M.N. Venkatachaliah, J.
1. By these writ petitions under article 226 of the Constitution of India, petitioners, who are traders and industrial manufacturers, challenge the validity of the Karnataka Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1979 ("principal Act").
The principal Act received the assent of the President on 17th May, 1979. It was published in the Gazette on 1st June, 1979. The legislation is a taxing measure referable to entry 52 of List II and envisages an impost of the nature of an entry tax, intended to raise finances substituting the old octroi till then being levied by the various local authorities and the municipal bodies in the State. There was earlier a large batch of writ petitions challenging the principal Act which ultimately went upto the Supreme Court. The legislative history; the nature and incidents of the impost and the constitutional validity of the charging section were considered by the Supreme Court in State of Karnataka v. Hansa Corporation . The
challenge to the constitutional validity of the charging section failed.
2. Thereafter a number of amendments to the principal Act were effected from time to time. Some of these amendments were again challenged in a large batch of writ petitions before this Court. The validity of these amendments were considered by this Court in Jyothi Home Industries v. State of Karnataka (printed at page 254 infra) (1984) 1 Kar LJ 394. In that batch one point was held against the State. Section 7(1)(a) and 7(15) of the amending Act (Act 13 of 1982) which brought to tax additional items of goods were held unenforceable for want of Presidential assent under the proviso to article 304(b). All other contentions were repelled.
Both petitioners, whose challenge to the validity of the Act had failed and the State which felt aggrieved by the finding that some provisions of the amending Act 13 of 1982 were unenforceable as imposing additional restrictions on the freedom under article 301 and were unenforceable for want of Presidential assent, canvassed appeals before the Supreme Court in Civil Appeals No. 11455 of 1983 and connected appeals. The appeals were disposed of by the Supreme Court on 28th November, 1984. All the findings of this Court repelling the challenge to the various provisions of the Act were left undistributed. In the meanwhile, the provisions which were held unenforceable by this Court for want of Presidential assent, were substituted by appropriate provisions of Act 38 of 1984 which had received Presidential assent. In the light of this development, even the infirmity earlier noticed in Jyothi's case (printed at page 254 infra) (1984) 1 Kar LJ 394 did not survive. The State's appeals were, accordingly, allowed. The judgment of the Supreme Court is available in Shah Hirachand Babulal & Co. v. State of Karnataka (Civil Appeals Nos. 11455-83, 11484-885, 11886-90 of 1983).
3. We may now turn to the facts of a few cases which, in so far as the contentions raised and urged in this batch, are representative of all the petitions.
In W.P. Nos. 11331 to 11350 of 1985, and W.P. No. 9673 of 1985, the petitioners are traders who, in the course of their trade, cause entry of the scheduled goods "iron and steel" into "local area".
In W.P. No. 767 of 1985 the petitioner, M/s. Associated Cements Limited, whose factories are situated at Wadi and Shahabad in the District Gulbarga, are engaged in the manufacture of cement, in the course of which they cause entry of several items of raw materials, industrial machinery and other scheduled goods into "local area".
Out of W.P. Nos. 11807 to 11820 of 1984, the first six petitioners (i.e., W.P. Nos. 19807 to 19812 of 1984) are dealers in beedies who, in the course of their business, cause entry of the scheduled goods "beedies", "beedi-leaves" and "tobacco" into "local areas".
Petitioners in W.P. Nos. 19813 to 19817 of 1984 are owners of textile mills who cause considerable quantities of cotton to enter into local area for use or consumption.
Petitioner in W.P. 19818 of 1984 owns a textile mill and causes entry, amongst others, of industrial machineries; industrial goods and products; industrial packaging materials; iron and steel; coke and coal, for use of consumption.
4. The impost is a tax on entry of goods into the "local area" for consumption, use or sale therein. The essential character of this impost, generally known at "octroi", is that there should be an entry of goods into a definite "local area" for the purpose of consumption, use or sale therein. The goods must not only enter the "local area" but must be for the purpose of consumption, use or sale therein. Octrois are essentially different from taxes levied on "import and export" of goods from municipal limits, the latter being "terminal taxes". Both the levies concern the movement of goods; but in the case of "octroi" the entry into a municipal limits or local areas becomes the taxable event if - and only if - the goods so enter for purposes of consumption, use or sale therein. This element of the impost is satisfied by grant of exemptions and refunds respecting goods which do not come to response in the "local area"; but enter it only in the course of their onward movement out of local area either immediately or after an interval. Exemptions and refunds are, therefore, the distinguishing features of the octroi system.
5. Section 2 is the interpretation clause. Clause (5) of section 2 defines "local area". Section 3 is the charging section. It authorises the levy of tax on the entry of schedules goods into a local area for consumption, use or sale therein, at such rates not exceeding 2 per cent ad valorem. The State Government is empowered to specify, by notification, the goods, the local areas and the rates of tax. It can specify different rates for different goods. It can also specify different rates for different local areas. It can issue such notifications "prospectively or retrospectively".
Section 4 imposes an obligation on every dealer to register himself under the Act. Chapter III, comprising of section 5 to 11, pertains to, and deals with, the filing of returns; the making of assessments and the payment, recovery and collection of taxes.
Section 12 deals with and enumerates the authorities under the Act. Sections 13, 14, 15, 16 and 17 deal with appeals and revisions, and rectifications. Chapter VI, comprising of sections 17A to 31, pertains to miscellaneous matters such as maintenance of accounts and issue of bills or cash-memoranda by dealers; power of enter, inspect, seize; the obligation of transporting and shipping, assessees to submit the prescribed returns.
Sections 21 to 24 deal with offences, penalties, etc. Sections 25, 26 and 27 deal with bar of jurisdiction of courts in certain cases.
6. We may now come to the provisions which are challenged in the present batch of petitions and the context in which they are challenged and also the occasion for the challenge.
One of the principal contentions common to many writ petitions was that the expansion of the concept of "local area" by including in its definition under section 2(5) "the area comprised within a distance of five kilometres from the limits of such local areas" created an artificial "local area" which was constitutionally impermissible. The contention was that while a tax under entry 52 of List II was imposable on the entry of goods into an area which is otherwise a "local area"; the law under the said entry 52, List II, could not itself purport to create "local areas" for purposes of the levy of the tax. This point was argued at considerable length. However, the legislature by amending Act 28 of 1985 deleted the words "and the area comprised within a distance of five kilometres from the limits of such local areas". It was also legislatively deemed that these words stood deleted from the inception. As a result, this contention does not survive.
In regard to the contentions that require to be considered the present challenge to the provisions can be classified into three parts :
In the first part falls the challenge to certain provisions introduced by the amending Act 12 of 1981. That amendment was brought about even before the Jyothi's case (printed at page 254 infra); (1984) 1 Kar LJ 394. Though a large batch of petitions had been filed even after the amending Act 12 of 1981 came into force challenging several provisions introduced by the said amending Act 12 of 1981, the points now urged, however, had not been taken though they were available to those petitioners. The two points which fall under this class are, first, that the State Legislature has no competence to levy entry tax on products of industries, the control of which by the Union is declared by law to be expedient in public interest pursuant to entry 52 of List I.
The second point, which arises as an incident of the amending to section 3(1) by the said Act 12 of 1981, is that the legislature, in delegating to the State Government, the power to issue a notification under section 3(1) "either prospectively or retrospectively" exceeded the permissible limits of delegation and parted with power to lay down the law as a binding rule of conduct which was its own primary and non-delegable function.
The second part of the present challenge, comprising of several contentions, pertains to the effect of the provisions introduced by the amending Act 38 of 1984. We will broadly refer to the nature of the contentions coming under this part. We will refer to the specific contentions and the arguments which we deal with their merits.
By Act 38 of 1984, the schedule to the Act was amended. By section 6 of the amending Act, for the original item (1) in the schedule which read :
"All varieties of textiles, namely, cotton, woollen or artificial silk including rayon or nylon whether manufactured in mills, powerlooms or handlooms and hosiery cloth in lengths but excluding khadi, cotton handloom fabrics, silk fabrics and artificial silk handloom fabrics"
the following items was substituted :
"(1) All varieties of textiles, namely, cotton, woollen, or artificial silk including rayon or nylon and other man-made or synthetic fabrics, manufactured in mills or powerlooms, and hosiery cloth in lengths."
For item (2) which, as it then stood was "tobacco and all its products", the words "all tobacco products like beedies, cigarettes, cigars, churuts, snuff, zarda, quimam, etc.", were substituted.
By section 3(3) of the amending Act 38 of 1984, items "3, 4 to 16" which were held in the Jyothi's case (printed at page 254 infra); (1984) 1 Kar LJ 394 as unenforceable for want of Presidential assent were reintroduced, this time with Presidential assent.
Section 6(4) of the amending Act 38 of 1984 provided :
"Items 5, 6, 8, 12, 13, 14, 15 and 16 shall be omitted."
The effect of this "omission", according to the State Government, is that these 8 items would stand deleted with effect from 1st April, 1983, on which date the amending Act 38 of 1984 came into force, though, however, for the period prior to 1st April, 1983, this would continue to be liable to tax. But the petitioners, relying upon what, according to them, is the judicially ascertained import, in statutory language, of "omitted", contend that these 8 items cease to be in the schedule from the inception and would not be amenable to tax not only subsequent to 1st April, 1983, but also in respect of the period even prior to 1st April, 1983. Such, according to the petitioners, is the effect of "omission".
Similar are the rival contentions respecting the "omission" by Karnataka Act 15 of 1984, of items 4 and 10 from the schedule.
The State, in addition to contending that "omission" in this context does not carry with it the consequences attributed to it by the petitioners, has also brought out, said to be by way of abundant caution, an amendment to the Karnataka General Clauses Act, 1899, by introducing clause (32)(a) in section 3 with retrospective effect from 1st November, 1956, to say that "repeal" shall include "deletion" and "omission".
Amending Act 38 of 1984 introduced two new items in the schedule. They are items 17 and 18, bringing, under item 17, "all industrial packaging materials" and under item 18 "all raw materials, component parts and any other inputs (e.g., processing or any other chemical solvents used in the solvent extraction or process, catalysts of and the like), which go into or may be used in the manufacture of an intermediate or finished product, when brought into local areas by an industrial unit or any other dealer", to tax. Some contentions are raised with respect to the permissibility of such omnibus - not merely generic - description of goods in the schedule. However, there is one development in regard to this contention. Amending Act 32 of 1986, by which items 16-A and 16-B were substituted in place of the said items 17 and 18, has been passed by both Houses of Legislature and has received the assent of the President on 20th January, 1986. The amended provisions are substantially beneficial to the dealers and also take away the grievances urged against entries 17 and 18. The contentions of the petitioners in this behalf do not, therefore, survive.
The third area of the challenge pertains to the notifications issued by the State Government under section 3(1) of the "principal Act" as amended by Act 12 of 1981. Prior to the amending Act 38 of 1984, several notifications had been issued, from time to time. As on the date of coming into force of amending Act 38 of 1984, the notification then in operation was FD 118 CET 83 dated 31st March, 1983.
The Presidential assent to Karnataka Act 38 of 1984 was received on 28th September, 1984. Thereafter on 13th November, 1984, the State Government issued three notifications under section 3(1) of the Act. They were issued on the same day and had retroactive operation for different anterior periods. The first notification is No. I, FD 76 CET 84 dated 13th November, 1984, which says that :
"...... in supersession of Notification No. FD 118 CET 83 dated 31st March, 1983, the Government of Karnataka hereby specifies that, with effect from the First day of April, 1982, the tax shall be levied and collected under the said Act at the rates specified in column (3) of the Table below on the entry of the scheduled goods specified in the corresponding entries in column (2) thereof into every local area."
The operative part of Notification-II, No. FD 76 CET 84 dated 13th November, 1984, reads :
"... in supersession of Notification-I, No. FD 76 CET 84 dated 13th November, 1984, the Government of Karnataka hereby specifies that, with effect from the First day of April, 1983, the tax shall be levied and collected under the said Act at the rates specified in column (3) of the Table below on the entry of the scheduled goods specified in the corresponding entries in column (2) thereof into every local area."
The operative part of Notification-III, No. FD 76 CET 84 dated 13th November, 1984, reads :
"... in supersession of Notification-II, No. FD 76 CET 84 dated 13th November, 1984, the Government of Karnataka hereby specifies that, with effect from the 24th day of October, 1984, the tax shall be levied and collected under the said Act at the rates specified in column (3) of the Table below on the entry of the scheduled goods specified in the corresponding entries in column (2) thereof into every local area."
7. What, according to the Government, was intended to be achieved by the three notifications was that the Notification No. I should be operative from 1st April, 1982 to 31st March, 1983, and should bring to tax the 16 items of schedules goods which were set out in the schedule to that notification.
The Notification-II was to operate from 1st April, 1983 to 23rd October, 1984. It brought to tax 10 items, from amongst the schedules goods, and that the second notification would cease to be operative from 23rd October, 1984.
Notification-III, also dated 13th November, 1984, would be operative from 24th October, 1984, onwards. Notification dated 31st March, 1983, and Notifications Nos. I and II were "superseded" by the immediately succeeding ones. What, according to the State Government, was intended to be achieved was that the three notifications issued on 13th November, 1984 should operate successively and independently for the three different periods mentioned in them.
Petitioners, however, contend that having regard to the accepted meaning and effect of the expression "supersession", the three notifications viz., the one dated 31st March, 1983, the Notifications Nos. I and II (both dated 13th November, 1984) ceased to have effect and that the only notification that was in operation was the Notification No. III from 24th October, 1984 onwards. In consequence, it was urged, for the period prior to 24th October, 1984, there were no legally valid and subsisting notifications at all giving effect to the charge under the Act and that, after 24th October, 1984, none of the "goods" in the three notifications could be brought to tax even for the period prior to 24th October, 1984.
8. We have heard Sri K. Srinivasan, learned counsel appearing for petitioners in W.P. No. 19807 of 1984 and connected petitions; Sri G. S. Ullal in W.P. No. 767 of 1985; Sri Indrakumar in W.P. Nos. 11331 to 11350 of 1985 and Sri B. P. Gandhi in W.P. No. 9673 of 1985 and other connected petitions and Sri M. R. Achar, learned Government Advocate, for the respondents. The other learned counsel appearing for other petitioners in this batch did not make any independent submissions.
9. On the submissions made at hearing, the following contentions require consideration :
Contention (a) : Under entry 52, List II, the State Legislature has no legislative competence to impose a tax on raw material, industrial machinery; or products of industries the control of which by the Union is declared by law under entry 52, List I, to be expedient in public interest.
In view of the Industries (Development and Regulation) Act, 1951, and statutory orders made thereunder, the State has no competence to tax on such raw material or products of such controlled industries.
Contention (b) : Section 3(1) of the Act delegates to the Government a wide and uncanalised power and is bad for excessive delegation.
At all events, the delegation of power to issue notifications retrospectively is abdication of essential legislative functions.
Contention (c) : Each of the three notifications, the one dated 31st March, 1983, and Notifications Nos. I and II having been "superseded" by the successive notifications, the charge under section 3(1) cannot be given effect to for any period prior to 24th October, 1984.
Contention (d) : Items 5, 6, 8, 12, 13, 14, 15 and 16, and items 4 and 10 having been omitted from the schedule by Act 38 of 1984 and Ordinance 15 of 1984, respectively, no tax can be levied on these items even in respect of the period prior to the dates of such omission.
"Omission" does not amount to "repeal" and the previous operation of the statute respecting items so omitted, is not saved.
Contention (e) : The retrospective amendment to the Karnataka General Clauses Act, 1899, effective from 1st November, 1956, by which "repeal" is held to include "omission" and "deletion" is itself void for want of Presidential assent.
Contention (f) : At all events, the notifications dated 31st March, 1983, and the three Notifications I, II and III dated 13th November, 1984, even if otherwise valid, are violative of article 14 inasmuch as they seek to impose uniform rates of taxes in respect of all local areas irrespective of the innate differences in the conditions in the different areas.
Contention (g) : Notification No. FD 83 CET 84 dated 27th November, 1984, excluding "iron and steel" from "raw materials" and the Notification No. FD 83 CET 84 dated 19th June, 1985, deleting certain other items from the definition of "raw materials" in item 18 must be held to be retrospective in operation from 1st April, 1983.
Contention (h) : The amending Act 38 of 1984 not having been introduced with the prior sanction of the President is invalid.
At all events, the "Act" can be valid only from the date of the Presidential assent.
Contention (i) : Amending Act 38 of 1984 having received Presidential assent on 28th September, 1984, its operative from 1st April, 1983, involves the imposition of a fresh tax on certain new items retrospectively. This is violative of article 19(1)(g).
10. Re. Contention (a) : The argument is that though the impugned legislation is referable to entry 52, List II, the limitations on the State power implicit in the plenitude of the power of the Centre under article 246(1) are such that the State cannot tax the raw materials or products of a controlled industry, covered by Central legislation made pursuant to entry 52 of List I such as the Industries (Development and Regulation) Act, 1951 (I.D.R. Act). It is urged that the extent of the legislative field of "industries" occupied by Parliament, by law made under entry 52, List I, constitutes a corresponding limitation on the legislative power of the States with respect to all matters which impinge on the topic of such controlled industries.
It is urged that the I.D.R. Act has declared a number of industries, the control of which by the Union is considered expedient in public interest. Sri Ullal urged that the State Legislature cannot make any law imposing any restrictions on the effectiveness of the control by the Union and that any imposition of tax on the raw material, industrial machinery and other industrial inputs and the products of such controlled industries would, to the extent it affects the scheme and fulness of the control by the Union, be impermissible. It is urged that law made in entry 52, List I, imposes a corresponding limitation on the legislative power of the State. Having regard to the expression "notwithstanding" with which article 246(1) opens the State power over the fields in List II, it is urged, is subjected to the Union power in List I.
Sri Ullal contended that the development and growth of industries is so vital that any law made by the Parliament under entry 52, List I, for the development of industries should not be whittled down or impaired by any legislation of the State. Referring to "control" in entry 52 of List I, Sri Ullal said that the expression connotes perfect control and the superior position of the Controller. Sri Ullal submitted that, in respect of the cement industry, one of the industries included in its schedule, the I.D.R. Act in its Chapter III-B and the Cement Control Order promulgated thereunder make elaborate provisions for control and development, including the fixation of price. If the raw material, industrial machinery and other industrial-inputs of controlled industries are taxed indiscriminately by the States that would impair the power to fix prices; and the control by the Union is undone. If the value of the raw material becomes a relevant statutory criterion under the law made by the Centre respecting controlled industries, the State's power to tax those material is taken away. Sri Ullal relied on the pronouncement of the Supreme Court in I.T.C. Ltd. v. State of Karnataka (C.A. Nos. 605-2526, etc of 1983) and certain observations of Sulaiman, J., in Subrahmanyan Chettiar v. Muttuswami Goundan AIR 1941 FC 47 which were referred to with approval by the Supreme Court in the former case.
11. Sri Srinivasan, however chose to tread a narrower path. His contentions are twofold and are somewhat on these lines :
First, the expression "industry" in entry 52, List I, includes not only the "process of manufacture" but also "trade and commerce in the products of a controlled industry"; that entry 97 is also a taxing entry and that entry 52, List I, read with entry 97 enables a tax on "trade and commerce in the products of controlled industry". The sweep of entries 52 and 97 of List I, so understood, would identify and carve out a corresponding overlapping field of taxation from entry 52, List II, over which the State power is denuded. The State's taxing power under entry 52, List II, in so far as the products of controlled industries are concerned, is taken away.
Secondly, a tax on entry of goods directly affects the impedes trade and commerce in those goods. "Trade and commerce in products of controlled industries" is within entry 52, List I. An entry tax on products of controlled industry to the extent it affects and impedes such "trade and commerce" is in pith and substance a legislation on such "trade and commerce" in the products of controlled industry. Consistent with the law made under entry 52, List I, this area must be expected from entry 52, List II.
12. Sri M. R. Achar contended that no limitation on the State's taxing power can stem from, or be implicit in, any law made under entry 52 of List I which is an altogether different entry; that the taxing power is an independent power and that by no stretch of the scheme of distribution of legislative powers can any invasion of the Central Subject of industries, occur by State legislation under entry 52, List II.
Adverting to the arguments of Sri Ullal, and to the second argument of Sri Srinivasan, Sri Achar urged that the fallacy of the arguments lie in that they equate the "effect" of the State legislation on industries with its "pith and substance". The impugned tax, says Sri Achar, may have an "effect" on industries but that is not the same thing as the legislation on the subject of industries. He relied upon several pronouncements of the Supreme Court to support this stand.
In regard to the first contention of Sri Srinivasan, Sri Achar urged that the assumption basic to this argument is that the topic of "trade and commerce in products of controlled industry" is within entry 52, List I, and that that becomes taxing entry under entry 52 read with entry 97, List I. This assumption, contends Sri Achar, is entirely erroneous.
13. Sri Ullal referred to the observations of Sulaiman, J., made with reference to section 100 of the Government of India Act, 1935, in Subrahmanyan Chettiar's case AIR 1941 FC 47 which was referred to in I.T.C.'s case (C.A. Nos. 605 - 2526, etc of 1983 - Supreme Court).
"... On a very strict interpretation of section 100, it would necessarily follow that from all matters in List II which are exclusively assigned to Provincial Legislatures, all portions which fall in List I or List III must be excluded .............
In its fullest scope, section 100 would then mean that if it happens that there is any subject in List II which also falls in List I or List III, it must be taken as cut out from List II ......... If a subject falls exclusively in List II and no other list, then the power of the Provisional Legislature is supreme. But if it does also fall within List I, then it must be deemed as it is not included in List II at all. Similarly, if it also falls in List III, it must be deemed to have been excluded from List II .............."
In the I.T.C.'s case (C.A. Nos. 605-2526, etc. of 1983 - Supreme Court) the effect of a legislation made under entry 52, List I, viz., the Tobacco Board Act, 1975, on the State power to legislate on the topic of "markets and fairs" in entry 28 and entry 66, List II, was considered. Petitioners' contention is that if having regard to the sweep of the legislation under entry 52, List I, the State power under entries 28 and 66 of List II is denuded, then, by the same token, the Central law under entry 52, List I, can take out corresponding areas under entry 52, List II. The following observations of Fazal Ali, J., in the I.T.C.'s case (C.A. Nos. 605-2526, etc. of 1983 - Supreme Court) were referred to :
"...... Where a particular industry falls clearly within the four corners of entry No. 52 then the State has no jurisdiction to legislate on that particular field if that filed is occupied and the doctrine of occupied field would apply. Difficulty arises in borderline cases cases where an industry has been declared by the Centre under entry 52 of List I and this entry overlaps, to a great extent, the corresponding entry in List II ........."
"..... The matter in dispute falls within the four corners of entry 52 of List I and entries 28 and 66 of List II. It is not disputed as discussed above that by virtue of the 1975 Act the Central legislation had taken within its ambit the entire tobacco industry ........"
"....... When the Parliament took over the tobacco industry without any preconditions or permutations and combinations and established a Tobacco Board for regulating the sale and purchase of tobacco under entry 52 of List I the entire field of tobacco industry was fully occupied and nothing remained for the States to do, .........."
"Thus, indeed if I accept the argument of the Karnataka Government, which seems to have found favour with brother Mukharji, J., I would really be robbing the 1975 Act of its entire content and essential import by handing over the power of legislation to the State Government which has been taken over by Parliament under article 246 by the 1975 Act."
The above passages were cited to support by anology the contention that when there is a legislation under entry 52, List I, the taxing power under entry 52, List II, is excepted.
Sri Srinivasan referred to us certain observations of the Supreme Court in Ishwari Khetan Sugar Mills (P.) Ltd. v. State of U.P. in support of his proposition that entry 52, List I, includes "trade and commerce in the products of controlled industries".
14. "Industries" as a topic of legislation occurs in the three Lists. The "raw materials" of industries are within entry 27 of List II. What falls within the sweep of entry 52 of List I is the "process of manufacture" where the industry is a controlled industry. The same topic otherwise falls within and is encompassed by entry 24 of List II where the industry is not a controlled industry. The topic of trade and commerce in products of controlled industries is assigned to entry 33 of List III; that would, otherwise, fall in entry 26 of List II, if the industry is not a controlled industry.
In Tika Ramji v. State of U.P. this interpretation of the entries in the three Lists is established. In para 24 of the pronouncement Bhagwati, J., said :
"24. Industry in the wide sense of the term would be capable of comprising three different aspects; (1) raw materials which are an integral part of the industrial process, (2) the process of manufacture or production, and (3) the distribution of the products of the industry. The raw materials would be goods which would be comprised in entry 27 of List I. The process of manufacture or production would be comprised in entry 24 of List II except where the industry was a controlled industry when it would fall within entry 52 of List I and the products of the industry would also be comprised in entry 27 of List II except where they were the products of the controlled industries when they would fall within entry 33 of List III."
15. The point of consideration is, whether levy of a tax under entry 52, List II, on products of a controlled industry is beyond the competence of the State Legislature. A cognate question is whether, as contended by Sri Srinivasan, a tax under entry 52 of List II in so far as products of a controlled industry are concerned is, in its true nature and effect, a tax on trade and commerce in the products of a controlled industry, and whether such a tax on trade and commerce in such products is comprised in entry 52, List I, read with entry 97 of that List and therefore that topic is excepted from entry 52 of List II. This it is urged, is the effect of the words "notwithstanding anything in clauses (2) and (3)" with which article 246(1) opens.
16. The expression "notwithstanding anything in clauses (2) and (3)" in article 246(1) is the result of the recognition that, however, carefully and precisely, lists of legislative subjects are defined, it would practically be impossible to ensure that they never overlap and that an absurd situation would ensure if two inconsistent laws, one by the Centre and the other by the State, with equal validity operate side by side within the same territory.
17. Article 246(1) gives exclusive power of the Union Parliament with respect to subjects in List I. This is "notwithstanding" anything in the next two clauses of article 246. The power of the State Legislature to enact laws with respect of topics in List Ii is expressly made subject to the power of the Parliament under clause (1). The point to emphasis, however, is that entries in the legislative lists do not deal with legislative competence. They merely indicate, broad fields of legislation, and are required to be construed very liberally. The legislative power takes within it the power to cover all incidental and ancillary matters. The question whether a particular topic or subject of legislation, in its pith and substance or true nature, falls within an entry in a particular list is essentially a matter of construction.
18. The position is summed up by the Supreme Court in Kerala State Electricity Board v. Indian Aluminium Co. Ltd. :
"5. ....... Now what is the meaning of the words 'notwithstanding' in clause (1) and 'subject to' in clause (3) ? They mean that where an entry is in general terms in List II and part of that entry is in specific terms in List I, the entry in List I takes effect notwithstanding the entry in List II. This is also on the principle that the 'special' excludes the 'general' and the general entry in List II is subject to the special entry in List I .............. Furthermore, the word 'notwithstanding' in clause (1) also means that if it is not possible to reconcile the two entries the entry in List I will prevail. But before that happens attempt should be made to decide in which List a particular legislation falls. For deciding under which entry a particular legislation falls the theory of 'pith and substance' has been evolved by the courts. If in pith and substance legislation falls within one List or the other but some portion of the subject-matter of that legislation incidentally trenches upon and might come to fall under another List, the Act as a whole would be valid notwithstanding such incidental trenching ..."
In Attorney-General for Canada v. Attorney-General for British Columbia  AC 111, the principle is stated thus :
"4. There can be a domain in which Provincial and Dominion legislation may overlap, in which case neither legislation will be ultra vires if the field is clear, but if the field is not clear and the two legislations meet, the Dominion legislation must prevail : See Grand Trunk Ry. of Canada v. Attorney-General of Canada  AC 65."
For the non-obstante clause in article 246(1) to operate there must be a position where entries in the Union and the State Lists become mutually irreconcilable. Before reaching such a position every attempt should be made to reconcile the two entries containing apparently overlapping areas and to decide in which List a particular legislation, having regard to its pith and substance, falls. If a law in pith and substance, and in its true nature falls within one List and incidentally, trenches upon or might fall under another List, the Act as a whole would be valid notwithstanding the incidental encroachment or the incidental trenching. These principles are now settled.
In resolving any apparent conflict between entries in the Central and State Lists one of the rules of the construction suggested in Governor-General in Council v. Province of Madras  1 STC 135 at 140 (PC); AIR 1945 PC 98 at 100 is :
"... The third reason thus stated rests on the opening words of section 100(1), Constitution Act, 'notwithstanding anything in the two next succeeding sub-sections' and the opening words of section 100(3) 'subject to the two preceding sub-sections'. Their Lordships do not doubt that the effect of these words is that, if the legislative powers of the Federal and Provincial Legislatures, which are enumerated in List I and List II of Schedule 7, cannot fairly be reconciled, the latter must give way to the former. But it appears to them that it is right first to consider whether a fair reconciliation cannot be effected by giving to the language of the Federal Legislative List a meaning which, if less wide than it might in another context bear, is yet one that can properly be given to it, and equally giving to the language of the Provincial Legislative List a meaning which it can properly bear ............"
What emerges, therefore, is that the supremacy of the Federal power contemplated by article 246(1) is attracted only where there are irreconcilably overlapping fields of legislation between subjects in the Central and State Lists. If the field under entry 52, List I, is occupied, it excludes the State power respecting subjects in List II to the extent it is shown that between entry 52, List I, and entries in the State List, there are irreconcilably conflicting and overlapping areas. In such a case alone the overlapping areas in the State subject are excepted from the State power.
19. We may now turn to Sri Srinivasan's first proposition. The assumption basic to the validity and acceptability of this argument is that the topic of "trade and commerce in products of controlled industries" is within entry 52 of List I. For this he relies on a passage at para 36 in Ganga Sugar Corporation Ltd. v. State of U.P. where an excerpt from Tika Ramji's case
is relied on. On this premise learned counsel claims that a tax on trade and commerce in products of controlled industry would be within the residuary entry 97, List I. The topic "trade and commerce in the products of controlled industries" is expressly assigned to entry 33(a) of List III which reads :
"33. Trade and commerce in, and the production, supply and distribution of, -
(a) the products of any industry where the control of such industry by the Union is declared by Parliament by law to be expedient in the public interest, and imported goods of the same kind as such products;
Sri Srinivasan seeks to make a distinction and says that, notwithstanding entry 33(a) of List III, taxes on "trade and commerce in products of controlled industry" would still be within entry 97, List I. He sought to rely on certain observations in Union of India v. H. S. Dhillon .
20. We are unable to accede to the contention that "trade and commerce in products of a controlled industry" as a taxing entry is within entry 52, List I read with the residuary entry. A Central legislation may, however, be a composite legislation and draw upon more entries than one from both List I and List III. It can be a legislation referable to entry 52, List I, and entry 33, List III.
Even if it is possible to conceive such a taxing power to the Centre on the subject of "trade and commerce in products of controlled industries" the question still remains whether the entry tax law of the State is a legislation on that topic. There are no overlapping areas between such a subject and entry 52 in List II. The first argument of Sri Srinivasan has no substance.
21. The second argument of Sri Srinivasan is that entry tax is, per se, a restriction on and impedes freedom of trade and commerce and that in so far as it so affects and impedes trade and commerce in the products of controlled industries, it is really a law on the subject of trade and commerce in the products of controlled industries. This argument and the one advanced by Sri Ullal have common areas.
The fallacy of this argument is that it equates the effect the impugned tax has on trade and commerce with a law which is in pith and substance a law on the subject of trade and commerce. A law which has an effect, even a serious effect, on a subject is not necessarily a legislation on that subject. Effect is not the same thing as subject-matter.
In Kannan Devan Hills Produce Company Ltd. v. State of Kerala the Supreme Court ruling that a State law for
acquisition of the property of a controlled industry was not prohibited under entry 52 of List I, observed :
"29. It seems to us clear that the State has legislative competence to legislate on entry 18, List II, and entry 42, List III. This power cannot be denied on the ground that it has some effect on an industry controlled under entry 52, List I. Effect is not the same thing as subject matter ......"
In Ganga Sugar Corporation's case the Supreme Court considering whether a law imposing purchase tax on sugarcane invades entry 52, List I, said :
"28. ..... If the impugned legislation invades entry 52 it must be repulsed by this Court. But entry 54 in List II of the Seventh Schedule empowers the State to legislate for taxes on purchase of goods and so if the Act under consideration is attracted, in pith and substance, by this entry legislative incompetence cannot void the Act. The primary question, which we have to pose to ourselves, is as to whether this State Purchase Tax Act is bad because it is a legislation with respect to a controlled industry, to wit, the sugar industry. What matters is not the name of the Act but its real nature, its pith and substance ..."
In Hoechst Pharmaceuticals Ltd. v. State of Bihar the question was noticed thus :
"36. ... The submission is that if Parliament chooses to occupy the field and there is price fixation of an essential commodity with liberty to pass on the burden of tax to the consumer by a law made by Parliament under entry 33 of List III of the Seventh Schedule, then it is not competent for the State Legislature to enact a provision like sub-section (3) of section 5 of the Act while enacting a law under entry 54 of List II prohibiting the passing on of liability of tax to the purchaser."
It was held that the State power under entry 54, List II, was not so overborne by the Union power. It was observed :
"41. The words 'notwithstanding anything contained in clauses (2) and (3)' in article 246(1) and the words 'subject to clauses (1) and (2)' in article 246(3) lay down the principle of Federal supremacy, viz., that in case of inevitable conflict between Union and State powers, the Union power as enumerated in List I shall prevail over the State power as enumerated on Lists II and III, and in case of overlapping between Lists II and III, the former shall prevail. But the principle of Federal supremacy laid down in article 246 of the Constitution cannot be resorted to unless there is an 'irreconcilable' conflict between the entries in the Union and State Lists ..... The non-obstante clause in article 246(1) must operate only if such reconciliation should prove impossible ......"
A tax imposed under a law made under entry 52 of List II, notwithstanding its effect on industries, is not law on the subject comprised in entry 52 of List I. The former is a taxing entry and the approach to, and accepted interpretation of, taxing entries keeps this entry apart. "The power to impose taxes" it is stated [See Cooley "Constitutional Limitations", page 479] "is one so unlimited in force and so searching in extent, that the courts scarcely venture to declare that it is subject to any restrictions whatever except such as rest in the discretion of the authority which exercises it" and that "It reaches to every trade or occupation; to every object of industry, use, or enjoyment; to every species of possession"... "The power to tax" it is said "rests upon necessity, and is inherent in every sovereign". Cooley "On Taxation" states that the power to tax belongs "as a matter of right to every independent government" and "that Constitutional provisions relating to the power of taxation do not operate as grants of the power of taxation to the government but instead merely constitute limitations upon a power which would otherwise be practically without limit".
In the legislative Lists in the Seventh Schedule, taxation is treated as a distinct matter for purposes of legislative competence and is not intended to be comprised in the main subject in which it might, on an extended construction be regarded as included (see M. P. V. Sundararamier & Co. v. State of Andhra Pradesh . In R.M.D.C. (Mysore) Private Ltd. v. State of Mysore the Supreme Court held that a resolution of the State Legislature under article 252 enabling the Parliament to enact a law on "betting and gambling" under entry 34, List II, did not denude or take away the State power to impose a tax on "betting and gambling" under entry 62, List II, as the latter was a separate head of legislation.
22. Sri Srinivasan however relied on Anraj v. State of Maharashtra as supporting the proposition that a legislation by the Centre on the topic of "lotteries organised by Government of India or the Government of a State" under entry 40, List I, would exclude the State power to tax "betting and gambling" under entry 62 of List II. We cannot understand that pronouncement in that manner. Their Lordships were considering the overlapping areas as between entry 40 of List I and entry 34 of List II and held that "lotteries organised by Government of India or the Government of a State" must be taken out from the legislative field comprised in "betting and gambling" in entry 34 of List II. The distinct power of taxation under entry 62, List II, did not really arise for consideration in that case; nor was it considered.
23. There are, in our opinion, no identifiable and irreconcilably overlapping areas in the legislative fields comprised in entry 52 of List I or, for that matter, any conceivable area comprised in the said entry 52 read with entry 97 of that List on the one hand and the taxation-field in entry 52 of List II on the other, so as to except any such overlapping area from the State power.
24. Contention (a) is accordingly held and answered against the petitioners.
25. Re : Contention (b) : Section 3(1) of the Act provides :
"There shall be levied and collected a tax on entry of the schedule goods into a local area for consumption, use or sale therein at such rate not exceeding two per cent ad valorem and from such date as may be specified, whether prospectively or retrospectively, by the State Government and different dates and different rates may be specified for different local areas."
(2) omitted as unnecessary.
The State Government is empowered to give effect to the change under section 3(1) from such day as it may by notification specify "whether prospectively or retrospectively". It can also specify different local areas and different rates for them, so however, that it does not exceed 2 per cent ad valorem. It can also fix different dates and different rates for different local areas.
The contention is that this is not a case of conditional legislation but clearly one of excessive delegation. Very wide and uncanalised power, including matters which belong to essential legislative policy, such as retrospectively, are delegated to the State Government. Alternatively, it is contended that, at all events, the power to specify a date and rate with retrospective effect is a frank and irredeemable case of excessive delegation.
In support of this contention learned counsel cited a large number of cases on the constitutional limitation on delegation of legislative powers :
Vasanlal Maganbhai Sanjanwala v. State of Bombay (Now Maharashtra) , Devi Dass Gopal Krishnan v. State of Punjab
, Gwalior Rayon, Mills Manufacturing (Weaving)
Company Limited v. Assistant Commissioner of Sales Tax , Avinder Singh v. State of Punjab
and Lohia Machines Limited v. Union of India
26. The argument is in two parts. The first part pertains to the constitutionality of section 3(1) as it stood prior to the amendment be amending Act 12 of 1981. Prior to that the section was similar in all respects except that there was no power to issue a notification retrospectively. The only change brought about by Act 12 of 1981 was the introduction of the power to issue a notification retrospectively. The first aspect of the argument pertains to the position of section 3(1) as it stood prior to the amendment. The second aspect is the additional ground of attack after the introduction of the power to issue notification with retrospective effect.
So far as the first aspect is concerned, we are afraid, the matter is wholly concluded by an earlier pronouncement of this Court on the very point. In Hansa Corporation v. State of Karnataka ILR (1980) 1 Kar 165 this contention has been specifically considered and repelled. The contentions 11, 12 and 14 formulated therein were :
"(11) Section 3 of the Act which does not itself fix the rate of entry tax but delegates to the State Government the power to fix such rate of tax, is void as it suffers from the vice of delegation of essential legislative powers;
(12) Section 3 of the Act which empowers the State Government to fix different rates of tax for different local areas is void as it delegates unguided and uncontrolled power;
(14) If section 3 is held to empower the State Government to apply the provisions of the Act to certain local areas only and not to other areas, then the section is void as it delegates unguided and uncontrolled power.
Contention No. (11) is dealt with and answered in paragraph 60, 61 and 62; contention No. (12) is in paragraphs 63 and 64; and contention No. (14) in paragraphs 71, 72, 73 and 74 of that decision. It is unnecessary here to set out that decision of the Division Bench on the points. Suffice it to say the contentions were repelled. The Division Bench having struck down section 3(1) on another point, the State appealed to the Supreme Court. That appeal was allowed. The decision of the Division Bench on these points is binding. At all events, we have no hesitation to adopt the reasoning that commended itself to the Division Bench on the point. The challenge, so far as the position of section 3(1) prior to its amendment by Act 12 of 1981 is concerned, must fail. For the same reasons on which the question of excessiveness of delegation fails, the challenge to section 3(1) on the ground of arbitrariness must also fail. Indeed, similar contentions were, in a way, raised before this Court in Hansa Corporation's case ILR (1980) 1 Kar 165 and were held against the petitioners therein. We therefore, find no substance in these two contentions.
27. What, however, survives for consideration is whether after the amendment by Act 12 of 1981 with the introduction of power to issue notification retrospectively the section suffers from such vice of excessive delegation.
The basis of the doctrine of essential legislative functions not being amenable to be delegated to another authority is the doctrine of separation of powers itself. The rule against such delegation is a corollary to the doctrine of separation of powers. However, the pristine doctrine of separation of powers is not practicable in view of the increasing complexities of the business of the State. What emerges from a conspectus of the authorities cited is that while a legislature cannot abdicate its essential legislative functions, however, in the matter of the non-essentials and in effectuating and working-out the deals of the law within the framework of the legislative policy laid down by the legislature, a wide range of delegation of powers is not only permissible but is, indeed, considered inevitable.
The complexities and problems of modern Government render a sharing of the legislative functions with and seeking of assistance from other branches both necessary and inevitable. Referring to the consequent enfeeblement of the doctrine of "Non-delegation", Corwin [The Constitution and what it means today (1978 Edn.), page 7] says :
"........ this doctrine, too, considered as a judicially enforceable constitutional limitation, has suffered enfeeblement, especially within recent years. This results, in the first place, from the vast expansion of the national legislative power over private enterprise and industrial relations, through the independent regulatory agencies ........"
* * * *
"....... In the second place, war has eroded the doctrine. Legislation conferring upon the President and his subordinates power to deal with a fluid war situation must necessarily be couched in fluid terms ......."
* * * *
"Although the Supreme Court has insisted that Congress must set an 'intelligible standard' in delegating power, it has not been loathe to accept such general terms as 'public interest' and 'public convenience', 'interest' or 'necessity' as meeting constitutional requirements."
In determining what extent the legislature may go to, in seeking assistance from executive agencies, the extent and character of that assistance must be fixed "according to common sense and the inherent necessities of Governmental Co-ordination" (see Hampton Jr. & Co. U.S. 276 U.S. 394). The process of and the trend towards the enfeeblement of the doctrine is particularly noticeable in Federal Energy Administration v. Algonquin (1976) 426 US 548; United States v. Mazurie (1975) 419 US 544.
In Avinder Singh's case the Supreme Court, referring to the compulsions that render delegation of legislative powers inevitable, said :
"...... the complexities of modern administration are so bafflingly intricate and bristle with details, urgencies, difficulties and need for flexibility that our massive legislatures may not get off to a start if they must directly and comprehensively handle legislative business in all their plenitude, proliferation and particularisation. Delegation of some part of legislative power becomes a compulsive necessity for viability. If the 500-odd parliamentarians are to focus on every minuscule of legislative detail leaving nothing to subordinate agencies the annual output may be both unsatisfactory and negligible. The law-making is not a turnkey project, ready-made in all detail and once this situation is grasped the dynamics of delegation easily follows .........."
In the Delhi Laws Act case  SCR 747 it was held that the doctrine of Constitutional Trust was applicable to our Constitution since it lay at the foundation of representative democracy and that, accordingly, the Legislature could not be permitted to abdicate its primary duty, namely, to determine "what the law shall be". This means that the legislature cannot self-efface its personality and make over, in terms plenary, its essential legislative functions.
The three principles that govern delegation are : first, that doctrine of "Constitutional Trust" renders it imperative that the essential legislative functions shall be discharged by the legislature alone. This it cannot delegate or disown. Second, is the rule, which flows as corollary to the first, that while the essentials of legislation or policy cannot be delegated, the non-essentials, however numerous and significant they be, may be made over to appropriate agencies, such agency being always subject to the authority and control over the principal and the exercise of such delegated power can be corrected by the principal. The second rule is not inconsistent with, but is only a corollary of, the first. The difference is between the making of the law in the sense of promulgating a binding rule of conduct and making provisions for executing it. Thirdly, that even if there be a delegation, parliamentary control over delegated legislation should be a "living continuity as a constitutional necessity", by appropriate parliamentary watch-dogging and "laying" procedures.
In Devi Dass Gopal Krishnan's case the point before the Supreme Court was whether, when the statute fixed the maximum rate and did not give guidance for fixing any rate within that maximum, there was excessive delegation. The Supreme Court upheld its validity. It was observed :
"...... Here we are concerned with sales tax. If the Act had said '2 pice in a rupee' it would be manifest that it was a clear guidance. But as the Act applies to sales or purchases of different commodities it had become necessary to give some discretion to the Government in fixing the rate. Conferment of reasonable area of discretion by a fiscal statute has been approved by this Court in more than one decision : see Khandige Sham Bhat v. Agricultural Income-tax Officer, Kasaragod .
referring to the compelling inevitability of leaving the details of the law to the executive-agencies, said :
"...... It is true that the power to fix a rate of tax is a legislative power but if the legislature lays down the legislative policy and provides the necessary guidelines, that power can be delegated to the executive ............... However much one might deplore the 'New Despotism' of the executive, the very complexity of the modern society and the demand it makes on its Government have set in motion forces which have made it absolutely necessary for the legislatures to entrust more and more powers to the executive. Text book doctrines evolved in the 19th century have become out of date. Present position as regards delegation of legislative power may not be ideal, but in the absence of any better alternative, there is no escape from it. The legislatures have neither the time, nor the required detailed information nor even the mobility to deal in detail with the innumerable problems arising time and again. In certain matters they can only lay down the policy and guidelines in as clear a manner as possible."
In Gwalior Rayon Mills' case , the Supreme Court held that the legislature, in conferring power upon a subordinate agency "must lay down policy, principle or standard for the guidance of the authority concerned". It was also held that the legislature cannot be said to retain enough control over the subordinate legislative authority by a mere power of "repeal" of the law.
In the Pandit Banarsi Das Bhanot v. State of M.P. it was held :
"Now, the authorities are clear that it is not unconstitutional for the legislature to leave it to the executive to determine details relating to the working of taxation laws, such as the selection of persons on whom the tax is to be laid, the rates at which it is to be charged in respect of different classes of goods, and the like."
In Lohia Machines Limited case this view was
In Registrar of Co-operative Societies v. K. Kunjabmu the Supreme Court held that section 60 of the Madras Co-operative Societies Act, 1932, which enabled the State Government, by general or special order, to exempt any registered society from any of the provisions of the Act or "may direct that such provisions shall apply to such society with such modifications as may be specified in the order" did not, having regard to the discernible guidelines, constitute a case of excessive delegation, though section 60 "is a near Henry VIII Clause".
The constitutional restriction on delegation would mean that while a power to execute a law could be delegated to the executive, the power to make the law itself must be exercised by the legislature.
28. Learned counsel for the petitioners, however, contended that section 3(1) presents an extraordinary and unprecedented spectacle of the subordinate authority being empowered to effectuate the charge under the "Act" with restrospective effect virtually amounting to the imposition of a tax retrospectively which is essentially a matter of legislative policy. Learned counsel say that it is inconceivable how a provision to effectuate the change under taxing law retrospectively could be entrusted to a delegated agency as no legislative policy de-limiting the period of retroactivity and other conditions subject to which retrospective power is exercisable are laid down by the statute itself. It is urged that imposition of tax retrospectively can never be understood as anything but an essential legislative function and one of policy.
29. It is trite proposition that a legislature which is competent to enact a law can do so either prospectively or retrospectively. Tax laws are no exception.
In Hira Lal Rattan Lal v. Sales Tax Officer, Section III, Kanpur the Supreme Court said :
"13. The source of the legislative power to levy sales or purchase tax on goods is entry 54 of List II of the Constitution. It is well-settled that subject to constitutional restrictions a power to legislate includes a power to legislate prospectively as well as retrospectively. In this regard legislative power to impose tax also includes within itself the power to tax retrospectively. See Union of India v. Madan Gopal Kabra , M. P. Sundararamier & Co. v. State of Andhra Pradesh , J.K. Jute Mills Co. Ltd. v. State of Uttar Pradesh , Chhotabhai
Jethabhai Patel and Co. v. Union of India , Rai
Ramkrishna v. State of Bihar . In the last
mentioned case it was specifically decided that where the legislature can make a valid law, it can provide not only for the prospective operation of the material provisions of the said law but it can also provide for the retrospective operation of the said provisions."
Of course, if a retrospective tax affects any fundamental rights, such as those under article 19(1)(g) of the Constitution, the tax may be bad as offending Part III of the Constitution. But the law of taxation itself does not fail on the ground alone that it is retrospective. Sequentially, it follows that if the legislature which could enact a law with retrospective effect could also in express terms confer upon on delegated authority a power to make a rule or frame a bye-law or issue a notification having retrospective operation. Indeed in Dr. Indramani Pyarelal v. W. R. Natu the Supreme Court observed :
"........ It is clear law that a statute which could validly enact a law with retrospective effect could in express terms validly confer upon a rule-making authority a power to make a rule or frame a bye-law having retrospective operation and we would add that we did not understand Mr. Pathak to dispute this position. If this were so the same result would follow where the power to enact a rule or a bye-law with 'retrospective effect' so as to affect pending transactions, is conferred not by express words but where the necessary intendment of the Act confers such a power. If in the present case the power to make a bye-law so as to operate on contracts subsisting on the day the same was framed, would follow as a necessary implication ........." (para 27).
It therefore follows that a delegated power does not fail on ground alone that the delegate can exercise its derivative power retrospectively. Delegation of power does not become excessive by reason alone of its being authorised to exercise the delegated power with retrospective effect. In principle, there could be no difference if the statute is a fiscal one. But the effect of the exercise of that power is a different matter. Delegation of a power to make retrospective subordinate legislation is never disputed in principle. If the actual exercise of that power is either ultra vires or brings about consequences which offend fundamental rights, then the exercise of the power becomes bad.
30. The policy of the law and the guidelines in the present case are laid down in clear terms. The taxable event is specified; the goods are specified in the schedule; the maximum rate of tax is specified; the local area is specified. What is an essential legislative function, and what is not, has to be decided on an examination of all relevant circumstances. The extent of the delegation in this case is not such as to constitute an abdication of essential legislative functions on the part of the legislature. The limitations of time on the power to make or reopen assessments would itself, in practical terms, operate as a limitation on the extent and degree of the permissible retroactivity of the notifications.
By a recent amendment the legislature has built-in certain procedures for "laying" the notifications issued under section 3(1) before the legislature. Referring the saving effect of such "watch-dogging" procedures on delegation, the Supreme Court in Lohia Machines case said :
"... Parliament has thus not parted with its control over the rule-making authority and it exercises strict vigilance and control over the rule-making power exercised by the Central Board of Revenue. This is a strong circumstance which militates against the argument based on excessive delegation of legislative power. This view receives considerable support from the decision of the Privy Council in Powell v. Apollo Candle Co. Ltd. (1885) 10 AC 282 ......."
Some submissions were made to the effect that the building-in of these "laying" procedures now would not cure section 3(1) of the vice of excessive delegation it suffered from when it was enacted. We have held that even otherwise section 3(1) was not bad for excessive delegation.
31. We, accordingly, hold and answer contention (b) also against the petitioners.
32. Re : Contention (c) : The point is that the three notifications : one dated 31st March, 1983, and the two (Notifications Nos. I and II) dated 13th November, 1984, having been superseded, would not be available to support assessment even in respect of a period prior to their supersession.
As stated earlier, immediately prior to 13th November, 1984, the notifications which held the field was the one dated 31st March, 1983. On 13th November, 1984, the State Government issued the three notifications Nos. I, II and III. The purport of the notifications is set out in para 6 supra. Notification I superseded the one dated 31st March, 1983, then subsisting. Several items of goods were brought to tax. The intendment, according to the State Government, was that Notification No. I should be operative from 1st April, 1982, to 31st March, 1983. The cessation, after 31st March, 1983, of the Notification No. I was brought about by its supersession by the Notification No. II which was to hold the field from 1st April, 1983 to 23rd October, 1984. Notification No. III which was also issued on the same day superseded the Notification No. II with effect from 24th October, 1984. Notification No. III became effective from 24th October, 1984, onwards.
The validity of the Notification No. III is not questioned. Petitioner's case is that having regard to the accepted judicial import of the expression "supersession", the notification dated 31st March, 1983, and Notifications Nos. I and II (both dated 13th November, 1984) which were superseded on the very day they came into existence, could not be said to be operative at all. Learned counsel relied upon Firm A. T. B. Mehtab Majid & Co. v. State of Madras , B. N. Tewari v. Union of India and State of Maharashtra v. Central Provinces Manganese Ore Co. Ltd. .
Sri Srinivasan contended that suppression amounts to "repeal" and since section 6 of the General Clauses Act is not attracted to a case of repeal of notifications, the operation of the notification prior to 13th November, 1984, is not saved and therefore there would be no valid and subsisting notification under section 3(1) at all in the eye of law. The charge under the Act cannot be given effect to even for the period prior to the repeal, as the liability to tax incurred prior to 24th October, 1984, is not saved, after the three notifications were superseded.
33. It is no doubt true that the authorities cited by Sri Srinivasan lend support to the contention that the word "supersession has been understood to amount to repeal and that when what is repealed is a notification, section 6 of the General Clauses Act does not apply to notifications.
The question whether statutory obligations subsist in respect of a period prior to the repeal of the provisions of a statute or any subordinate legislation promulgated thereunder has to be ascertained on legal considerations apposite to the particular context. The matter is essentially one of constitution. Such problems do not admit of being answered on the basis of any single principle or legal consideration. There are no inflexible rules or any legal absolutes. Even in the case of a expiry of a temporary statute, the consequences that ensue are not uniform and inflexible. In State of Orissa v. Bhupendra Kumar , Gajendragadkar, J. (as he then was), observed :
"In our opinion, it would not be reasonable to hold that the general rule about the effect of the expiration of a temporary Act ............ is inflexible and admits of no exceptions. It is true for instance that offences committed against temporary Acts must be prosecuted and punished before the Act expires. If a prosecution has not ended before that day, as a result of the termination of the Act, it will ipso facto terminate. But is that an inflexible and universal rule ? In our opinion, what the effect of the expiration of a temporary Act would be must depend upon the nature of the right or obligation resulting from the provisions of the temporary Act and upon their character whether the said right and liability are enduring or not. As observed by Parker, B., in the case of Steavenson v. Oliver (1841) 151 ER 1024 at pages 1026-1027.
... Therefore, in considering the effect of the expiration of a temporary statute, it would be unsafe to lay down any inflexible rule."
When on 13th November, 1984, the three notifications were superseded, could it be said that they became non est for all purposes and were unable to support the proceedings for the enforcement of the liability to tax incurred for the period even prior to 24th October, 1984 ? To hold so would produce results, at once, anomalous and startling. The answer, in our opinion, must depend on a proper construction to be placed on the notifications themselves.
34. The first point to note is that the three notifications issued on 13th November, 1984, had different periods of retroactive operation. Notification No. I became effective from 1st April, 1982; Notification No. II from 1st April, 1983, and Notification No. III from 24th October, 1984, though all the three were promulgated on 13th November, 1984. They must be deemed to have come into operation on those respective dates in the past. The effect of the fiction does not stop there. The three notifications, fictionally, must be held to have subsisted and were operative from such points of time of their commencement upto the dates they were superseded. Notification No. I must, consistent with the putative set of facts which the fiction bids to be assumed, must be held to have continued from 1st April, 1982, upto 31st March, 1983, and from 1st April, 1983, Notification No. II must be deemed to have commenced its operation. The supersession takes place only when Notification No. II becomes operative. So are the periods of operation and the points of time of supersession of Notification No. II superseded by Notification No. III.
In State of Bombay v. Pandurang Vinayak referring to scope and effect of legal fictions, it was observed :
"When a statute enacts that something shall be deemed to have been done, which in fact and truth was not done, the court is entitled and bound to ascertain for what purposes and between what persons the statutory fiction is to be resorted to and full effect must be given to the statutory fiction and it should be carried to its logical conclusion [vide Lord Justice James in Ex parte Walton; In re levy (1881) 17 Ch D 746 at page 756(A)]. If the purpose of the statutory fiction mentioned in section 15 is kept in view, then it follows that the purpose of that fiction would be completely defeated if the notification was construed in the literal manner in which it was construed by the High Court."
The following observations of Lord Asquith in East End Dwellings Co. Ltd. v. Finsbury Borough Council  AC 109 were referred to with approval :
"If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it ........ The statute says that you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs."
The position, here, is somewhat analogous to the one considered in State of Orissa v. Titaghur Paper Mills Company Limited . The effect of supersession of notifications under the Orissa Sales Tax Act came up for consideration. Section 5(1) of the Orissa Sales Tax Act provided :
"5. Rate of tax. - (1) The tax payable by a dealer under this Act shall be levied at the rate of six per cent on his taxable turnover :
Provided that the State Government may, from time to time, by notification and subject to such conditions as they may impose, fix a higher rate of tax not exceeding thirteen per cent or any lower rate of tax payable under this Act on account of the sale or purchase of any goods or class of goods specified in such notification."
The two notifications were issued on 29th December, 1977. They were made effective from 1st January, 1978. Referring to the effect of "supersession" of the notifications, the Supreme Court observed :
"... Thus, the power of the State Government to issue notifications under these two sections is to be exercised by it 'from time to time' and, therefore, the State Government can under section 5(1) issue a notification and repeal and replace it by another notification enhancing or lowering the rate of tax and similarly it can issue a notification under section 3B declaring particular goods or class of goods to be liable to tax on the turnover of purchases and subsequently by another notification repeal that notification with the result that the particular goods or class of goods will from the date of such repeal be again liable to pay tax on the turnover of sales. In the notifications dated December 29, 1977, the word 'supersession' is used in the same sense as the word 'repeal' or rather the words 'repeal and replacement'....... Thus, by using in the notifications dated December 29, 1977, the expression 'in supersession of all previous notifications' all that was done was to repeal and replace the previous notifications by new notifications. By repealing and replacing the previous notifications by other notifications, the result was not to wipe out any liability accrued under the previous notifications. If this contention of the respondents were to be accepted the result would be startling. It would mean, for example, that when a notification has been issued under section 5(1) prescribing a rate of tax, and that notification is later superseded by another notification further enhancing the rate of tax, all tax liability under the earlier notification is wiped out and no tax can be collected by the State Government in respect of any transactions effected during the period when the earlier notification was in force."
At para 127, summarising their conclusion, their Lordships say :
"The word 'supersession' in the notifications dated December 29, 1977, is used in the same sense as the words 'repeal and replacement' and, therefore, does not have the effect of wiping out the tax liability under the previous notifications. All that was done by using the words 'in supersession of all previous notifications in the notifications dated December 29, 1977, was to repeal and replace previous notifications and not to wipe out any liability incurred under the previous notifications."
Questioning the appositeness of this observation to the present case, Sri Srinivasan had two things to say : First was that the context of those notifications were different. The second was that, at all events, the view taken in Titaghur's case as to the
continuance of the "superseded" notification so far as past liabilities are concerned, is against the law laid down by larger Benches of the Supreme Court in Firm A. T. B. Mehtab Majid v. State of Madras , B. N. Tewari v. Union of India and
that we are required to follow the latter cases in preference to the principle in Titaghur's case .
In Titaghur's case the specific question whether on "supersession" of a notification, the liability to tax for a period prior to the supersession was wiped out or not, directly arose and was considered. Sri Srinivasan says that in that case the notifications were, actually, in operation during the past period, unlike in the present case where they were promulgated and superseded on the same day. This distinction ignores the effect of retroactivity and of the legal fiction. We have given our careful thought to this submission. The results that flow from changes in the law by way of "amendment", "repeal" or "substitution", "supersession" on the earlier rights and obligations cannot be decided on any set formulae. It is essentially a matter for construction and depends on the intendment of the law as could be gathered from the provisions in accordance with accepted canons of construction.
The question whether the liability to tax earlier incurred by the petitioners under section 3(1) read with the notifications then in force, could be enforced after 13th November, 1984, when the notifications were "superseded", clearly falls within the principle laid down in Titaghur Mills' case . A very similar position arose and was directly answered in that case. It is no doubt true that in other cases referred to by Sri Srinivasan there are statements which admit of the construction that once a notification is "superseded" it amounts to "repeal" and that section 6 of the General Clauses Act has no application to such cases. If that principle is applied, then after 13th November, 1984, the three notifications become unavailable to the taxing authority to give effect to the charge under section 3(1) even in respect of the period when the notifications must be deemed to have been in force.
The three notifications issued on 13th November, 1984, are somewhat inelegantly worded generating so much of debate and controversy on an aspect on which Government could have been more intelligible and made the position much clearer. But it is plain that the liability to tax arising prior to 13th November, 1984, was not altogether intended to be wiped out after 13th November, 1984. That was farthest from the mind of the Government. But the notifications did employ expressions which had a meaning previously attributed to it by judicial interpretation. As rightly submitted by Sri Srinivasan when a law making agency uses expressions whose import has previously received judicial interpretation, it is to be presumed that the law making agency used them in that very sense. The word "supersession" was judicially understood to mean "repeal". The notifications in this case were perilously close to the consequences arising out of a repeal without the benefit of a saving clause in respect of the obligations previously incurred but for the saving principle the Titaghur's case afforded. Since the principle in that case is
attracted, we have followed that principle.
Accordingly, we hold and answer contention (c) also against the Government.
35. Re : Contentions (d) and (e) : These points admit of being considered together. Items 5, 6, 8, 12 to 16 were deleted from the schedule of the "Act" by section 6(4) of the amending Act 38 of 1984 with effect from 1st April, 1983, on which date that Act came into force. Items 1 and 4 were omitted from the schedule of the "Act" by the Karnataka Ordinance with effect from 24th October, 1984. The argument of Sri Srinivasan is that in accepted statutory parlance "omission" does not amount to "repeal", and therefore the benefit of section 6 of the General Clauses Act is not available in the case of "omission". The consequence, according to him, is that these 10 items go out of the schedule and must be held to have never been in the schedule and that therefore no liability to tax incurred even prior to the "omission" can be enforced after the date of such "omission". This is the substance of contention (d). This contention has the familiar ring of the previous contention (c) in regard to the effect of "supersession" of the notification and would, perhaps, have to be answered on the same principles on which point (c) was considered.
The legislature brought an amendment to section 3 of the Karnataka General Clauses Act, 1899, introducing clause (32)(a) in section 3 with retrospective effect from 1st November, 1956. The purport of the new clause was that the expression "repeal" includes "omission" and "deletion". By the amendment, which was introduced during the pendency of the writ petitions, it was intended to secure the benefit of section 6 to a case of "omission" also. Sri Srinivasan's contention is that the very need for such an amendment impliedly recognises that, but for the amendment, the position canvassed for the petitioners would be right. Sri Srinivasan says that the amendment is itself invalid for non-compliance with the requirements of the proviso to article 304(b) of the Constitution. General Clauses Act, it is urged, is to be read as the interpretation clause of every statute and is, therefore, a part of every statute. It would also be part of the Entry Tax Act as well. Thus understood, the present amendment, would, in effect enlarge the restrictions imposed by the Entry Tax Act on the freedom under article
301. Even if the restrictions are reasonable and in public interest, they, yet, attract the proviso to article 304(b). The present amendment to the General Clauses Act would, therefore, be bad for want of Presidential assent. This is contention (e).
36. If, on contention (d) itself, the petitioners fail, then, it would, as a corollary, follow, that even without the amendment, the contention of the Government would succeed.
The Supreme Court in Rayala Corporation's case AIR 1970 SC 494 said :
"........ In the case before us, section 6 of the General Clauses Act cannot obviously apply on the omission of rule 132A of the Defence of India Rules for the two obvious reasons that section 6 only applies to repeals and not to omissions ......."
Relying on this, Sri Srinivasan says that section 6 of the General Clauses Act applies only to "repeals" and not to "ommissions". But the question is whether the liability to tax respecting these items incurred under the "Act" with respect to a period prior to the omission, could be enforced after the date of the omission of these items even without appealing to section 6 of the General Clauses Act. If this is so, then the authorities cited by Sri Srinivasan would have no application.
For the same reasons on which we have held the notifications, on a proper construction, to be effective notwithstanding the fact that the benefit of section 6 of the General Clauses Act was not available, the liability to tax in respect of these items incurred prior to date of their omission could be enforced even after the date of their omission with respect to the earlier period. The process of "omission" is, in substance and effect, one of amendment of the law. By the change in the law the said 10 items were deleted from the schedule from particular dates. The taxing power and the goods on which the power operated existed prior to that date, unless the amendment, is, either expressly or by necessary implication, retrospective and the liability for the past period is wiped out.
The effect in the present case was to delete items 5, 6, 8 and 12 to 16 with effect from 1st April, 1983, and items 4 and 10 with effect from 24th October, 1984. If the liability to tax had been incurred prior to those dates the amendment does not come in the way of effectuation of the liability after the date of the deletion. It is not unusual that the schedules to taxing Acts are altered from time to time. The alteration does not wipe-off the liability in respect of the prior period unless expressly provided.
37. We answer contention (d) accordingly and against the petitioners. In this view of the matter, the other contention (e) does not survive.
38. Re : Contention (f) : This contention is to the effect that the notification dated 31st March, 1983, and the three subsequent notifications dated 13th November, 1984, even if otherwise valid, are violative of article 14 of the Constitution, inasmuch as they impose uniform rates of tax in respect of all local areas in the State irrespective of the differing conditions of those areas. This matter, it is contended, is covered by the pronouncement of the Supreme Court in Hansa Corporation's case .
Section 3(1) gives to the State the power to specify "local areas"; to specify the goods from the schedule, and specify rates not exceeding 2 per cent ad valorem. The State Government is also given the power to fix different rates for different local area. The contention is that the section itself recognises the need to fix different rates for different local areas on a consideration of the differences in the economic criteria relevant to the matter and that levy of uniform rates to all the local areas, irrespective and unmindful of the innate differences in the conditions of the local areas, would itself be violative of article 14 as it would treat unequals as equals.
Sri Srinivasan submitted that the presumption of constitutionality of the Act and the initial burden on the petitioners are both removed by the observations of the Supreme Court which clearly indicate that the application of uniform rates to different local areas in the administration and enforcement of the provisions of the Act would be violative of the constitutional pledge of equality.
39. In the context of the argument in Hansa Corporation's case that section 3(1) enables the State Government to pick and choose local areas and is, therefore, bad, the Supreme Court, dealing with possible effects of a uniform levy in all the local areas irrespective of the relevant conditions and the need to recognise different conditions prevailing in different local areas, said :
"13. ....... It would be unjust and inequitable to levy tax on entry of goods at the same rate for such local area as Bangalore Municipal Corporation and a small municipal area, the two local areas being uncomparable with regard to area, population, industrial growth and consumption of such scheduled goods in the area. Now, if the impact of the tax is to be equitable keeping in view cost of its collection, a tax levied at such a small rate as one paisa for goods worth Rs. 100 ad valorem for a small local area and 2 per cent ad valorem for such industrially developed local area like Bangalore Corporation, it would make nonsense of the levy apart from the uneconomic outcome keeping in view the administrative cost of collection. If the Government is obliged on the construction canvassed on behalf of the respondents to encompass all local areas for the purpose of levying tax under the statute, the rates would have to be varied so much to avoid the evil of making the impost unjust and if the rates have to be varied from area to area the administrative cost in smaller areas with lower rates and negligible entry of scheduled goods in such areas would make the tax wholly uneconomic. It must, therefore, logically follow that choice to select local area is a necessary concomitant of a choice to select rates, which power is admittedly conferred on the State Government .........."
Sri Srinivasan contends that this is a judicial recognition of, and pronouncement on, the inherent dissimilarities of different local areas and the imperative to tailor-out different quantum of tax to different local areas, and that any uniform levy would necessarily be violative of article 14. Sri Srinivasan contended that these were not general observations but were pronouncements on a point which directly arose for consideration in the appeal before the Supreme Court. He stated that contention 16 formulated in the High Court judgment in Hansa Corporation's case ILR (1980) 1 Kar 165 pertains to this question and that point was considered at para 77 of the High Court's judgment. Indeed, he referred to the stand taken by the State Government in the previous round of litigation (Hansa Corporation's case) to the effect that different rates for different local areas were the expression of a considered, deliberate and informed fiscal policy arrived at after consideration of the different conditions. In the light of this stand, counsel says, it would be for the Government to justify the present uniform rates. This point, he said, fell for consideration before the Supreme Court as the petitioners sought to support the ultimate decision of the High Court striking down section 3(1) on points which had been negatived by the High Court. The point, however, is that though taxation laws are not outside article 14, however, legislature enjoins a wide latitude in the matter of relation of persons, territorial areas, rates and other incidents of a tax. In Khyerbari Tea Co. Ltd. v. State of Assam :
".......... Besides, the legislature which is competent to levy a tax must inevitably be given full freedom to determine which articles should be taxed, in what manner and at what rate : vide Raja Jagannath Baksh Singh v. State of U.P. . It
would be idle to contend that a State must tax everything in order to tax something. In tax matters, 'the State is allowed to pick and choose districts, objects, persons, methods and even rates for taxation if it does so reasonably. The Supreme Court of the United States of America has been practical and has permitted a very wide latitude in classification for taxation'. Willis on 'Constitutional Law' page 587. This approach has been approved by this court in the case of East India Tobacco Co. v. State of Andhra Pradesh ."
In Khandige Sham Bhat v. Agricultural Income-tax Officer AIR 1963 SC 591 it was observed :
"(7) ...... Though a law ex facie appears to treat all that fall within a class alike, if in effect it operates unevenly on persons or property similarly situated, it may be said that the law offends the equality clause. It will then be the duty of the court to scrutinise the effect of the law carefully to ascertain its real impact on the persons or property similarly situated ............................ the courts, in view of the inherent complexity of fiscal adjustment of diverse elements, permit a larger discretion to the legislature in the matter of classification, so long it adheres to the fundamental principles underlying the said doctrine. The power of the legislature to classify is of 'wide range and flexibility' so that it can adjust its system of taxation in all proper and reasonable ways."
In Sita Ram Bishambhar Dayal v. State of U.P. it was observed :
"...... Though a tax is levied primarily for the purpose of gathering revenue, in selecting the objects to be taxed and in determining the rate of tax, various economic and social aspects, such as the availability of the goods, administrative convenience, the extent of evasion, the impact of tax levied on the various sections of the society, etc., have to be considered. In a modern society taxation is an instrument of planning. It can be used to achieve the economic and social goals of the State. For that reason the power to tax must be a flexible power. It must be capable of being modulated to meet the exigencies of the situation. In a Cabinet form of Government, the executive is expected to reflect the views of the legislature ..........."
In State of Punjab v. Khan Chand it was observed :
"Considering the complex nature of problems which have to be faced by a modern State, it is but inevitable that the matter of details should be left to the authorities acting under an enactment. Discretion has therefore, to be given to the authorities concerned for the exercise of the powers vested in them under an enactment."
In the concept of a tax, a wide range of economic criteria require to be collated. That, detailed economic surveys and investigations precede the formulation of a policy of a tax and its effectuation through legislative measures, is a recognised phenomenon. In the modern pluralist intensive welfare State, a taxing law is not merely a measure for raising funds to meet the expenses of government; but it has a fiscal mission and is a tool of economic regulation. State's role is not merely that of a tax collector but is also that of an economic controller and regulator. The economic criteria that a taxing measure takes into account are, indeed, too diverse to be susceptible to adjudicative disposition. Government has control of both the principle and the detail.
"18. ... when the legislature reasonably applies a uniform rate after equalising matters between diversely situated persons. Simply stated the law is this : Differences in treatment must be capable of being reasonably explained in the light of the object for which the particular legislation is undertaken. This must be based on some reasonable distinction between the cases differently treated. When differential treatment is not reasonably explained and justified the treatment is discriminatory. If different subjects are equally treated there must be some basis on which the differences have been equalised otherwise discrimination will be found. To be able to succeed in the charge of discrimination, a person must establish conclusively that persons equally circumstanced have been treated unequally and vice versa ........."
The equalisation of matters referred to need not necessarily be in terms of rates. There are other countervailing parameters in the policy of a tax. The observations of the Supreme Court in Hansa Corporation's case are indications as to the equitable nature and justness of a tax. Of this, generally, the legislature is the best judge. The judgment in the Hansa Corporation's case indicates that this was not a point on which the High Court order was sought to be supported in appeal.
Indeed petitioners in these cases do not go into the exercise of actually establishing how the inequality actually operates. It was, however, urged that a bare perusal of the notifications issued from time to time show that the specification of the goods and rates are, ex facie, arbitrary. It was sought to be pointed out that while in respect of certain items of goods, tax for a particular period was levied at the maximum permissible rate of 2 per cent however, for the immediately succeeding period the very goods were wholly exempted and rates respecting certain other items enhanced.
These changes might be a sequel to a reassessment of the economic viability of the tax in the light of experience gained and the adjustments necessitated thereby. Levy of a uniform rate respecting all local areas is not, per se, bad. It is for the person challenging that as violative of article 14 to establish that. The observations of the Supreme Court in Hansa Corporation's case which were essentially made in the context of repelling the argument that the power to pick and choose local areas was itself discriminatory, cannot be considered to be pronouncement on the question that levy of uniform rates is - by that reason alone and without more - unconstitutional as offending article 14.
Contention (f) is also held against the petitioners.
41. Re : Contention (g) : This relates to the contention that the two notifications issued in exercise of the power under explanation II of item 18 exempting certain items from the purview of "raw materials" under the said item 18 must be held to be retrospective in their operation. Item 18 of the Schedule reads :
"All raw materials, component parts and any other inputs (e.g., processing or any other chemical solvents used in the solvent extraction or process, catalysts of and the like), which go into or may be used in the manufacture of an intermediate or finished product, when brought into local areas by an industrial unit or any other dealer.
Explanation I. - (Omitted as unnecessary).
Explanation II. - The words "Raw materials, component parts and any other inputs" do not include sugarcane, cereals, oil-seeds, pulses, timber or wood of any species, silk cocoons raw, thrown or twisted silk, or such other inputs as may be notified by the State Government for purposes of exemption from tax under entry 18 from time to time; but include aluminium ingots and ores of all kinds."
In exercise of the powers conferred on the State Government by the said explanation II, two notifications were issued by the Government. One was on 27th November, 1984 deleting "iron and steel" from the definition of "raw materials". The other was on 19th June, 1985, deleting certain other items from the definition of raw materials". Item 18 itself was introduced into the Act by amending Act 38 of 1984. That amending act was made retrospective from 1st April, 1983. The notifications were issued subsequently on the respective dates mentioned.
Sri Srinivasan's contention is that as the power to issue notification was itself implanted into the Act retrospectively, the exercise of the power itself must relate back to that date. Sri Srinivasan says that the notification could not have been issued prior to 28th September, 1984, because the Amendment Act 38 of 1984 itself received the Presidential assent on 28th September, 1984.
Sri Srinivasan placed strong reliance upon the decision of the Supreme Court in S. A. L. Narayan Row v. Ishwarlal Bhagwandas . That case arose in this context : Section 18A(6) of the Income-tax Act, 1922, provided that if in the payment of the advance tax, it fell short of 80 per cent of the assessed tax, then interest was to become leviable, in regard to which, as the section stood, no discretion was left to the assessing authority. However, by amending Act 25 of 1953, the fifth proviso to section 18A(6) was introduced with retrospective effect from 1st April, 1952, giving discretion to the authority to waive or reduce the interest in appropriate and deserving cases. The power to waive or reduce the interest was however to be exercised in such cases under such circumstances as may be prescribed. Rule 48 in that behalf was promulgated in December, 1953. It was not expressly made retrospective from 1st April, 1952. In those circumstances, the Supreme Court held that the power to waive or reduce the interest having been given with retrospective effect from 1st April, 1952, and as such power was not exercisable except with the aid of the rules, the rule itself must be held to be retrospective from 1st April, 1952.
Sri Srinivasan also referred to the following passage in "Principles of Statutory Interpretation" by G. P. Singh (3rd Edition, page 683) which reads :
"...... A rule, which is not in terms retrospective, may have retrospective operation because of the retrospective operation of the enactment in respect of which it is made."
Sri Srinivasan says that the principle in S. A. L. Narayan Row's case that a rule which is not in terms retrospective may have retrospective operation because of the retroactivity of the enactment in respect of which it is made, is one eminently applicable to the two exemption notifications.
The principle in S. A. L. Narayan Row's case is not that wherever the statute is made retrospective every exertion of power of subordinate legislation made thereunder must necessarily be retrospective. The consideration which imparts retroactivity to a rule or a notification, not otherwise expressly so made, appears to be that where a statutory provision is given retrospective efficacy and the rule or notification is imperative to effectuate such statutory power, then the rule or notification may be related back to the time of commencement of the statutory power itself. This is because the power which was intended to be retrospective could not be effectuated without a corresponding retrospective effect given to the rule or notification without which the power could itself not be exercised at all. In those circumstances the Supreme Court said :
"(19) The Attorney-General appearing on behalf of the Commissioner contended that to the fifth proviso to section 18-A(6) no retrospective operation could effectively be given because the rules which alone could render the discretion operative were framed for the first time in December, 1953. We are unable to agree with that view. The legislature has expressly given operation to the fifth proviso to section 18-A(6) from April 1, 1952. It is true that the proviso operates only in respect of cases and under circumstances as may be prescribed, but as soon as the rules were framed which effectuate the purposes for which proviso was enacted, the proviso and the rules become effective retrospectively from April 1, 1952."
41-A. In the present case the notifications were not necessary to effectuate the power. The power is exercised through a notification. The notification is not the source or concomitant of the power; but is itself the result of the exercise of the power. The power under explanation II to item 18 can, indeed, be exercised without aid of any external source. If the power to exempt could not have been exercised without the aid of a rule or notification, then Sri Srinivasan's argument in relation to such rule or notification would be appropriate. But as stated earlier, no aid of any notification was necessary to effectuate the power to exempt under II explanation. The notification is itself the creature of the exercise of the power and therefore the analogy of S. A. L. Narayan Row's case , in our
opinion, is wholly inapposite in the present context.
The observation of the Supreme Court in Sri Vijayalakshmi Rice Mills, New Contractors Co. v. State of Andhra Pradesh may be recalled :
"There is no deeming clause or some such provision in the Rice (Andhra Pradesh) Price Control (Third Assessment) Order, 1964, to indicate that it was intended to have a retrospective effect. It is a well-recognised rule of interpretation that in the absence of express words or appropriate language from which retrospectivity may be inferred, a notification takes effect from the date it is issued and not from any prior date. The principle is also well-settled that statutes should not be construed so as to create new disabilities or obligations or impose new duties in respect of transactions which were complete at the time the amending Act came into force."
Indeed so far as the subject-matter of the second notification is concerned, the benefit of that notification is available to the petitioners by virtue of the amendment brought by Bill No. 32 of 1983 which received the Presidential assent on 20th January, 1986. The examination of this question is really academic.
Sri Srinivasan, however, submitted that amending Act 38 of 1984 was passed prior to 1st April, 1983 and was intended to be effective from 1st April, 1983, and that owing to the circumstances that the Presidential assent was given on 28th September, 1984 no notification in exercise of the power under the II explanation could be issued. The moment the Presidential assent was available the notifications were issued. Sri Srinivasan says that the intention of the Government was that these exemptions should take effect from 1st April, 1983, itself. We find no support for it in the language of the notification. But that does not mean the Government should not consider the matter and afford any relief, if that had been the intention of the Government. It is for the Government to consider this.
42. Contention (g) is also held and answered against the petitioners.
43. Re : Contention (h) : This contention was particularly emphasised by Sri G. S. Ullal. He urged that, admittedly, the amending Act 38 of 1984 was not introduced with the prior sanction of the President. He says that the requirement of the proviso to article 304(b) is a specific constitutional pre-condition for the operation and efficacy of laws which affect the freedom of trade. Having regard to this special purpose, for which prior sanction is envisaged in article 304(b) proviso, the matter is clearly outside article 255. Alternatively, he urged that even if the curative of article 255 was available, the law must be held to be effective from the day on which the Presidential assent was secured. Sri Ullal says - it is appropriate to put in his own words - that "it is inconceivable that a restriction of the freedom guaranteed by article 301 can be imposed retrospectively. When the taxable event took place, the citizen was free to move the scheduled goods into a local area without restriction as to the liability to pay tax and that the citizen is told subsequently that he did not have such freedom. This is inconceivable". The question really is whether the law imposing the tax offends article 301. Even if the law restricts that freedom, if the restriction is reasonable and in public interest the law is valid if the requirements of the proviso to article 304(b) are satisfied. The contention cannot be accepted. Compliance of article 255 has been equated with the requirements to proviso to article 304(b) : see Atiabari Tea Co. Ltd. v. State of Assam ,
"36. ...... It cannot be gainsaid that Presidential sanction was not obtained before introducing the bill which was ultimately enacted into the impugned Act but after the bill was enacted into an Act the same was submitted to the President for his assent and it is common ground that the President has accorded his assent. If prior Presidential sanction is a sine qua non, the requirement of the proviso is not satisfied but in this context it would be advantageous to refer to article 255 which provides that no Act of Parliament or of the Legislature of a State and no provision in any such Act shall be invalid by reason only that some recommendation or previous sanction required by the Constitution was not given if assent to that Act was given by the President. Now in this case it is common ground that the President did accord his sanction to the impugned Act. Therefore, thee requirement of the proviso is satisfied."
This indeed concludes the matter.
44. Accordingly, contention (h) is answered against the petitioners.
45. Re : Contention (i) : Sri Gandhi, who argued this point urged that the Presidential assent to Act 38 of 1984 was given only on 28th September, 1984 and the enactment could be said to be complete only with the Presidential assent. Amending Act itself provides that it shall come into force on 1st April, 1983. Certain new items were included in the schedule by amending Act 38 of 1984. In the interregnum, between 1st April, 1983, and 28th September, 1984, the operation of the Act is virtually one of retroactivity. According to Sri Gandhi there is really a retrospective tax on the new items because the Presidential assent was on 28th September, 1984, and the coming into force is 1st April, 1983. Sri Gandhi submitted that there is, virtually, a retrospective legislation imposing a fresh tax for the first time on fresh items and that the legislature does not have such a power.
It is no doubt true that the legislative process is complete only with the assent of the Governor or the President. Indeed article 168 makes Governor of a State an integral part of the Legislature of that State. But the point is note in the present case is that the Karnataka Legislature had passed the legislative measure on 31st March, 1983 and the legislative measure itself provided that it shall come into force on 1st April, 1983.
The effect of section 5 of the General Clauses Act is that when a statute is a "floating-statute", i.e., that it is not expressed to come into operation on a particular day, then the date of commencement shall be ascertained in accordance with provisions of that section. But here, the law is not made operative anterior to the actual date of its passing by the legislature. There may, technically, be an element of retroactivity of the operation of the statute because of the Presidential assent being later than the date fixed in the statute for its commencement. But this period between the passing of the legislation by the legislature and the date of the Presidential assent is not reckoned as a period of retroactivity of the law so as to attract considerations relevant to a case of retroactive levy of tax being violative of article 19(1)(g). The retroactivity in the present case respecting many items is essentially a case of validation. We find no substance in this contention either.
46. Contention (i) is also answered against the petitioners.
47. In the result, these petitions are dismissed. Rule discharged. Parties are left to bear and pay their own costs.
48. Petitions dismissed.
M.N. Venkatachaliah, J.
1. These 2 writ petitions are amongst the large batch of about 3000 writ petitions challenging the provisions of the Karnataka Tax on Entry of Goods into Local Areas for Consumption, Use or Sale therein Act, 1979 (hereinafter to be referred to as the "Principal Act") as amended by :
(i) The Karnataka Tax on Entry of Goods into a Local Area for Consumption, Use or Sale Therein (Repeal) Act, 1981 (Act 10 of 1981) "Repealing Act 10 of 1981" for short;
(ii) The provisions of Karnataka Act 12 of 1981 "Amending Act 12 of 1981" for short and;
(iii) The provisions of section 7 of the Karnataka Taxation and certain other laws (Amendment) Act, 1982, (Act 13 of 1982). "Amending Act 13 of 1982" for short.
The Principal Act received the assent of the President on 17th May, 1979. It was published in the gazette on 1st June, 1979, and came into force that day.
All the petitions in the batch were listed for hearing and heard together. The points raised in these 72 petitions cover, comprehensively, all the contentions raised in the course of the arguments and could be said to be representatives of the whole batch. The rest of the cases in the batch could be disposed of separately on the basis of this pronouncement.
2. The tax under the "Principal Act" is an impost envisaged by entry 52 of List II of the Seventh Schedule to the Constitution and was intended to be a substitute for the "octroi" which, prior to 1979, was being levied by the various local authorities and municipal-bodies in the State of Karnataka as authorised and empowered under the relevant statutes.
From 1st April, 1979, the levy of octroi was abolished in the State. Owing to the consequent loss of revenue, the local authorities became financially crippled. The State, therefore, contemplated the raising of the necessary financial resources by the imposition of the entry tax to give those local authorities the needed financial aid. The State, accordingly, broughtforth the Principal Act, to enable the levy and collection of a tax on the entry of goods into local areas for consumption, use or sale therein.
Unfortunately, from the very inception, this legislative measure has had a vicissitudinous career. Its enforcement and implementation was not smooth; but was marked by successive challenges on one ground or the other. The present batch of writ petitions is, indeed, the third round of challenge.
3. The general scheme of the Principal Act is this :
Section 2(f) defines specifically "local area", by confining it to the area within municipal corporations and municipalities in the State. Section 3 authorises the levy of the tax on the entry of scheduled goods and these items were specifically enumerated in the Schedule to the Principal Act into a local area for "consumption, use or sale" therein at such rates not exceeding 2 per cent ad valorem as the State Government may by notification specify. Section 4, requires every dealer in schedules goods to get himself registered under the "Act" in the prescribed manner. Section 7, requires every dealer to file monthly statements of the scheduled goods brought by him into the local area, during the month and remit the tax computed on the basis. Section 5, deals with the filing of returns and the final assessment.
The point to notice is that both the concept of "local area" and "scheduled goods" are determinate and specifically defined by the statute itself. In the "Principal Act" the scheduled goods were limited to three items, viz., (i) "All varieties of textiles, etc., (ii) Tobacco and all the products and (iii) Sugar, other than sugar-candy, confectionary and the like".
State Government, in exercise of powers under section 3 of the Principal Act, issued a notification bearing No. FD 66 ESL 79 dated 31st May, 1979, specifying the "local areas", the "goods" and the "rates of tax". A flood of writ petitions challenging the constitutional validity of that enactment followed. Writ Petition No. 7039 of 1979 preferred by M/s. Hansa Corporation ILR (1980) 1 Kar 165 was one amongst that batch of 1590 cases. The validity of the entry tax was challenged on as many as 24 grounds. A Division Bench of this Court, by its order dated 24th August, 1979, negatived all but two grounds. The two contentions accepted by the court were that section 3 of the Act does not empower the State Government to apply the provisions of the Act to certain local areas only and to exclude other local areas and that the Act in not exempting petty dealers, imposes unreasonable restriction on their trade. The Division Bench, accordingly, declared the Principal Act as unconstitutional and also quashed the notification dated 31st May, 1979.
4. The State Government, inexplicably as it may seem and that is the genesis of one of the contentions here chose to prefer only one appeal before the Supreme Court in C.A. 3094 of 1979 against the order in W.P. No. 7039 of 1979 of M/s. Hansa Corporation, though there were 1590 writ petitions in that batch. Supreme Court by judgment dated 25th September, 1980, in State of Karnataka v. Hansa Corporation , allowed the State's appeal and set aside the
judgment of this Court and dismissed W.P. No. 7039 of 1979 filed by M/s. Hansa Corporation ILR (1980) 1 Kar 165, in this Court.
5. Before we advert to the second round of the litigation, it is necessary to notice certain legislative changes brought about in the Principal Act.
Before the State's appeal in M/s. Hansa Corporation's case was decided by the Supreme Court, the Legislature enacted "The Karnataka Tax on Entry of Goods into a Local Area for Consumption, Use or Sale therein Act, 1980, (E.T. Act 21 of 1980 for short) replacing an earlier ordinance of 8th June, 1980. This was a fresh piece of legislation intended to be a substitute for and to fill the void created by this Court striking down the Principal Act. Quite obviously this E.T. Act 21 of 1980, was not intended to operate cumulatively with the Principal Act. The result was that after the judgment of the Supreme Court, two enactments, viz., the "Principal Act" and the "E.T. Act 21 of 1980" were in force covering the same field. With a view to removing this redundancy, the "E.T. Act 21 of 1980" was repealed by the "Repealing Act 10 of 1981", which replaced an earlier ordinance in this behalf. This "Repealing Act 10 of 1981" by its second section repealed E.T. Act 21 of 1980, with effect from its inception, i.e., 8th June, 1980. By its third section it declared that "E.T. Act 21 of 1980" shall be deemed never to have been enacted. The said section 3 also proceeded to declare that the "Principal Act", "shall, notwithstanding anything contained in any judgment, decree or order of any court be deemed always to have been valid and shall continue to be in force"
The next amendment was by the "Amending Act 12 of 1981", which replaced an earlier ordinance in that behalf. It came into force with effect from 18th February, 1981, and amended certain provisions of the "Principal Act". By one of the amendments, the "Principal Act" was made operative only from 1st October, 1980, as against the 1st June, 1979, earlier notified. Another amendment was to section 3 of the Principal Act by which the State Government was authorised and empowered to issue notifications under section 3 "whether prospectively or retrospectively". Item No. 1 of the Schedule to the Principal Act was also substituted by a new item.
The last of the legislative activities was the "Amending Act 13 of 1982" which came into force on 1st April, 1982. By this Act, which was a composite legislation, amendments to several taxation laws including the "Principal Act" were introduced. Section 7 which has 15 sub-sections pertain to the Principal Act. Inter alia, it seeks to expand the definition of "local area"; expand the definition of "dealer" and also add 13 new items to the schedule to the Act, namely :
"4. Iron and steel, that is to say, -
(i) pig iron and cast iron including ingot moulds, bottom plates, iron scrap, cart-iron scrap, runner scrap, and iron skull scrap;
(ii) steel semis (ingots, slabs, blooms and billets of all qualities, shapes and sizes);
(iii) skelp bars, tin bars, sheet bars, hoe bars and sleeper bars;
(iv) steel-bars (rounds, rods, squares, flats, octagons and hexagons, plain and ribbed or twisted, in coil form as well as straight lengths);
(v) steel structurals (angles, joints, channels, tees, sheet piling sections, Z sections or any other rolled sections);
(vi) sheets, hoops, strips and skelp, both black and galvanised, hot and cold rolled, plain and corrugated, in all qualities in straight lengths and in coil forms as rolled and in rivetted condition;
(vii) plates both plain and chequered in all qualities;
(viii) discs, rings, forgings and steel castings;
(ix) tool, alloy and special steels of any of the above categories;
(x) steel melting scrap in all forms including steel skull, turnings and borings;
(xi) steel tubes, both welded and seamless, of all diameters and lengths, including tube fittings;
(xii) tin plates, both hot dipped and electrolytic and tin-free plates;
(xiii) fish plate bars, bearing plate bars, crossing sleeper bars, fish plates, bearing plates, crossing sleepers and pressed steel sleepers, rails, heavy and light crane rails;
(xiv) wheels, tyres, and axles and wheel sets;
(xv) wire rods and wires rolled, drawn, galvanised, aluminised, tinned or coated such as by copper;
(xvi) defectives, rejects, cuttings, or end pieces of any of the above categories.
6. All kinds of paper including carbon paper, blotting paper, waterproof paper, PVC coated paper, ferro paper, ammonia paper, stencil paper, pulp boards, art boards, duplex boards, triplex boards, card boards, corrugated boards and the like but excluding newsprint.
7. Industrial machinery and parts and accessories thereof.
8. Aluminium ingots.
9. Industrial gases other than LPG.
10. Coal and coke (excluding charcoal).
11. All petroleum products, that is to say, - petrol, diesel, crude oil, lubricating oil, transformer oil, brake or clutch fluid, bitumen (asphalt), tar and others but excluding LPG, kerosene and naphtha for use in the manufacture of fertilisers.
12. Refrigerators, air-conditioners and parts and accessories thereof.
13. Electrical goods, that is to say, electrically operated motors, fans, geysers, hot plates, ovens, heaters, mixers and grinders, including parts and accessories thereof and such other items as may be notified by the State Government from time to time.
14. All kinds of automobiles excluding passenger buses, tractors, tractor-trailers and power tillers.
15. All kinds of ores.
One of the contentions now urged is that the amending Act 13 of 1982, imposed new and additional restrictions - both as to areas and as to new items of goods - violative of article 301 and that even assuming that those additional restrictions are reasonable and in public interest, the amending Act had to comply with the requirements of article 304(b) proviso.
6. "Repealing Act 10 of 1981" brought forth a spate of writ petitions with the filing of the batch of writ petitions, viz., W.Ps. 21048, 21756, 21973, 22587 and 23373 of 1980 and W.Ps. 1 and 7040 of 1981 by traders, amongst whom were petitioners in the first batch of 1590 writ petitions in whose cases the writs of mandamus issued by this Court had not been appealed against. One of the grounds urged in this second round was that the judgment of the Supreme Court in M/s. Hansa Corporation's case , confined as it was to W.P. 7039 of 1979, did not affect the writs of mandamus issued in favour of the petitioners in the earlier writ petitions; that accordingly those writs issued by this Court had become final and that the legislature could not, by its declaration in section 3 of the Repealing Act 10 of 1981, nullify the effect of these writs issued under article 226 of the Constitution. Puttaswamy, J., by his order dated 2nd November, 1981, dismissed the writ petitions. Against this order, Writ Appeals Nos. 662 to 668 of 1982 were preferred by the petitioners. The appeals came to be dismissed by the Division Bench by judgment dated 2nd April, 1982 [vide Narasimha Kamath & Co. v. Entry Tax Officer, Mandya (1983) 1 Kar LJ 135 (Kar)]. The Division Bench concurred with the conclusions of the learned single Judge but on a different reasoning. The Division Bench did not accept the contentions of the petitioners that the legislature could not undo the effect of the writs issued under article 226 of the Constitution and that the legislative declaration in section 3 of the Repealing Act 10 of 1981, that the Principal Act was valid notwithstanding, any judgment as such a declaration amounted to an impermissible legislative overruling of judicial decisions. The Divisional Bench held that section 3 of the Repealing Act 10 of 1981 should be construed as "re-enacting" the "Principal Act" after the obstacle to its validity had disappeared pursuant to the judgment of the Supreme Court.
It is stated that the aforesaid judgment of the Division Bench in Narasimha Kamath's case (1983) 1 Kar LJ 135 (Kar) is taken up in appeal before the Supreme Court. This marks the second round of challenge.
7. We now come to the present - the third round of challenge. The present petitioners are not those who had filed writ petitions which culminated in the appellate decision in Narasimha Kamath's case (1983) 1 Kar LJ 135 (Kar).
8. We may now turn to the successive notifications issued, from time to time, under section 3. The first was the one dated 31st May, 1979. There was a supplemental notification dated 16th December, 1980, under section 3 extending the provisions of the "Act" to areas not covered by the notification dated 31st May, 1979. Notification dated 2nd March, 1981, superseded the earlier two. The notification dated 2nd April, 1982, superseded the one dated 2nd March, 1981.
9. Sriyuths K. Srinivasan, Indrakumar, B. P. Gandhi and Kashinathrao Patil, learned counsel, addressed arguments on behalf of the petitioners. The rest of the counsel appearing for the petitioners adopted the arguments of these learned counsel. Shri M. R. Achar, learned Government Advocate, addressed arguments on behalf of the respondents.
10. A wide range of contentions were raised and urged at the hearing. They admit of being formulated as follows :
Point (i) : That section 3 of the "Repealing Act, 1981" having been held in Narasimha Kamath's case (1983) 1 Kar LJ 135 to have re-enacted the "Principal Act" such re-enacted law in the absence of the prior sanction or subsequent assent of the President is void.
Point (ii) : That section 3 of the "Repealing Act 10 of 1981" is without legislative competence as its avowed object was to nullify the writs of mandamus issued by this High Court in exercise of its constitutional power under article 226 directing the State and its functionaries to forbear from enforcing the provisions of the Act.
Point (iii) : That as the date of commencement of the "Principal Act" from 1st June, 1979, originally declared was postponed by the Amending Act 12 of 1981 to 1st October, 1980, the notification No. FD 66 ESL 79, dated 31st May, 1979, issued under section 3 is without the authority of law, as the "Principal Act" was itself not in force on 31st May, 1979.
Point (iv) : That amendment of section 3 authorising retrospective notification came into force on 18th February, 1981, and that notification No. FD 14 CET 81, dated 2nd March, 1981, is ultra vires as its retrospective operation and effect projects itself anterior to 18th February, 1981.
Point (v) : That notification No. FD 14 CET 82, dated 2nd April, 1982, is also bad in law, as it does not really specify local areas at all. The expression "into a local area" in the notification is vague and fails to signify to which local area the notification seeks to apply the provision of the Act.
Point (vi) : That section 3 of the "Principal Act" as amended by the "Amending Act 12 of 1981" empowering the State Government to issue notifications retrospectively, has the effect of authorising a retrospective tax, and is violative of article 19(1)(g) of the Constitution.
Point (vii) : That even if section 3 enabling retrospective notification is not unconstitutional at all events the notification dated 2nd March, 1981, being retrospective in operation, brings about an unreasonable restriction on the rights guaranteed under article 19(1)(g) of the Constitution.
Point (viii) : That the policy and the scheme of taxation made manifest by section 3 read with section 30(2)(f) is that the taxable event is not merely entry of goods for consumption, use or sale but entry of goods coupled with actual consumption, use or sale in the local area; and that therefore, section 7 which compels the dealer to file returns and to pay the tax even before the taxable event takes, constitutes an unreasonable restriction on the fundamental rights guaranteed by article 19(1)(g) of the Constitution.
Point (ix) : Alternatively, section 7 must be read down as merely authorising collecting of a deposit "on account" towards the probable tax to be appropriated towards tax, when the actual consumption, use or sale within the local area occurs.
Point (x) : That section 3 of the "Principal Act" as amended by the amending Act 12 of 1981, being applicable only to dealers in schedules goods and not to the dealers in non-scheduled goods and not also to non-dealers, although all the three cause entry of goods into a local area for consumption, use or sale therein, the differentia of classification, though intelligible, has no nexus to the object of the legislation and that, therefore, section 3 brings about an unconstitutional discrimination and is violative of article 14 of the Constitution.
Point (xi) : That in view of article 277 of the Constitution, the State Legislature is not competent to enact the "Principal Act".
Point (xii) : That during the debate in the legislature on the "Principal Act", it was allegedly assured by the Finance Minister that entry tax would be levied only on such goods not attracting sales tax, that inclusion in the schedule, by Act 13 of 1982, of items which are liable to sales tax also is not permissible.
Point (xiii) : That notifications issued under section 3 are bad for not complying with the procedure of prior publication; and that the proceeds of the tax being intended for the benefit of and assignable to local authorities, ought not to be levied directly by the State but should only empower the local authorities to levy and collect the same.
Point (xiv) : That Karnataka Act 13 of 1982, in so far as it introduces new items Nos. 4 to 16 into the Schedule and expands the definition of "local area" in section 2(5) results in the imposition of additional restrictions on the freedom of trade and commerce; that the imposition of the tax, which is non-compensatory in character, has the direct and immediate effect of impeding free flow of trade and violative of article 301. At all events, even if the additional restrictions can be said to be reasonable and in public interest, the legislative measure by which the additional restrictions were imposed not have been introduced or moved in the legislature with the previous sanction of the President and not having also subsequently received the assent of the President, is unconstitutional and void.
11. We may now proceed to examine the merits of these contentions. We may notice here a preliminary point raised by Sri Achar. He said some of the petitioners here who had filed the earlier petitions not having raised these contentions then, stand precluded to do so now. As there are a large number of other petitioners who are not under any such disability the contention loses its edge.
12. Re : Point (i) : Sri K. Srinivasan urged that the legislative technique of section 3 of the "Repealing Act 10 of 1981" which, inter alia, sought to resurrect the "Principal Act" has been held by this Court in Narasimha Kamath's case (1983) 1 Kar LJ 135 (Kar), to amount to a re-enactment of the "Principal Act"; and that the idea of re-enactment introduces two sequential concepts, namely, first the invalidity of a legislation either by repeal or by judicial declaration, and secondly, the statute being brought back on the statute book by fresh legislation. As an inevitable concomitant and incident of re-enactment and having regard to the nature of the provisions sought to be re-enacted, namely, that they impede free flow of trade and commerce, the "Repealing Act 10 of 1981" would require prior sanction or subsequent assent of the President even granting the restrictions to be both reasonable and in public interest.
13. The assumptions basic to this argument, in our opinion, suffer from a fundamental fallacy. Section 3 of the "Repealing Act 10 of 1981" while repealing the "E.T. Act 21 of 1980" and declaring that the E.T. Act 21 of 1980 shall be deemed never to have been enacted, proceeds to declare that the "Principal Act" shall be deemed always to have been valid and in force and shall continue in force.
Adverting to the effect of this provision the Division Bench in Narasimha Kamath's case (1983) 1 Kar LJ 135 (Kar) said :
"... as stated earlier, section 3 of the Repealing Act, 1981, should be regarded as having re-enacted the Entry Tax Act, 1979, after the basis for its invalidity, as held by this Court in Hansa Corporation case ILR (1980) 1 Kar 165 was removed by the Supreme Court which reversed that decision of this Court. By such re-enactment, the writ of mandamus issued by this Court in Hansa Corporation case ILR (1980) 1 Kar 165 became ineffective."
14. This observation of the Division Bench cannot, in our opinion, be read as a pronouncement that the legislative activity in enacting section 3 of the "Repealing Act, 1981" amounted to a formal re-enactment of the "Principal Act" with all that goes with a formal re-enactment. The Division Bench was merely referring to what, in the opinion, was the legal effect of section 3 of the Repealing Act, 1981, and its observations must be understood to mean that, in its opinion, the effect and consequences of the said section 3 were analogous and comparable to those that flow from a re-enactment.
Indeed, a statute held to be constitutional by the Supreme Court does not need to derive its efficacy by any process of re-enactment. The concept and purposes of validation of laws is entirely different from those of re-enactment. In American Jurisprudence, Constitutional law, Vol. 16 at para 179, it is stated :
"A statute once declared unconstitutional, and later held to be constitutional, does not require re-enactment by the legislature to restore its operative force."
15. Sri M. R. Achar, however, stated that in Narasimha Kamath's case (1983) 1 Kar LJ 135 (Kar), it was nobody's stand that section 3 of the "Repealing Act 10 of 1981" had re-enacted the "Principal Act". Sri Achar submitted that if the court, on its own discussed an aspect which had not been raised by either party and expressed any opinion on that aspect, that opinion would not operate as a precedent. Sri Achar referred to certain observations of Fazal Ali, J., in Rajpur Ruda Meha v. State of Gujarat . It is not necessary to dilate on this point, as, in our opinion, upon a proper reading of the appellate judgment in Narasimha Kamath's case (1983) 1 Kar LJ 135 (Kar), we do not understand the learned Judges to have laid down that the "Principal Act" had formally come to be re-enacted. The observations relied upon by Sri Srinivasan are taken out and read out of context. Understood in their true context, they do not support the very premise of Sri Srinivasan's argument.
16. We, accordingly, hold and answer point (i) against the petitioners.
17. Re : Point (ii) : The argument for the petitioners proceeds somewhat on these lines :
That in the 1590 earlier writ petitioner this Court struck down the law as unconstitutional and issued writs of mandamus against the State and its officers to forbear for enforcing the provisions of the "Principal Act". The State Government preferred appeal only in W.P. No. 7039 of 1979 of Hansa Corporation ILR (1980) 1 Kar 165. Though the judgment of this Court was reversed by the Supreme Court and the constitutional validity of the Principal Act was upheld, however, the writs of mandamus issued in favour of the rest of the petitioners, not having been appealed against, became final and remained undisturbed. Section 3 of the "Repealing Act 10 of 1981" in effect seeks to set at naught these writs of mandamus issued in exercise of the constitutional power under article 226. The decision of the High Court in exercise of the constitutional power under article 226 cannot be equated to an ordinary adjudication or proceeding. The legislature has no competence by a legislative Act to set at naught writs issued under article 226.
Maru Ram v. Union of India , A. V. Nachane v. Union of India and of the Allahabad High Court in
Indodan Milk Products v. State of U.P.  48 STC 197.
18. Sri Achar, learned Government Advocate, however, says that this proposition is concluded by the pronouncement of this Court in Narasimha Kamath's case (1983) 1 Kar LJ 135 itself and again M/s. Shantilal & Bros. v. State of Karnataka  59 STC 178 (W.Ps. 19200 of 1982 and connected W.Ps. decided on 29th July, 1983).
In the former case, though section 3 of the "Repealing Act, 1981" was not, in terms, challenged, the contention of the petitioners that the writs of mandamus issued in the earlier batch could not be done away with by the said section 3, rested on this very contention. That contention was not accepted and it was held that the ratio in Pathak's case and A. V. Nachane's case
19. Again this question, more directly arose in Shantilal's case  59 STC 178 (Kar) where a similar contention in the context of section 6B of the Karnataka Sales Tax Act, 1957, was considered. Jagannatha Shetty, J., speaking for the Division Bench, found the contention unsubstantial. Distinguishing Pathak's case it was observed :
"....... It may be noted that the mandamus issued by the Supreme Court did not rest on the ground that the Parliament has no power to supersede the decision of the Calcutta High Court given in the exercise of powers under article 226 of the Constitution. The relief was granted on the basis that the Modification Act did not at all disturb that decision of the Calcutta High Court and therefore it was binding on the LIC."
That the pronouncements in Narasimha Kamath's case (1983) 1 Kar LJ 135 (Kar) and Shantilal's case  59 STC 178 (Kar) fully answer the present contention is not disputed. Indeed, during the argument of the present batch of cases before us, it was stated before us that this very question had been raised and urged before the Division Bench in Shantilal's case  59 STC 178 (Kar) and, accordingly, we deferred this pronouncement to await the decision.
20. Sri Srinivasan, however, urged that the ground on which the Division Bench in Shantilal's case  59 STC 178 (Kar) rejected this argument was itself one which had been rejected by the Supreme Court in Pathak's case itself. Sri Srinivasan said that the Division Bench distinguished the effect of Pathak's case on the ground that the legislation concerned in that case had not even referred to let alone seek to get over the decision of the Calcutta High Court. Sri Srinivasan said that even if the legislature had expressly sought to get over the pronouncement of the Calcutta High Court, it would have been to no effect for, it was not competent for the legislature to do away with the writ of mandamus issued by the Calcutta High Court. Sri Srinivasan sought to derive support from the following observations in Pathak's case :
"I may, however, observe that even though the real object of the Act may be to set aside the result of the mandamus issued by the Calcutta High Court, yet, the section does not mention this object at all. Probably this was so because the jurisdiction of a High Court and the effectiveness of its orders derived their force from article 226 of the Constitution itself. These could not be touched by an ordinary act of Parliament. Even if section 3 of the Act seeks to take away the basis of the judgment of the Calcutta High Court, without mentioning it, by enacting what may appear to be a law, yet, I think that, where the rights of the citizen against the State are concerned, we should adopt an interpretation which upholds those rights ........" (vide para 9)
Sri Srinivasan strongly urged that the ground on which Pathak's case was sought to be distinguished in Shantilal's case  59 STC 178 (Kar) requires reconsideration.
21. In Pathak's case certain Class III and Class IV employees in the Life Insurance Corporation of India (LIC) challenged the validity of the Life Insurance Corporation of India (Modification of Settlement) Act, 1976, which sought to withhold payment of bonus payable in accordance with certain earlier settlements entered into between the LIC on the one hand and its Class III and IV employees on the other and, in particular, the one reached on 24th January, 1974. However, before that Act was passed, on a writ petition filed by the Insurance Employees' Association, Calcutta, the Calcutta High Court had, on 21st May, 1976, issued a writ of mandamus directing the LIC to implement and effectuate the settlement dated 24th January, 1974, for the particular period concerned in that petition. The Letters Patent Appeal preferred by the LIC against that order having been, reportedly, withdrawn, the order in the writ petition became final and binding :
22. Referring to the effect of mandamus issued by the Calcutta High Court, Bhagwati, J., said :
"We are, therefore, of the view that, in any event, irrespective of whether the impugned Act is constitutionally valid or not, the Life Insurance Corporation is bound to obey the writ of mandamus issued by the Calcutta High Court and to pay annual cash bonus for the year 1st April, 1975 to 31st March, 1976 to Class III and Class IV employees ..........." (vide para 26)
As to the effect of the modification on the mandamus issued by the Calcutta High Court, the Supreme Court observed :
"................ It is, no doubt, true, said the petitioners, that the impugned Act, if valid, struck at clause 8(ii) of the settlement and rendered it ineffective and without force with effect from 1st April, 1975, but it did not have the effect, of absolving the Life Insurance Corporation from its obligation to carry out the writ of mandamus ................. This contention of the petitioners requires serious consideration and we are inclined to accept it." (vide para 24)
23. In A. V. Nachane's case the Supreme Court
considered the effect of the decision in Pathak's case and LIC of India v. D. J. Bahadur
and held that the settlement of 1974 in relation to the payment of bonus could be interfered with only by a fresh settlement, award or a relevant legislation, but any such proposition could only have a prospective effect.
In Pathak's case all the learned Judges subscribed to the view that the Modification Act was void as offending article 31(2). Four of the learned Judges were also of the view that the Modification Act did not have the effect of superseding the mandamus issued by the Calcutta High Court.
24. As an instance as to how the principle and effect of Pathak's case and Nachane's case would require to
be understood, Sri Srinivasan referred to a decision of the Allahabad High Court in Indodan Milk Products' case  48 STC 197.
In that case, section 4(1) of the U.P. Sales Tax Act, 1948, had exempted milk and such other goods which the State Government may exempt. Later the State Government issued a notification exempting certain goods including milk products, but excluding those sold in sealed tins. A question having arisen in the case of the same assessee for the year 1965-66, "whether, or not condensed milk is milk within the meaning of section 4(1) and Therefore exempt", a Full Bench of the Allahabad High Court held that condensed milk was "milk" within the meaning of the exempting provision. For a subsequent assessment year, i.e., 1967-68, the assessee filed a writ petition against an assessment bringing condensed milk to tax and the High Court, following its earlier Full Bench ruling, allowed the writ petition and directed the assessing authority to modify the assessment.
The U.P. Sales Tax (Amendment) Act, 1974, which was enacted for the purpose of getting over the interpretation of the Full Bench, repealed and re-enacted section 4, with retrospective effect from 31st March, 1956, which exempted, inter alia, "milk other than condensed milk, milk powder or baby-milk".
Section 12 of the amending Act sought to validate the assessments notwithstanding any judgment, decree or order of any Court. In the writ petition filed by the assessee challenging the amendments, one of the contentions urged, relying upon Pathak's case was that the amending Act did not and could not take away the effect of the decision of the High Court in the writ petition.
The High Court, while holding that the substratum of the Full Bench decision had been taken away by the retrospective amendments and that that decision was not, in the altered circumstances brought about by the retrospective change in the law, binding and enforceable, however, took a different view of he effect of the amendment so far as the order in the writ petition relating to the assessment year 1967-68 was concerned. It held that the amendment did not and could not affect the judgment in the writ petition given in exercise of the constitutional power under article 226. The High Court held :
"The position with respect to the High Court's judgment given in the writ petition under article 226 of the Constitution is, however, different ............. The mandamus issued by this Court under article 226 of the Constitution cannot be countermanded merely by retrospectively amending the sales tax law. Section 12 which validates the assessment notwithstanding any judgment, decree or order of any court, will not apply to judgments rendered under the constitutional power under article 226 of the Constitution. No State Legislature can affect the constitutional power vested under article 226 of the Constitution in relation to a judgment actually rendered by it in between certain parties. The judgment of this Court in the aforesaid writ petition, having become final, operated in between the present petitioner and the sales tax authorities. A similar situation arose in Madan Mohan Pathak v. Union of India .........."
The pronouncement, it is true, does help Sri Srinivasan's contention.
25. On a careful consideration of the matter, we are of the opinion that the conclusion reached by the two Division Benches on this point is correct.
The thrust of Sri Srinivasan's argument is that when there is a judicial pronouncement in exercise of the extraordinary constitutional jurisdiction under article 226 by the High Court and a writ is issued, its efficacy and effect cannot be nullified by any legislative declaration. The effect of the writ, it is urged, can be altered or modified only in judicial proceedings of appeal or review.
This proposition of Sri Srinivasan incurs the criticism of being stated too broadly and not apposite in all contexts. It is true that where a law is declared unconstitutional and struck down by the Courts, the effect of such judicial pronouncement cannot be rendered nugatory by a mere subsequent legislative declaration that the law shall, notwithstanding the judicial verdict invalidating it, be deemed to be valid. Such legislative overruling of and interference with the finality of a judicial verdict is impermissible having regard to the limitations on the legislature implicit in the separation of powers amongst the three organs of the State.
26. However, if there is a pronouncement of the highest court of the land declaring a law to be bad for some constitutional infirmity noticed in it and a consequential writ issued, there can be no question of a further appeal from it and the subsequent act of the legislature curing the defect and validating the law with retrospective effect would only imply legislature's recognition of the efficacy and finality of the judicial pronouncement. In the altered circumstances brought about by the retrospective change in the law the earlier judicial declaration and the consequential writ issued become irrelevant and unenforceable. There is no legislative overruling of a judicial decision in such a case. It cannot be said that in such a case the legislature does not legislate but adjudicates. In such validating acts the legislature accepts both the correctness and finality of judicial pronouncements and proceeds granting legislative competence and conformability with other constitutional limitations on legislative power - either to remove the lacuna or to supply the omission in the law pointed out by the judicial pronouncement. The law is thus validated and resurrected. Such a validating law can be given retrospective operation as the legislature, which has competence to make a law, can make it either prospectively or retrospectively. In such a case the getting rid of the effect of the judicial pronouncement is a mere incident and consequence of the altered circumstances brought about by retrospective exchange in the law. Otherwise, a judicial pronouncement would operate as a permanent limitation on legislative power.
As to the general proposition that the effect of a writ issued under article 226 cannot be overcome by legislature at all the following observations of the Constitutional Bench of the Supreme Court in State of Orissa v. Bhupendra Kumar Bose is worth recalling :
"17. We will now deal with the two additional grounds urged before us by Mr. Chetty. He contends that the Governor was not competent to issue an ordinance with a view to override the judgment delivered by the High Court in its jurisdiction under article 226 of the Constitution. This argument is obviously untenable, for it erroneously assumes that the judgment delivered by the High Court under article 226 has the same status as the provisions in the Constitution itself. In substance, the contention is that just as a provision in the Constitution like the one in article 226 cannot be amended by the Governor by issuing an ordinance, so a judgment under article 226 cannot be touched by the Governor in his ordinance making power. It is true that the judgment delivered by the High Court under article 226 must be respected but that is not to say that the Legislature is incompetent to deal with problems raised by the said judgment if the said problems and their proposed solutions are otherwise within their legislative competence. It would, we think, be erroneous to equate the judgment of the High Court under article 226 with article 226 itself and confer upon it all the attributes of the said constitutional provision."
27. Consistent with this permissibility of validating retrospective legislation, the fundamental distinction, relevant to the present situation, that requires to be kept clearly distinguishable is this : If the judicial decision is merely a declaratory judgment and the issue of a writ of mandamus is merely consequential to that declaration, it would be permissible for the legislature to remove the defect or supply the basis, as the case may be, noticed in the judicial pronouncement and thus validate the law. If, on the other hand the judgment, inter-parties, is rendered on the basis of the substantive pre-existing rights of the parties which are crystallised in the writ issued, and the issuance of the writ is mode of enforcing such a adjudicated pre-existing rights - as in the case of a judgment and decree inter-parties - then the effect of such adjudication cannot be interfered with except in a judicial process such as appeal, review, etc. In the former case the judgment is merely declaratory of the law and the writs issued are merely consequential; but in the latter case the decision is adjudicatory of pre-existing rights of parties and the rights are crystallised into and enforceable through the writ.
Pronouncement of the Supreme Court in Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality AIR 1970 SC 92; Ahmedabad Corporation v. New Shrock Spg. and Wvg. Co. Ltd. ; I. N. Saksena v. State of M.P. AIR 1976 SC 2250 and then Mistilal Misrilal Jain v. State of Orissa illustrate the former principle. We are unable to agree with Sri Srinivasan that after Pathak's case all these pronouncements are denuded of their
authority. On the other hand, Pathak's case ,
Bahadur's case and Nachane's case
are illustrative of the latter class of cases.
The recognition of the distinction between the two class of cases is implicit in Pathak's case itself. Referring to the nature and effect of the judgment of the Calcutta High Court and stressing the important of the distinction that it was not merely declaratory of the law but was an enforcement of pre-existing substantive rights, Supreme Court said :
"...... But it is a judgment giving effect to the right of the petitioners to annual cash bonus under the settlement by issuing a writ of mandamus directing the Life Insurance Corporation to pay the amount of such bonus. If by reason of retrospective alteration of the factual or legal situation the judgment is rendered erroneous, the remedy may be by way of appeal or review, but so long as the judgment stands, it cannot be disregarded or ignored and it must be obeyed by the Life Insurance Corporation ......"
* * *
"...... Therefore, according to the interpretation I prefer to adopt the rights which had passed into those embodied in a judgment and became the basis of a mandamus from the High Court could not be taken away in this indirect fashion." (vide para 9)
The ground of distinguishment of the relevant of the decision on validation of laws was this :
"...... It is difficult to see how this decision given in the context of a validating statute can be of any help to the Life Insurance Corporation. Here, the judgment given by the Calcutta High Court, which is relied upon by the petitioners, is not a mere declaratory judgment holding an impost or tax to be invalid, so that a validation statute can remove the defect pointed out by the judgment amending the law with retrospective effect and validate such impost or tax. But it is a judgment giving effect to the right of the petitioners to annual cash bonus under the Settlement by issuing a writ of mandamus directing the Life Insurance Corporation to pay the amount of such bonus. If by reason of retrospective alteration of the factual or legal situation, the judgment is rendered erroneous the remedy may be by way of appeal or review, but so long as the judgment stands, it cannot be disregarded or ignored and it must be obeyed by the Life Insurance Corporation ......" (vide para 26)
Sri Srinivasan does not dispute that in the present case we are dealing with a case of validation of a tax-law.
After the Supreme Court reversed the decision of this Court in Hansa Corporation's case ILR (1980) Kar 165, there was no defect in it to be cured, no omission to be supplied and no lacuna to be filled up and the Legislature had merely to declare so. The legislative device and expedience reflected in section 3 of the Repealing Act 10 of 1981, merely recognises the altered circumstances brought about by the pronouncement of the Supreme Court. And in those altered circumstances, so recognised by section 3 of the Repealing Act 10 of 1981, the decisions in the writ petitions, even though they had not been appealed against, became irrelevant and incapable of coming in the way of the enforcement of the provisions of the "Principal Act".
In this view of the matter, with the utmost respect to the learned Judges of the Allahabad High Court, we are unable to bring ourselves to fall in line with the view taken by them in the Indodan Milk Products case  48 STC 197.
28. We, accordingly, hold and answer point (ii) also against the petitioners.
29. Re : Point (iii) : The Principal Act came into force on 17th May, 1979. The Notification No. FD 66 ESL 79 under section 3 was issued on 31st May, 1979. This notification is challenged on the ground that when by the "Amending Act 12 of 1981" the date of commencement of the Act was made effective only from 1st October, 1980, the legal basis of the notification dated 31st May, 1979 was taken away as, on the day that notification was issued, the Principal Act could not be said to be in force at all.
30. But, this question is virtually academic in these cases. By the subsequent notification, dated 2nd March, 1981, issued under section 3, the earlier two notifications including the one dated 31st May, 1979, were superseded. Therefore, the question of the validity or otherwise of the notification dated 31st May, 1979, covered by point (iii) is of no practical consequence.
31. Sri Srinivasan, however, urged that a decision on the validity or otherwise of the notification dated 31st May, 1979, would be relevant in the context of the provisions of section 5(4) of the "Amending Act 12 of 1981" which, inter alia, provide for recovery of taxes actually collected or "deemed to have been collected" by any dealer for the period between 1st June, 1979, and 1st October, 1980, and for the period between 1st October, 1980, and 18th February, 1981, in excess of 1 per cent. But, none of the petitioners have challenged here any such proceedings for recovery.
We agree with the learned Government-Advocate that in the facts of these cases, this question is purely academic. We, therefore, decline to go into and decide it.
32. Point No. (iii) is disposed of accordingly.
33. Re : Point (iv) : This relates to the validity of the notification dated 2nd March, 1981. Petitioners' contentions is this :
The amendment of section 3 of the Principal Act authorised the issue of retrospective notification was introduced on 18th February, 1981; that any exercise of that power cannot relate to a period anterior to 18th February, 1981, and that since the retrospectively of the notification dated 2nd March, 1981, protects anterior to 18th February, 1981, the notification is ultra vires.
34. This contention is, in our opinion, unsound. On 2nd March, 1981, when the notification was promulgated, there was power to issue it retrospectively. Section 4 of the amending Act 12 of 1981, had substituted the words "Whether prospectively or retrospectively" into section 3 of the Principal Act. The power of the State Government to make the notification retroactive is to be determined on the basis of its powers existing as on the date of the exercise of the power and not with reference to the period to which the retroactivity relates. The principle is that, legislature can delegate its legislative powers within, of course, the recognised limits of permissible delegate in exercise of that power it will be possible for it to exercise that power with retrospective effect if the language of the statute, either expressly or by necessary implication, empowers such retroactive exercise. But, where no such language is to be found, the authority exercising subordinate legislative functions cannot give it retrospective effect. In the present case, case on the date of the issue of the notification, by virtue of the amendment, section 3 expressly provide that a notification could be issued whether prospectively or retrospectively by the State Government. In this view of the matter, it is not possible to accept the petitioners' contention.
35. Point (iv) is, accordingly, held and answered against the petitioners.
36. Re : Point (v) : This point relates to the validity of the notification dated 2nd April, 1982. The infirmity in this notification, according to the petitioners, is that no "local area" can be said to have been specifically predicated at all. To put this contention in its proper perspective, it is necessary to refer to the language of the notification itself. The notification, after recapitulating the source of the power and stating that it supersedes the earlier notification dated 2nd March, 1981, proceeds to say :
"............. the Government of Karnataka hereby specifies that with effect from the 1st day of April, 1982 the tax shall be levied and collected under the said Act at the rate specified in column (3) of the table below on the entry of the Scheduled goods specified in the corresponding entries in column (2) thereof, into a local area :-
------------------------------------------------------------------------ Sl. No. Description of the scheduled goods Rate of tax ------------------------------------------------------------------------ * * *"
The expression "local area" is defined in section 2(5) of the Act.
The argument is that article "a" in the notification does not connote "every" local area and when article "a" qualifies "local area" is, the specification is vague and it would not be possible to predicate with any certainty to with "local area" the notification was intended to or does apply. It is contended, therefore, that the expression "into a local area" in the notification cannot mean "every local area". Sri Srinivasan sought to sustain this argument with reference to two circumstances.
37. First, he referred to a fresh notification dated 31st March, 1983, issued under section 3 in which the expression "into every local area" is used which would, according to Sri Srinivasan, show that a different intention is implicit in the designedly different language occurring in the earlier notification.
Secondly, Sri Srinivasan says that the expression "a" local area has been interpreted by the Supreme Court in Hansa Corporation's case as not to amount to "every" local area and that it is not therefore permissible to give a different meaning to that expression now.
38. It is difficult to accept both these contentions. On the first aspect, the circumstance that in a later notification, Government used the word 'every' does not, ipso facto, compel a construction that the words "into a local area" in the earlier notification necessarily excluded its application to "every" local area if, otherwise, in the context, they mean the same thing.
39. On the second aspect as to what the Supreme Court said on the import of the expression "a local area" in section 3, those observations require to be understood in the precise context in which it was examined. In that case, the High Court had so interpreted the expression "a local area" in section 3 as not to admit of any choice of local areas to the Government in applying the provisions of the "Act" and that Government could not pick and choose any particular "local area". The Supreme Court did not approve of this interpretation of section 3. The Supreme Court held that the expression "a local area" in section 3 need not necessarily mean "every" local area and the State Government could choose certain local areas and exclude other local areas in applying the provisions of the Act.
40. Relying on the observations made by the Supreme Court in this context, Sri Srinivasan says that Supreme Court had held that the expression "a local area" did not mean "every local area". That, in our opinion is not the correct way of understanding the observations of the Supreme Court. All that the Supreme Court said was that "local area" need not necessarily mean "every local area" and that the law did not compel the State Government to apply the provisions of the Act to all local areas, simultaneously. It is implicit in the logic of the situation that "a local area" did not also necessarily exclude "all" or "every" local area and that the State Government could, if it so choose, apply the provisions to every or all local areas as well. In that case, Government had sought to apply the provisions of the Principal Act to certain local areas alone and that was upheld.
If, indeed, the expression "a local area" is understood in the way Sri Srinivasan wants it to be understood, it would then mean that the State Government would have no power to apply the provisions of the Act simultaneously to every local area even if it desired to do so.
41. In our opinion, a proper construction would show that the article "a" prefixing the "local area" used in the notification, is not used as a definite-numeral. The word "a" has varying meanings and uses. "A" may mean, "one" or "any" depending on the context. It may mean one where only one is intended. It may mean "any" also, where the context is not repugnant to that import. It is often used in the sense of "any" and then applied to more than one individual object. The word "any", constructively, would mean also everyone of the sort named.
It would, therefore, appear that though the wording of the notification is somewhat inelegant and unhappy, the intendment made manifest in the notification is that the provisions of the Act are to be applied to every local area. If any absurdity or inconsistency resulting from reading of the notification in a particular way could reasonably be avoided on the basis of an alternative construction which is not unreasonable on the plain language, then the Court should not be astute to defeat the notification by accepting a construction which would reduce it to an absurdity. On a reasonable construction of the language of the notification, the words "into a local area" mean "every local area" as defined in section 2(5) of the Act, and will apply to all such local areas.
42. We, accordingly, hold and answer point (v) also against the petitioners.
43. Re : Points (vi) and (vii) : These two points admit of being considered and disposed of together.
Petitioners contend that the amendment of section 3 of the Principal Act, by the "Amending Act 12 of 1981", empowering the State Government to apply its provisions by issuing notifications retrospectively offends article 19(1)(g) of the Constitution.
Point (vii) is that even if the section authorising retrospective notification does not, by itself, offend article 19(1)(g), the exercise of the power in the form of the notification dated 2nd March, 1981, applying the provisions of the Act retrospectively from 1st October, 1980, with respect to some areas and from 1-1-81 with respect to other areas, amounts to and constitutes an unreasonable restriction on petitioner's right under article 19(1)(g).
Mere excessiveness of a tax does not, by itself, become an unreasonable restriction on the freedom of trade or business; unless it is shown to be confiscatory in effect. Equally, the mere imposition of a tax with retrospective effect is not per se, violation of article 19(1)(g). A citizen who challenges a retrospective tax as violative of article 19(1)(g) must demonstrate the actual manner the tax and its incidents hurt him and make inroads into the fundamental right. The petitioners have not laid the necessary particulars in this behalf in their pleadings. On this score alone these contentions ought to fail.
44. In considering the question as to the effect of a retrospective tax, it would be relevant to examine how that retrospectively operates. The period of retrospectivity is also a relevant and material consideration. But, the mere possibility of the retrospective application of the provisions of a taxing law operating harshly in some cases is no ground to hold the legislation itself unconstitutional. The effect of the actual exercise of the power would have to be examined.
45. It is to be noticed that as on 1st October, 1980, to which date the retrospectivity of the notification extends, the Principal Act was in force and there were also earlier notifications applying its provisions from 1st June, 1979, itself. Indeed, the law gave a concession to the dealers, in making the law effective from 1st October, 1980, as against 1st June, 1979, earlier notified. In the case of a law validating a tax, the scope of examination of its retrospectivity in the context of article 19(1)(g) is quite limited. In this case, the period of retrospectivity is only a few months during which period also the taxing power and a notification exercising that power were both in operation. In the facts of this case, it is not possible to hold that the issue of the notification of 2nd March, 1981, with some retrospectivity of its operation, offends petitioners' fundamental rights under article 19(1)(g) of the Constitution.
By the notification, the State Government was seeking to effectuate the object of the taxing statute and was making, what may be called "small repairs" in the law. The following passage in 73 Harvard Law Review 692, "Retractive Legislation" : Charles B. Hochman, referred to with approval in Assistant Commissioner of Urban Land Tax, Madras v. Buckingham and Carnatic Co. Ltd. is worth recalling :
"It is necessary that the legislature should be able to cure inadvertent defects in statutes or their administration by making what has been aptly called 'small repairs'. Moreover, the individual who claims that a vested right has arisen from the defect is seeking a windfall since, had the legislature's or administrator's action had the effect it was intended to and would have had, no such right would have arisen. Thus, the interest in the retroactive curing of such a defect in the administration of government outweighs the individual's interest in benefiting from the defect .............. The Court has been extremely reluctant to override the legislative judgment as to the necessity for retrospective taxation, not only because of the paramount governmental interest in obtaining adequate revenues, but also because taxes are not in the nature of a penalty or a contractual obligation but rather a means of apportioning the costs of government among those who benefit from it ..........."
46. We, accordingly, hold and answer points (vi) and (vii) also, against the petitioners.
47. Re : Points (viii) and (ix) : These two points could be disposed of together.
The contention reflected in point (viii) is that though entry 52 of List III encompasses a levy on the entry of goods into local area for purposes of consumption, use or sale, however, under section 3 read with section 30(2)(f) of the present legislation, the taxable event, is, designedly and as a matter of fiscal policy, not the entry of goods for purposes of consumption, use or sale but entry of goods coupled with actual consumption, use or sale.
Point No. (ix) is a corollary of point No. (viii). If the taxable event is entry of goods into a local area coupled with actual consumption, use or sale it follows, so goes the argument, that section 7 to the extent it requires the filing of a statement and the payment of taxes in advance on the basis of the scheduled goods brought into the local area in the proceeding month would impose a tax independently of, and even before, the taxable event and would therefore constitute an unreasonable restriction on the freedom of trade. The argument proceeds to suggest that in order to avoid such unconstitutionality of section 7, it must be read down to mean that what is collected under section 7 is merely an "on account" payment to be appropriated towards tax to be levied after the actual consumption, use or sale.
48. Sri Gandhi says that his clients, who are wholesale dealers in textiles, purchase goods from up-country manufacturers and in case their entry into the local area with intent to re-export them out of the local area there is, thus, no consumption, use or sale of the goods within the local area. Only a small part of the goods so entering the local area are consumed, used or sold within the local area. In para 2 of the petition (Writ Petition No. 23710 of 1982), it is averred :
"........... Major portion of goods purchased by petitioner and brought to their place of business at Bangalore is re-exported to persons outside the Corporation limit of Bangalore and outside the State of Karnataka. Petitioners' liability under section 3 of the Act, is therefore, hardly 10 per cent of the total goods brought into the area. However, section 7 of this Act seeks to oblige dealers to pay advance tax on the entire goods brought to the local area, irrespective of the fact whether such goods are meant for use or consumption or sale within the municipal area ............"
Such transactions where goods are re-exported, according to Sri Gandhi, are not liable to tax for two reasons : First, the taxable event envisaged by the scheme of the law and the charging section 3 is entry of goods coupled with actual consumption, use or sale, the goods entering a local area for re-export are not liable to tax at all. It is, accordingly, urged that section 7 to the extent it makes the latter kind of goods also liable to tax is inconsistent with the charging section.
49. For the first premise that the taxable event is not merely "entry of goods for consumption, use or sale" but is entry coupled with actual consumption ................ consumption, use or sale, Sri B. P. Gandhi relied upon certain observations of Puttaswamy, J, in Ratho Textiles v. Chief Secretary, State of Karnataka W.P. No. 21034 of 1980, etc. decided on 2nd May, 1981, to suggest that the taxable event occurs upon actual consumption, use or sale.
50. The charging section 3, inter alia, provides :
"3. Levy of tax. - (1) There shall be levied and collected a tax on entry of the scheduled goods into a local area for consumption, use or sale therein at such rate not exceeding two per cent ad valorem ...... etc.,"
Section 7 provides that every person referred to therein :
"........... shall send every month to the assessing authority a statement containing such particulars as may be prescribed and shall pay in advance the full amount of tax payable by him on the basis the scheduled goods brought by him during the preceding month into the local area ........"
Section 30(2)(f), which relates to rule-making power, says :
"30(2) In particular and without prejudice to the generality of the foregoing power, such rules may provide for, -
* * *
(f) refund of tax collected if the scheduled goods has not been consumed, sold or used within the local area;"
51. As to what the taxable event under section 3 is, Supreme Court in Hansa Corporation's case , said :
"The taxing event under the statute is entry of schedules goods in a local area for consumption, use or sale therein at the instance of a dealer .........." (vide para 20)
The argument, therefore, that though an impost on entry of goods for consumption, use or sale is permissible under entry 52 of List II, policy and schedule of the tax under the present Act, renders goods entering a local area exigible to tax only upon actual consumption, use or sale cannot be countenanced. We do not understand the observations in Writ Petitions Nos. 23701 to 23721 of 1982 to be susceptible of the construction that the taxable event was not entry of goods into a local area for consumption, use or sale, but the tax was exigible only on proof of actual consumption, use or sale. The taxable event is entry of goods for purposes of consumption, use or sale. The actual consumption, use or sale for the purposes of which the goods enter a local area would indeed be subsequent to and not contemporaneous with - the taxable event. For the coming into being of the taxable event it would be sufficient if the goods entered into a local area for the purpose of consumption, use or sale therein. The idea of consumption connotes the goods being used up or wasted or destroyed or susceptible to use without being used up in the course of their use. The expression "use" is of wider import than "consumption". The expression "sale" in section 3 connotes merely a means for putting the goods in the way of consumption or use. The expressions "consumption" or "use" therefore imply the bringing in of the goods not with a view to taking them out again; but with a view to their retention either for use without using them up for consumption in a manner which destroys, wastes or uses up the goods. The goods come to repose in the local area.
Indeed, in Burmah-Shell Co. v. Belgaum Municipality Supreme Court held that when goods enter the "local area" for purposes of consumption, use or sale, it is not an ingredient of the taxable event that there should be actual consumption, use or sale. It was observed :
"...... It is sufficient if the goods are brought inside the area to be delivered to the ultimate consumer in that area because the taxable event is the entry of goods which are meant to reach an ultimate user or consumer in the area. Indeed, the consumer may never consume them as, for example, a motorist buys a tin of oil and finds that it does not suit his vehicle and leaves it lying on his shelf. The goods must be regarded as having been brought in for purposes of consumption when a person brings them either for his own use or consumption, or to put them in the way of others in the area, who are to use and consume. In this process the act of sale is merely the means for putting the goods in the way of use or consumption. It is an earlier stage, the ultimate destination of the goods being 'use or consumption' ............"
The essential distinction between a terminal tax and octroi is that while the former is connected with the traffic of goods, the latter is leviable in respect of goods brought into the area for "consumption, use or sale."
52. However, where goods are merely carried through a local area for purposes of onward movement across the high-ways without the goods "breaking their bulk" and in their "original package" and constitute what may be called "through consignments", it cannot be said that such goods enter the local area at all within the meaning of entry 52. Even if the onward journey is intercepted in the local area by unloading, sorting and re-loading as an incidental step to effectuate the onward journey, yet the goods cannot be said to "enter" the local area in the context of entry 52, if such were not goods intended for consumption, use or sale within a local area but their entry is only incidental to onward journey.
53. This takes us to cases where the goods though brought into the local area initially for purposes of consumption, use or sale, but later re-exported outside the limits of that local area. The case of Sri Gandhi's clients falls within this category. This class of goods must be distinguished from goods which enter a local area with the avowed and specific purpose - not of consumption, use or sale therein - of re-export outside the local area. In such latter cases, if the goods enter a local area, remain there for an indefinite or unexplained period, they might attract a terminal tax having regard to the character and incidents of that impost. However so far as entry tax is concerned such goods brought into a local area for re-export out of the local area would obviously not goods which enter the local area for consumption, use or sale therein. Referring to such cases of re-export Supreme Court in Burmah-Shell case observed :
"...... The two expressions use and consumptions together therefore, connote the bringing in of goods and animals not with a view to taking them out again but with a view to their retention either for use without using them up or for consumption in a manner which destroys, wastes, or uses them up ........." (vide para-20)
"...... It was only when the goods were re-exported out of the area that the tax could not legitimately be levied and in this case the municipality has agreed to refund the amount of tax on goods re-exported without being used or consumed in the municipal area ..........." (vide para-22)
"....... The company was, however, not liable to octroi in respect of goods which it brought into the local area and which were re-exported. But to enable the company to save itself from tax in that case it had to follow the procedure laid down by rules for refund of taxes." (vide para-23)
In the circumstances of petitioners' case, the goods at the time of their entry into the local area they are meant for consumption, use or sale therein. It may, however, later turn out that some part of the goods or even a substantial part, is actually exported outside the local area.
54. Re-export out of the local area is a negation of and detracts from the concept of consumption, use or sale therein. In respect of goods which, at the time of entry satisfy the requirements of an attract the taxable event but are, ultimately, re-exported, the appropriate provisions are of exemptions and refunds. Referring to this aspect, the Taxation Enquiry Commission said :
"....... But the most important difference lies in the requirement peculiar to octroi that, for this tax to become leviable, the goods must not only enter the area, but must be "for the purpose of consumption, use or sale therein". Usually, this requirement is sought to be satisfied by (a) the ab initio exemption of the goods which merely pass through the area, whether the exit is immediate or after an interval, or (b) by the subsequent refund of the tax collected on such goods. Exemptions and refunds, therefore, are the distinguishing features of the octroi system." (vide VOL. III, Chapter IV, para IV).
It, therefore, becomes necessary to examine the scheme of the Act and the Rules framed thereunder in this behalf. Sections 3, 5, 7 read with rule 7 of the Rules (as amended in 1982) and with amended form III appended to the Rules would show that a combination of rules of exemption and refund operate in this area and govern cases where goods are actually re-exported outside a local area.
Section 7 requires that every "dealer" and every person liable to get himself registered as dealer shall send to the assessing authority monthly statements setting out the prescribed particulars and pay the amounts on the basis of the scheduled goods brought into the local area during the preceding month. Rule 7 says that the statement required to be filed under section 7 shall be in form No. III and shall be sent within 25 days after the close of the month to which such statement relates and shall be accompanied by the evidence of payment of "the full amount payable by him on the actual taxable turnover during the month to which it relates."
55. Sri Achar, learned Government Advocate, stated that if, in the course of a particular month goods which upon their entry into the local area attract, prima facie, the taxable event, are actually re-exported out of the local area during that month itself, the "dealer" would be entitled to reduce his taxable turnover, to that extent, in the statement to be filed under section 7 and pay tax only on the residue of the turnover. Sri Achar says that rule 7 and the amended Form No. III, expressly enable this. This, Sri Achar says, is a case of exemption.
Sri Achar further says that if a dealer causes entry of scheduled goods during a month and part of it is re-exported in the following month or a subsequent month, the dealer would, again be entitled to have the value of the turnover relating to such re-export deducted in the statement for the relevant month. This, Sri Achar says would really operate as a refund though the process is by a set-off against or deduction from, what is payable by way of tax for the concerned subsequent month. Sri Achar further stated that rule 30(2)(f) expressly enables making of rules for a direct refund also. Sri Achar states, rules covering such refunds would be framed expeditiously. Sri Achar has filed a memo in this behalf.
The above proceedings, in our opinion, operate as a combination of rules of exemptions and refund and, in an appropriate way, recognize and reconcile the incidents of the entry of goods into the local area and the consequences of their subsequent re-export outside the local area.
56. In view of the foregoing, we are unable to agree with Sri Gandhi that section 7 tries to bring within its scope transactions which are otherwise outside section 3. Section 7, properly construed, is consistent with the scheme of the charging section. We are unable to subscribe to the contention of Sri Gandhi that the procedure envisaged by section 7 is discordant with section 3 and therefore requires to be held to be an unreasonable restriction offending article 19(1)(g). The question, therefore, of reading down section 7 does not arise.
57. We accordingly, hold and answer points (viii) and (xi) against the petitioners.
58. Re : Point (x) : The contention is that there is a discrimination brought about by the charging section in confining the charge to "dealers" alone. That argument is that section 3 of the Principal Act, as amended, applies only to dealers in schedules goods and not to dealers in non-scheduled goods and not also to non-dealers, although all the three classes of persons cause entry of goods into a local area for consumption, use or sale therein. It is urged that though the differentia for the classification may be logical and intelligible, however, it has no rational nexus with the objects of the legislation.
59. This contention has no merit. A dealer is defined under section 2(4) of the Principal Act. That definition imports the same meaning assigned to that expression in section 2(k) of the Karnataka Sales Tax Act, 1957. The definition of "dealer" under the said section 2(k) is wide and comprehensive. Section 28 of the Principal Act exempts persons who are not dealers in scheduled goods.
Sri Indra Kumar's contention is that a person who may not be a dealer in scheduled goods and who, nevertheless, causes entry of scheduled goods into a local area for consumption, use or sale and that placing such dealers outside the purview of the tax brings about a hostile discrimination.
These are matters which belong to the area of the policy of taxation. Legislature does not have to tax everything to tax something. Though tax laws are not outside the purview of article 14, there is however a wide range of selections and freedom in appraisal available to the legislature in the objects and incidents of taxation. In formulating fiscal-policy the legislature has a wide latitude in the matter of choice of persons and things. The complexities involved in evolving a tax policy and the inter-play of diverse economic criteria that inform a fiscal-party are such that in the matter of judicial review a meticulous scrutiny by the Court of the burden of the tax on different persons or interests can hardly be justified. The legislature is the best judge of these matters. The Court can strike down a tax law only if arbitrariness and hostile unequal treatment is writ-large. In view of the innate complexities of fiscal adjustments, the legislature necessarily enjoys a wide discretion in the matter of classification for the purpose of taxation. Besides the import into the "Principal Act" of the definition of "dealer" from the S.T. Act ensures that the logical basis of the distinctions underlying that definition would also inform the choice of the persons of incidence under the present Act. The definition of "dealer" is so comprehensive as to render the possibility of a person with any trading activity of any significance in the scheduled goods being outside the law quite remote. Indeed, practical considerations of economic validity of a tax scheme in relation to the costs of administration and considerations of efficiency of administration and implementation of the tax law are also relevant considerations.
Indeed, in Twyford Tea Co. Ltd. v. Kerala State
Supreme Court observed :
"The burden of proving discrimination is always heavy and heavier still when a taxing statute is under attack, and it is on a person complaining of discrimination. The burden is proving not possible 'inequality' but hostile 'unequal' treatment. This is more so when uniform taxes are levied. When the legislature reasonably applies an uniform rate after equalising matters between diversely situated persons differences in treatment must be capable of being reasonably explained in the light of the object for which the particular legislation is undertaken. This must be based on some reasonable distinction between the cases differentially treated. To be able to succeed in the charge of discrimination, a person must establish conclusively that persons equally circumstanced have been treated unequally and vice versa."
In regard to a judicial approach to a matter such as this, Cooley in his "Treatise on the Constitutional Limitations" at page 182, says this :
"It has been said by an eminent jurist, that when courts are called upon to pronounce the invalidity of an act of legislation, passed with all the forms and ceremonies requisite to give it the force of law, they will approach the question with great caution, examine it in every possible aspect, and ponder upon it as long as deliberation and patient attention can thrown any new light upon the subject and never declare a statute void, unless the nullity and invalidity of the act are placed, in their judgment, beyond reasonable doubt. A reasonable doubt must be solved in favour of the legislative action, ........"
Learned author refers also to the passage in the judgment of Chief Justice Marshall in Fletcher v. Peck (6 Cranch, 128, Per Marshall, Ch. J) which is also worth recalling :
"The question whether a law be void for its repugnancy to the constitution is at all times a question of much delicacy, which ought seldom, if ever, to be decided in the affirmative in a doubtful case. The court when impelled by duty to render such a judgment would be unworthy of its station could it be unmindful of the solemn obligation which that station imposes; but it is not on slight implication and vague conjecture that the legislature is to be pronounced to have transcended its power, and its acts to be considered as void. The opposition between the constitution and the law should be such that the judge feels a clear and strong conviction of their incompatibility with each other .................."
Sri Indra Kumar has not been able to demonstrate how the law offends article 14. The distinction between "dealers" in scheduled goods and "non-dealers" in scheduled goods is too obvious to admit of any possible doubt in regard to the permissibility of the classification.
60. Accordingly, point No. (x) is answered against the petitioners.
61. Re : Point (xi) : Sri Kashinath Rao Patil contended, quite seriously that in view of article 277 the State Legislature has no competence to make this law. Article 277 which is a saving clause says that any taxes, etc. which, immediately before the commencement of the Constitution, were being lawfully levied by the Government of any State, municipality, etc., may, notwithstanding that those taxes, etc., are mentioned in the Union List, continue to be levied and to be applied to the same purposes until provision to the contrary is made by Parliament by law. Conditions for the attraction of article 277 are that the topic of legislation was earlier within the State power and that under the Constitution the topic has been taken out of the State List and included in the Union List. The provision is analogous to section 143(2) of the Government of India Act, 1935. The sole object of article 277 is to avoid dislocation of the finances of the State and local authorities by depriving them of revenue which they were deriving at the commencement of the Constitution (see Amraoti Municipality v. Ramachandra . There is not scope for application of this principle in the present case. Entry 52 of List II is within the State Power.
62. We answer point (xi) against the petitioners.
63. Re : Point (xii) : This contention of Sri Gandhi is equally untenable. The Finance Minister, it is urged, had assured on the floor of the Legislature that entry tax would be levied only on such goods did not attract sales tax. The argument is that by Act 13 of 1982, goods liable to sales tax have also been brought into the schedule and that such inclusion is not permissible. It belongs to the rudiments of the subject that no estoppel can be pleaded against the legislature and that motives of a legislation are outside judicial scrutiny.
64. We answer point (xii) also against the petitioners.
65. Re : Point (xiii) : The first aspect urged by Sri Kashinath Rao Patil is that the successive notifications issued under section 3 are bad for non-compliance with the procedure of prior publication. Section 3 does not envisage or require prior publication so as to attract the provisions of section 23 of the General Clauses Act. There is no substance in this contention.
The second aspect is that under section 29 of the "Principal Act", avowedly, entry tax is intended for the benefit of and assignable to local authorities. Sri Kashinath Rao Patil says that in view of the circumstance that the levy is intended for the benefit of local authorities and consistent with the need to nurture, what Sri Kashinath Rao Patil calls, "Democracy at the gross roots", legislature ought not to impose this levy directly but should authorise and empower the local authorities, by appropriate provision in the statutes governing their constitution and functioning, to levy and collect this tax. The argument is in the areas of policies of public finance. The argument, it is needless to say, is wholly irrelevant in judicial review of legislation.
66. We, accordingly, hold and answer point (xiii) also against the petitioners.
67. Re : Point (xiv) : The contention is that Karnataka Act 13/82, in so far as it introduces new items, viz., items 4 to 16 to the Schedule to the Principal Act, and in so far it expands the definition of "local-area" in section 2(5) of the Act, results in the imposition of additional restrictions on the freedom of trade and commerce offending article 301; that these additional restrictions imposed by this non-compensatory tax are not reasonable nor in the public interest and that, at all events, even if the restrictions could be said to be reasonable and in public interest the amending Act 13 of 1982 not having been introduced or moved in the legislature with the previous sanction of the President and not having also subsequently received the assent of the President is unconstitutional and void.
It is necessary to recall here that Karnataka Act 13 of 1982 was a piece of composite legislation. It brought about amendments to several taxation laws, including the "Principal Act". Only section 7 of the Act 13 of 1982, which has 15 sub-sections, deals with the Principal Act and amends its provisions. Sri K. Srinivasan urges that the vitiating effect of the infirmity stemming from want of previous sanction is not confined only to section 7 but would extend to the whole of the legislative measure, namely, amending Act 13 of 1982.
68. The sequential aspects that require consideration are (a) Whether the expansion of the definition of "Local area" and introduction of 13 new items of goods by section 7 of Act 13 of 1982 constitute additional restrictions on the freedom of trade and commerce under article 301 : (b) If so, whether those additional restrictions are reasonable and in public interest; (c) Whether section 7 of Act 13 of 1982, required compliance with the proviso to article 304(b), and (d) Whether the non-compliance in that behalf vitiates Karnataka Act 13 of 1982, as a whole or affects merely the provisions of section 7 thereof.
69. Petitioners contend that while under the Principal Act only 3 specific items of goods were included in the Schedule, now by section 7(15) of the amending Act 13 of 1982, 13 more items are included in the Schedule. The apart, it is urged, the definition of "local area" as amended by section 7(1)(a) of the amending Act 13 of 1982 is also expanded. It is urged that by these changes additional restrictions are imposed which, even if they are reasonable and in public interest, require compliance with article 304(b). It is not disputed that the amending Act 13 of 1982 was not introduced or moved in the legislature of the State with the previous sanction of the President and the "Act" was not also subsequently reserved for the assent of the President.
70. The statute in question is a taxing statute. Taxation laws are not outside Part XIII of the Constitution. The words of article 301, are so wide and unambiguous that a taxing law which impedes the free flow of trade and commerce clearly falls within it.
The tax in question was not sought to be supported as a compensatory tax. A compensatory tax is outside the purview of article 301 as the tax is intended to create facilities for trade and promote the free flow of trade and not to impede it. All the taxes have in some degree or other a compensatory element and if it had been contended that the tax was compensatory in character the argument might, perhaps, have had some interesting possibilities, though it is hardly permissible to speculate as to what the result might have been.
That this tax, having regard to its nature and incidence and its effect on the movement of trade has been held in Hansa Corporation case , to affect, directly and immediately, the movement of goods and, therefore, to be a restriction on the freedom conferred by article 301. Supreme Court said :
"...... To the extent the impugned tax is levied on the entry of goods in a local area it cannot be gainsaid that its immediate impact would be on movement of goods and the measure would fall within the inhibition of article 301 ......." (vide para-32).
71. Sri Achar, learned Government Advocate, however, contended that the concept of freedom of trade and commerce in article 301 and as to what constitutes restriction on that freedom must be understood in the context of trade and commerce as a whole and not with reference to trade of a particular individual and his individual rights; that in view of the restriction on the freedom of trade and commerce implicit in the imposition of this tax, the "Principal Act" was reserved for and has received, the assent of, the president; and that the mere additions to the list of taxable goods in the Schedule and the expansion of the definition of "local area" are mere differences of degree and do not amount to imposition of new or additional restrictions. The concept of the restrictions, Sri Achar says, is not whether this item is taxed or that item is taxed, but relates to the effect of the imposition of a tax of this nature on trade and commerce as a whole and so viewed the assent of the President initially accorded to the "Principal Act" amount to an assent generally to the fiscal policy of the law and its effect on trade and commerce as a whole. This having been done and the principle of this impost assented to Sri Achar says, the details as to the operation of the law or the degree of its incidence are matters of mere details of implementation.
72. So far as the contention that the freedom under article 301 is from the point of view of trade and commerce as a whole and not from the individual point of view, it is necessary to recall what Supreme Court said in Automobile Transport Ltd. v. State of Rajasthan :
"...... Another distinction which has been drawn is that article 19 looks at the right from the point of view of an individual, whereas article 301 looks at the matter from the point of view of freedom of the general volume of trade, commerce and intercourse. We do not think that this distinction, if any such distinction at all exists, is material in the present cases, because an individual trader may complain of a violation of his freedom guaranteed under article 19(1)(g) and he may also complain if the freedom assured by article 301 has been violated. In a particular set of circumstances the two freedoms need not be the same or need not coalesce. In some of the Australian decisions a distinction was sought to be drawn between the free flow of the same volume of inter-State trade and the individual's right to carry on his trade in more than one State and it was argued that section 92 of the Australian Constitution related to the free flow of the volume of trade as distinguished from an individual's right to carry on his trade. Such a distinction was negatived and the Privy Council pointed out that the redoubtable Mr. James who fought many a battle for the freedom of his trade and occupation was after all an individual .........." (vide para-15).
Again in Syed Ahmed Aga v. State of Mysore it is held :
"...... No doubt the restrictions contemplated by article 304(b) may be of a character different from those on an individual citizen's rights to trade but it cannot be denied that their impact on individual rights if often very direct .............." (vide para-5).
It appears that if the imposition of this tax, which affects the movement of goods in the course of inter-State or intra-State Commerce, on three items of goods and in a specifically defined "local area" constitutes - as indeed it has been held to - a restriction on the freedom of trade and commerce from the special point of view of article 301, then, logically, the imposition of the tax in other areas not originally defined and on a number of new and different items would constitute additional restrictions also within the special meaning of article 301.
In Syed Ahmed Aga's case the Supreme Court said :
"..... It is only an additional 'restriction' from the special point of view of article 304(b) which requires presidential sanction". (vide para-24).
The Schedule to the Principal Act did not contain a residuary entry, to the effect the State could bring to tax such other goods as it may from time to time notify. In regard to the "local area" also the Principal Act did not confer power on the State Government to extend the provisions of the law to such other local areas as the Government may notify from time to time.
We cannot accept Sri Achar's contention that the earlier Presidential assent is some kind of a blanket sanction enabling the expansion of the scope of the restrictions, and the inclusion of new or additional 13 items in its Schedule. The position might have been different if the Principal Act had so defined the expression "local area" as to include such other areas as the State Government may notify from time to time and the Schedule had contained a residuary generic entry.
73. In regard to this question we can derive some guidance from the converse implications of the decision of the Supreme Court in Bangalore Woollen, Cotton and Silk Mills Co. Ltd. v. Bangalore Corporation .
74. In that case the appellant-company challenged the levy of octroi duty on "cotton" and "wool" imposed by the Corporation of the city of Bangalore under section 97 of the City of Bangalore Municipal Corporation Act, 1949, on the ground, inter alia, that the impost was violative of article 301 and did not have the protection of article
305. Schedule III, Part V of the Act specified 8 classes of goods which were classified as items I to VIII. After enumeration of classes I to VII, the last item i.e., class VIII, provided "other articles which are not specified above and which may be approved by the Corporation by an order in this behalf". Cotton and wool were brought to duty from January, 1955. It was urged that the impost must be held to be a new and post-constitutional one and was not saved by article 305. For the Corporation it was contended that there was no new imposition as there was sufficient specification of those goods in the Act itself. Supreme Court upheld the levy observing :
"......... It was firstly submitted that there is sufficient specification in the Act itself of the articles on which the octroi duty could be levied. Section 97 of the Act gives the power to levy octroi duty on animals or goods without any exception which are brought within the octroi limits. Sections 98 and 130 lay down the procedure for the levying of taxes and impose a limitation on the extent of the tax to be levied and classes I to VII make certain articles taxable and class VIII makes other articles and goods taxable if they are approved by the Corporation
..................... the combined effect of sections 97 and 130 and Part V of Schedule III including class VIII which have been set out above is that the words are of very general nature and would have the same effect as if all articles were intended to be and were included ......" (vide para-8).
Supreme Court referred to and placed reliance on its earlier decision in Anwar Khan Mehboob Co. v. State of Bombay . In that case the assessee questioned the liability to purchase tax levied on certain goods on the ground that the goods had not been specified in the Sales Tax Act. The last entry in the Schedule of goods subject to sales and purchase tax was "all goods other than those specified from time to time Schedule A (and section 7A) and in the preceding entries." This was held to be sufficient specification of the goods.
75. The relevant to the present case of the analogy of the Bangalore Woollen, Cotton and Silk Mill's case lies in the circumstance that in that case the levy was protected by article 305 because of the specification contained in "Class VIII", and that, but for this generic residuary specification, the impost rendered itself liable to be treated as a new levy for purposes of article 301 and 304(b). The effect of article 305 in that case is analogous to the effect of a compliance with article 304(b) in the present case. The protection of article 305 was available because of a generic residuary specification already obtaining in the pre-constitutional law.
In the absence of a similar residuary specification in the Schedule to the Principal Act, the benefit of the Presidential assent obtained to the Principal Act would not, in our opinion, be available to the subsequent additions. This reasoning also applies to the amendment of "local area" which, in the "Principal Act", had not been so defined as to include such other areas as may be notified by the State Government.
We are, therefore, of the opinion that provisions of section 7(1)(a) and 7(15) of the amending Act 13 of 1982 impose additional restrictions on the freedom of trade and commerce under article 301 and even if these additional restrictions can be held to be reasonable and in public interest the legislative measure would attract and require compliance with article 304(b).
76. So far as the question whether the restrictions are reasonable and in public interest in concerned, it is appropriate to recall what the Supreme Court said in Hansa Corporation's case . It was observed :
"......... However, no one was in doubt that octroi was a major source of revenue to municipalities and its abolition would cause such a dent on municipal finances that compensation for the loss would be inevitable. Accordingly, the State Government undertook a policy of compensating the municipalities year by year. For generating funds for this compensation, rates of sales tax were raised and in some cases a surcharge was levied. The amount so collected was not sufficient to bridge the gap in municipal budget. To further argument the finances for compensating the municipalities, additional fund was sought to be generated by levy of tax under the impugned legislation. No doubt, the tax levied was one on entry of Scheduled goods in local areas meaning thereby it had all the broad features of octroi, yet the manner of levy, the method of collection and the persons liable to pay the same were so devised by the impugned Act as to remove the obnoxious features of octroi ........" (vide para-8).
"....... Even apart from this, a levy which appears to be quite reasonable in its impact on the movement of goods and is imposed for the purpose of augmenting municipal finances which suffered dent on account of abolition of octroi cannot be said to impose an unreasonable restriction on the freedom of inter-State trade, commerce and inter-course ......." (vide para-34).
The difference that the amending Act 13 of 1982 has brought about is a different of degree and not a difference of kind. Petitioners have not been able to show that there is any qualitative change brought about by the addition of new items to the Schedule so as to make the levy an unreasonable restriction on the freedom of trade and commerce. Moreover, there is no increase in the rate of tax.
As to the concept of public interest, it must be observed that the expression "public interest" would mean "in the interest of the general public" (See : Kochuni v. States of Madras & Kerala . "Public interest" is satisfied when there is a "public purpose". Having regard to the purpose of the present law which is the raising funds by way of tax for governmental purposes, it cannot be said that the additional restrictions are not in the public interest.
77. What is left to be considered now is whether in consequence of this non-compliance with the requirements of article 304(b) proviso the whole of Karnataka Act 13 of 1982, rendered bad as contended by Sri Srinivasan or that the vitiating effect is confined to and operates on such provisions of section 7 of that Act, which seek to introduce the amendments touching the additional restrictions. It is to be recalled that the Taxation and Certain Other Laws (Amendment) Act, 1982 (Karnataka Act 13 of 1982) is a piece of composite legislation. It draws upon several entries within the State power and effects amendments to several other laws in addition to the "Principal Act". Though the legislative device and expedience of a composite legislation is restored to, in effect and substance, there is a combination of several laws in the amending Act 13 of 1982. It would be a travesty if the entire amending Act 13 of 1982, is held to be vitiated by reason alone of the circumstance that one of its severable provisions dealing with a distinct statute required prior sanction of the President.
We are of the opinion that section 7(1)(a) and section 7(15) of the Karnataka Act 13 of 1982 alone stand affected for want of prior sanction or subsequent assent of the President.
The view we take is supportable on the language of article 255, which says :
"No Act of Parliament or of the Legislature of a State, and no provision in any such Act, shall be invalid by reason only that some recommendation or previous sanction required by this Constitution was not given if assessment to that Act was given ...............".
The words "no provision in any such Act", would suggest that the invalidity, depending upon the facts and circumstances of a particular case, could be confined only to a provision and not to the whole Act.
78. The next question is whether this non-compliance with article 304(b) makes the legislative provision void or merely unenforceable. The observations of the Supreme Court in Jawaharmal's case are instructive :
"....... The position with regard to the laws to which article 255 applies, therefore, is that if the assent in question is given even after the Act is passed, it serves to cure the infirmity arising from the initial non-compliance with its provisions. In other words, if an Act is passed without obtaining the previous assent of the President, it does not become void by reason of the said infirmity; it may be said to be unenforceable until the assent is secured. Assuming that such a law is otherwise valid, its validity cannot be challenged only on the ground that the assent of the President was not obtained earlier as required by the other relevant provisions of the Constitution. The said infirmity is cured by the subsequent assent and the law becomes enforceable ...... vide para-16)
Sri Srinivasan, however, relied upon the following observations of the Supreme Court in Atiabari Tea Co. Ltd. v. State of Assam .
"In the result we hold that the Act has put a direct restriction on the freedom of trade, and since in doing so it has not complied with the provisions of article 304(b) it must be declared to be void ......." (vide para-62).
In Atiabari Tea Company's case the question as to what would be the effect and consequence of non-compliance with the proviso to article 304(b) on a law and as to whether that the law would be void or merely unenforceable was not specifically raised and therefore cannot be said to have been pronounced upon by the Supreme Court. But in Jawaharmal's case a specific issue as to the legal consequences of such non-compliance was raised and decided, and therefore, we think it is permissible for us to adopt the view taken in Jawaharmal's case .
79. Accordingly, our conclusions on point No. (xiv) are :
(a) that the amendment to section 2(5) of the Principal Act brought about by section 7(1)(a) of the amending Act 13 of 1982, and the introduction of 13 new items to the Schedule to the Principal Act by section 7(15) of the amending Act 13 of 1982 impose additional restrictions on the freedom conferred by article 301 of the Constitution;
(b) that those additional restrictions are reasonable and in public interest;
(c) that the legislative measure imposing the additional restrictions, viz., section 7(1)(a) of the amending Act 13 of 1982 required compliance with proviso to article 304(b) or article 255 of the Constitution;
(d) that there having been no such compliance with article 304(b) of the Constitution and the provisions of section 7(1)(a) and 7(15) of the amending Act 13 of 1982 are unenforceable until such compliance is shown.
80. Section 7(1)(a) substitutes a new definition of "local area" with its enlarged implications, in section 2(5) of the Principal Act in substitution of the old definition. We are of the view that, this substitution does not involve the implication of two sequential steps, first, that the old section 2(5) is repealed and, secondly that a new provision is introduced in the place of the repealed provisions and the argument that though the second stage of substitution fails to take effect, the first stage of repeal is effectuated with the result that there would be no subsisting definition of "local area" at all is, accordingly, excluded. (See State of Maharashtra v. C. P. Manganese Ore Co., Ltd. .
Consistently with the view that section 7(1)(a) is unenforceable, it must be held that it has not brought about a substitution of section 2(5) intended by it. The result is, the original definition of "local area" as obtaining under section 2(5) of the Principal Act, subsists and the notification dated 2nd April, 1982, must be read accordingly.
81. In the result, for the foregoing reasons we allow these writ petitions in part and :
(a) Declare that the provisions of section 7(1)(a) and section 7(15) of the Karnataka (Amending Act 13 of 1982) are unenforceable by reason of non-compliance with the requirement of the proviso to article 304(b) or article 255 of the Constitution, until such compliance is shown;
(b) Issue a writ of mandamus in each of these cases to the respondents directing them to forbear from enforcing the provisions of section 7(1)(a) and section 7(15) of the amending Act 13 of 1982, as long as non-compliance with the proviso to article 304(b) or with article 255(c) of the Constitutional continues;
(c) Quash that part of the Notification bearing No. FD 14 CET 82, dated 2nd April, 1982, which purports to bring to tax items 4 to 16 in the Schedule to the Principal Act.
82. In the circumstances of these cases, we leave the parties to bear and pay their own costs in these petitions.
Sri M. R. Achar, learned Government Advocate, is permitted to file his memo of appearance within two weeks from today.
83. It is ordered accordingly.