.P. & Others observed that the directions and
observations made in the second Synthetics case had been
differently construed by Benches of this Court. In view of
this apparent conflict these appeals were referred to a
larger Bench. It is in pursuance thereto that these appeals
have been heard.
It was contended by Shri K.K. Venugopal, learned senior
counsel for the appellants, that in respect of industrial
alcohol the State Legislature had no legislative competence
to levy excise duty or any tax in that nature. Drawing our
attention to Entry 8 and 51 of List II, he submitted that
the State can impose excise duty only on potable liquor.
Corresponding to that is Entry 84 in List I which enables
the Parliament to levy excise duty except in regard to those
items referred to in Entry 51 of List II. Furthermore under
Entry 52 of List I the I.D.R. Act had been promulgated by
the Parliament and in the First Schedule Item No. 26
related to fermentation industries. In respect of the
industries referred to in the First Schedule to the I.D.R.
Act it is only the Parliament which has jurisdiction to levy
taxes in respect thereto. As such levy of vend fee on
industrial alcohol by the States was not valid.
It is also submitted that Article 162 provides that the
executive power of a State is co-extensive with its
legislative power. Inasmuch as a State cannot levy excise
duty on industrial alcohol being outside the ambit of Entry
51 of List II, the State Government cannot, in exercise of
its executive power, recover the excise duty. After 25th
October, 1989 law ceased to exist in respect of levy and
collection of excise duty on industrial alcohol by reason of
want of legislative competence. As such the State
Government could not exercise executive power and collect
excise duty on industrial alcohol.
It was contended that under Article 265 of the
Constitution no tax can be levied or collected without the
authority of law. The submission was that authority of law
means that there should be a lawful enactment which
authorised the levy and collection of tax. Tax cannot be
levied and collected by virtue of a decision of a Court in
the absence of any statutory provision. It was further
submitted that in series of decisions of this Court, one of
the examples being that of M.P.V. Sundararamier & Co. vs.
The State of Andhra Pradesh & Another it had been held that
the law which is declared ultra vires due to lack of
legislative competence would be void ab initio and the same
could not be made operative. The effect of the second
judgment in Synthetics case was that after 25th October,
1989 no levy or collection could take place. In respect of
the period prior to 25th October, 1989 even if tax had been
levied and/or demand raised the contention of the learned
counsel was that the same could not be collected.
On behalf of the respondents it was contended by Shri
Rakesh Dwivedi that declaration of the provisions as being
illegal prospectively meant that prior to 25th October, 1989
all the provisions were valid. He submitted that this meant
that the said provisions were capable of being enforced for
the period prior to the said date. He contended that
liability to pay vend fee gets attracted the moment
industrial alcohol is issued. Since this was issued during
the period 31st May, 1979 and 25th October, 1989 the
appellants had become liable to pay vend fee. Once this
liability prior to 25th October, 1989 is held to be valid
then the State was entitled to collect the same. He
strongly relied on the reasoning of the High Court which had
observed that it would be unreasonable if the observations
in the second Synthetics case were understood as entitling
the appellants to retain the vend fee despite prospective
overruling because those who have paid the vend fee for the
same period would stand in a disadvantageous position when
compared to those who did not pay the vend fee in view of
the interim orders although in both the cases liability to
tax arises at the time of issuance of the alcohol. Such an
interpretation, it was contended, would be arbitrary and
violative of Article 14 of the Constitution.
The doctrine of prospective overruling was simply based
on equity and full effect must be given thereto and the
State should be permitted to recover the unpaid levy in
respect of the period prior to 25th October, 1989. Shri
Dwivedi further submitted that in any case payments which
have been made under the interim orders of the High Court
could be retained by the State and this clearly flows from
the directions of this Court in paragraph 89 of the judgment
in second Synthetics case. The learned counsel, of course,
contended that even in respect of amounts secured by bank
guarantee the State would be entitled to collect the same.
In the present case the State of Uttar Pradesh, like
some other States, had levied vend fee in respect of
industrial alcohol under the U.P. Excise Act, 1910. The
validity of the same was challenged and a Division Bench of
this Court in State of U.P. and Others (supra) had upheld
its validity. Subsequently a review petition was filed in
respect of the said judgment and another Writ Petition No.
182 of 1980 was also filed by Synthetics & Chemicals Ltd.
challenging a notification dated 31st August, 1979 whereby a
new rule was introduced, in place of existing one, providing
for levy of vend fee. This was challenged and a Bench of
Seven Judges in Synthetics and Chemicals Ltd. and Others
(supra) in paragraph 82 recorded its conclusion that the
relevant provisions of the U.P. Act and similar Acts of
Andhra Pradesh, Tamil Nadu and Bombay were unconstitutional
insofar as these purported to levy a tax or charge impost
upon industrial alcohol, namely, alcohol used and usable for
industrial purposes.
Having come to the conclusion that the levy was
unconstitutional the Court, as far as the relief was
concerned, observed as follows:
89. We must, however, observe, that these imposts and
levies have been imposed by virtue of the decision of this
Court in Synthetics & Chemicals Ltd. case. The States as
well as the petitioners and manufacturers have adjusted
their rights and their position on that basis except in the
case of State of Tamil Nadu. In that view of the matter, it
would be necessary to state that these provisions are
declared to be illegal prospectively. In other words, the
respondents States are restrained from enforcing the said
levy any further but the respondents will not be liable for
any refund and the tax already collected and paid will not
be refunded. We prospectively declare these imposts to be
illegal and invalid, but do not affect any realisations
already made. The writ petitions and the appeals are
disposed of accordingly. The review petitions, accordingly,
succeed though strictly no grounds as such have been made
out but in view we have taken, the decision in the
Synthetics & Chemicals Ltd. case cannot be upheld. In the
view we have taken also, it is not necessary to decide or to
adjudicate if the levy is valid as to who would be liable,
that is to say, the manufacturer or the producer or the
dealer.
90. With regard to Writ Petition No. 4051 of 1978
(Chemicals & Plastics India Ltd. v. State of Tamil Nadu),
certain orders were passed by this Court on November 1,
1978, September 1, 1986, October 1, 1986 and October 10,
1986. It is stated that the present demand of the Central
Excise Department from March 1, 1986 on alcohol manufactured
by the company in their captive distillery is over Rs. 4
Crores. This Court by its order dated October 1, 1986 as
confirmed on October 16, 1986 had permitted the State
Government to collect the levy on alcohol manufactured in
company’s captive distillery subject to adjustment of
equities and restrained the central excise authorities from
collecting any excise duty on such alcohol. It is,
therefore, necessary to declare that in future no further
realisation will be made in respect of this by the State
Government from the petitioners. So far as the past
realisations made are concerned, we direct that this
application for that part of the direction, should in
accordance with our decision herein be placed before a
Division Bench for disposal upon notice both to the State
Government and the Central Government.
It is contended on behalf of the appellants that the
declaration in paragraph 82 of the said judgment that the
impugned provisions of the said Acts were unconstitutional
was a declaration by this Court under Article 141 of the
Constitution. The observations and the directions contained
in paragraphs 89 and 90 supra indicated the exercise of the
Courts jurisdiction under Article 142.
In the present case in respect of the period prior to
25th October, 1989, when the second Synthetics case was
decided in respect of the appellants, demand had been raised
under the impugned Acts and for some period payment had been
made and in respect of other periods payment to the State
Governments had not been made. The contention of the
appellants is that in view of the observations of this Court
in paragraph 89 the appellants may not be entitled to claim
refund of the taxes already paid but, at the same time, the
State Government is not entitled to collect the taxes in
respect of the period prior to 25th October, 1989, i.e. the
date on which the judgment was delivered. It was, however,
submitted that in those cases where money was deposited with
the State on the condition that the same will be kept in a
separate account and would be subject to the outcome of the
writ petition, the appellants would be entitled to refund
thereof.
Shri R.F. Nariman, learned senior counsel for the
appellants referred to Supreme Court Bar Association vs.
Union of India and Another (at page 430) and contended that
under Article 142 of the Constitution this Court cannot pass
any order which is contrary to any constitutional or
statutory provision. The effect of the decision in
Synthetics case being that the impugned Acts were without
legislative competence and those laws must be regarded as
nonest as if they did not exist. The validity of the said
laws which had earlier been upheld in the first Synthetics
case got wiped out with a review petition against the first
Synthetics case being allowed and the declaration of law in
the Synthetics case. He contended that the directions given
in paragraph 89 was to do complete justice in exercise of
the power under Article 142 and the effect of prospective
overruling was clearly specified in the said para where it
is observed that in other words, the respondents States are
restrained from enforcing the said levy any further but the
respondents will not be liable for any refund and the tax
already collected and paid will not be refunded.
It was also submitted by Shri Nariman that there is no
jurisprudential basis for applying the doctrine of
prospective overruling in India. He submitted that this
doctrine was first invoked in I.C. Golak Nath & Ors. vs.
State of Punjab & Anrs. where Chief Justice K. Subba Rao
for himself and five other judges invoked an American
doctrine to that effect. Shri Nariman contended that the
other six judges did not subscribe to this and in fact three
of the judges through the judgment of Justice Wanchoo
expressly came to the conclusion that the doctrine of
prospective overruling was against the provisions of Article
13(2) of the Constitution. In our opinion it is not
necessary nor appropriate for us to go into this question.
We are only concerned with the interpretation and effect of
the Second judgment in Synthetics case and not with regard
to the correctness of the same.
It was contended by Shri Nariman that the vend fee which
was deposited in Court consequent on the interim order
passed in respect thereto clearly stipulated that the same
should be kept in a separate account. He, therefore,
submitted that this cannot be regarded as a payment the
refund of which the appellant was not entitled to by reason
of the aforesaid observations in the second Synthetics &
Chemicals judgment. He contended that the direction, that
the amount received by the State should be kept in a
separate account, entitled the appellants to get back the
said amount once it was held that the State Legislature
lacked legislative competence to impose such a levy. He
further submitted that in any case the High Court was wrong
in coming to the conclusion that there was any unjust
enrichment and, therefore, there should be no refund of the
levy in question.
Shri Sunil Gupta appearing on behalf of Hindustan
Polymers Ltd. while reiterating the submissions of other
counsel further contended that furnishing of a bank
guarantee does not tantamount to payment of tax. He invited
our attention to the decision of this Court in the case of
Oswal Agro Mills Ltd. and Another vs. Asstt. Collector of
Central Excise, Division Ludhiana and Others . In that
case, pursuant to an interim order passed by this Court
staying the recovery of excise duty a bank guarantee had
been furnished. The assessees appeal was allowed and it
claimed the refund of the bank guarantee which had already
been encashed by the excise authorities. The Revenue
contended that the bank guarantee should be deemed to have
been an equivalent to money deposited in Court and as such
Section 11-B of the Excise Act stood attracted and the
appellants having failed to establish before the authorities
concerned that they had not passed on the incidence thereof
to the customers, the authorities were entitled to encash
the bank guarantee and retain the amount thereof. Allowing
the appeal and holding that the provisions of Section 11-B
were not applicable in the case of furnishing of the bank
guarantee, this Court observed as follows:
9. Section 11-B applies when an assessee claims refund
of excise duty. A claim for refund is a claim for
repayment. It presupposes that the amount of the excise
duty has been paid over to the excise authorities. It is
then that the excise authorities would be required to repay
or refund the excise duty.
10. The question, therefore, is whether it can be said
that the furnishing of a bank guarantee for all or part of
the disputed excise duty pursuant to an order of the court
is equivalent to payment of the amount of the excise duty.
In our view, the answer is in the negative. For the
purposes of securing the revenue in the event of the revenue
succeeding in proceedings before a court, the court, as a
condition of staying the demand for the disputed tax or
duty, imposes a condition that the assessee shall provide a
bank guarantee for the full amount of such tax or duty or
part thereof. The bank guarantee is required to be given
either in favour of the principal administrative officer of
the court or in favour of the revenue authority concerned.
In the event that the revenue fails in the proceedings
before the court the question of payment of the tax or duty,
the amount of which is covered by the bank guarantee, does
not arise and, ordinarily, the court, at the conclusion of
its order, directs that the bank guarantee shall stand
discharged. Where the revenue succeeds the amount of the
tax or duty becomes payable by the assessee to the revenue
and it is open to the revenue to invoke the bank guarantee
and demand payment thereon. The bank guarantee is security
for the revenue, that in the event the revenue succeeds its
dues will be recoverable, being backed by the guarantee of a
bank. In the event, however unlikely, of the bank refusing
to honour its guarantee it would be necessary for the
revenue or, where the bank guarantee is in favour of the
principal administrative officer of the court, that officer
to file a suit against the bank for the amount due upon the
bank guarantee. The amount of the disputed tax or duty that
is secured by a bank guarantee cannot, therefore, be held to
be paid to the revenue. There is no question of its refund
and Section 11-B is not attracted.
When this Court decided in I.C. Golak Naths case that
the power of amendment under Article 368 of the Constitution
did not allow Parliament to abridge the fundamental rights
in Part III of the Constitution, it made the decision
operative with prospective effect. This was done in
recognition of the fact that between the coming into force
of the Constitution on 26th January 1950 and the date of the
judgment, Parliament had in fact exercised the power of
amendment in a way which, according to the decision in
Golaknath was void. If retrospectivity were to be given to
the decision, it would introduce chaos and unsettled
conditions in our country. On the other hand it also
recognised that such possibility of chaos might be
preferable to the alternative of a totalitarian rule. The
Court, therefore, sought to evolve some reasonable
principle to meet this extraordinary situation. The
reasonable principle which was evolved was the doctrine of
prospective overruling.
Although the doctrine of prospective overruling, was
drawn from American jurisprudence, it has/had, of necessity,
to develop indigenous characteristics. The parameters of
the power as far as this country is concerned were sought to
be laid down in Golaknath itself when it was said:
As this Court for the first time has been called upon
to apply the doctrine evolved in a different country under
different circumstances, we would like to move warily in the
beginning. We would lay down the following propositions:
(1) The doctrine of prospective over-ruling can be invoked
only in matters arising under our Constitution; (2) it can
be applied only by the highest court of the country, i.e.,
the Supreme Court as it has the constitutional jurisdiction
to declare law binding on all the courts in India; (3) the
scope of the retroactive operation of the law declared by
the Supreme Court superseding its earlier decisions is left
to its discretion to be moulded in accordance with the
justice of the cause or matter before it.
The parameters have not been adhered to in practice.
The word prospective overruling implies an earlier
judicial decision on the same issue which was otherwise
final. That is how it was understood in Golaknath.
However, this Court has used the power even when deciding on
an issue for the first time. Thus in India Cement Ltd. and
Others vs. State of Tamil Nadu and Others , when this Court
held that the cess sought to be levied under Section 115 of
the Madras Panchayats Act, 1958 as amended by Madras Act 18
of 1964, was unconstitutional, not only did it restrain the
State of Tamil Nadu from enforcing the same any further, it
also directed that the State would not be liable for any
refund of cess already paid or collected.
This direction was considered in Orissa Cement Ltd. vs.
State of Orissa and Others at page 498 where it was held
that:
. The declaration regarding the invalidity of a
provision and the determination of the relief that should be
granted in consequent thereof are two different things and,
in the latter sphere, the Court has, and must be held to
have, a certain amount of discretion. It is a well settled
proposition that it is open to the Court to grant, mould or
restrict the relief in a manner most appropriate to the
situation before it in such a way as to advance the
interests of justice. It will be appreciated that it is not
always possible in all situations to give a logical and
complete effect to a finding..
Again in Union of India and Others vs. Mohd. Ramzan
Khan , it was held that non-furnishing of a copy of the
inquiry report to an employee amounted to violation of the
principles of natural justice and any disciplinary action
taken without furnishing such report was liable to be set
aside. However, it was made clear that the decision would
have prospective application so that no punishment already
imposed would be open to challenge on this count. (See also
Managing Director, ECIL, Hyderabad and Others vs. B.
Karunakar and Others .
In the ultimate analysis, prospective overruling,
despite the terminology, is only a recognition of the
principle that the court moulds the reliefs claimed to meet
the justice of the case justice not in its logical but in
its equitable sense. As far as this country is concerned,
the power has been expressly conferred by Article 142 of the
Constitution which allows this Court to pass such decree or
make such order as is necessary for doing complete justice
in any cause or matter pending before it. In exercise of
this power, this Court has often denied the relief claimed
despite holding in the claimants favour in order to do
complete justice.
Given this constitutional discretion, it was perhaps
unnecessary to resort to any principle of prospective
over-ruling a view which was expressed in Narayanibai vs.
State of Maharashtra & Others at page 470 and in Ashok Kumar
Gupta and Another vs. State of U.P. and Others . In the
latter case, while dealing with the doctrine of prospective
overruling, this Court said that it was a method evolved by
the Courts to adjust competing rights of parties so as to
save transactions whether statutory or otherwise, that were
effected by the earlier law. According to this Court, it
was a rule of judicial craftsmanship with pragmatism and
judicial statesmanship as a useful outline to bring about
smooth transition of the operation of law without unduly
affecting the rights of the people who acted upon the law
operated prior to the date of the judgment overruling the
previous law. Ultimately, it is a question of this Courts
discretion and is, for this reason, relatable directly to
the words of the Court granting the relief.
Reading the two paragraphs 89 and 90 together it does
appear that this Court regarded the declaration of the
provisions being illegal prospectively as only meaning that
if the States had already collected the tax they would not
be liable to pay back the same. It is the States which were
protected as a result of the declaration for otherwise on
the conclusion that the impugned Acts lacked legislative
competence the result would have been that any tax collected
would have become refundable as no State could retain the
same because levy would be without the authority of law and
contrary to Article 265 of the Constitution. At the same
time, it was clearly stipulated that the States were
restrained from enforcing the levy any further. The words
used in Article 265 are levy and collect. In taxing
statute the words levy and collect are not synonymous
terms, (refer to Assistant Collector of Central Excise,
Calcutta Division vs. National Tobacco Co. of India Ltd.
at page 572, while levy would mean the assessment or
charging or imposing tax, collect in Article 265 would
mean the physical realisation of the tax which is levied or
imposed. Collection of tax is normally a stage subsequent
to the levy of the same. The enforcement of levy could only
mean realisation of the tax imposed or demanded. That the
States were prevented to recover the tax, if not already
realised, in respect of the period prior to 25th October,
1989 is further evident from paragraph 90 of the judgment.
The said paragraph shows that as on the date of the judgment
for the period subsequent to 1st March, 1986 the demand of
the Central Excise Department on the alcohol manufactured
was over Rs. 4 Crores. The Court referred to its orders
dated 1st October, 1986 and 16th October, 1986 whereby the
State Government was permitted to collect the levy on
alcohol manufactured in the companys distilleries. With
respect to the said amount of Rs. 4 Crores, it was observed
that it is, therefore, necessary to declare that in future
no further realisation will be made in respect of this by
the State Government from the petitioners. The implication
clearly was that if out of Rs. 4 Crores the State
Government had collected some levy the balance outstanding
cannot be collected after 25th October, 1989.
After the decision in second Synthetics case Writ
Petition Nos. 7452 of 1981 and 3571 of 1982 – Sachid
Hussain & Anr. vs. The State of U.P. & Ors. – came up
for hearing. A Bench of Three Judges presided over by Chief
Justice Mukherji, who had delivered the judgment in second
Synthetics case vide order dated 26th February, 1990
disposing of the said writ petitions observed as follows:
In view of the judgement of this Court in Synthetics
and Chemicals Limited and Others vs. State of Uttar Pradesh
1990 (1) SCC 109, these writ petitions are allowed
prospectively and the levy is declared to be bad
prospectively. Since no refund is claimed, there will be an
order in terms of prayers (1) and (2) of the writ petitions
viz. the recovery order issued by the Excise Inspector
dated 14th September, 1981 for a sum of Rs.68,200/- against
the petitioners are quashed and the respondents are directed
not to recover the amount of Rs.68,200/- from the petitioner
towards vend fee for the period from 9.4.75 to 11.7.78.
To the same effect is another order dated 12th March,
1990 again by a Bench presided over by Chief Justice
Mukherji in Writ Petition No. 8435 of 1981 – Yawar Ali vs.
The State of U.P. & Ors. By these two orders the State of
U.P. was directed not to recover the amounts outstanding
despite recovery notices having been issued on a date prior
to 25th October, 1989. These two orders are important
inasmuch as the author of the judgment in second Synthetics
case understood his own decision of prospective overruling
to imply that if a levy in respect of the period earlier
than 25th October, 1989 has not been recovered by the excise
authorities then notwithstanding a recovery order having
been issued the State was not entitled to recover the
amount. It can be said that in 1990 Chief Justice Mukherji,
along with two companion Judges interpreted his earlier
decision in a manner which clearly showed that paragraph 89
of the judgment in the second Synthetics case could not
entitle the State to physically receive any amount in
respect of the levy for the period prior to 25th October,
1989 even though it could be said that the levy before that
date was not invalid because of the doctrine of prospective
overruling.
The doctrine of prospective overruling was applied in
Belsund Sugar Co. Ltd. vs. State of Bihar and Others .
The question which arose for consideration there was whether
market fee could be levied under the Bihar Agriculture
Produce Markets Act, 1960 in respect to transactions of
purchase of sugarcane, sugar and molasses by sugar mills.
In view of the provisions of the Bihar Sugarcane (Regulation
of Supply and Purchase) Act, 1981 read with Sugar (Control)
Order, 1966 issued under the Essential Commodities Act, it
was held that the provisions of the Sugarcane Act and the
Sugarcane Order, on the one hand, and the Bihar Market Act
on the other could not operate harmoniously and, therefore,
the Sugarcane Act and the Sugarcane Order prevailed over the
Market Act. It was then contended that the appellants
therein should be allowed to get refund of the market fee
which they had paid under the Market Act subject to their
showing that they had not passed on the burden on the
principle of unjust enrichment. Dealing with the above
contentions, it was observed as follows:
112. .Under these circumstances, keeping in view the
peculiar facts and circumstances of these cases, we deem it
fit to direct in exercise our powers under Article 142 of
the Constitution of India that the present decision will
have only a prospective effect. Meaning thereby that after
the pronouncement of this judgment all future transactions
of purchase of sugarcane by the sugar factories concerned in
the market areas as well as the sale of manufactured sugar
and molasses produced by therefrom by utilising this
purchased sugarcane by these factories will not be subjected
to the levy of market fee under Section 27 of the Market Act
by the Market Committees concerned. All past transactions
up to the date of this judgment which have suffered the levy
of market fee will not be covered by this judgment and the
collected market fees on these past transactions prior to
the date of this judgment will not be required to be
refunded to any of the sugar mills which might have paid
these market fees.
113. However, one rider has to be added to this
direction. If any of the Market Committees has been
restrained from recovering market fee from the writ
petitioners in the High Court or if any of the writ
petitioners in the High Court has, as an appellant before
this Court, obtained stay of the payment of market fee, then
for the period during which such stay has operated and
consequently market fee was not paid on the transactions
covered by such stay orders, there will remain no occasion
for the Market Committee concerned to recover such market
fee from the sugar mill concerned after the date of this
judgment even for such past transactions. In other words,
market fees paid in the past shall not be refunded.
Similarly market fees not collected in the past also shall
not be collected hereafter. The impugned judgments of the
High Court in this group of sugar matters will stand set
aside as aforesaid. The writ petition directly filed before
this Court also will be required to be allowed in the
aforesaid terms.
The aforesaid observations make clear what was implicit
in paragraph 89 of the second Synthetics case, namely, that
where payment has not actually been made to the Market
Committee for a period prior to the announcement of the
judgment, by reason of the assessee having obtained a stay,
the Market Committee was not entitled to recover the market
fee, payment of which had been stayed. It was pithily put
in Belsund Sugar Co. Ltd.s case (supra) that “in other
words market fees paid in the past was not to be refunded.
Similarly market fees not collected in the past was not to
be collected hereafter. These observations are in
consonance with the directions given in paragraph 89 of the
judgment in second Synthetics case and applying the said
principles to the present appeals the only conclusion which
can be arrived at is that this Court intended the status quo
as on 25th October, 1989 to be maintained as regards actual
payment or levy was concerned. What had gone to the coffers
to the Government with or without any string attached, was
to remain with it and what was not received could not be
realised by the Government.
It is, of course, true that in respect of the same
period i.e. prior to 25th October, 1989 persons who had
obtained stay orders or had otherwise not paid the levy
would be better off than those who have deposited the sums
with the Government and are not entitled to receive any
refund. This situation, however, is unavoidable for the
simple reason that Article 265 does not permit collection of
tax without the authority of law. Even though levy prior to
25th October, 1989 may be valid but when in fact no
collection was made pursuant to the said levy, then post
judgment in the second Synthetics case collection is not
permissible. After 25th October, 1989 there was no valid
law in existence which permitted the collection of tax.
Shri Venugopal is right in contending that after 25th
October, 1989 the provisions of Section 39 of the U.P.
Excise Act, 1910 which provides for recovery of excise
revenue would be inapplicable. The said section inter alia
states that all excise revenue may be recovered from the
person primarily liable to pay the same, as arrears of land
revenue or in the manner provided for the recovery of public
demands by any law for the time being in force. Section
3(1) defines excise revenue as meaning revenue derived or
derivable from any duty if the taxes etc. imposed or
ordered under the provisions of the Act or of any other law
for the time being in force. Section 3(3a) defines excise
duty and countervailing duty as meaning any such excise
duty or countervailing duty, as may be mentioned in Entry 51
of List II of the Seventh Schedule of the Constitution.
There can be no excise duty under the U.P. Excise Act on
industrial alcohol because that would be outside the ambit
of Entry 51 of List II of the Seventh Schedule. Vend fee
being regarded as excise duty on industrial alcohol which is
not valid as not falling under Entry 51 of List II cannot be
regarded as excise revenue and, therefore, at least after
25th October, 1989 it would be unrecoverable being outside
the purview of the Section 39 of the U.P. Excise Act, 1910.
This would clearly be the position as a result of the Court
having declared relevant provisions of the U.P. Act as
being ultra vires insofar as it enables the imposition of
excise duty on industrial alcohol.
Furthermore in view of the enunciation of the law by
this Court in Oswal Agro Mills Ltd. case (supra), a bank
guarantee which is furnished cannot be regarded as payment
of excise levy which the Government is entitled to retain.
The furnishing of a bank guarantee is ordered normally in
order to ensure collection of dues. Where, however, the
State, as in the present case, has been held not to be
entitled to collect or realise vend fee after 25th October,
1989 it cannot be allowed to invoke the bank guarantee and
realise the amount of vend fee. What cannot be done
directly cannot be done indirectly either. Furnishing of
bank guarantee is only a promise by the bank to pay to the
beneficiary the amount under certain circumstances contained
in the bank guarantee. Furnishing of bank guarantee cannot
tantamount to making of payment as it was to avoid making
payment of the vend fee that bank guarantees were issued.
The respondents, in other words, are not entitled to encash
the bank guarantees and realise vend fee in respect of the
period prior to 25th October, 1989.
It is true that the effect of a legislation without
legislative competence is that it is nonest. [See: Behram
Khurshed Pesikaka vs. The State of Bombay at 652, 653,
R.M.D. Chamarbaugwalla vs. The Union of India at 940,
M.P.V. Sundararamier & Co. vs. The State of Andhra
Pradesh & Another (supra) at 1468 and Mahendra Lal Jaini vs.
The State of Uttar Pradesh and Others at 937-941.]
Nevertheless a law enacted without legislative
competence remains on the statute book till a Court of
competent jurisdiction adjudicates thereon and declares it
to be void. When the Court declares it to be void it is
only then that it can be said that it is nonest for all
purposes. In Synthetics and Chemicals case the invalidity
of the provisions was a declaration under Article 141 of the
Constitution. It was for doing complete justice that the
Court in exercise of its jurisdiction under Article 142
moulded the relief in such a way as to give effect to its
declaration prospectively. It is not possible to accept
that such an order of prospective overruling is contrary to
law. An invalid law has not been held to be valid. All
that has happened is that the declaration of invalidity of
the legislation was directed to take effect from a future
date.
The principle of prospective over-ruling is too well
enshrined in our jurisprudence for it to be disturbed.
Therefore, by reason of the decision in second Synthetics
case what has actually happened is collection and
non-collection of vend fee prior to 25th October, 1989 is
left untouched. However, the Court in the second Synthetics
case did not specifically deal with the question of deposits
made pursuant to interim orders of Courts. The word used
there was realisation. It might have been arguable that
the deposits were not realisations in the sense the word
has been used in taxation statutes in general and the
U.P.Excise Act, 1910 in particular. However, the interim
orders passed by the High Court show that deposits were made
of vend fee and the purchase tax. Although these deposits
were to be kept in a separate account, nevertheless in the
circumstances of this case, it would be mere sophistry to
hold that the monies so deposited were not realisations
for the purposes of the U.P. Excise Act. Therefore, what
was deposited by the appellants with the State would remain
with it notwithstanding, the interim orders which required
the State to keep it in a separate account but, at the same
time, what has not been collected by the State cannot be
realised by it, even in those cases where a bank guarantee
had been furnished.
Lastly, while relying on Mafatlal Industries Ltd. and
Others vs. Union of India and Others , Shri Dwivedi
submitted that the appellants had realised the amount of
vend fee payable by taking that figure into account while
determining their sale price and, therefore, the State is
entitled to recover the same as it would otherwise result in
unjust enrichment to the appellants.
In Mafatlals case (supra) the principle of unjust
enrichment was invoked as refund was claimed even though the
amount of excise duty paid had already been recovered. This
principle resulted in the court declining to order refund.
The principle of unjust enrichment does not apply in the
present case, in view of the direction given in second
Synthetics case (supra) that no refund be given. This is in
line with the principle of unjust enrichment. But that
principle cannot be extended to give a right to the State to
recover or realise vend fee after the statute has been
struck down and it has been categorically stated that the
respondent States are restrained from enforcing the said
levy any further.. The contention of the respondents in
the teeth of the aforesaid direction cannot, therefore, be
accepted. This is apart from the fact that there is no
factual basis on which this Court can conclude that the
appellants have in fact realised the amount of vend fee and
allowing them to retain it will result in their getting
enriched unjustly.
For the aforesaid reasons, C.A. No. 4093 of 1991 is
allowed. Civil Appeal No. 2853 of 2001 is dismissed. It
is declared that the vend fee realised by the States is not
to be refunded to the appellants and, at the same time, the
State cannot collect any vend fee for the period prior to
25th October, 1989 or thereafter notwithstanding that
notices of demand may have been issued or recovery
proceeding initiated. Parties to bear their own costs.
C.A. Nos. 324 of 1981, 455, 2795, 1604 of 1980, 624,
625, 125, 2049 of 1981, C.A. Nos. 1122, 181 of 1981, SLP
(C) Nos. 4181, 4297-4298 of 1980, C.A. Nos. 215, 341 of
1981, T.C. Nos. 37-39 of 1989, C.A. Nos. 2777 of 1981
and 1607 of 1980
In these appeals apart from the points decided by the
judgment in Somaiyas case (Civil Appeal No. 4093 of 1991),
one of the issues which arises pertains to the validity of
the export pass fee sought to be levied and realised by the
State. Counsel for the parties agree that this and other
issues, not covered by the judgment in Somaiyas case, can
now be decided by an appropriate Bench.
I.A. Nos. 1 & 3 in W.P (C) No. 1892 of 1973
I.A. Nos. 1 and 3 in W.P (C) No. 1892 are dismissed.
================================================================================================================================
RUMA PAL, J
While I respectfully concur with the reasoning and
conclusions reached by my learned brother KIRPAL, J., I wish
to add my views on an aspect of the prospective
over-ruling which was sought to be effected by the decision
of the Constitution Bench of this Court in Synthetics and
Chemicals Ltd. and Others vs. State of U.P. and others
1990 (1) SCC 109.
One of the arguments of the appellant as noted by my
learned brother was that the Court in the Synthetics case
by resorting to prospective over-ruling had in a fact sought
to uphold a law upto the period of the judgment which law
had held to have been passed without competence. It is
submitted that the finding that the States were not
competent to levy tax on industrial alcohol meant that the
State Acts were non est and that the Court could not by
giving prospective effect to its judgment breathe life into
a dead statute up to the date of the judgment. It was also
contended by the appellant that even under Article 142, the
Court could not whittle down or act in derogation of any
constitutional provision. By declaring that the statute was
valid up to the date of the judgment, according to the
appellant, the specific constitutional provisions, namely,
Articles 246 and Article 245 were infringed. Reliance has
been placed on the decision of this Court in Prem Chand Garg
vs. Excise Commissioner, U.P., Allahabad 1963 (1) SCR 885
and Supreme Court Bar Association V. Union of India and
Another 1998 (4) SCC 409.
The argument of the appellant proceeds on a
misunderstanding of the effect of prospective over-ruling.
As has been elaborately stated in my learned brothers
judgment, by prospective over-ruling the Court does not
grant the relief claimed even after holding in the
claimants favour. In this case, the Court held that the
statutory provision imposing vend fee was invalid. Strictly
speaking, this would have entitled the appellant to a refund
from the respondents of all amounts collected by way of vend
fee. But because, as stated in the Synthetics decision
itself, over a period of time imposts and levies had been
imposed by virtue of the earlier decision and that the
States as well as the petitioners and manufacturers had
adjusted their rights and their positions on that basis,
this relief was denied. The Court did not, by denying the
relief, authorise or validate what had been declared to be
illegal or void nor did it imbue the legislature with
competence upto the date of the judgment.