Sri Ranga
Match Industries Vs. Union of India [1994] INSC 54 (25 January 1994)
Jeevan
Reddy, B.P. (J) Jeevan Reddy, B.P. (J) Hansaria B.L. (J)
CITATION:
1994 SCC Supl. (2) 726 JT 1994 (1) 621 1994 SCALE (1)427
ACT:
HEAD NOTE:
The
Judgments of the Court were delivered by B.P. JEEVAN REDDY, J.-Tariff Item 38
of the First Schedule to the Central Excises and Salt Act, 1944 levied duty
upon matches. With a view to encourage the production of matches in the non-mechanised
sector, the Government of India have
been issuing exemption notifications from time to time.
Under
Notification No. 162 of 1967 dated 27-7-1967, a distinction was made even among
the non-mechanised units, with reference to their output. Smaller units were
given a more beneficial rate of duty. In 1975 another notification (No. 154 of
1975) was issued broadly reiterating the aforesaid scheme and providing some
additional concession to smaller units.
2. On 19-6-1980, two notifications were issued being Notification
No. 98 of 1980 and Notification No. 99 of 1980.
Notification
No. 98 of 1980 levied duty on matches produced in the mechanised sector at Rs
7.20p while in the case of matches produced in non-mechanised sector the duty
was Rs 4.50p. By Notification No. 99 of 1980, a further distinction was made
among the units in non-mechanised sector.
Factories
"recommended by the Khadi and Village Industries Commission for exemption
under this notification as a bona fide cottage unit" or which was a member
of a cooperative society was held entitled to pay duty at the rate of Rs 1.60p
per gross. There were, however, two other conditions which these factories had
to satisfy, viz., (i) their matches are sold through KVIC or a cooperative
society and (ii) their matches are cleared under the labels prescribed by the
KVIC and approved by the appropriate officer of the Excise Department. (Vide
Provisos 1 to 3 appended to the said Notification No. 99 of 1980). It would be
appropriate to read the notification, insofar as it is relevant:
"In
exercise of the powers conferred by sub- rule (1) of Rule 8 of the Central
Excise Rules, 1944, the Central Government hereby exempts matches, in or in
relation to the manufacture of which no process is ordinarily carried on with
the aid of power, falling under Item No. 38 of the First Schedule to the
Central Excises and Salt Act, 1944 (1 of 1944), from so much of the duty of
excise leviable thereon as is in excess of Rs 1.60 per gross boxes of 50
matches each:
Provided
that the matches are cleared for home consumption by a manufacturer from a
factory which is recommended by the Khadi and Village Industries Commission for
exemption under this notification as a bona fide Cottage Unit, or which is a
member of a cooperative society (including a marketing or service industrial cooperative
society but excluding a cooperative bank) registered under any law relating to
729 cooperative societies for the time being in force and assisting exclusively
manufacturers of such matches:
Provided
further that the matches are sold or marketed through the Khadi and Village
Industries Commission or a cooperative society (including a marketing or
service industrial cooperative society but excluding a cooperative bank)
aforesaid or an agency established by a State Government:
Provided
also that where the matches are produced by a factory recommended by the Khadi
and Village Industries Commission as bona fide Cottage Unit aforesaid, the
matches shall be cleared only under the labels prescribed by the said
Commission and approved by an officer not below the rank of an Assistant
Collector of Central Excise."
3.
Certain manufacturers in non-mechanised sector challenged the validity of the
first and the second provisos by way of writ petitions in the Madras High
Court. Their grievance was that even though they applied for issuance of a
certificate to the KVIC as a bona fide cottage unit, expressing their
willingness to abide by the conditions prescribed by the Commission, it
declined to register them on grounds not relevant in law. They also complained
of discrimination as between themselves and cottage units/members of a,
cooperative society. The writ petitions were allowed by a Bench of Madras High
Court in Devi Match Factory v. Superintendent of Central Excise, Sattur1 on 9-12-1981. The High Court held that
(1) the
ground on which the Commission declined to issue 'bona fide Cottage Unit'
certificates to the writ petitioners was irrelevant.
The
writ petitioners were unable to obtain the certificates and the benefit of
Notification No. 99 of 1980 for no fault of theirs. The inability of the
Commission to market the produce of the certified units is no ground for
refusing the certificate to eligible units;
(2) that
KVIC had no authority in law to impose conditions which were not provided by
the notifications issued by the Central Government under Rule 8 of the Central
Excise Rules;
(3) that
while the KVIC was insisting upon a ceiling on the production of matches for
new applicants, it was not observing the said condition in the case of those
units who had already obtained certificates from it. This brought about a
discrimination between similarly placed units.
4. The
mandamus issued by the High Court is in the following terms:
"There
will be a writ of mandamus directing the respondents to give the benefit of
Notification No. 99 of 1980 without reference to the first and the second
provisos to the notification. However, it is made clear that this order will be
applicable only to those petitioners who have filed the writ petitions.
This
order also is subject to the further conditions that the Government is at
liberty to reject the concession in cases where the respondents to these writ
petitions come to the conclusion on materials that such and such a petitioner
is not a bona fide unit, in the sense, that it was either non-existent or
fictitious unit, or that it is a subsidiary of the mechanised sector unit.
There will be an order accordingly in these writ petitions. In form the writ
appeals are also allowed. There will be no order as to costs."
5. The
result of this judgment was that the distinction made between cottage units and
other non-mechanised units disappeared and all the non-mechanised 1 (1983) 12
ELT 99 (mad) 730 units became entitled to the much lower rate of duty, viz.,
Rupees 1.60p per gross. This situation was obviously one which the Government
had not reckoned with, nor intended.
More
important, it became liable to refund duty to the writ petitioners huge amounts
running into several crores of rupees. Accordingly it stepped in soon after the
said judgment and by a Notification (No. 2 of 1982), dated 1-1- 1982 superseded
Notification No. 99 of 1980. In the place of the criteria in Notification No.
99 of 1980, Notification No. 2 of 1982 evolved a new criteria for becoming
eligible for the lesser rate of duty of Rs 1.60p. The new criteria was with
reference to the quantum of clearances. It is not necessary to set them out
here.
6. On 24-2-1982 the Government issued yet another notification
(being No. 22 of 1982) in supersession of Notification No. 2 of 1982, dated 1-1-1982. According to this notification, the conditions for
availing the lesser duty of Rs 1.60p are: (i) the factory should not produce
more than 150 million matches in a financial year, (ii) in a factory satisfying
the above condition, clearances not exceeding 120 million would be entitled to
pay the said lesser duty, (iii) the monthly production of such factory does not
exceed 150 million matches and (iv) the clearances from the factory during the
previous financial year did not exceed 150 million matches. This notification
was prospective in operation. However, by Section 52 of the Finance Act, 1982,
the said notification was given retrospective effect on and from 19-6-1980 the date on which Notification No. 99 of 1980 had
been issued. It is evident that this retrospective operation was given with a
view to enable the State to retain the duty collected by it from the
non-certified units (writ petitioners in the batch of writ petitions disposed
of on 9-12-1981) and to frustrate claims of refund
from them. Since the constitutional validity of Section 52, insofar as it gave
retrospective effect to Notification No. 22 of 1982 is questioned in these
appeals, it would be appropriate if we read Notification No. 22 of 1982 as well
as Section 52 here:
"NOTIFICATION
22/1982 GOVERNMENT OF INDIA (MINISTRY OF FINANCE - DEPARTMENT OF REVENUE)
Notification No. 22 of 1982 Central Excise Dr. 23-2-1982 G.S.R. 77(E) In
exercise of the powers conferred by sub-rule (1) of Rule 8 of the Central
Excise Rules, 1944, and in supersession of the notifications of the Government
of India in the Ministry of Finance (Department of Revenue) No. 2 of
1982-Central Excise and 3/82-Central Excise, dated the 1st January, 1982, the
Central Government hereby exempts matches falling under Item No. 38 of the
First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), in or in
relation to the manufacture of which no process is ordinarily carried on with
the aid of power, in respect of the first clearances for home consumption from
a factory not exceeding 120 million matches cleared during a financial year,
from so much of the duty of excise leviable thereon as is in excess of Rs 1.60
per gross boxes of 50 matches, subject to the condition that clearances from
the said factory during such financial year does not exceed 150 million matches
and also subject to the following other conditions namely- 731 (i) the total
production of matches in a calendar month during the aforesaid period by the
said factory does not exceed 15 million matches.
(ii) the
total clearances, if any, of matches for home consumption from the said factory
during the preceding financial year, did not exceed 150 million matches."
(Provisos and explanation omitted as unnecessary.) "Section 52 of the
Finance Act, 1982
52.
Provisions as to duties of excise on matches in relation to a certain period
and validation.- (1) The notification of the Government of India in the
Ministry of Finance (Department of Revenue) No. G.S.R. 77(E) dated the 23rd day
of February, 1982, which was issued in exercise of the powers conferred by
sub-rule (1) of Rule 8 of the Central Excise Rules, 1944 to provide for certain
exemptions from duty in relation to matches shall, subject to the modifications
specified in the Fourth Schedule- (a) be deemed to have, and to have always
had, effect on and from the 19th day of June, 1980; and (b) be deemed to
prevail, and to have always prevailed, over all notifications issued on or
after the 19th day of June, 1980 but before the 23rd day of February, 1982
under sub-rule (1) of the said rule in relation to matches.
Explanation.-
For the purposes of this section, "matches" means matches failing
under Item No. 38 of the First Schedule to the Central Excise Act.
(2)
Any action or thing taken or done or purported to have been taken or done on or
after the 19th day of June, 1980 and before the 23rd day of February, 1982 in
relation to matches, under the Central Excise Act and the Central Excise Rules,
1944, read with notifications referred in clause (b) of sub- section (1), shall
be deemed to be, and to have always been, for all purposes, as validly and
effectively taken or done as if the provisions of sub-section (1) had been in
force at all material times and such action or thing had been taken or done
under the Central Excise Act and the Central Excise Rules, 1944, read with the
notification dated the 23rd day of February, 1982, referred to in subsection
(1), and, accordingly, notwithstanding anything contained in any judgment,
decree or order of any court, tribunal or other authority,- (a) all duties of
excise levied, assessed or collected or purporting to have been levied,
assessed or collected on or after the 19th day of June, 1980 and before the
23rd day of February, 1982 on matches, shall be deemed to be, and shall be
deemed to have always been, as validly levied, assessed or collected as if the
provisions of this section had been in force at all material times;
(b) no
suit or other proceeding shall be maintained or continued in any court for the
refund of, and no enforcement shall be made by any court of any decree or order
directing the refund of, any such duties of excise which have been 732
collected and which would have been validly collected if the provisions of this
section had been in force at all material times;
(c) refund
shall be made of all such duties of excise which have been collected but which
would not have been so collected if the provisions of this section had been in
force at all material times;
(d) recovery
shall be made of all such duties of excise which have not been collected or, as
the case may be, which have been refunded but which would have been collected
or, as the case may be, would not have been refunded, if the provisions of this
section had been in force at all material times.
Explanation.- For the removal of doubts, it is
hereby declared that no act or omission on the part of any person shall be
punishable as an offence which would not have been so punishable if this
section had not come into force."
7. The
appellants questioned the validity of Section 52 (insofar as it gave
retrospective operation to Notification No. 22 of 1982) on several grounds, all
of which were repelled and writ petitions dismissed.
8. In
these appeals, the very same grounds have been reiterated. Shri Vaidyanathan,
who led the arguments on behalf of the appellants, urged the following
contentions:
(1)
Section 52 seeks to supersede the writ of mandamus issued by the Madras High
Court in Devi Match Factory] which Parliament is not competent to do.
Parliament has in fact assumed the powers of an appellate court over the
decision of the Madras High Court.
(2)
This is not a case where the legislation seeks to remove the basis on which a
statute or statutory provision is invalidated. As a matter of fact, the Madras
High Court did not strike down Notification No. 99 of 1980 or any part of it.
What it did was to issue a mandamus directing the Union of India to apply the
said notification to the appellants without reference to the first and second provisos
thereto. In such a case, the superseding of the said notification, as well as
giving retrospective effect to Notification No. 22 of 1982 by Section 52 of the
Finance Act are impermissible, incompetent and arbitrary.
(3) In
the face of the mandamus issued by the Madras High Court which had become final
the introduction of a new basis of exemption with retrospective effect is a
clear case of superseding the judgment of a court and thus beyond the scope of
Parliament.
(4)
The classification made among the units in non- mechanised sector between
cottage units and others brought about by Notification No. 22 of 1982 on the
basis of quantum of production and clearances is discriminatory and violative
of Article 14.
(5)
Section 52 is merely a device to retain the monies illegally collected by the
State from the petitioners. The impugned provision is a fraud on the
legislative power besides being violative of the fundamental right guaranteed
to the petitioners by Article 19(1)(g) of the Constitution.
733
9. Shri
Vaidyanathan, learned counsel for the petitioners placed strong reliance upon
the decisions of this Court in Madan Mohan Pathak v. Union of India2 and A. V. Nachane
v. Union of India3. According to the learned
counsel the dicta of the said judgments squarely applies herein.
10. It
is a matter of frequent occurrence, more particularly in the field of taxation,
that where a court strikes down a provision of law which has got serious
financial implications to the public exchequer, the legislature steps in to
repair the situation. The legislature does this by removing or altering the
basis of, or the defect in the law on which the judgment is based, with
retrospective effect. It also provides a validation clause in such cases. The
result of such removal or alteration is that the judgment based on unamended
provision becomes inoperative. That this is permissible for the legislature to
do is no longer in doubt or dispute. A series of decisions of this Court
commencing from Rai Ramkrishna v. State of Bihar4 to Cauvery Water Disputes Tribunal5 have affirmed this principle. Shri Vaidyanathan,
however, says that in Madan Mohan Pathak2 a departure was made by this Court
from the above principle. According to the learned counsel, the ratio of the
said judgment is that where the Court issues a mandamus and it becomes final,
the effect of the mandamus cannot be taken away by the legislature in any
manner except by approaching the higher court, if any. He submits further that
if the High Court had struck down certain portions of Notification No. 99 of
1980, it might have been permissible for Parliament to rectify the same by
altering or amending the notification so as to remove the basis of the judgment
but in this case the High Court has not struck down any portion of the said
notification but has chosen to issue a mandamus directing the State to apply
the said notification to the writ petitioners without insisting upon compliance
with first and second provisos.
11.
For a proper appreciation of the submissions of Shri Vaidyanathan, it would be
appropriate to notice what precisely was the mandamus issued in Devi Match
Factory1.
The
operative portion of the judgment has already been set out. The High Court
issued a mandamus "directing the respondents to give the benefit of
Notification No. 99 of 1980 without reference to the first and the second
provisos to the notification". What does this mean? It is not the form
that matters but the substance. In my opinion, the said mandamus in effect
amounts to striking down the first and second provisos, for it is not
permissible to keep the two provisos intact and yet issue a mandamus directing
that the said provisos shall be ignored. A mandamus is issued to enforce a
statute or statutory obligation, not in negation of it. I am, therefore, of the
opinion that the distinction sought to be made on the basis of the language and
form of the mandamus issued in Devi Match Factory1 is unacceptable.
It was
really a case of striking down of the said two provisos as discriminatory. Even
otherwise (i.e., even if I assume that it was a mandamus directing the
extension of the benefit of the said notification to the then writ petitioners
ignoring the said two provisos) the position is no different. It is not
suggested by the respondents' 2 (1978) 2 SCC 50: 1978 SCC (L&S) 103: (1978)
3 SCR 334 3 (1982) 1 SCC 205: 1982 SCC (L&S) 53: (1982) 2 SCR 246 4 AIR
1963 SC 1667: (1964) 1 SCR 897: (1963) 50 ITR 171 5 1993 Supp (1) SCC 96 (11)
734 counsel indeed, no such argument could have been reasonably advanced that
once such a mandamus was issued the Central Government was rendered powerless
to withdraw, supersede, amend and modify the said notification for ever.
They
concede that the notification could be and was validly superseded with effect
from 1-1-1982 or 23-2-1982, as the case may be. If this could be done, we fail to see
why it could not be done with retrospective effect and that too by Parliament.
In principle, there is no difference; what could be done prospectively could
also be done retrospectively. No question of legislative competence can arise
in such a case. The only contention that can possibly arise is one of violation
of the provisions of Part III of the Constitution which we would be dealing
with at a later stage. To repeat the said mandamus did not and could not
prevent the Central Government (authority empowered to grant exemption) from
withdrawing the said notification. The power of the Central Government to
withdraw a notification issued by it was in no way curtailed or affected by the
judgment of the Madras High Court in Devi Match Factory1.
Once
Notification No. 99 of 1980 was withdrawn and superseded with effect from 1-1-1982 by Notification No. 2 of 1982, the judgment of the
High Court became inoperative with effect from that date. The argument to the
contrary has no basis either in principle or in authority. It is like saying
that once a mandamus is issued directing the implementation of an enactment,
Parliament becomes disabled from repealing it. Having thus validly superseded (withdrawn)
Notification No. 99 of 1980, the Central Government evolved a new criteria in
Notification No. 2 of 1982 which it was equally competent to do. Notification
No. 2 of 1982 was again superseded by Notification No. 22 of 1982, altering yet
again the criteria for exemption in the case of smaller units in the non-mechanised
sector. The basis of grant of lesser rate of duty was shifted from the nature
of the unit to quantum of production and clearances.
Section
52 of the Finance Act then stepped in and gave retrospective effect to
Notification No. 22 of 1982 on and from 19-6-1980, the date on which Notification No.
99 of 1980 was issued. The effect of the above exercise was that Notification
No. 99 of 1980 was rendered inoperative in toto. In law, it was as if it had
not existed. If so, the mandamus issued by the High Court in Devi Match
Factory1 directing the implementation of the said notification also ceased to
be operative and effective. The basis, the foundation of the mandamus was
removed totally. The effect of Section 52, is as if Notification No. 99 of 1980
was never issued. This is the logical and necessary legal effect of Section 52.
There is no escape from it. Perhaps, it is necessary to remind and reiterate
the dictum of this Court in M.K. Venkatachalam, /.TO. v. Bombay Dyeing and
Manufacturing Co.6 to the following effect:
"In
deciding this question it would be necessary to determine the true legal effect
of the retrospective operation of the Amendment Act. Section 1, sub-section
(2), of the Amendment Act expressly provides that subject to the special
provisions made in the said Act it shall be deemed to have come into force on
the first day of April, 1952. The result of this provision is that the
amendment made in the Act by Section 13 of the Amendment Act must, by legal
fiction, be deemed to have been included in the principal Act as from the first
of April, 1952, and this inevitably means that, at the time 6 (1958) 34 ITR
143: AIR 1958 SC 875: 1959 SCR 703 735 when the Income Tax Officer passed his
original order on October 9, 1952, allowing to the respondent credit for Rs
50,603-15-0, the proviso added by Section 13 of the Amendment Act must be
deemed to have been inserted in the Act. As observed by Lord Asquith of Bishopstone
in East End Dwellings Co. Ltd. v. Finsbury Borough Council7 :
'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. One of those in this case is
emancipation from the 1939 level of rents.
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.' Thus, there
can be no doubt that the effect of the retrospective operation of the Amendment
Act is that the proviso inserted by the said section in Section 18-A(5) of the
Act would, for all legal purposes, have to be deemed to have been included in
the Act as from April 1, 1952."
12. It
is perhaps necessary to stress that this retrospective operation was provided
in this case not by the Central Government in exercise of its power under Rule
8 but by Parliament itself in exercise of its plenary power. If the appellants
cannot avail of the benefit of Notification No. 22 of 1982, they cannot blame
the Government therefore.
13. In
view of the strong reliance placed by Shri Vaidyanathan on the decision of this
Court in Madan Mohan Pathak2 it is necessary to ascertain the relevant facts
and the precise ratio of the decision. It is a decision of a Constitution Bench
of seven Judges. In June 1974, a settlement was arrived at between the Life
Insurance Corporation and its employees relating to the terms and conditions of
service of Class III and Class IV employees including the bonus payable to
them. Clause 8(ii) provided for payment of annual cash bonus, arrived at by
applying a particular formula. The settlement was valid for a period of four
years and was to continue until a new settlement was arrived at. After the
coming into force of the Payment of Bonus (Amendment) Act, 1976, the Central
Government decided that the employees of establishments not covered by the
Payment of Bonus Act would not be eligible for payment of bonus but an ex gratia
payment in lieu of bonus would be made to them. Life Insurance Corporation was
one of the establishments to whom the Payment of Bonus Act did not apply.
Pursuant to the said decision, the Government of India advised the Corporation
to stop paying bonus in accordance with clause 8(ii) of the aforesaid
settlement.
The
Corporation stopped the payment whereupon the employees approached the High
Court of Calcutta by way of a writ petition. A learned Single Judge allowed the
writ petition and issued a mandamus directing the Corporation to pay bonus in
accordance with clause 8(ii) of the Settlement. The Corporation preferred a
Letters Patent Appeal against the said decision. While said appeal was pending,
Parliament enacted the Life Insurance Corporation (Modification of Settlement)
Act, 1976. When the Letters Patent Appeal was taken up, the Corporation
represented that in view of the said Act 7 (1952) AC 109, 132(A): (1951) 2 All
ER 587 736 there was no necessity for proceeding with the appeal. The Division
Bench accordingly dismissed the Letters Patent Appeal with the result that the
mandamus issued by the learned Single Judge continued to be operative and
effective. The employees of the Corporation filed fresh writ petitions in this
Court challenging the constitutional validity of the Life Insurance Corporation
(Modification of Settlement) Act, 1976 which were allowed. Three opinions were
rendered by the learned Judges. Bhagwati, Krishna Iyer and Desai, JJ. rendered one opinion, Chandrachud, Fazal Ali and Singhal,
JJ., a separate short opinion and Beg, C.J. another opinion. We may notice the
ratio of each of these three opinions. Bhagwati, J. held that the impugned Act
did not refer to and did not purport to supersede or nullify the settlement
between the Corporation and its employees. In the words of Bhagwati, J.,
"unfortunately the judgment of the Calcutta High Court remained almost
unnoticed and the impugned Act was passed in ignorance of that judgment This
right under the judgment was not sought to be taken away by the impugned Act.
The judgment continued to subsist and the Life Insurance Corporation was bound
to pay annual cash bonus...... The learned Judge remarked that the Corporation
committed a grave error in withdrawing the Letters Patent Appeal in view of the
impugned enactment. Had they persisted with the appeal and brought the
aforesaid Act to the notice of the Court, the Letters Patent Appeal would
certainly have been allowed. But as a result of the erroneous course adopted by
the Corporation, the learned Judge remarked, the mandamus issued by the learned
Single Judge remained effective and became final. The learned Judge then
proceeded to examine the validity of enactment on the footing that it did take
away the benefit of bonus vesting in the employees of the Corporation by virtue
of clause 8(ii) to the Settlement and held it to be violative of Article 31(2)
of the Constitution. He declared it void on that ground. Chandrachud, Fazal Ali
and Singhal, JJ.
delivered
a two-line order agreeing with the opinion of Bhagwati, J. that the impugned
enactment was violative of Article 31(2) and saying further that they do not
think it necessary to express any opinion on the effect of the judgment of the
Calcutta High Court aforementioned. Beg, C.J. observed, in the first instance,
that though Section 11(2) of the Life Insurance Corporation Act empowered the
Central Government to alter the conditions of service of the employees, the
Central Government did not choose to resort to that provision, but instead
Parliament chose to enact the Act impugned therein, depriving the employees of
their bonus. The impugned Act took away the benefit conferred by the mandamus
issued by the Calcutta High Court upon the employees. This amounts to exercise
of judicial power by Parliament, which has been held to be bad in Indira Nehru
Gandhi v. Raj Narain8. The learned Chief Justice then held the impugned
enactment to be violative of Article 19(1)(f) of the Constitution and not saved
by Article 19(6).
14.
While appreciating the ratio of the said opinions, it is necessary to bear in
mind the basic fact that the settlement between the Corporation and its
employees was not based upon any statute or statutory provision. Sub-sections
(1) and (3) of Section 18 of the Industrial Disputes Act provide merely the
binding nature of such settlements; they do not constitute the basis of the 8
1975 Supp SCC 1 :(1976) 2 SCR 347 737 settlements. The settlement between the
parties was directed to be implemented by the High Court. In other words, it
was not a case where the High Court either struck down a statutory provision
nor was it a case where a statutory provision was interpreted in a particular
manner or directed to be implemented. It was also not a case where the
statutory provision, on which the judgment was based, was amended or altered to
remove/rectify the defect.
15.
Now of the seven learned Judges, only Beg, C.J. put forward as one of the
grounds for allowing the writ petition, the theory that the mandamus issued by
the learned Single Judge of the Calcutta High Court having become final could
not be nullified by Parliament. No other learned Judge adopted that reasoning.
As pointed out hereinabove, three learned Judges for whom Bhagwati, J. spoke,
held that the settlement remained untouched by the impugned Act and, therefore,
settlement continued to be in force, and that if the Act is taken as nullifying
the settlement, the Act is bad being violative of Article 31(2). Three other
learned Judges, Chandrachud, Fazal Ali, JJ. agreed with Bhagwati, J. only to
the extent that the Act was violative of Article 31(2). The question now is how
far does the first ground aforesaid in the judgment of Beg, C.J. helps the
appellants herein. In my opinion, it does not. Both the situations are
qualitatively different. In our case, the mandamus was to apply Notification
No. 99 of 1980 to the appellants without reference to the offending provisos
and as we have pointed out hereinabove, that did not disable the Central
Government from superseding and withdrawing the said notification. Such a
course by the Central Government does not amount to setting aside the judgment
or to declaring it inoperative. It is a case where a statutory provision, on
which the judgment of the High Court was based, being removed altogether with
retrospective effect. The result, no doubt, is to render the judgment of the
High Court inoperative but that this is a permissible thing to do for the
legislature is no longer in doubt. I have stated this position hereinbefore
too.
16. So
far as the decision in Nachane3 is concerned, it dealt with the validity of
Life Insurance Corporation (Amendment) Act, 1981. This Act amended Sections 48
and 49 of the Life Insurance Corporation Act. Section 48 empowers the Central
Government to make rules while Section 49 empowers the Corporation to make
regulations. Under the amended Section 48, the Central Government framed rules
giving them retrospective effect from 1-7-1979 saying that none of the
employees of the Corporation shall be entitled to payment of any profit-sharing
bonus or any other kind of cash bonus. The validity of the said rules and the
Amendment Act was challenged again by the employees. This Court held that (i)
the impugned amendment and the rules are not violative of Article 14 or on the
ground of excessive delegation of legislative function, (ii) the rules made
under Section 48 "cannot make the writ issued by this Court nugatory in
view of the decision of the majority in Madan Mohan Pathak v. Union of
India2". The observations at page 267 (of SCR3 : SCC p. 220) make it clear
that the majority decision referred to in the above extract is the decision that
the Life Insurance Corporation (Modification of Settlement) Act, 1976 was violative
of Article 31(2).
Reference
is also made to the opinion of Beg, C.J. that the said Act was violative of
Article 19 and further that "if the right conferred by the judgment
independently is sought to be set aside, Section 3 of the Act, would, in my
opinion, be invalid for trenching upon 738 the judicial power". The
further observations of Beg, C.J. that the right conferred by a judgment of a
court cannot be taken away without even mentioning to it, i.e., in an
"indirect fashion", were also quoted, (iii) when it was argued that
the observations quoted from the opinion of Beg, C.J. in Madan Mohan Pathak2
cannot be said to lay down the correct law and are inconsistent with the
earlier decisions of this Court, the argument was dealt with in the following
words: (SCC p. 221) "The Attorney General referred to a number of earlier
decisions of this Court wanting us to infer that the observations quoted above
from the judgment in Madan Mohan Pathak case2 did not state the correct law in
view of the said decisions. But these observations expressed the majority view
of a Bench of seven Judges bearing directly on the point that arises for
decision in the instant case and are binding on us. We therefore hold that Rule
3 operating retrospectively cannot nullify the effect of the writ issued in
D.J. Bahadur case9 which directed the Life Insurance Corporation to give effect
to the terms of the 1974 settlements relating to bonus until superseded by a
fresh settlement, an industrial award or relevant legislation. The Life
Insurance Corporation (Amendment) Act, 1981 and the Life Insurance Corporation
of India Class III and Class IV Employees (Bonus and Dearness Allowance) Rules,
1981 are relevant legislation. However in view of the decision in Madan Mohan Pathak
case2, these rules, insofar as they seek to abrogate the terms of the 1974
settlements relating to bonus, can operate only prospectively, that is, from
2-2-1981, the date of publication of the rules. The petitions are allowed to
this extent only."
17. It
must be remembered that Madan Mohan Pathak2 was a decision between the same
parties. In this sense, it is clear that nothing new was said in Nachane3. The
observations of Beg, C.J. in Madan Mohan Pathak2 were reproduced as
constituting a binding decision between the parties. Assuming that the
observations of Beg, C.J.
represent
the correct position in law, the appellants cannot yet succeed for the reason
that in this case the rights of the appellants declared in Devi Match Factory1
were derived from and based upon Notification No. 99 of 1980 and once that
notification was rendered inoperative with retrospective effect by Section 52
of the Finance Act, the basis of the mandamus issued in Devi Match Factory1 got
knocked out.
18. In
this connection, it may be reiterated that it is open to the legislature to
remove the basis of, or rectify the defect/lacuna in the law on which a
judgment is based and thereby render the judgment inoperative. What is relevant
is whether the basis of the judgment has been removed or not. So long as the
manner in which the basis has been removed is within the legislative
competence, the Court cannot interfere. There is no set method or a prescribed
method. The method adopted in this particular case cannot be said to be an
impermissible one. As emphasised hereinbefore, the superseding of Notification
No. 99 of 1980 with prospective effect is not questioned by the appellants. If
it can be done prospectively, it can equally be done with retrospective effect
and in this case, it has been done by a parliamentary enactment. More than one
decision of this Court has upheld this power of Parliament/legislature. In ,
M.K Venkatachalam, LT06 the order of assessment had become final. Later the 9
LIC v. D.J. Bahadur, (198 1) 1 SCC 315: 1981 SCC (L&S) 111 739 relevant
provision was amended with retrospective effect and on that basis the earlier
order of Income Tax Officer was rectified under Section 35 of the Indian Income
Tax Act, 1922. It was held to be permissible. Similarly, in Sunder Dass v. Ram
Prakash10 the finality of a decree passed by a civil court was held to have
been disturbed by a retrospective amendment of law. Because of the
retrospective amendment of law, it was held, the decree which was validly
passed and had become final, has been rendered inexecutable and that the said
objection can be raised in the execution proceedings. The same position is
affirmed by A.K. Sarkar, J., in his opinion in Kavalappara Kottarathil Kochuni
v. State of Madras11. Though the opinion of Sarkar, J. is a dissenting one,
there is no dissent on the above point. [The majority held that in view of its
opinion on another question, it is not necessary for it to express any opinion
on this aspect (see page 904)].
19. At
this stage, it would be appropriate to deal with the decision of this Court in
D. Cawasji & Co., Mysore v. State of Mysore12 on which too reliance was
placed by Shri Vaidyanathan, learned counsel for the appellants. Sales tax on
liquor was levied at 6 1/2%. The Government was collecting it on the entire
sale price of barrack. However, in a batch of writ petitions filed by the
licensees, the Karnataka High Court held that the levy of sales tax on excise
duty and cesses component of the sale price was incompetent. In other words, it
was held that sales tax can be levied only on the price proper but not upon
excise duty and cesses which form part of the sale price. The said judgment of
the High Court was questioned in this Court but later on the Government
withdrew the appeal, with the result that the judgment of the High Court became
final. With a view to nullify claims for refund, the Karnataka Legislature
intervened and amended the Mysore Sales Tax Act with retrospective effect. The
amending Act enhanced the rate of tax from 6 1/2% to 45% which meant that the
Government need not refund any amount to the licensees pursuant to the
aforesaid judgment of the High Court. The Amendment Act was questioned in the
High Court but was upheld. On Appeal, this Court held the Amendment Act
unconstitutional. On a close reading of the judgment, it is clear that the main
ground on which the Act was held to be incompetent was that raising the rate of
tax from 6 1/2% to 45% with retrospective effect was "clearly arbitrary
and unreasonable" and, therefore, violative of Articles 14 and 19. It was
observed that instead of removing the defect/lacuna pointed out by the High
Court, the legislature sought to raise the rate of tax steeply with
retrospective effect and that it was bad. The judgment cannot be read as laying
down that in no event can the legislature seek to render the judgment of the
Court ineffective and inoperative by amending or rectifying the defect or the
lacuna pointed out, on the basis of which the judgment was rendered. In my
opinion, therefore, the said judgment cannot be understood as supporting the
appellant's submission nor can it be read as militating against the
well-accepted power of Parliament which has been reiterated in innumerable judgments
of this Court.
10
(1977)2SCC662:(1977)3SCR60 11 (1960) 3 SCR 887, 950-952 : AIR 1960 SC 1080 12
1984 Supp SCC 490: 1985 SCC (Tax) 63
740
20. It
was then urged by Shri Vaidyanathan that the retrospective operation given to
Notification No. 22 of 1982 by Section 52 is violative of the petitioners'
fundamental right guaranteed by Article 19(1)(g) of the Constitution and that
it was confiscatory in nature. Counsel submitted that as a result of the said
retrospective operation, the appellants became liable to pay more duty than
they had passed on to their purchasers/consumers with the result that the
appellants will have to pay the said duty from their own pocket. Counsel
submitted that had they known that such a provision was to come into operation,
they would have collected more tax from their purchasers/consumers. He stated
that the appellants collected and passed on the burden of excise duty only at
the rate of Rs 1.60p per gross. Counsel further submitted that even the
certified cottage units are adversely affected by the impugned legislation
inasmuch as with the removal of ceiling by Notification No. 99 of 1980 they
produced and cleared matches in excess of 150 million matches but collected and
passed on duty only at the rate of Rs 1.60p per gross. Now they too are being
called upon to pay at the higher rate.
In my
opinion, there is no substance in these contentions.
So far
as the non-certified units (writ petitioners in Devi Match Factory1) are
concerned, they could not say till 9-12- 1981 (the day their writ petitions
were allowed) that they are entitled to pay only the lesser duty of Rs 1.60p.
As the matters then stood, they were liable to pay the higher duty applicable
to non-mechanised units. I cannot, therefore, accept their plea that they collected
duty at the lesser rate. If, indeed, they have done so, they have to thank
themselves for the present situation. Passing on the incidence is not a
condition of valid levy. Again the judgment was operative hardly for a few
days, i.e., 9-12- 1981 to 1-1-1982 on
which date Notification No. 99 of 1980 was superseded by Notification No. 2 of
1982. During this intermission of three weeks, the Union of India had
approached this Court by way of special leave petitions against the judgment of
the Madras High Court which are said to have been dismissed on 18-12-1981. In the circumstances, the said petitioners cannot
say that they could not pass on the duty at the higher rate. No businessman in
his senses would have collected duty at the lesser rate in the above
circumstances. Now, so far as the certified cottage units are concerned, they
were subjected to a ceiling of 100 million matches per year until Notification
No. 99 of 1980 was issued. It was a condition of grant of certificate.
Though
the said notification removed the ceiling, it appears that the KVIC was
insisting upon the very same ceiling as a condition of granting certificate.
(It may be recalled that it was this inconsistence of KVIC that was characterised
as incompetent by the Madras High Court in Devi Match Factory1). By producing
and clearing matches in excess of the said ceiling, the said units forfeited
the character of a cottage unit. They acted contrary to the condition subject
to which they were granted the certificate. It is not their case that they were
expressly permitted by the KVIC to exceed the said ceiling. No order or
proceeding of KVIC granting such permission has been brought to our notice. In
the above situation, if some of the cottage units exceeded the ceiling, they
evidently did so at their own risk. They cannot claim any immunity or
indulgence from the Court on that score. I am, therefore, not satisfied that
there is any substance in the argument of prejudice or loss to the appellants
on account of the retrospective operation being given to Notification No. 22 of
1982.
741
21. For
the above reasons, the appeals fail and are dismissed with costs. Advocate's
fee Rs 10,000 consolidated.
HANSARIA,
J.- Despite the great respect in which I hold Brother Justice Jeevan Reddy, I
have not been able to persuade myself to agree with him in the view he has
taken.
According
to me the appeals deserve to be allowed because of what is being stated.
23.
The facts of the appeals having been narrated in detail, there is no need to
recapitulate except saying that against the judgment of the Madras High Court
given in Devi Match Factory case1 this Court had been approached only relating
to Raja Match Works and the petition was numbered as SLP(C) No. 11173 of 1981;
leave was granted on 1-2-1982 but stay was refused. Subsequently, on 25-7-1983 Civil Appeal No. 303 of 1982 (arising out of the
aforesaid SLP) was dismissed as infructuous. This shows that the judgment in Devi
Match Factory1 became final for all purposes insofar as remedy available to the
Union of India as a litigant is concerned. The all important question is that
whether in exercise of legislative power the judgment could have been set at
naught?
24.
Brother Reddy has held, and with respect rightly, that it is permissible to the
legislature to repair a situation by removing or altering the basis of the
judgment which strikes down a provision of law. Such a piece of legislation has
a validation clause, the result of which is that the judgment based on the unmended
provision becomes inoperative. This proposition of law has rightly been said as
"no longer in doubt or dispute". According to me, it cannot be
equally in doubt or dispute that the legislature cannot assume to itself
judicial power. Apart from that what has been stated in this regard in Madan
Mohan Pathak case2 already referred by my learned brother, which was followed
in Nachane case3, I propose to refer to three other decisions to bring home
this aspect of law. First of these is D. Cawasji & Co. v. State of Mysore12 in which a Bench of three Judges of
this Court has adverted to this aspect in paragraphs 1018. Paragraphs 10- 1 3
have noted two earlier decisions of this Court in Janapada Sabha, Chhindwara v.
Central Provinces Syndicate Ltd. 13 and Municipal Corporation of the City of Ahmedabad v. New Shorock Spg. & Wvg. Co.
Ltd. 14 In first of these decisions it was observed, inter alia at page 751
(SCR) that though it is open to the legislature within certain limits to amend
the provisions of a statute retrospectively and to declare what the law shall
be deemed to have been, it is not open to the legislature to say that the
judgment of a court properly constituted and rendered in exercise of its power
in a matter brought before it shall be deemed to be ineffective.
In the
second case some of the observations made by this Court in Shri Prithvi Cotton
Mills Ltd. v. Broach Borough Municipality15 were noted and it was stated at
page 295 (SCR) that validation of a tax declared illegal may be done only if
the grounds of illegality or' invalidity are capable of being removed and are
in fact removed and the tax thus made legal. This observation was made after
stating that court's decision must 13 (1970) 1 SCC 509: (1970) 3 SCR 745 14
(197Q) 2 SCC 280: (197 1) 1SCR 288 15 (1969) 2 SCC 283: (1970) 1 SCR 388 742
always bind unless the conditions on which it is based are fundamentally
altered.
25. It
was then stated in Cawasji case 12 that to nullify the judgment of the High
Court which had become final inasmuch as the special leave petition filed against
the judgment by the State was withdrawn, the impugned amendment was introduced,
which did not proceed to cure the defect or lacuna. The impugned amendment was,
therefore, not considered to be a validating act which seeks to validate the
earlier statutory provision declared illegal by removing the defect or lacuna
which had led to the invalidation of the law. As this had not been done and the
only object of the impugned amendment was stated to nullify the effect of the
judgment which had become conclusive and binding on the parties for enabling
the State Government to retain the amount wrongfully and illegally collected,
it was held that same was not permissible and the impugned Act was therefore
held to be invalid.
26. 1
would next refer to Cauvery Water Disputes Tribunal case5 which too has been
noted by my learned brother. The Constitution Bench of this Court in that case
dealt with this aspect of the matter in paragraphs 74 to 76. In paragraph 74
the decision in Madan Mohan Pathak v. Union of India2 was referred and in
paragraph 75 the decision in P. Sambamurthy v. State of A.P. 16 in which even a
constitutional provision, which had conferred power of judicial review on State
Government, was held to be violative of the basic structure doctrine by stating
that rule of law would be meaningless if State Government could set at naught a
judgment rendered against it by a duly constituted adjudicatory body. It was
then observed in paragraph 76 : (SCC p. 142) "The principle which emerges
from these authorities is that the legislature can change the basis on which a
decision is given by the Court and thus change the law in general, which will
affect a class of persons and events at large. It cannot, however, set aside an
individual decision inter partes and affect their rights and liabilities alone.
Such
an act on the part of the legislature amounts to exercising the judicial power
of the State and to functioning as an appellate court or tribunal."
27.
Lastly the famous case of Indira Nehru Gandhi v. Raj Narain8 in which Beg, J.,
as he then was, stated in paragraph 553 (SCR) that the Constitution undoubtedly
specifically vests "judicial power" only in the Supreme Court and in
the High Courts and not in any other bodies or authorities, whether executive
or legislative, functioning under the Constitution. In paragraphs 577 and 578
(SCR) the learned Judge observed that even in exercise of "constituent
power" no judicial or quasi-judicial function could be performed by
Parliament. It may be pointed out that in Kesavananda Bharati case17 it has
been held that constituent power stands on a higher pedestal than legislative
power; and so, what applies to constituent power would apply proprio vigore to
legislative power, which has been exercised in the present case while enacting
Finance Act, 1982.
28.
So, a legislature cannot entrench upon judicial power.
This
has been reiterated very recently in State of Haryana v. Karnal Coop. Farmers'
Society 16 (1987) 1 SCC 362: (1987) 2 ATC 502 17 Kesavananda Bharati v. State
of Kerala, (1973) 4 SCC 225 : AIR 1973 SC 1461 743 Ltd. 18 According to Beg, J.
this is, however, what had happened in Madan Mohan Pathak case2 and it is
because of this that Section 3 of the Act impugned 'herein was declared as
invalid. Though it is correct that Bhagwati, J., as he then was, speaking for
self, Krishna Iyer and Desai, JJ. had not taken the aforesaid view of the
impugned section, but the learned Judge did state at page 355 (SCR) that if a
judgment is erroneous the remedy lies by way of appeal or review, but so long
as the judgment stands it cannot be disregarded or ignored, it must be obeyed.
29. I
would like to point out that the legal stand taken by Beg, J. in Madan Mohan Pathak
case2 had received majority's endorsement, which would be apparent from what
was stated in Nachane3. There, the Bench after quoting at page 268 (SCR)
observations of Beg, J., inter alia, about entrenching upon judicial power,
stated that it did not agree with the submission of the Attorney General that
the view of Beg, J. did not state the correct law, by observing that the same
had been accepted by the majority. It is because of this that in Nachane3 the
retrospective given to the concerned rule was held to have nullified the effect
of the writ issued in D.J. Bahadur case9 for which reason the same was held to
be invalid.
30.
Let it now be seen what had really been done in the cases at hand. Brother
Reddy has stated, and with respect rightly, that retrospective operation was
given to Notification No. 22 of 1982 by Section 52 of the Finance Act, 1982
evidently "to enable the State to retain the duty collected by it from the
non-certified units and to frustrate claims of refund from them". So the
whole object was to take the wind out of sail which had been blown by the mandamus
directed to be issued in Devi Match Factory casel.
The
same was the object of retrospectively given to the rule which had come to be
held invalid in Nachane case3.
31.
May it be stated that what has been observed above finds support from what was
opined by the Finance Minister in his speech dated 28-2-1982 while moving the Finance Bill in question wherein reference
was made about the necessity of refund of substantial amounts because of the
judgments obtained by a number of manufacturers in their favour. So, the only
purpose sought to be achieved by giving retrospective effect to the impugned
provision of the Finance Act was to nullify the effect of the mandamus directed
to be issued in Devi Match Factory1. Thus, the retrospectivity was aimed at making
nugatory or, to put it differently, to setting aside the judgment which was
inter partes as State and the appellants were parties in Devi Match Factory casel.
32.
There is no real parting of ways so far from my learned brother. My respectful
disagreement with him lies in the view he has taken about the legal import of
Notification No. 22 of 1982 read with Section 52 of the Finance Act.
According
to my learned brother what the High Court had done in Devi Match Factory case]
was to strike down the provisos in question as discriminatory and therefore the
mandamus issued did not and could not prevent the Central Government from
withdrawing Notification No. 99 of 1980 and once the notification stood
withdrawn retrospectively the judgment became inoperative. In this context may
I say that it is a settled law that the ratio of the judgment is 18 (1993) 2
SCC 363 : AIR 1994 SCI 744 what it decides and not what could be deduced from
it. This is what was states in paragraph 13 of State of Orissa v. Sudhansu Sekhar19 and paragraph
46 of Punjab Land Development and Reclamation Corporation Ltd. v. Presiding
Officer, Labour Court2O. Reference may also be made to Ashville Investments
Ltd. v. Elmer Contractors Ltd.21 in which the same view was taken at page 582.
33. 1
say with respect that the judgment of the High Court cannot really be read as
striking down the notification on the ground it was discriminatory. This would
be clear from what was stated by the Court on the subject of discrimination
which aspect has been concluded in paragraph 14 reading as below:
"
It may be seen from these cases that when two classes are brought into
existence but they are differently taxed, the class which is discriminated
against is entitled to get the same concession and the discriminatory provision
need not be set aside. The principle is applicable even to a case where the
lower rate of taxation in favour of one class is contrary to the statute. In
our case, there is no question of the concession given to those manufacturers
who come under Explanation 11 being illegal. Therefore, this is a fortiori case
where the concession extended to the manufacturers coming under Explanation 11
should be extended to the petitioners also. Therefore these writ appeals and
the writ petitions have to be allowed." (emphasis supplied)
34.
The aforesaid shows that though the Court had applied its mind to the question
of discrimination, it did not set aside the provision being discriminatory.
What had rather prevailed with the Court in directing to issue mandamus was the
inability of the petitioners to obtain certificates from Khadi and Village
Industries Commission, which denial was not held as justified for reasons noted
by my learned brother. Notification No. 22 of 1982 made no effort at all to
take care of the infirmity pointed out by the High Court; instead, it laid down
altogether different criteria for claiming levy of excise duty at Rs 1.60. It
was thus not a case of removal of the defect or taking care of infirmity
pointed out by the Court.
35. 1
would not, therefore, regard the notification as a piece of validating
enactment, as it did not remove the defect or lacuna pointed out by the High
Court. The whole purpose sought to be achieved by the notification, which was
given retrospective effect by Section 52 of the Finance Act of 1982, was to
nullify the effect of the judgment, which could not have been done in exercise
of the legislative power inasmuch as the judgment had become final for the
reasons given above. According to me the present is a case where the best that
can be said is that the judgment of the High Court was erroneous, and so, the
only remedy available was appeal to this Court, which was partially availed of
but to no effect. The impugned section was thus an exercise, which I would prefer
to call as "entrenching upon the judicial power", to borrow the
language of Beg, J. as used in Madan Mohan Pathak case2 which has rendered the
section invalid in the eye of law. The only purpose of impugned provision being
19 AIR 1968 SC 647: (1968) 2 SCR 154: (1970) 1 LLJ 662 20 (1990) 3 SCC 682:
1991 SCC (L&S) 71 21 (1988) 2 All ER 577 745 to set aside the inter partes
decision rendered in Devi Match Factory case1 the legislature exercised
judicial power which it could not have done as held by the Constitution Bench
in Cauvery Water Disputes Tribunal case5.
36. In
the aforesaid view of the matter, I hold that Section 52 of Finance Act, 1982
is invalid. I would, therefore, allow the appeals but would make no order as to
costs.
ORDER
37.
Having regard to the importance of the question raised herein, we direct these
matters to be placed before a Bench of three Hon'ble Judges. At the same time,
we have recorded two points of view in our two opinions so that the Bench
hearing the matters may have the benefit of our views.
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