1996 Supreme(SC) 788

1996(4) Supreme 23
SUPREME COURT OF INDIA
N.P. Singh and Suhas C. Sen, JJ.
Comorin Match Industries (Pvt.) Ltd. -Appellant
versus
State of Tamil Nadu -Respondent
Civil Appeal No. 2206 of 1982
With
Civil Appeal No. 2207 of 1982
Decided on 16-4-1996

IMPORTANT POINTS
It is permissible for the legislature, by a Validation Act, to declare the assessments as valid and binding notwithstanding the judgment of the High Court to the contrary.
2. The Central Sales Tax Amendment Act, 1962, changing the law itself on the basis of which the judgment on the High Court was pronounced holding that the assessment orders were erroneous in law, is valid and enforceable.

Headnote:Central Sales Tax Act, 1956-Sub-sections (2), (2A) and (5) of Section 8-Central Sales Tax Amendment Act, 1969-Scope of validating provision of Amending Act of 1969-Assessment Years 1957-58 to 1965-66-Sales tax levied on turnover which included excise duty -Validity challenged-Writ Petitions allowed following decision of High Court in case of Larsen & Toubro-Appeal-Supreme Court held that impugned provisions of Central Sales Tax Act declared ultra vires by Madras High Court were validly enacted-Defect relating to includibility of excise duty in turnover of asessee cured retrospectively by Amending Act of 1969-Whether legislature could take such a step?-(Yes).

       Held : The legislature ordinarily cannot reverse a decision of a court of law given in exercise of judicial power. A settlement between the management and the employees under the Industrial Disputes Act cannot be declared by the legislature invalid and not enforceable even after a High Court had declared the settlement as valid and binding between the parties. This is what was sought to be done in Madan Mohan Pathak s case (supra) and this Court held that it was not permissible. But if a High Court quashes several assessment orders by interpreting a taxing statute in a certain manner and that interpretation is nullified by a subsequent judgment of the Supreme Court and the statute itself is amended as a result of which the law on the basis of which the High Court s judgment was given is drastically altered, in such a situation, it is permissible for the legislature, by a Validation Act, to declare the assessments as valid and binding notwithstanding the judgment of the High Court to the contrary. (Para 10)

       Further held : In the instant case also, the High Court s judgment in Larsen and Toubro s case (supra), in so far as it declared certain provisions of the Sales Tax Act ultra vires, was reversed in the case of N.K. Nataraja Mudaliar (supra). The includibility of the excise duty element in the turnover was validated by the statutory amendments with retrospective effect. Therefore, the very basis on which the assessments were quashed in the case of Larsen and Toubro disappeared. The legal basis of the decisions following the Larsen and Toubro s case including this case also had disappeared by judicial pronouncements and legislative enactment. The validating provision of the 1969 Act, to borrow the language of Hidayatullah, C.J., has put out of action the effect of the decision of the High Court in this case. The field is now occupied by the judgment of this Court in N.K. Nataraja Mudaliar s case (supra) and the provisions of the Central Sales Tax Act amended by the Act of 1969. (Para 12)

       Then held : The effect of the Amending Act of 1969 is not to overrule a judgment passed by a court of law, which the legislature cannot do. What the legislature can do is to change the law on the basis of which the judgment was pronounced retrospectively and thereby nullify the effect of the judgment. When the legislature enacts that notwithstanding any judgment or order the new law will operate retrospectively and the assessments shall be deemed to be validly made on the basis of the amended law, the legislature is not declaring the judgment to be void but rendering things or acts deemed to have been done under amended statute valid notwithstanding any judgment or order on the basis of the unamended law to the contrary. The validity to the assessment orders which had been struck down by the Court, is imparted by the Amending Act by changing the law retrospectively. (Para 14)

       What has happened in this case is that a large number of writ petitions were dismissed by the High Court on the basis of its decision in the case of Larsen and Toubro. As a result of these decisions, a large number of assessment orders under the Central Sales Tax Act were set aside. It was held in the case of Larsen and Toubro certain provisions of the Act were ultra vires and in any event excise duty could not be included in the assessee s turnover for the purpose of levy of Central Sales Tax. The main basis of the High Court s judgments disappeared when the Supreme Court held that the impugned provisions of the Central Sales Tax Act which had been declared ultra vires by the Madras High Court were validly enacted. The other defect which relates to the includibility of excise duty in the turnover of an assessee was cured retrospectively by amending the provisions of the Central Sales Tax Act. The new provisions introduced by the Amending Act were deemed to have come into effect retrospectively. Section 9 of the Amending Act declared all assessments made upto 9th January, 1969 vaild and binding. There is nothing in the long line of decisions cited by Mr. Vaidyanathan to suggest that the legislature could not take such a step until and unless the judgments were specifically reversed by this Court. This argument is not tenable having regard to the principles of law laid down in the case of Shri Prithvi Cotton Mills (supra), which have been reiterated in the subsequent judgments of this Court. This is not a case of passing a legislation trying to nullify the interpretation of law given in the judgment of a court of law. This is a case of changing the law itself on the basis of which the judgment was pronounced holding that the assessment orders were erroneous in law. (Para 17)

       (ii) Res judicata-Principle of-Direction given in a contempt petition-Whether can operate as res judicata in a suit?-(No)-Assessment orders set aside by High Court-Assessment orders validated by passing Amendment Act with retrospective effect-Tax demand-Whether valid and enforceable?-(Yes).

       Held : The appellant has not been able to cite any decision to show that a direction given in a contempt petition can operate as res judicata in a suit. In the contempt petition the only issue was whether the court s order in the writ petition was carried out or not. If the order of the writ court was not carried out, the contempt court was bound to pass suitable orders to ensure obedience to the order of the court. The question of correctness or validity of the judgment passed on the writ petition could not be raised in a contempt proceeding. No question of res judicata arises in such a case. (Para 19)

       Further Held : Be that as it may, the petitioner was successful in getting an order of payment on the contempt petition. We are unable to uphold the contention that merely because an order was passed in the contempt proceeding to make payment, the respondent is estopped from claiming the amount of tax raised by an assessment order validated by the Act of 1969. If this argument is accepted, strange result will follow. The assessment order will remain valid. That notice of demand raised pursuant to the assessment order will remain intact and in force, but it will not be open to the Department to realise the amount of tax merely because of the order passed in the contempt proceeding. The writ Court s order had to be carried out, which is why the refund order was passed in the contempt proceeding. This direction to refund the amount of tax already collected was given only because the assessment orders had been set aside by the writ court. But, when the assessment orders were validated by passing the Amendment Act of 1969 with retrospective effect, the tax demand became valid and enforceable. The tax demand is a debt owed by an assessee which can be realised by the State in accordance with law. Merely because the amount of tax which had been realised earlier was directed to be refunded by court s order on the finding that the assessment order was invalid, will not preclude the State from realising the tax due subsequently when the assessment order was validated by the Amending Act of 1969. The order passed in the contempt proceeding will not have the effect of writing off the debt which is statutorily owed by the assessee to the State. The State has filed a suit for recovery of this debt. Unless it can be shown that the debt does not exist or is not illegally due, the court cannot intervene and prevent the State from realising its dues by a suit. All that the Department has done in this case is to bring a suit to recover the amount of tax due and payable to it as a result of what must now be treated as a valid assessment order. (Para 20)

       It is also to be noted that the vires of the Amendment Act of 1969 has not been questioned by the appellant by filing any substantive application. The effect of the Amending Act is to impart validity to those assessment orders which had been struck down by the High Court. If the assessment orders are now held to be valid, the tax demands raised in the assessment orders are still enforceable. What the State of Tamil Nadu is seeking to do is to enforce these demands. Merely because taxes which had been realised earlier had been refunded under an order passed on a contempt petition, the respondent is not debarred from realising the demands which are now deemed to be valid and subsisting. (Para 22)