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CASE NO.:

Appeal (civil) 11174 of 1995

PETITIONER:

M/s. Satnam Overseas (Export) Through its Partner Etc.Etc.

RESPONDENT:

State of Haryana & Anr.Etc.Etc.

DATE OF JUDGMENT: 24/10/2002

BENCH:

Syed Shah Mohammed Quadri & Ruma Pal.

JUDGMENT:

J U D G M E N T

W I T H

(C.A.Nos.11175-78/95, 11183-84/95, 11179/95, 11180/95, 11181/95,

11182/95, 2552/96, 2254/96,2553/96, 1581-96/96, 7679-7681/96,

3664/96, 3665/96, 3666/96, 3667/96, 3668/96, 3669/96, 12583-87/96,

3670/96, 257/96, 1597-1606/96, 1607/96, 2220/96, 3661/96, 3662/96,

3663/96, 3834-36/96, 12877-78/96, 346/97, 3993/99, W.P.(C)

Nos.82/96, 36/98, 141/98, 144/98, 178/98, 179/98, 181/98, 537/98,

538/98, 668/98, 675/98, 676/98, 240/98

W I T H

CIVIL APPEAL NOS. OF 2002

[@ S.L.P.(C) Nos.3531-3548/96 & 21539/96]

SYED SHAH MOHAMMED QUADRI,J.

Leave is granted in the special leave petitions.

The solution to the questions raised in this batch of cases

turns on a true interpretation of the provisions of the Haryana

General Sales Tax Act, 1973 (for short, "the Haryana Act")/the

Punjab General Sales Tax Act, 1948 (for short, "the Punjab Act") in

the light of the provisions of Article 286 of the Constitution and

the Central Sales Tax Act, 1956 (for short, "the CST Act").

For the sake of convenience, these cases can be divided into

two groups. (A) The first consists of two categories of cases

arising under the Haryana Act in respect of assessments for the

period : (i) ending with October 14, 1990 and (ii) between October

15, 1990 and September 28, 1996; and (B) The second takes in cases

arising under the Punjab Act.

Mr.P.Chidambaram, the learned senior counsel appearing for

the appellants, has piloted the arguments in the batch, which were

adopted by other learned counsel appearing for the appellants in

different appeals/writ petitions. The contentions of the learned

counsel are two fold. The first being, Section 9 of the Haryana

Act imposes charge of purchase tax on paddy and clause (b) of sub-

section (1) of the said section exempts the same as the rice

procured therefrom is exported. The second is that the High Court

committed error in holding that with omission of Section 9 from

the Statute, amendment of Section 6 and inclusion of Section 15A

with retrospective effect from 27.5.1971, the liability to pay

purchase tax is regulated by Section 6 read with Section 15 and

adjustments, if any, could be made under Section 15-A of the

Haryana Act. The case of the State of Haryana, as projected by

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the learned senior counsel, Mr.Mahendra Anand, is that the Haryana

Act contains more charging sections than one, viz., Sections 6, 9

and 17; as Section 9 has been omitted and Sections 2(p), 6, 15 and

15-A have been amended retrospectively, the assessee is liable to

pay tax on purchase of raw material.

For appreciating the contentions, we shall take up the cases

falling under groups (A)(i) and (B), which go together. It would

suffice to refer to the facts giving rise to Civil Appeal

Nos.11175-11178 of 1995. The assessee is a miller-exporter who

purchases paddy in the State of Haryana, mills the same and

exports the rice procured therefrom to places outside the

territory of India. For the Assessment Years 1982-83, 1983-84,

1988-89 and 1989-90, on the ground that the transactions of

purchase of paddy by the assessee were for export of rice procured

therefrom, the assessing authority granted benefit of Section

9(1)(b) of the Haryana Act and completed assessments raising 'Nil'

demand. However, the Deputy Excise and Taxation Commissioner

(Inspection)-cum-Revisional Authority, Karnal, (for short, "Dy.

Commissioner") issued show cause notice under Section 40 of the

Haryana Act and, after giving due opportunity of being heard to

the assessee, revised the assessment for the said years in view of

the retrospective amendment of Sections 6, 15, 15A and 17 and

omission of Section 9 thereof holding that the assessee was liable

to pay the purchase tax on the paddy. The assessees challenged

amendments of Sections 6, 9, 15, 15-A and 17 of the Haryana Act

which were given retrospective effect by filing writ petitions

before the High Court of Punjab and Haryana. A Full Bench of the

High Court upheld the validity of the impugned provisions of the

Haryana Act and the orders of the Dy.Commissioner revising the

assessments and, thus, dismissed the writ petitions. The

appellants are in appeal, by special leave, before this Court

challenging the legality of the judgment and order of the Full

Bench of the High Court.

It needs to be noticed, at the outset, that in view of the

provisions of sub-section (3) of Article 246 read with Entry 54 of

List II of the Seventh Schedule to the Constitution, a State is

competent to legislate authorising imposition of taxes on the sale

or purchase of goods (other than newspaper), subject to the

provisions of Entry 92A of List-I. Under the said Entry [92A of

List-I], the Parliament is competent to legislate authorising

imposition of taxes on the sale or purchase of goods (other than

newspaper), where such sale or purchase takes place in the course

of inter-State trade or commerce. In other words, any Act passed

by a State Legislature authorising imposition of taxes on sale or

purchase of goods will be subject to the legislation made by the

Parliament under Entry 92A of List -I of the Seventh Schedule to

the Constitution.

A reference to Article 286 of the Constitution of India

would also be apposite. It prescribes restriction as to the

imposition of tax on the sale or purchase of goods and is in the

following terms:

"286. Restrictions as to imposition of tax

on the sale or purchase of goods.-- (1) No

law of a State shall impose, or authorise

the imposition of, a tax on the sale or

purchase of goods where such sale or

purchase takes place--

(a) outside the State; or

(b) in the course of the import of the

goods into, or export of the goods out of,

the territory of India.

(2) Parliament may by law formulate

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principles for determining when a sale or

purchase of goods takes place in any of

the ways mentioned in clause (1).

(3) Any law of a State shall, in so far as

it imposes, or authorises the imposition

of, --

(a) a tax on the sale or purchase of goods

declared by Parliament by law to be of

special importance in inter-State trade or

commerce, or

(b) a tax on the sale or purchase of

goods, being a tax of the nature

referred to in sub-clause (b), sub-

clause (c) or sub-clause (d) of

clause (29A) of article 366,

be subject to such restrictions and

conditions in regard to the system of

levy, rates and other incidents of the tax

as Parliament may by law specify."

A plain reading of clause (1) of the Article, noted above,

shows that it lays down restrictions on a State law as to the

imposition or authorising the imposition of a tax on sale or

purchase of goods where such sale or purchase takes place (a)

outside the State or (b) in the course of import of goods into or

export of goods out of the territory of India. Clause (2) thereof

empowers the Parliament to formulate principles for determining as

to when a sale or purchase of goods takes place in any of the ways

aforementioned. The directive embodied in clause (3) is that any

law of a State shall, insofar as it imposes or authorises the

imposition of tax, specified in sub-clauses (a) and (b) thereof,

be subject to such restrictions and conditions in regard to the

system of levy, rates and other incidence of tax, as the

Parliament may by law specify. The said sub-clauses are as

follows: (a) a tax on the sale or purchase of goods declared by

Parliament by law to be of special importance in inter-State trade

or commerce (the declared goods); or (b) a tax on the sale or

purchase of goods being a tax of the nature referred to in sub-

clause (b), sub-clause (c) or sub-clause (d) of clause 29A of

Article 366.

In exercise of the power conferred under clause (2) of

Article 286, the Parliament enacted the CST Act formulating

principles for determining when a sale or purchase of goods takes

place in the course of inter-State trade or commerce or outside a

State or in the course of import or export. Section 5 of the CST

Act embodies the principles as to when a sale or purchase of goods

is said to take place in the course of import or export. Sub-

section (1) of Section 5 says that a sale or purchase of goods

shall be deemed to take place in the course of export of the goods

out of the territory of India only if the sale or purchase either

occasions such export or is effected by a transfer of documents of

title to the goods after the goods have crossed the customs

frontiers of India. Sub-section (2) provides that a sale or

purchase of goods shall be deemed to take place in the course of

import of goods into the territory of India only if the sale or

purchase either occasions such import or is effected by a transfer

of documents of title to the goods before the goods have crossed

the customs frontiers of India. Sub-section (3), which commences

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with a non-obstante clause, provides that despite sub-section (1),

the last sale or purchase of any goods preceding the sale or

purchase occasioning the export of those goods out of the

territory of India, shall also be deemed to be in the course of

such export if such last sale or purchase took place after and was

for the purpose of complying with the agreement or order for or in

relation to such export. In other words, the penultimate sale or

purchase before the sale or purchase occasioning the export of

those goods shall be treated as a sale or purchase in the course

of export of the goods. This is incorporated to get over the

judgment of this Court in Md.Serajuddin & Ors. vs. The State of

Orissa [1975 (2) SCC 47].

Next, we shall advert to Section 15 of the CST Act which

runs thus:

"15. Restrictions and conditions in

regard to tax on sale or purchase of

declared goods within a State.-- Every

sales tax law of a State shall, insofar as

it imposes or authorises the imposition of

a tax on the sale or purchase of declared

goods, be subject to the following

restrictions and conditions, namely:-

(a) the tax payable under that law in

respect of any sale or purchase of such

goods inside the State shall not exceed

four per cent of the sale or purchase

price thereof, and such tax shall not

be levied at more than one stage;

(b) where a tax has been levied under that

law in respect of the sale or purchase

inside the State of any declared goods

and such goods are sold in the course

of inter-State trade or commerce, and

tax has been paid under this Act in

respect of the sale of such goods in

the course of inter-State trade or

commerce, the tax levied under such law

shall be reimbursed to the person

making such sale in the course of

inter-State trade or commerce in such

manner and subject to such conditions

as may be provided in any law in force

in that State;

(c) where a tax has been levied under that

law in respect of the sale or purchase

inside the State of any paddy referred

to in sub-clause (i) of clause (i) of

section 14, the tax leviable on rice

procured out of such paddy shall be

reduced by the amount of tax levied on

such paddy;

(ca) where a tax on sale or purchase of

paddy referred to in sub-clause (i) of

clause (i) of Section 14 is leviable

under the law and the rice procured out

of such paddy is exported out of India,

then, for purposes of sub-section (3)

of Section 5, the paddy and rice shall

be treated as a single commodity;

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(d) each of the pulses referred to in

clause (via) of Section 14, whether

whole or separated, and whether with or

without husk, shall be treated as a

single commodity for the purposes of

levy of tax under that law."

The provisions, quoted above, enumerate the restrictions

and conditions in regard to tax on sale or purchase of declared

goods within a State, which is defined in clause (c) of Section 2

of the CST Act to mean the goods declared under Section 14 to be

of special importance in inter-State trade or commerce. It may be

pointed out here that paddy and rice are enumerated in sub-clauses

(i) and (ii) respectively of clause (i) of Section 14 and they

are, therefore, 'declared goods'.

Reverting to Section 15, clause (a) imposes two restrictions

on the tax to be imposed on sale or purchase of declared goods

inside the State : (1) an upper ceiling of four per cent on sale

or purchase price of such goods and (2) such tax shall not be

levied at more than one stage*. Clause (b) provides relief of

reimbursement of tax paid under the CST Act in case of double

taxation of declared goods, that is, where tax has been levied

under the State Act on sale or purchase of such goods and is again

levied under the CST Act in respect of sale of such goods in the

course of inter-State trade or commerce. The edict of clause (c)

makes it clear that a State law which imposes or authorises the

imposition of tax on sale or purchase of rice or paddy inside the

State has to be treated in the following manner: where a tax has

been levied in respect of sale or purchase inside the State on

paddy, the tax leviable on rice procured out of such paddy shall

be reduced by the amount of tax levied on it (such paddy); for

example, assuming that in a State the rate of tax on the sale or

purchase price of paddy is one per cent and of rice is four per

cent, then the tax leviable on the sale of rice will be reduced by

one per cent; consequently, the tax payable on the sale of rice

would be only three per cent.

Clause (ca) is inserted by The Finance (No.2) Act, 1996 (33 of

1996) w.e.f. September 28, 1996. It directs that where a tax on sale

or purchase of paddy is leviable under a State law and the rice

procured out of such paddy is exported out of India then for purposes

of penultimate sale (under Section 5(3)), the paddy and rice shall be

treated as a single commodity. In the circumstances mentioned in

clause (ca), it brings paddy on par with pulses dealt with in clause

(d). The mandate embodied in clause (d) is that pulses enumerated in

clause (via) of Section 14, whether whole or separated, and whether

with or without husk, shall be treated as a single commodity for the

purposes of levy of tax under any State law.

In the light of the discussion of the afore-mentioned provisions

of the Constitution of India and of the CST Act, we proceed to

interpret the relevant provisions of the Haryana Act and the Punjab

Act. The provisions of the Haryana Act have undergone series of

amendments and we deem it appropriate to observe with concern that in

the mass of amendments now it is by no means an easy task for any

legal practitioner or even a Court, and more so for a trader or an

ordinary citizen, to cull out the correct position in regard to one's

liability on the sales and purchases of the goods in a given

assessment year before 1996. Be that as it may, we shall now deal

with the contentions of the learned senior counsel for the

appellants/petitioners.

It may be mentioned that after formation of the State of

Haryana on November 1, 1966, it adopted the Punjab Act which was

in force in the then composite State of Punjab. The Haryana Act

was passed in the year 1973. Between 1982 and April, 1991,

Section 6 was amended as many as eight times. The last amendment

of Section 6 was by Ordinance No.2 of 1990, which was promulgated

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on October 15, 1990 and later replaced by Haryana Act 4 of 1991 on

April 16, 1991. By the said Act, the amended Section 6 was given

retrospective effect from May 27, 1971. It is unnecessary to refer

to all the earlier amendments as they have no bearing on the issue

under determination. Section 6, insofar as it is relevant for our

purpose, as it stood after the last mentioned amendment, read

thus:

"Section 6. Incidence of Taxation - (1)

Subject to other provisions of this Act,

every dealer whose gross turnover during

the year immediately preceding the 27th day

of May, 1971, exceeded the taxable

quantum, shall from the 27th day of May,

1971 and every other dealer shall, on the

expiry of thirty days after the date on

which his gross turnover first exceeds the

taxable quantum, be liable to pay tax

under this Act on the sale or purchase of

goods by him in the State at the stage

hereinafter provided.--

(a) on declared goods at the stage

specified under Section 17;

(b) & (c) xxx xxx xxx

Provided that this sub-section shall not

apply to a dealer who deals exclusively in

goods specified in Schedule B or who

executes a sub-contract with a contractor

who is liable to pay tax in respect of the

works contract of which the sub-contract

is a part:

Provided further that in the case of a

dealer, --

(a) xxx xxx xxx

(b) who manufactures or processes any

goods for sale, the liability to pay

tax shall commence, from the date on

which his gross turnover, during any

year, first exceeds the taxable

quantum;

(c) xxx xxx xxx

(d) who deals in declared goods, the

liability to pay tax shall commence

from the date on which his gross

turnover of such goods exceeds the

taxable quantum;

(e) to (h) xxx xxx xxx

(3) to (5) xxx xxx xxx"

A perusal of the above provision would show that it is a

charging section. It opens with the phrase "subject to the other

provisions of this Act" ; having been given retrospective effect

from May 27, 1971, it would apply in regard to the assessment

years in question, the last of them being 1989-90. The impost

under Section 6 is: (1) subject to the other provisions of the

Act; (2) on every dealer whose gross turn over during the relevant

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period, exceeds the taxable quantum; (3) on the taxable event of

sale or purchase of goods; and (4) in respect of declared goods

(say paddy) tax is payable at the stage of last purchase. What is

subjected to tax is the difference between the `gross turn over'

and the `taxable quantum', which are defined in clauses (gg) and

(p), respectively, of Section 2. To comprehend the scope of the

charge under Section 6, which is subject to other provisions of

the Act, it has to be read with Section 2(p), Section 15, Section

17 and Section 27. A combined reading of these provisions would

disclose that tax is leviable on the taxable turn over of sales or

purchases of goods at the rate mentioned in Section 15 at

specified stages - in the case of declared goods at the stage

specified in Section 17.

The first proviso to sub-section (1) of Section 6 exempts:

(a) a dealer who deals exclusively in goods specified in Schedule

'B'; and (b) a dealer who executes a sub-contract with a

contractor. These are the only exemptions that Section 6 speaks

of, though Section 13 confers power on the Government to grant

exemption in specified cases.

Here, it would be relevant to note that the said Haryana Act

4 of 1991, omitted Section 9 of the principal Act, which, be it

noted, is not retrospective. Consequently, in respect of the

assessment years in question, Section 6, as amended by Haryana Act

4 of 1991 as well as Section 9 of the Haryana Act were on the

Statute Book and this fact should be borne in mind while

considering leviability of the purchase tax on the raw material

(Paddy) during the period ending with Assessment Year 1989-90.

It is pertinent to read Section 9 of the Haryana Act.

Though Section 9 was also amended on ten occasions between 1976

and 1991, for the present discussion, all those amendments are

inconsequential. Section 9(1)(b) as on October 15, 1990, insofar

as it is relevant, is extracted here:

"Section 9.

(1), Where a dealer liable to pay tax

under this Act,

(a) xxx xxx xxx

(b) purchases goods, other than those

specified in Schedule B, from any

source in the State and uses them in

the State in the manufacture of any

other goods and either disposes of

the manufactured goods in any manner

otherwise than by way of sale in the

State or despatches the manufactured

goods to the place outside the State

in any manner otherwise than by way

of sale in the course of inter-State

trade or commerce or in the course

of export outside the territory of

India within the meaning of section

5 of the Central Sales Tax Act,

1956; or

(c) XXX XXX XXX

in the circumstances in which no tax is

payable under any other provision of this

Act, there shall be levied, subject to the

provisions of Section 17, a tax on the

purchase of such goods at such rate as may

be notified under Section 15."

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This provision has had a chequered history. In Goodyear

India Limited & Ors. vs. State of Haryana & Anr. (1990 (2) S.C.C.

71), it was declared ultra vires the power of the State

Legislature. However, in Murli Manohar & Co. & Anr. vs. State of

Haryana & Anr. (1991 (1) S.C.C. 377), it was explained that the

unconstitutionality was confined to assignment sales. Ultimately,

in Hotel Balaji & Ors. Vs. State of Andhra Pradesh & Ors. (1993

Suppl.(4)SCC 536), it was declared that judgment of this Court in

Goodyear's case (supra) was not a good law. Consequently, Section

9(1)(b) was a valid provision. We shall examine its ingredients

and impact vis-a-vis other provisions till it was omitted with

effect from April 1, 1991.

A careful reading of Section 9(1)(b) discloses that: it

postulates existence of circumstances in which no tax is payable

under any other provisions of the Act by a dealer who: (i) is

liable to pay tax under the Act; (ii) purchases goods (referred

to, 'raw material') {other than those specified in Schedule B} from

any source in the State; (iii) uses them in the State in the

manufacture of any other goods (referred to as, 'manufactured

goods'); (iv) disposes of the manufactured goods in any manner

otherwise than by way of sale or (v) despatches the manufactured

goods to a place outside the State in any manner and provides that

in such a case there shall be levied, a tax, subject to the

provisions of Section 17, on the purchase of raw material at such

rate as may be notified under Section 15. This in substance is

the charge under Section 9(1)(b). It is important to note that

the afore-mentioned levy of purchase tax on the raw material would

have no application when the manufactured goods are : (a) disposed

of by way of sale in the State; (b) despatched to a place

outside the State: (1) in the course of inter-State trade or

commerce; or (2) in the course of export outside the territory of

India within the meaning of Section 5 of the CST Act. In other

words, levy of purchase tax thereunder on the raw material is

exempted if the manufactured goods are dealt with in the manner

outlined in clauses (a) and (b) hereinabove.

The exemptions contained in Section 9(1)(b) are confined to

cases of impost levied thereunder and not otherwise. In other

words, where purchase tax is leviable on goods under Section 6,

and not under Section 9(1)(b), a dealer cannot claim benefit of

the exemptions mentioned in latter section.

The rationale for the exemption of purchase tax on the raw

material from the purchase tax in the afore-mentioned cases, is

succinctly elucidated by Jeevan Reddy,J. speaking for a Bench of

three learned Judges of this Court in Hotel Balaji's case (supra)

as follows :-

"The levy created by the said provision is a

levy on the purchase of raw material purchased

within the State which is consumed in the

manufacture of other goods within the State.

If, however, the manufactured goods are sold

within the State, no purchase tax is collected

on the raw material, evidently because the State

gets larger revenue by taxing the sale of such

goods. (The value of manufactured goods is

bound to be higher than the value of the raw

material.) The State legislature does not wish

to - in the interest of trade and general public

- tax both the raw material and the finished

(manufactured) product. This is a well-known

policy in the field of taxation. But where the

manufactured goods are not sold within the State

but are yet disposed of or where the

manufactured goods are sent outside the State

(otherwise than by way of inter-State sale or

export sale) the tax has to be paid on the

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purchase value of the raw material. The reason

is simple : if the manufactured goods are

disposed of otherwise than by sale within the

State or are sent out of State (i.e., consigned

to dealers own depots or agents), the State does

not get any revenue because no sale of

manufactured goods has taken place within

Haryana. In such a situation, the State says,

it would retain the levy and collect it since

there is no reason for waiving the purchase tax

in these two situations. Now coming to inter-

State sale, and export sale, it may be noticed

that in the case of inter-State sale, the State

of Haryana does get the tax revenue - may be not

to the full extent. Though the Central Sales

Tax is levied and collected by the Government of

India, Article 269 of the Constitution provides

for making over the tax collected to the States

in accordance with certain principles. Where,

of course, the sale is an export sale within the

meaning of Section 5(1) of the Central Sales Tax

Act (export sales) the State may not get any

revenue but larger national interest is served

thereby. It is for these reasons that tax on

the purchase of raw material is waived in these

two situations. Thus, there is a very sound and

consistent policy underlying the provision."

We are in respectful agreement with the above passage.

The same principle is reiterated in Jagatjit Sugar Mills &

Ors. Vs. State of Punjab & Anr. (1995 (1) SCC 67) and applied in

K.B. Handicrafts Emporium and Ors. Vs. State of Haryana and Ors.

(1993 Suppl.(4)SCC 589).

In these cases, in the light of the above discussion, we

conclude that specific charging provision of Section 9(1)(b) will

be attracted as the assessee purchased paddy (which is not one of

the goods specified in Schedule B), procured rice (manufactured

goods) from the said paddy and exported rice outside the territory

of India, on which no purchase tax was payable under the general

charging provision of Section 6 which is, inter alia, subject to

the provisions of Section 9. We have already held above that the

assessees will not be liable to pay tax on the purchase of such

paddy in view of the provisions of clause (b) of sub-section (1)

of Section 9 in the assessment years in question, or, for that

matter, any assessment year ending before April 1, 1991. To the

same effect is the view expressed by this Court in the cases of

Murli Manohar (supra), Hotel Balaji (supra) and K.B. Handicrafts

Emporium (supra). The High Court was, therefore, clearly in error

in not following the ratio of these judgments on untenable

grounds.

The next contention of Mr.P.Chidambaram that the High Court

erred in holding that omission of Section 9 from the statute had

no effect in view of amendment of Section 6 and inclusion of

Section 15-A and that the liability to pay purchase tax was

regulated by Section 6 read with Section 15 and adjustments, if

any, could be made under Section 15-A of the Haryana Act.

Mr.Mahendra Anand supported the conclusion of the High Court on

the basis of retrospective amendment of Sections 2(p), 6, 15 and

15A of the Haryana Act. We shall take up these contentions.

We have already referred to Sections 6 and 9 of the Haryana

Act. To recapitulate, Section 6, which is a general charging

section, provides that every dealer shall be liable to pay tax

under the Act on the sale or purchase of, inter alia, declared

goods by him in the State at the stage specified under Section 17.

It says that at the stage of sale or purchase of the declared

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goods, the tax shall be levied and paid as specified against such

goods in Schedule `D'. It also provides that where the goods have

not been subjected to tax at any of the stages of sale or purchase

specified in Schedule `D', the tax shall be levied and paid by a

dealer liable to pay tax under the Act at the stage of the last

purchase of such goods by him, after providing deductions

admissible under Section 27. It is not possible to read that the

section by itself creates an independent charge on the declared

goods. It merely indicates the stage at which the tax shall be

leviable and payable. Indeed, clause (a) of sub-section (1) of

Section 6 itself mentions that in respect of the declared goods

tax shall be levied at the stage specified in Section 17. It is,

therefore, futile to contend that under Section 17 levy of tax on

declared goods is not dependant on the use and disposal of such

goods whether as such or in the manufactured form. It has already

been pointed out above that when paddy, declared goods, is

manufactured into rice which is exported outside India, as

postulated in clause (b) of sub-section (1) of Section 9 of the

Haryana Act, the liability for payment of purchase tax on such

paddy would be 'nil'. The legislature enacted a specific

provision (Section 9(1)(b)) with regard to levy and payment of

purchase tax on paddy when rice is procured therefrom and exported

outside India. We find it difficult to sustain the argument that

in view of Section 17 of the Haryana Act, levy of purchase tax on

paddy would be valid notwithstanding the fact that the same is

exempted under Section 9(1)(b). Though in Murli Manohar's case

(supra), the raw material was not one of the declared goods; it

makes no difference so far as the ratio of that decision is

concerned.

For the purpose of Section 6 read with Section 15 of the

Haryana Act, a dealer is liable to pay tax on the taxable turnover

of his sales and purchases. The expression 'taxable turnover' is

defined in clause (p) of Section 2 to mean that part of a dealer's

gross turnover which remains after allowing deductions under

Section 27 of the Haryana Act. Explanation (2) to the said clause

provides that the proceeds of sale of any goods on the purchase of

which tax is leviable under the Act or the purchase value of any

goods on the sale of which tax is leviable under the Act shall not

be included in the turnover. Inasmuch as the sale of paddy is

taxable under the Act, the purchase value of such paddy cannot be

included in the turnover; it is evident that no purchase tax can

be imposed under Section 6 of the Haryana Act. This explains the

reason as to why Section 9 specifically provides that the charge

thereunder shall be levied in the circumstances in which no tax is

payable under any other provision of the Act. In other words, it

is only because no tax can be levied and collected on the purchase

of paddy either under Section 6 or under any other provision of

the Haryana Act, that Section 9 imposes the tax, except in the

circumstances provided in clause (b) of sub-section (1) of Section

9. This is the view taken by a Bench of three learned Judges of

this Court in Murli Manohar's case (supra) where the liability

under Section 9 was directly in question. This view was

reiterated by two more Benches of this Court in Hotel Balaji's

case (supra) and K.B.Handicraft Emporium (supra). The Full Bench

of the High Court, in our view, was not right in declining to act

upon the ratio of the judgments in the aforementioned cases. In

the result, we hold that the amendment to the definition of

`turnover' in clause (p) of Section 2 and of Section 6 does not

affect the position when Section 9 is part of the statute.

Connected with the topic under discussion are the cases

arising under the Punjab Act - Group (B). It is urged that

Section 4-B of the Punjab Act is analogous to Section 9(1)(b) of

the Haryana Act and as the former provision (Section 4-B) exists

till date the judgment of this Court in Murli Manohar's case

(supra) applies, therefore, there can be no demand of purchase tax

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on paddy.

We have indicated above that cases arising under the Punjab

Act (Group (B)) go with cases in Group (A)(i) and relate to the

period when Section 9(1)(b) of the Haryana Act was in force i.e.

before October 14, 1990. The facts giving rise to the appeal

[Civil Appeal No. 3666 of 1996] may briefly be noted as

representative of the facts of cases falling in this group. The

appeal relates to Assessment Years 1990-91 and 1991-92. The

assessee purchased paddy in the State of Punjab, milled the same

and exported rice procured therefrom to places outside the

territory of India. No tax was paid on the purchase of paddy.

However, show-cause notices were issued to demand purchase tax on

the paddy converted into rice in those years. The demand was

confirmed and that was unsuccessfully assailed in the High Court.

Mr.R.P.Gupta, learned counsel appearing for the assessee,

placed reliance on the observations of this court in Mukerian

Paper Limited vs. State of Punjab (1991 (2) SCC 580) and argued

that Section 4-B of the Punjab Act was similar to Section 9 of the

Haryana Act, so the ratio of the judgments of this Court in Murli

Manohar's case (supra) and Jagatjit Sugar Mill's case (supra)

would apply and as such the demand of purchase tax would be wholly

illegal. Mr.V.C.Mahajan, learned senior counsel appearing for the

State of Punjab, urged a feeble contention that neither the

assessee was the exporter nor the rice procured from paddy was

exported so the assessee would be liable to pay purchase tax on

paddy.

In view of the fact that the case proceeded on the basis

that the assessee was exporter of rice as this fact is also

evident from the judgment under appeal, it is difficult to accept

the contention of the learned senior counsel.

We shall now examine the contentions of Mr.Gupta.

Section 4-B was inserted in the Punjab Act by the Punjab Act

3 of 1973 with effect from November 15, 1972. It reads as

follows:

"4-B. Levy of purchase tax on certain

goods.-- Where a dealer who is liable to

pay tax under this Act purchases any goods

other than those specified in Schedule B,

from any source and

(i) uses them within the State in the

manufacture of goods specified in

Schedule B, or

(ii) uses them within the State in the

manufacture of any goods, other than

those specified in Schedule B, and

sends the goods so manufactured

outside the State in any manner

other than by way of sale in the

course of inter-State trade or

commerce or in the course of export

out of the territory of India, or

(iii) uses such goods for a purpose other

than that of resale within the State

or sale in the course of inter-State

trade or commerce or in the course

of export out of the territory of

India, or

(iv) sends them outside the State other

than by way of sale in the course of

inter-State trade or commerce or in

the course of export out of the

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territory of India,

and no tax is payable on the purchase of

such goods under any other provisions of

this Act, there shall be levied a tax on

the purchase of such goods at such rate

not exceeding the rate specified under

sub-section (1) of section 5 as the State

Government may direct."

The afore-quoted section makes it clear that it can be

invoked when a dealer who is liable to pay tax under the Act : (a)

purchases any goods (referred to as raw material) other than those

specified in Schedule B; (b) uses the raw material within the

State in the manufacture of goods specified in Schedule B; or (c)

uses them within the State in the manufacture of any goods other

than those specified in Schedule B and sends the goods so

manufactured out of the State in any manner; (d) uses the raw

material for a purpose other than that of resale within the State

or; (e) sends the raw material outside the State; and (f) no tax

is payable under any other provision of the Punjab Act on such raw

material. On fulfillment of these requirements, Section 4-B

imposes a tax on the purchase of the raw material at such rates

not exceeding the rate specified under sub-section (1) of Section

5, as the State Government may direct. The analysis of the

section would remain incomplete without recording that the raw

material is exempt from the levy of purchase tax when the

manufactured goods are sent outside the State by way of sale in

the course of inter-State trade or commerce or in the course of

export out of the territory of India.

A comparison of Section 4-B of the Punjab Act with Section

9(1)(b) of the Haryana Act shows that to a large extent there is

similarity in both these provisions. To the same effect is the

observation of a Bench of three learned Judges of this Court in

Mukerian's case (supra), which reads thus:

"... even though the language of Section 4-B of

the Act is not identical with the relevant part

of Section 9(1) of the Haryana Act, it is in

substance similar in certain respects,

particularly in respect of the point of time

when the liability to pay tax arises. Under

that provision, as here, the liability to pay

purchase tax on the raw material purchased in

the State which was consumed in the manufacture

of any other taxable goods arose only on the

despatch of the goods outside the State."

In Devi Dass Gopal Krishan Pvt. Ltd. & Ors. vs. State of

Punjab & Ors. (1994 Suppl.(2) SCC 59), while sustaining the

legislative competence of the State of Punjab to enact Section 4-B

and upholding its validity, this court after analysing the said

section observed that Section 4-B of the Punjab Act was in

substance similar to Section 9(1)(b) of the Haryana Act.

In Jagatjit Sugar Mills case (supra), a Bench of three

learned Judges opined thus:

"In our opinion, the purpose of Section 4-

B is altogether different. It is designed

really to identify and affirm -- in a

broad sense, create -- the levy of

purchase tax in some cases and to provide

for exemption from purchase tax in certain

other specified situations. This is done

in the interest of manufacturers-dealers,

consuming public and other dealers -- a

common feature in almost all the sales tax

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enactments ......."

Though Section 4-B of the Punjab Act is not in iisdem

terminis with Section 9(1)(b) of the Haryana Act, however, they

are in pari materia. It is not the similarity of the said

provisions alone that would determine the liability of a dealer to

pay purchase tax on paddy under the said Acts. It is the ambit of

charging sections in those Acts, which will be determinative.

Section 6 of the Haryana Act, as pointed out above, did not charge

purchase tax on paddy before October 14, 1990 and in the

circumstances mentioned in Section 9(1)(b) imposed purchase tax

but provided for its exemption in specified situations.

We must now examine the scope of charge under Section 4 of

the Punjab Act which, insofar as it is relevant for our purpose,

is extracted hereunder :

"4.Incident of taxation - (1) Subject to the

provisions of sections 5 and 6 every dealer

except one dealing exclusively in goods declared

tax-free under section 6 whose gross turnover

during the year immediately preceding the

commencement of this Act exceeded the taxable

quantum shall be liable to pay tax under this

Act on all sales affected after the coming into

force of this Act and purchases made after the

commencement of the East Punjab General Sales

Tax (Amendment) Act, 1958 :

Provided that the tax shall not be payable

on sales involved in the execution of a contract

which is shown to the satisfaction of the

assessing authority to have been entered into

before the commencement of this Act."

A plain reading of this provision shows that it is subject to the

provisions of sections 5 and 6. It says that every dealer shall

be liable to pay tax under this Act (i) on all sales affected

after the coming into force of this Act if his gross turnover

during the year immediately preceding the commencement of this Act

exceeded the taxable quantum; and (ii) on all purchases made by

him after the commencement of the East Punjab General Sales Tax

(Amendment) Act, 1958. Section 5 provides for levy of tax on

taxable turnover. Section 6 exempts tax on sale of goods

enumerated in Schedule B. As defined in Section 5(2), 'taxable

turnover' would mean that part of a dealer's gross turnover which

remains after deducting therefrom, - "(a) his turnover during the

period on - (i) *** *** *** (ii)........sale in the course of

inter-State trade or commerce or sale in the course of export of

goods out of the territory of India, or of goods specified in his

certificate of registration for use by him in the manufacture in

Punjab or any goods, other than goods declared tax free under

Section 6, or sale in the course of inter-State trade or commerce,

or sale in the course of export of goods out of the territory of

India........" The value of purchase of goods (paddy) does not

figure in the amounts which can be deducted for purposes of

determining taxable turnover. The definition of 'purchase' in

clause (ff) is an inclusive definition. It means, inter alia,

acquisition of goods specified in Schedule 'C' for cash or

deferred payment.

In Jagatjit Sugar Mills' case (supra), this Court held that

Section 4 levies tax not only upon 'all sales affected' but also

on 'all purchases made' and negatived the contention that no

purchase tax was payable under Section 4 of the Act on goods other

than those mentioned in Schedule 'C' (contains paddy and rice).

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It was held,

"Firstly, clause (ff) in Section 2 is not a

charging section. It only defines "purchase".

Secondly, the definition not only includes the

purchase of Schedule C goods but purchase of

other goods which are subject to purchase tax

under any other provisions of the Act. The fact

that the words "or of goods on the purchase

whereof tax is payable under any provisions of

this Act" were inserted in this definition by

the same Amendment which introduced Section 4-B

into the Act does not mean that the said words

are confined to Section 4-B. If that were the

intention, the legislature would have used

appropriate words to that effect. Moreover,

Section 4-B is designed for a different purpose.

The said definition cannot, therefore, be read

in derogation of Section 4(1) nor can the levy

created by Section 4(1) be curtailed or cut down

in any manner by the said definition."

Section 29, which provides exemption in certain cases, is also

of no avail to the assessee. It reads as under :

"29. Provisions in case of inter-State trade,

etc -

(1) Notwithstanding anything contained in this

Act -

(a) a tax on the sale or purchase of goods

shall not be imposed under this Act

(i) where such sale or purchase takes

place outside the State of Punjab; or

(ii) where such sale or purchase takes

place in the course of import of the

goods into, or export of the goods

out of, the territory of India;

Provided that the last sale or purchase of

any goods preceding the sale or purchase

occasioning the export of such goods out of the

territory of India shall also be deemed to be in

the course of such export, if such last sale or

purchase takes place after making an agreement

or order for such export;

Provided further..................."

Sub-clause (ii) of clause (a) of sub-section (1), which is

relevant here, read with the first proviso, applies where such

sale or purchase is a penultimate sale or purchase and takes place

in the course of import of the goods into or export of the goods

out of the territory of India. This clause is also of no

consequence; firstly, because paddy and rice being two different

commodities and secondly, the proviso was inserted only with

effect from February 5, 1999 by Act 4 of 1999.

In the light of the above discussion, it cannot but be held

that the assessees are liable to pay tax on the purchase of paddy

under Section 4 of the Punjab Act and the similarity between

Section 4-B of the Punjab Act and Section 6 of the Haryana Act and

the ratio of the judgments in Murli Manohar's case and other

cases, referred to above, are of no assistance to them.

We may now notice the contention of Mr.Chidambaram based on

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sub-section (3) of Section 5 of the CST Act. The learned senior

counsel argued that as paddy purchased by the assessees was

exported albeit in the rice form, therefore, the purchase of paddy

itself would be deemed to be in the course of export. He pointed

out that the latin name for paddy and rice was the same viz. Oryza

sativa L. and they fall in one and the same group. He suggested

that the judgments of this Court in Ganesh Trading Company, Karnal

vs. State of Haryana & Anr. (1974 (3) SCC 620) and Babu Ram

Jagdish Kumar & Co. vs. State of Punjab & Ors. (1979 (3) SCC 616),

holding that 'paddy and rice are different commodities', were not

rendered in the context of sub-section (3) of Section 5 of the CST

Act and that they require reconsideration. On the other hand,

Mr.Mahendra Anand strenuously urged that paddy and rice were two

different 'goods', therefore, on the export of rice the assessee

could not claim exemption on the purchase of paddy either under

Section 5(3) of the CST Act or under Article 286(1)(b) of the

Constitution of India because penultimate sale was not that of

rice but of paddy. He argued that only when paddy would undergo

various processes, which tantamounts to manufacture, rice could be

procured.

It may be noticed that the principle laid down by this Court

in Ganesh Trading Co. (supra) and Babu Ram Jagdish Kumar case

(supra) was accepted by the Parliament and Section 14 of the CST

Act was amended to show that paddy and rice are two distinct

goods. In Vijay Laxmi Cashew Company vs. Deputy Commercial Tax

Officer (1996 (1) SCC 468), this Court held that to claim the

benefit under Section 5(3) of the CST Act, a dealer would have to

establish the identity of the goods purchased and the goods

exported out of the territory of India. When in order to fulfil

an export obligation some goods are purchased and processed which

resulted in change of the identity and character of the goods like

processing of paddy into rice, which is exported, then it would

not be an export of the same goods. Therefore, the assessee will

not be entitled to exemption under Section 5(3) of the CST Act.

We have already indicated above that sub-section (3) of Section 5

treats penultimate sale of the goods which are exported as the

sale in the course of export. It is difficult to accept the

contention of Mr.Chidambaram that paddy and rice are the same

goods. The usual commercial parlance test that is applied is how

such goods are known in the commercial circles. It is a common

knowledge that paddy and rice are treated in the market as two

different commodities. We are not persuaded to accept the

submission that the case of Ganesh Trading Co. (supra) in which it

is held that paddy and rice are different commodities and which

was followed by a Bench of three learned Judges in Jagdish Kumar's

case (supra) require reconsideration. Those cases arose under the

Punjab Act and Ganesh Trading Co.'s case (supra) was decided even

before the insertion of sub-section (3) of Section 5. With great

respect to the learned Judges, we are in entire agreement with the

view expressed in those cases that paddy and rice are two

different commodities. It is unnecessary to delve into the process

of procuring rice from paddy to ascertain whether a complicated

process results in change of identity of goods (raw material) as

was found in State of Travancore-Cochin & Ors. vs. Shanmugha Vilas

Cashew Nut Factory & Ors. [1954 SCR 53] and in Vijay Laxmi Cashew

Company vs. Deputy Commercial Tax Officer [1996 (1) SCC 468] or

involves only a simple process as was the case in Sterling Foods

vs. State of Karnataka [1986 (3) SCC 469] and Deputy Commissioner

of Sales Tax vs. Pio-Food Packers [1980 Suppl. SCC 174] not

affecting the identity of the goods (raw material). It is a common

ground that the Parliament treated paddy and rice as two different

goods as is evident from sub-clauses (i) and (ii) of Clause (i) of

Section 14 of the CST Act which was inserted by the Parliament by

Act 103 of 1976 with effect from September 7, 1976. The argument

of the learned senior counsel based on Section 5(3) of the CST Act

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must, therefore, fail. Mr. P.Chidambaram has argued that the

requirements of Article 286 of the Constitution and Section 15(c)

of the CST Act are mandatory and this accounts for clause (iii) of

the proviso to sub-section (1) of Section 15 of the Haryana Act,

therefore, Section 15-A of the Haryana Act, insofar as it denies

the benefit of adjustment/refund of purchase tax in regard to

paddy, is unconstitutional and ultra vires; in the alternative it

was urged that the amendment of Section 15-A by Ordinance 1 of

1992 took away the benefit of adjustment/refund retrospectively

from May 27, 1971, availed by the assessees for the last twenty

one years which is unjust, arbitrary and unconstitutional.

Section 15-A was first inserted in the Haryana Act on

January 25, 1990 and was given retrospective effect from May 27,

1971. Like its companion sections, it also underwent many

changes. We are concerned with Section 15-A, as substituted by

the Haryana Act 9 of 1993 on February 10, 1993 retrospectively

from May 27, 1971. It was as under :

*

" 15-A. Adjustment or refund of tax in certain

cases -

Subject to the provisions of clause (iii) of

proviso to sub-section (1) of Section 15 and

subject to the conditions and restrictions, as

may be prescribed -

(i) the tax leviable under this Act or the

Central Sales Tax Act, 1956, on the sale of

goods by a dealer, manufactured by him, shall be

reduced by the amount of tax paid in the State

on the sale or purchase of goods, other than

paddy, cotton and oilseeds, used in their

manufacture, and

(ii) when no tax is leviable on the sale of

manufactured goods except those specified in

Schedule B, subject to the conditions and

exceptions specified therein, or when the tax

leviable on the sale of manufactured goods is

less than the tax paid in the State on the sale

or purchase of goods, other than paddy, cotton

and oil seeds, used in their manufacture, the

full amount of tax paid or the excess amount of

tax paid over the tax leviable on sale, as the

case may be, shall be refundable if the

manufactured goods are sold in the State or in

the course of inter-State trade or commerce or

in the course of export out of the territory of

India.

Provided that in case the manufactured

goods have been sold before the 1st day of

January, 1988, the tax paid on goods, leviable

to tax at the first stage of sale under section

18, used in their manufacture, shall not be

refunded."

This provision speaks of adjustment and refund of

tax in certain cases. It operates subject to the provisions of

clause (iii) of proviso to sub-section (1) of Section 15, we shall

refer to it presently, and is also subject to the conditions and

restrictions, as may be prescribed. Clause (i) of Section 15-A

stipulates that the tax leviable under the Haryana Act or the CST

Act on the sale of goods by a dealer manufactured by him shall be

reduced by the amount of tax paid in the State on the sale or

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purchase of the raw material, other than the tax paid on the last

purchase of paddy, cotton and oil seeds used in their manufacture.

Clause (ii) speaks of a situation where no tax is leviable on the

sale of manufactured goods [except those specified in Schedule

`B'], subject to the conditions and exceptions specified therein;

or when the tax leviable on the sale of manufactured goods is less

than the tax paid in the State on the sale or purchase of raw

material other than the tax paid on the last purchase of paddy,

cotton and oil seeds used in their manufacture, the full amount of

tax paid or the excess amount of tax paid over the tax leviable on

the sale, as the case may be, shall be refundable if the

manufactured goods are sold in the State or in the course of

inter-State trade or commerce or in the course of export out of

the territory of India. It is plain that this clause provides for

refund of tax paid on the last purchase of raw material, except on

paddy, cotton and oil seeds. However, the proviso creates an

exemption to the refund of tax when the manufactured goods have

been sold before the 1st day of January, 1988. What is relevant to

note is that the purchase tax paid on paddy, cotton and oil seeds

(which are used as raw material) can neither be refunded nor

adjusted. It is in view of this provision that show cause notices

were issued to the assessees denying both the benefit of

adjustment as well as refund of tax paid on the purchase of paddy.

The last mentioned amendment inserted in Section 15-A, the

following words "subject to the provisions of clause (iii) of

proviso to sub-section (1) of Section 15". Clause (iii) of

proviso to sub-section (1) of Section 15 of the Haryana Act reads

as under:

"15.(1) Subject to the provisions of this

Act, there shall be levied on the taxable

turnover of a dealer a tax, at such rates,

not exceeding,--

(a) and (b) xxx xxx xxx

Provided that --

(i) and (ii) xxx xxx xxx

*

(iii) in the case of rice procured out of

paddy on the purchase of which a tax has

been levied inside the State, tax leviable

on such rice shall be reduced by the

amount of tax levied on such paddy."

It specifies different rates of tax leviable on the taxable

turnover of a dealer depending on the nature of goods. Clause

(iii) of the proviso to sub-section (1) says that the tax leviable

on rice, which is procured from the purchase tax suffered paddy,

shall be reduced by the amount of tax levied on such paddy.

Having referred to the provisions of Article 286 of the

Constitution and Section 15(c) of the CST Act, we have pointed out

that clause (1) of Article 286 protects sale or purchase which

takes place (a) outside the State or (b) in the course of import

of goods into or export of the goods out of the territory of

India, from a State Law imposing or authorising imposition of a

tax. We have also indicated that clause (c) of Section 15 of the

CST Act directs that where in respect of sale or purchase of

paddy, tax has been levied in a State, then the tax leviable on

the rice procured out of such paddy shall be reduced by the amount

of tax levied on such paddy. This is to ensure that paddy and

rice, being declared goods, considered to be of special importance

in the inter-State trade or commerce, be relieved of so much

burden of tax on rice as has been on the paddy from which rice has

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been procured. It appears to us that clause (iii) of the proviso

to sub-section (1) of Section 15 reflects the intendment of clause

(c) of Section 15 of the CST Act. It is not possible to accept

that Section 15-A denies adjustment in regard to the tax paid on

the purchase of paddy, as it is clear that in view of the opening

words of Section 15-A, inserted by the amendment referred to

above, it is subject to clause (iii) of the proviso to sub-section

(1) of Section 15. Consequently, applying the principle of

harmonious construction Section 15-A cannot be so interpreted as

to override the provisions of either Section 15(c) of the CST Act

or clause (iii) of the proviso to sub-section (1) of Section 15 of

the Haryana Act so as to deny the benefit of adjustment. It,

therefore, follows that the assessees are entitled to adjustment

of purchase tax paid on paddy when the rice procured therefrom is

taxed.

It is true that Section 15A does not permit refund of

purchase tax paid on paddy, cotton and oilseeds by an assessee

though such a relief is available in regard to other goods. In

the light of the above discussion, the challenge to Section 15A on

the ground of violation of Section 15(c) of the CST Act or Article

286 (1)(b) of the Constitution cannot be sustained because the

only relief that is granted by Section 15(c) is reduction of tax

leviable on the sale of rice procured from out of paddy, where tax

has been levied on sale or purchase of such paddy inside the

State. This relief is incorporated by the Haryana Act in clause

(iii) of the proviso to sub-section (1) of Section 15. Even

clause (b) of sub-article (1) of Article 286 does not provide for

exemption of tax on the purchase of paddy. There is no other

provision either in Article 286 or in the CST Act which bars a

State from levying tax on the sale or purchase of paddy which is

not exported out of the territory of India. Section 15A proceeds

on the premise that purchase tax is payable, inter alia, on paddy.

From the above discussion, it is clear that before the omission of

Section 9 from the Haryana Act, no purchase tax was payable on

paddy under Section 6 of the Act, therefore, during the aforesaid

period, the assessee cannot complain of the denial of the benefit

of adjustment and refund of purchase tax on the basis of Section

15-A of the Haryana Act. The position would, however, be different

after April 1, 1991, when Section 9 was omitted from the Act.

In regard to the competence of a legislature to levy impost,

it is well established that it can do so, it can as well legislate

retrospectively.

In Rai Ramkarishna & Ors. Vs. The State of Bihar (1964 (1)

SCR 897), a Constitution Bench of this Court observed, where the

legislature could make a valid law, it could provide not only for

the prospective operation of the material provisions of the said

law, but also for the retrospective operation of the said

provisions. It was also observed that the legislative power

included the subsidiary or the auxiliary power to validate law

which was found to be invalid. Even if a law passed by the

legislature was struck down by the Courts, it was competent for

the appropriate legislature to pass a validating law so as to make

the provisions of the earlier law effective from the date when it

was passed. In that connection, it was held that the test of the

length of time covered by the retrospective operation could not by

itself be treated as a decisive test.

In Jawaharmal vs. State of Rajasthan and Ors. (1966 (1)

SCR 890) a Constitution Bench of this Court laid down,

"What it (Section 2 of the Act of 1964) does is to

amend retrospectively Section 3 of the principal Act

by inserting a proviso ........... The power to

legislate includes the power to legislate

prospectively as well as retrospectively and in that

behalf, tax legislation is no different from any other

legislation. The power to tax can be competently

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exercised by the legislature either prospectively or

retrospectively; and that is precisely what Section 2

has done in the present case. Therefore, there was no

substance in the argument that Section 2 of the Act

was invalid."

In that case Section 3 of the Rajasthan Passengers and Goods

Taxation Act, 1959 (Act 18 of 1959) was amended by Rajasthan

Finance Act Nos.14 of 1961 and 11 of 1962 to raise the maximum

rates leviable under the Act. The Acts did not, however, obtain

the assent of the President, as required by Article 255 of the

Constitution. The defect was cured by issuing Ordinance No.4 of

1964 which was replaced by Act 22 of 1964 for which the assent of

the President was duly obtained. Section 2 of the said Act of

1964 retrospectively re-enacted the amendments to Section 3 of the

Principal Act by Acts of 1961 and 1962 and Section 4 of the Act

validated all the collections and levies under the earlier Acts

and also purported to cure the infirmity in the said earlier Act

arising from non-compliance with Article 255. The petitioner

therein challenged the validity of the said ordinance as well as

the Act of 1964 under Article 32 of the Constitution, which

failed.

In M/s. J.K. Cotton Spinning and Weaving Mills Ltd. & Anr.

vs. Union of India & Ors. (1987 (Supp.) SCC 350) by Section 51 of

Finance Act, 1982, Rules 9 and 49 of the Central Excise Rules,

1944 were amended retrospectively from the date of framing of the

Rules in 1944. After referring to the cases of Rai Ramakrishna

and Jawaharmal (supra), it was observed that the Court might have

to consider the question as to whether excessive retrospective

operation prescribed by a taxing statute amounted to contravention

of the citizens' fundamental rights and in dealing with such a

question the Court might have to take into account all the

relevant and surrounding facts and circumstances in relation to

the taxation and in that connection the test of the length of time

covered by the retrospective operation cannot, by itself,

necessarily be a decisive test. By examination of the merits of

the case it was held that the retrospective effect given to the

said provisions was subject to Section 11-A of the Act and was,

therefore, not excessive and arbitrary.

In State of Tamil Nadu vs. Arooran Sugars Ltd. (1997 (1)

SCC 326), the same principle is reiterated and it is added that in

special situation this Court has held that such excessive

retrospectivity was violative of Article 14 of the Constitution.

In the instant case, having regard to the provisions of

Section 40 of the Haryana Act, the authorities can not revise the

assessment for period beyond five years. Further, even though

Section 15-A was given retrospectivity with effect from May 27,

1971, it would hardly be effective between May 27, 1971 and April

1, 1991 when the benefit of exemption under Section 9(1)(b) ceased

to exist, as such none of contentions that giving Section 15-A

retrospectivity of 21 years could be harsh, arbitrary and illegal

would be devoid of merit.

No relief was available in regard to penultimate purchase of

paddy which was converted into rice and exported. This position

obtained till clause (ca) of Section 15 of the CST Act was

inserted by Act 33 of 1996 on September 28, 1996. The said clause

(ca) provides, where a tax on sale or purchase of paddy

is leviable under a State Law and the

rice procured out of such paddy is exported out of India, then for

the purposes of sub-section (3) of Section 5 of the CST Act, the

paddy and rice have to be treated as a single commodity. What is,

however, contended in clause (ca) is only declaratory and,

therefore, retrospective. We do not so think. A declaratory Act

is defined in 'Craies on Statute Law' thus :

"For modern purposes a declaratory Act may be defined

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as an Act to remove doubts existing as to the common

law, or the meaning or effect of any statute. Such

Acts are usually held to be retrospective." *

It cannot be said to be clarificatory for, it neither

supplies an obvious omission in the CST Act nor purport to explain

any provision of that Act. It confers a new benefit hitherto not

available. It is not given retrospective effect expressly. There

is also nothing to imply that it has retrospective operation.

However, had it been declaratory or curative, it would have been

treated as retrospective. (See: Shri Chaman Singh & Anr. vs.

Srimathi Jaikaur [1969 (2) SCC 429]).

We do not also find any force in the contention of

Mr.Chidambaram that in not granting refund of purchase tax only in

regard to three goods - paddy, cotton and oil seeds - there is

violation of Article 14 of the Constitution. It is a settled

proposition of law that in the matter of taxation, the legislature

has greater latitude to give effect to its policy of raising

revenue and for that purpose selecting the goods for taxing. The

classification of goods based on the policy of taxing some goods

and leaving others outside the net of taxation cannot be assailed

as violative of Article 14 of the Constitution. (See :

M/s.Steelworth Ltd. vs. State of Assam [1962 Suppl.(2) SCR 589]

and Gopal Narain vs. State of Uttar Pradesh & Anr. [1964 (4) SCR

869]).

The observations of Krishna Iyer,J. in Murthy Match Works,

Etc.Etc. vs. The Asstt. Collector of Central Excise, etc. [1974

(3) SCR 121] which are approved by a Constitution Bench in Ganga

Sugar Corporation Ltd. vs. State of Uttar Pradesh & Ors. [1980 (1)

SCC 223] are worth quoting :

"It is well established that the modern State, in

exercising its sovereign powers of taxation, has to

deal with complex factors relating to the objects to

be taxed, the quantum to be levied, the conditions

subject to which the levy has to be made, the social

and economic policies which the tax is designed to

subserve, and what not. In the famous words of

Holmes,J., in Bain Peanut Co. vs. Finson [(1930) 282

US 499] :

We must remember that the machinery of

government would not work if it were not allowed a

little play in its joints. "

Granting relief, whether of refund or otherwise, stands on the

same footing.

To sum up :

(1) In the specified circumstances in which charge of

purchase tax on the raw material is imposed, clause

(b) of sub-section (1) of Section 9 of the Haryana Act

and the exemptions provided therein would apply; the

law declared by this Court in Murli Manohar & Co.;

Hotel Balaji and K.B.Handicrafts (supra) holds the

field;

(2) while Section 9 remained on the Statute till April 1,

1991, retrospective amendments of Sections 2(p), 6, 15

and 15-A of the Haryana Act would make no difference

in regard to levy of purchase tax on paddy;

(3) adjustment of purchase tax paid on paddy (raw

material) is permissible under Section 15-A of the

Haryana Act during the relevant period;

(4) by virtue of Section 15-A of the Haryana Act, denial of

refund of purchase tax, if any, paid by a dealer is

not illegal much less unconstitutional; and

(5) mere similarity between Section 9(1)(b) of the Haryana

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Act and Section 4-B of the Punjab Act would not

relieve a dealer of the liability to pay purchase tax

on paddy as the scope of charging sections under the

said Acts are different.

In view of the above discussion, the appeals filed by the

assessees under the Haryana Act are allowed in part and the

appeals filed by the assessees under the Punjab Act are dismissed.

The writ petitions are disposed of accordingly.

No costs.

Insofar as the question of payment of interest, if any, is

concerned, it is left open to be adjudicated in the connected

cases.