Case Note & Summary
The dispute arose from Central Sales Tax assessments made on Comorin Match Industries (Pvt.) Ltd., a manufacturer of safety matches, for assessment years 1957-58 to 1965-66. During that period, the appellant sold matches in the course of inter-State trade and commerce, and sales tax was charged under the Central Sales Tax Act, 1956. The appellant challenged the assessment orders by way of writ petition before the Madras High Court on two grounds: first, that the Central Sales Tax was levied on turnover which wrongly included excise duty, and second, that sub-sections (2), (2A) and (5) of Section 8 of the Central Sales Tax Act were ultra vires the Constitution. The appellant also claimed refund of the tax collected. Several similar writ petitions were heard together, and on 30 January 1968, the High Court allowed the writ petitions, following its earlier decision in Larsen and Toubro v. Joint Commercial Tax Officer, (1967) 20 STC 150. The High Court quashed the assessments and directed refund. No appeal was preferred by the Sales Tax Authority in the appellant's case, but the State appealed in another connected matter, State of Madras v. N.K. Nataraja Mudaliar, AIR 1969 SC 147. In that appeal, the Supreme Court held that Sections 8(2), 8(2A) and 8(5) of the Central Sales Tax Act were valid, but affirmed that tax on excise duty was illegal, as excise duty could not be included in turnover. The Supreme Court observed that under Section 9(1) of the Central Sales Tax Act, the same rules for computing taxable turnover under the Madras General Sales Tax Act, 1959 applied, and since that State law excluded excise duty, excise duty could not be included. Subsequently, the Central Sales Tax (Amendment) Act, 1969 was enacted, which amended the definition of 'turnover' in Section 2(j) and radically altered Section 9, with retrospective effect. The amendment was intended to overcome the decision in N.K. Nataraja Mudaliar. The amending Act also contained a validating provision that validated all assessments, reassessments, levy or collection of any tax notwithstanding anything contained in any judgment, decision, decree or order of any court to the contrary. The result was to change the law retrospectively and to impart validity to all assessments under the Central Sales Tax Act that had been struck down. Before the Supreme Court, the appellant, through Mr. Vaidyanathan, argued that the legislature could not nullify a judgment of the High Court that had become final, and relied on Madan Mohan Pathak v. Union of India, (1978) 3 SCR 334. The Court distinguished Pathak on the ground that there the impugned Act did not contain a non-obstante clause referring to judgments and did not change the underlying law, whereas the 1969 Amendment expressly validated assessments and altered the very basis of the law. The Court held that the validating provision was valid, the assessments stood validated, and the appeal was dismissed.
Headnote
A) Constitutional Law - Legislative Validation - Retrospective Amendment and Validation of Tax Assessments - Central Sales Tax Act, 1956, Sections 2(j), 8(2), 8(2A), 8(5), 9(1); Central Sales Tax (Amendment) Act, 1969 - The High Court had declared Sections 8(2), 8(2A) and 8(5) ultra vires and quashed assessments, but the Supreme Court in State of Madras v. N.K. Nataraja Mudaliar upheld their validity; the 1969 Amendment retrospectively altered the definition of 'turnover' and radically changed Section 9, with a validating provision overriding judicial decisions. Held that the amending Act changed the law with retrospective effect and imparted validity to all assessments struck down, thereby removing the basis of the earlier High Court judgment. B) Sales Tax - Computation of Turnover - Exclusion of Excise Duty - Madras General Sales Tax Act, 1959 and Central Sales Tax Act, 1956, Section 9(1) - The Madras High Court held that excise duty must be excluded from turnover for Central Sales Tax; the Supreme Court affirmed that under Section 9(1) of the Central Sales Tax Act, the same rules for computing taxable turnover under the Madras General Sales Tax Act apply, so excise duty not includible. Held that tax on excise duty was illegal and assessments including it were invalid to that extent. C) Constitutional Law - Separation of Powers - Legislative Overruling of Judicial Decisions - Constitution of India, Articles 14, 19(1)(f), 31(1) - The appellant argued that the legislature cannot nullify a judgment of the High Court which had become final; relied on Madan Mohan Pathak v. Union of India. Held that the legislature can remove the basis of a decision by altering general rights of a class with retrospective effect, but cannot simply nullify a specific judgment without changing the law; in Pathak, the impugned Act had no non-obstante clause referring to judgments and did not change the underlying law, whereas the 1969 Amendment expressly validated assessments notwithstanding any judgment and altered the very basis of the law. D) Writ Jurisdiction - Refund of Tax - Effect of Validation - Central Sales Tax (Amendment) Act, 1969 - The assessee sought refund of tax collected in excess based on High Court direction, but the validating provision retrospectively validated the levy and collection. Held that the earlier writ of mandamus for refund could not survive once the law was retrospectively amended to validate the assessment; the right to refund under the judgment was not crystallized independently of the statute, unlike in Pathak.
Issue of Consideration
Whether the Central Sales Tax (Amendment) Act, 1969 with its validating provision could nullify the High Court judgment quashing assessment orders and validate levy and collection of Central Sales Tax despite the earlier writ of mandamus; whether excise duty formed part of turnover for Central Sales Tax.
Final Decision
The Supreme Court upheld the validity of the Central Sales Tax (Amendment) Act, 1969 and its validating provision; held that the amendment changed the law retrospectively and validated the assessments under the Central Sales Tax Act; distinguished Madan Mohan Pathak because there the law was not changed and no non-obstante clause was present; accordingly dismissed the appeal and held that the assessee was not entitled to refund based on the earlier High Court judgment.
Law Points
- Central Sales Tax (Amendment) Act
- 1969 validly changed law retrospectively and validated assessments
- excise duty not includible in turnover under Madras General Sales Tax Act read with Section 9(1) of Central Sales Tax Act
- legislative validation can remove basis of judicial decision if general law altered but not merely nullify specific judgment
- Madan Mohan Pathak distinguished
