State of Tamil Nadu Vs. Thirumagal
Mills Ltd.  INSC 310 (17 November 1971)
CITATION: 1972 AIR 1148 1972 SCR (2) 395 1972
SCC (1) 176
CITATOR INFO :
RF 1973 SC1045 (3) F 1985 SC1748 (6)
Madras General Sales Tax Act, 1959, s. 2(d)
as amended by Madras General Sales Tax (Second Amendment) Act, 1964-If
retrospective-- Effect of s. 9.
The assessee was a spinning mill. It opened a
fair price shop to provide an amenity to its workmen so that commodities may be
made available to them at fair prices.
For the assessment year 1960-61 the assessing
authority under the Madras General Sales Tax Act, 1959, included in the
assessee's turnover the sale value of groceries sold in the fair price shop.
The Tribunal held in favour of the assessee and the High Court, on reference,
found that the assessee was not carrying on 'business' within the meaning of
the Act in the fair price shop and confirmed the orders.
In appeal to this Court it was contended that
the Second Amendment Act. 1964, substituted a new definition of 'business' in
the Act, which, read with s. 9 of the Act, had retrospective effect.
Dismissing the appeal,
HELD : Validation of tax which has been
declared to be illegal may be done only if the ground of illegality or
invalidity are capable of being removed and are in fact removed. The
Legislature can give its own meaning and interpretation of law under which the
tax was collected and by legislative flat make the new meaning binding upon the
courts. [399 C-D] But in the present case, none of the methods for validating a
tax has been adopted. Although the definition of 'business' was amended it was
not made retrospective by the usual words that it should be deemed to have been
always substituted nor was any other language employed to show that the
substantive provision was being amended retrospectively.
On the contrary, the definition of the word
'business' was amended only prospectively. In the absence of retrospective
effect being given to the definition, s. 9 was of no avail to the Revenue. [399
E-G] State of Tamil Nadu v. M. Rayappa Gounder, A.I.R. 1971 S.C.
231, Shri Prithvi Cotton Mills v. Broach
Borough Municipality,  1 S.C. R. 388; 79 I.T.R. 136, followed.
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 1454 of 1969 and 148 of 1971.
Appeals by special leave from the judgments
and orders dated April 6, 1967 and January 22, 1969 of the Madras High Court in
Tax Cases Nos. 152 of 1964, and 300 of 1968 respectively.
S. T. Desai and A. V. Rangam, for the
appellant (in both the appeals) --L500 Sup.CI/72 396 K. Parasaran, T. Vadivel,
R. Shanmughan and K. Jayaram, for the respondent (in C.A. No. 1454/69).
T. A. Ramachandran, for the respondent (in
C.A. No. 148/71).
B Sen, S. P. Mitra and G. S. Chatterjee, for
intervener (in C.A. No. 1454 of 1969).
The Judgment of the Court was delivered by
Grover, J. These appeals by special leave from a judgment of the Madras High
Court involve a common question.
The facts in the first of these appeals may
be stated. The assessee, who is the respondent herein, is a spinning mill
manufacturing cotton yarn. It was assessed to sales tax under the Madras
General Sales Tax Act, 1959, hereinafter called the 'Act'. For the assessment
year 1960-61 the assessing authority included in the taxable turnover certain
amounts representing the sale value of food grains and groceries sold in the
fair price shop run by the mills and the amount realised by sale of articles of
food in the canteen which was run for its employees. The assessee filed an
appeal questioning its liability to pay tax on these items The appellate
authority dismissed that appeal. The assessee thereupon filed a further appeal
to the Sales tax Appellate Tribunal which allowed the appeal and directed that
the turnover in question be deleted. The Revenue went up in revision to the
High Court of Madras. A division bench of that court dismissed the revision.
The Appellate Tribunal had found that the
fair price shop and the canteen were run exclusively for the benefit of the
employees and there was no profit motive in running the same. The High Court
referred to the relevant statutory provisions and expressed the view that the
primary requisite of 'business' as defined by the Act should be a trade or
commerce or adventure in the nature of trade or commerce.
Presence or absence of profit was not
material but the activity must be of a commercial character in the course of
trade or commerce. It was found that the assessee had not been carrying on
business in the fair price shop. The High Court looked into the articles of
association of the assessee and found no article empowering it to carry on
business in fair price shop. The assessee had opened that shop only to provide
an amenity to its workmen so that commodities may be made available to them at
According to the High Court if as a matter of
fact, some profit accrued that would be wholly immaterial because the assessee
never intended to run the fair price shop as a business having an element of
397 Section 2 of the Act 'gives the
definitions. The definitions of "business" given in cl. (d), of
"dealer" as given in cl. (g) and of "sale" as given in cl.
(n) are reproduced below:
(d) "business" includes any trade,
commerce or manufacture or any adventure or concern in the nature of trade,
commerce or manufacture whether or not any profit accrues from such trade,
commerce, manufacture, adventure or concern." (g) "dealer" means
any person who carries on the business of buying, selling, supplying or
distributing goods, directly or otherwise, whether for cash or for deferred
payment or for commission, remuneration or other valuable consideration and
(iii) a commission agent, a broker or a del credere
agent, or an auctioneer or any other mercantile agent, by whatever name called,
who carries on the business of buying, selling, supplying or distributing goods
on behalf of any principal.
(iv) (n) "sale" with all its
grammatical variations and cognate expressions means every transfer of the
property in goods by one person to another in the course of business for cash
or for deferred payment or other valuable consideration, and includes a
transfer of property in goods involved in the execution of a works contract,
but does not include a mortgage, hypothecation, charge or pledge".
By the Madras General Sales Tax (Second
Amendment) Act, 1964, clause (d) of s. 2 was substituted by the following
clause "business" includes- (i) any trade, commerce or manufacture or
any adventure or concern in the nature of trade, commerce or manufacture
whether or not such trade, commerce, manufacture, adventure or concern is
carried on with a motive to make gain or profit and whether or not any profit
accrues from such trade, commerce, manufacture, adventure or concern and (ii)
any transaction in connection with or incidental or ancillary to, such trade,
commerce, manufacture,, adventure or concern".
398 Section 9 validated the levy and
collection of certain taxes in the following terms :
S.9. "Notwithstanding anything contained
in any judgment, decree or order of any Court, no levy or collection of any tax
under the provisions of the principal Act and of rules made there under in
respect of sales in the course of business, whether or not it is carried on with
a motive to make gain or profit shall be deemed to be invalid or ever to have
been invalid on the ground only that such levy or collection was not in
accordance with law and such tax levied or collected or purporting to have been
levied or collected shall, for all purposes, be deemed to be and always to have
been validly levied or collected and accordingly-- (a) all acts, proceedings or
things done or taken by the State Government or by any officer of the State
Government or by any other authority in connection with the levy or collection
of such tax shall, for all purposes, be deemed to be, and to have, always been,
done or taken in accordance with law;
(b) no suit or other proceedings shall be
maintained or continued in any Court against the State Government or any person
or authority whatsoever for the refund of any tax so paid; and (c) no Court
shall enforce any decree or order directing the refund of any tax so paid;
(d) any such tax levied under the principal
Act, before the commencement of this Act but not collected before such
commencement or any such tax leviable under the Principal Act but not levied
before such commencement may be collected (after levy of the tax wherever
necessary) in the manner provided in the principal Act)".
It has not been contended before us on behalf
of the Revenue that the turnover of the sales by the fair price shop and the
canteen could be included in the taxable turnover according to the definition
of "business" as it stood in the original Act. The contention raised
is that S. 2 of the Second Amendment Act 1964 substituted the new definition of
"business" with retrospective effect. This result flows, it is said,
from the language of S. 9 although in S. 2 of that Act no such language has
been used as can give retrospective operation to the amendment made. We are
unable to agree that S. 9 by itself would make the definition of
"business" as substituted in s. 2 retrospective. In State of Tamil
Nadu & 399 Another v. M. Rayappa Gounder etc.(1) s. 7 of the Madras
Entertainment Tax (Amendment) Act 1966 which was similar to S. 9 mentioned
above came up for consideration. The question was whether the assessments were
validly protected by that section. Reliance was place on certain decisions of
this Court which laid down that it is open to the legislature within certain
limits to amend the provisions of the Act retrospectively and to declare what
the law shall be deemed to have been but it was not open to the legislature to
say that a judgment of a court properly constituted and rendered shall be
deemed to be ineffective. Hence it was held that the impugned assessment in
that case could not be sustained.
The principle which has been laid down
clearly is that validation of tax which has been declared to be illegal may be
done only if the grounds of illegality or invalidity are capable of being
removed and are in fact removed. Sometimes this is done by providing for
jurisdiction where jurisdiction had not been properly invested before.
Sometimes this is achieved by reenacting
retrospectively a valid and legal taxing provision and then by fiction making
the tax already collected to stand under the reenacted law.
The legislature can give its own meaning and
interpretation of the law under which the tax was collected and by legislative
fiat make the new meaning binding upon the courts. None of these methods has
been adopted in the present case. [see Shri Prithvi Cotton Mills Ltd. v. Broach
Borough Municipality & Ors.(2)].
Although the definition of "business'
was substituted by the Second Amendment Act of 1964 it was not made
retrospective by the usual words that it should be deemed to have been always
substituted nor was any other language employed to show that the substantive
provision, namely, the definition of "business" was being amended retrospectively.
Section 9, therefore, can be of no avail to
the Revenue. It has been pointed out that in the other decision rendered by
this Court in which similar validation provision appeared the substantive
section had not been amended at all. That, in our judgment will not make any
difference because the essence of the matter is that the definition of the word
"business" which was material was amended only prospectively and not
with retrospective effect. It is common ground and has not been disputed that
if retrospective operation is not given to S. 2(d) of the Second Amendment Act
1964 the Revenue must fail in these appeals. We may add that we have not
considered the question of the liability of the assessee to be Assessed
subsequent to the amendment made by the Second Amendment Act of 1964.
In the result the appeals are dismissed with
V.P.S. Appeals dismissed.
(1) A.I.R. 1971 S.C. 231.
(2)  1 S.C.R. 388; 79 I.T.R. 136.