2001 Supreme(SC) 710

2001(3) Supreme 458
Supreme Court of India
(From Allahabad High Court)
B.N. Kirpal, Syed Shah Mohammed Quadri, M.B. Shah, Mrs. Ruma Pal and K.G. Balakrishnan, JJ.
M/s. Somaiya Organics (India) Ltd. etc. etc. —Appellants
versus
State of Uttar Pradesh & Anr. —Respondents
Civil Appeal No. 4093 of 1991
With
SLP (C) No. 20018 of 1991, C.A. Nos. 324 of 1981, 455, 2795, 1604 of 1980, 624, 625, 125, 2049 of 1981, I.A. Nos. 1 & 3 in W.P. (C) No. 1892 of 1973, C.A. Nos. 1122, 181 of 1981, SLP (C) Nos. 4181, 4297-4298 of 1980, C.A. Nos. 215, 341 of 1981, T.C. Nos. 37-39 of 1989, C.A. Nos. 2777 of 1981 and 1607 of 1980
Decided on 17-4-2001
Counsel for the Parties :
For the Appearing Parties : R.F. Nariman, F.S. Nariman, K.K. Venugopal, Rakesh Dwivedi, Dinesh Dwivedi, Sr. Advocates, D.M. Popat, Amit Dhingra, Zulfikar Kumar Shafi, P.H. Parekh, Shahid Rizvi, G.K. Kumar, K.C. Dua, Y.P. Mahajan, Arvind Minocha, Tarun Dua, (M/s. O.P. Khaitan & Co.) Advocates (NP), E.C. Agrawala, Mahesh Agarwal, Rishi Agarwal, Sumeet Lall, Ashwini Kumar, Sunil Gupta, Ms. A.K. Verma, (Janesh Baweja,) Advocate for M/s. JBD & Co., Advocates, Shri Narain, Sandeep Narain, Ms. Anjali, H.K. Puri, S.K. Puri, Ujjwal, Banerjee, Rajesh Srivastava, (K.K. Mohan) Advocate (NP) Ms. Vimla Sinha, Ms. Niranjana Singh, Vishwajit Singh, Ms. Sangeeta Sharma, Kamlendra Mishra, R.B. Misra, R.C. Verma, Vivek Vishnoi, Rakesh Tikku, Arun K. Sinha, (Guntur Prabhakar) Advocate (NP), (S.C. Patel) Advocate (NP), (Ashok K. Srivastava) Advocate (NP)/Advocates.

Very Important Point
‘‘Prospective overruling’’ after 25-10-1989 (the date of decision in second Synthetics case) of relevant provisions of U.P. Excise Act, 1910 (and other similar State enactments of A.P., Tamil Nadu & Bombay) mean that the vend fee in respect of industrial alcohol realised by the States before 25.10.1989 is not to be refunded to the appellants and at the same time, the States cannot collect (directly or through encashment of any Bank guarantee) any vend fee for the period prior to 25-10-1989 or thereafter notwithstanding that notices of demand may have been issued or recovery proceedings initiated prior or after 25-10-1989.

Headnote:U.P. Excise Act, 1910—State of U.P. levied vend fee in respect of industrial alcohol—Constitutional validity of same challenged on ground of legislative incompetence—Held valid in 1980(2) SCC 441 (1st Synthetics case)—But held invalid in 1990(1) SCC 109 prospectively i.e. after 25.10.1989—(2nd Synthetics case)—Meaning of ‘prospective overruling’—Whether the vend fee which has been levied by the appropriate State enactments (U.P., A.P., Tamil Nadu and Bombay), but not collected (whether by reasons of Court or otherwise) can be collected now (directly or through encashment of bank guarantee) when the said provisions by 1990(1) SCC 109 (2nd Synthetics case) have been held to be invalid prospectively? (No)—Case law discussed.

       Held : It is, of course, true that in respect of the same period i.e. prior to 25th October, 1989 persons who had obtained stay orders or had otherwise not paid the levy would be better off than those who have deposited the sums with the Government and are not entitled to receive any refund. This situation, however, is unavoidable for the simple reason that Article 265 does not permit collection of tax without the authority of law. Even though levy prior to 25th October, 1989 may be valid but when in fact no collection was made pursuant to the said levy, then post judgment in the second Synthetics case collection is not permissible. After 25th October, 1989 there was no valid law in existence which permitted the collection of tax. Shri Venugopal is right in contending that after 25th October, 1989 the provisions of Section 39 of the U.P. Excise Act, 1910 which provides for recovery of excise revenue would be inapplicable. The said section inter alia states that all excise revenue may be recovered from the person primarily liable to pay the same, as arrears of land revenue or in the manner provided for the recovery of public demands by any law for the time being in force. Section 3(1) defines “excise revenue” as meaning revenue derived or derivable from any duty if the taxes etc. imposed or ordered under the provisions of the Act or of any other law for the time being in force. Section 3(3a) defines “excise duty” and “countervailing duty’’ as meaning any such excise duty or countervailing duty, as may be mentioned in Entry 51 of List II of the Seventh Schedule of the Constitution. There can be no excise duty under the U.P. Excise Act on industrial alcohol because that would be outside the ambit of Entry 51 of List II of the Seventh Schedule. Vend fee being regarded as excise duty on industrial alcohol which is not valid as not falling under Entry 51 of List II cannot be regarded as excise revenue and, therefore, at least after 25th October, 1989 it would be unrecoverable being outside the purview of the Section 39 of the U.P. Excise Act, 1910. This would clearly be the position as a result of the Court having declared relevant provisions of the U.P. Act as being ultra vires insofar as it enables the imposition of excise duty on industrial alcohol. Furthermore in view of the enunciation of the law by this Court in Oswal Agro Mills Ltd. case (1994) 2 SCC 546, a bank guarantee which is furnished cannot be regarded as payment of excise levy which the Government is entitled to retain. The furnishing of a bank guarantee is ordered normally in order to ensure collection of dues. Where, however, the State, as in the present case, has been held not to be entitled to collect or realise vend fee after 25th October, 1989 it cannot be allowed to invoke the bank guarantee and realise the amount of vend fee. What cannot be done directly cannot be done indirectly either. Furnishing of bank guarantee is only a promise by the bank to pay to the beneficiary the amount under certain circumstances contained in the bank guarantee. Furnishing of bank guarantee cannot tantamount to making of payment as it was to avoid making payment of the vend fee that bank guarantees were issued. The respondents, in other words, are not entitled to encash the bank guarantees and realise vend fee in respect of the period prior to 25th October, 1989. It is true that the effect of a legislation without legislative competence is that it is non est. [See: Behram Khurshed Pesikaka v. The State of Bombay, (1955) 1 SCR 613 at 652, 653, R.M.D. Chamarbaugwalla v. The Union of India, (1957) SCR 930 at 940, M.P.V. Sundararamier & Co. v. The State of Andhra Pradesh & Another, 1958 SCR 1422 at 1468 and Mahendra Lal Jaini v. The State of Uttar Pradesh and Others, (1963) Supp. 1 SCR 912 at 937-941]. Nevertheless a law enacted without legislative competence remains on the statute book till a Court of competent jurisdiction adjudicates thereon and declares it to be void. When the Court declares it to be void it is only then that it can be said that it is non est for all purposes. In Synthetics and Chemicals case the invalidity of the provisions was a declaration under Article 141 of the Constitution. It was for doing complete justice that the Court in exercise of its jurisdiction under Article 142 moulded the relief in such a way as to give effect to its declaration prospectively. It is not possible to accept that such an order of prospective overruling is contrary to law. An invalid law has not been held to be valid. All that has happened is that the declaration of invalidity of the legislation was directed to take effect from a future date. The principle of prospective over-ruling is too well enshrined in our jurisprudence for it to be disturbed. Therefore, by reason of the decision in second Synthetics case what has actually happened is collection and non-collection of vend fee prior to 25th October, 1989 is left untouched. However, the Court in the second Synthetics case did not specifically deal with the question of deposits made pursuant to interim orders of Courts. The word used there was ‘realisation’. It might have been arguable that the ‘deposits’ were not ‘realisations’ in the sense the word has been used in taxation statutes in general and the U.P. Excise Act, 1910 in particular. However, the interim orders passed by the High Court show that deposits were made of vend fee and the purchase tax. Although these ‘deposits’ were to be kept in a separate account, nevertheless in the circumstances of this case, it would be mere sophistry to hold that the monies so deposited were not ‘realisations’ for the purposes of the U.P. Excise Act. Therefore, what was deposited by the appellants with the State would remain with it notwithstanding, the interim orders which required the State to keep it in a separate account but, at the same time, what has not been collected by the State cannot be realised by it, even in those cases where a bank guarantee had been furnished. Lastly, while relying on Mafatlal Industries Ltd. and Others v. Union of India and Others, (1997) 5 SCC 536, Shri Dwivedi submitted that the appellants had realised the amount of vend fee payable by taking that figure into account while determining their sale price and, therefore, the State is entitled to recover the same as it would otherwise result in unjust enrichment to the appellants. In Mafatlal’s case (1997) 5 SCC 536, the principle of unjust enrichment was invoked as refund was claimed even though the amount of excise duty paid had already been recovered. This principle resulted in the court declining to order refund. The principle of unjust enrichment does not apply in the present case, in view of the direction given in second Synthetics case (supra) that no refund be given. This is in line with the principle of unjust enrichment. But that principle cannot be extended to give a right to the State to recover or realise vend fee after the statute has been struck down and it has been categorically stated that “the respondent States are restrained from enforcing the said levy any further...”. The contention of the respondents in the teeth of the aforesaid direction cannot, therefore, be accepted. This is apart from the fact that there is no factual basis on which this Court can conclude that the appellants have in fact realised the amount of vend fee and allowing them to retain it will result in their getting enriched unjustly. For the aforesaid reasons, C.A. No. 4093 of 1991 is allowed. Civil Appeal No. 2853 of 2001 is dismissed. It is declared that the vend fee realised by the States is not to be refunded to the appellants and, at the same time, the State cannot collect any vend fee for the period prior to 25th October, 1989 or thereafter notwithstanding that notices of demand may have been issued or recovery proceeding initiated. Parties to bear their own costs.

       C.A. Nos. 324 of 1981, 455, 2795, 1604 of 1980, 624, 625, 125, 2049 of 1981, C.A. Nos. 1122, 181 of 1981, SLP (C) Nos. 4181, 4297-4298 of 1980, C.A. Nos. 215, 341 of 1981, T.C. Nos. 37-39 of 1989, C.A. Nos. 2777 of 1981 and 1607 of 1980

       In these appeals apart from the points decided by the judgment in Somaiya’s case (Civil Appeal No. 4093 of 1991), one of the issues which arises pertains to the validity of the export pass fee sought to be levied and realised by the State. Counsel for the parties agree that this and other issues, not covered by the judgment in Somaiya’s case, can now be decided by an appropriate Bench.

       I.A. Nos. 1 & 3 in W.P. (C) No. 1892 of 1973

       I.A. Nos. 1 and 3 in W.P. (C) No. 1892 are dismissed.

       (Paras 33, 34, 35, 36, 37, 38, 39, 40, 41, 42)

       Held in addition (Per Mrs. Ruma Pal, J.) : While I respectfully concur with the reasoning and conclusions reached by my learned brother Kirpal, J., I wish to add my views on an aspect of the ‘prospective over-ruling’ which was sought to be effected by the decision of the Constitution Bench of this Court in Synthetics and Chemicals Ltd. and Others v. State of U.P. and Others, (1990) 1 SCC 109. (Para 43)

       The Court did not, by denying the relief, authorise or validate what had been declared to be illegal or void nor did it imbue the legislature with competence upto the date of the judgment. (Para 45)