1. Challenge to the validity of the Orissa Sales Tax Validation Act, 1961, regarding the retrospective definition of manufacturer for sales-tax exemptions on gold ornaments. (Para 1 , 2 , 3 , 4 , 5 )
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1964 Supreme(SC) 80
SUPREME COURT OF INDIA
12th March, 1964
P.B. GAJENDRAGADKAR, C.J.I., K.N. WANCHOO, J.C. SHAH, N. RAJAGOPALA AYYANGAR AND S.M. SIKRI, JJ.
1. Epari Chinna Krishna Moorthy (In Writ Petitions Nos. 125 to 135 of 1963).
2. S. Raghunatham and Sons (In W. P. No. 233 of 1963). Petitioners
Versus
1. State of Orissa and others, (In W. P. Nos. 125 to 135 of 1963)
2. The Sales Tax Officer, Gajanan and another (In W. P. No. 233 of 1963), Respondents.
Advocates Appeared
Writ Petns. Nos. 125 to 135 and 233 of 1963.
Mr. A. V. Viswanatha Sastri, Senior Advocate.(M/s. T. A. Ramachandran and B. Parthasarathy, Advocates and M/s. O. C. Mathur, J. B. Dadachanji and Ravinder Narain. Advocates of M/s. J. B. Dadachanji and Co., with him), for Petitioner (In W. P. Nos. 125 to 135 of 1963); Mr. H. N. Sanyal, Solicitor General of India and Mr. N. B. Bindra, Senior Advocate, (Mr. R. N. Sachthey, Advocate, with them), for Respondents (In W. P. Nos. 125 to 135 of 1963) : M/s. O. C. Mathur, J. B. Dadachanji and Ravinder Narain, Advocate of M/s. J. B. Dadachanji and Co., for Petitioner (In W. P. No. 233 of 1963); Mr. R. N. Sachthey, Advocate, for Respondents (In W. P. No. 233 of 1963).
Advocates:
A.V.VISHWANATHA SASTRI, B.PARTHASARTHY, H.N.SANYAL, J.B.DADACHAN, N.B.BINDRA, O.C.MATHUR, R.N.SACH
A.V.VISHWANATHA SASTRI, B.PARTHASARTHY, H.N.SANYAL, J.B.DADACHAN, N.B.BINDRA, O.C.MATHUR, R.N.SACH
The legislature can retrospectively clarify terms in tax exemption notifications. Such legislation is valid if the classification is rational under Article 14 and does not impose an unreasonable restriction on the right to trade under Article 19(1)(g).
Headnote:(A) Sales Tax Act - Section 6 - Sales Tax Validation Act - Section 2 - Retrospective application - Power of legislature to clarify intention and withdraw exemptions - If the delegate of the legislature has the power to grant or withdraw an exemption, the legislature possesses the competence to make provisions in that behalf either prospectively or retrospectively. (Para 7)
(B) Constitution of India - Article 14 - Equality before law - Classification for tax exemption - Distinction between persons who actually produce goods or run manufactories and traders acting as commission agents is a rational classification with a connection to the object of benefiting actual producers. (Paras 8, 9, 10)
(C) Constitution of India - Article 19(1)(g) - Fundamental right to carry on trade - Retrospective operation of tax legislation - Retrospective operation does not necessarily impose an unreasonable restriction on the right to trade, especially where the period is not excessive and the tax may have been recovered from customers. (Para 11)
Facts of the case:
A notification issued under a sales tax act exempted gold ornaments from tax when the manufacturer charged separately for gold and manufacture. The High Court had interpreted "manufacturer" to include the first owner of the finished product. Subsequently, the legislature passed a Validation Act retrospectively redefining "manufacturer" to mean a person who works materials by their own labor or runs a manufactory. Petitioners, who provided gold to artisans but did not run manufactories, challenged the validity of this retrospective redefinition.
Findings of Court:
The retrospective provision is valid as the legislature has the power to clarify the intention of a notification. The classification between actual manufacturers and commission agents is rational and does not violate the right to equality. The retrospective application does not constitute an unreasonable restriction on the right to trade.
Issues: Whether the retrospective redefinition of "manufacturer" in the Validation Act is legally competent, whether it is discriminatory under Article 14, and whether it unreasonably restricts the fundamental right to trade under Article 19(1)(g).
Ratio Decidendi: The legislature is competent to enact retrospective legislation to clarify the intent of a notification or withdraw exemptions. A classification that distinguishes between actual producers/manufactory owners and mere traders is rational if it serves the objective of benefiting the actual producers. Retrospective tax legislation is not inherently unreasonable under Article 19(1)(g) unless it is shown to be an unreasonable restriction in the interest of the general public.
Result: Petitions dismissed.
Legal Category Hierarchy
Table of Contents
2. Validity of retrospective legislative action to redefine exemption criteria; alleged violations of Article 14 regarding equality and Article 19(1)(g) regarding freedom of trade. (Para 7 , 8 , 10 , 11 )
3. The legislature is competent to clarify intent retrospectively; traders differ from actual manufacturers; the classification is rational and does not unreasonably restrict fundamental rights. (Para 6 , 7 , 8 , 9 , 10 , 11 )
4. The legislature possesses competence to retrospectively define terms to clarify intent, provided the classification is rational and does not impose unreasonable restrictions on fundamental rights. (Para 7 , 8 , 9 , 11 )
5. Writ petitions dismissed with costs. (Para 12 )
6. Can the legislature retrospectively clarify or withdraw an exemption granted by a delegate of the government?
Yes, the legislature has the competence to make provisions either prospectively or retrospectively to clarify its intention, regardless of whether the state government, as a delegate, had previously granted an exemption. (Para 7 )
7. Does redefining a term to exclude commission agents from a manufacturer's tax exemption violate Article 14?
No, provided there is a rational connection between the classification and the object. Traders acting as commission agents are a distinct class from those who actually produce ornaments or run manufactories. (Para 8 , 9 )
8. Does the retrospective operation of a tax validation act necessarily violate the fundamental right to carry on business under Article 19(1)(g)?
Not necessarily. The fact that retrospective operation may operate harshly in some cases does not render the legislation invalid, provided the restriction is reasonable and in the interest of the general public. (Para 11 )
Judgment
GAJENDRAGADKAR, C.J.I. : This group of 12 writ petitions raises a common question about the validity of the Orissa Sales Tax Validation Act, 1961(Act No. 7 of 1961) (hereinafter referred to as the Act). The facts on which the petitioners rely are similar, and so, we shall mention the facts in the first group consisting of writ petitions Nos. 125-135 of 1963. The petitioner in this group is Shri.Epari Chinna Krishna Moorthy, Proprietor, Epari Chinna Krishna Moorthy and Sons, Berhampur, Orissa. He is a merchant who carries on business in "bullion and specie and gold and silver ornaments at Berhampur and as such merchant, he has been registered as dealer under the Orissa Sales Tax Act, 1947. (Act No. 14 of 1947). After the said Act came into force, the Government of Orissa purporting to exercise its authority under S. 6 of the said Sales Tax Act issued a notification exemption certain articles from the operation of the charging section of that Act. Under this notification, gold ornaments were ordered to be exempted from sales-tax when the manufacturer selling them charges separately for the value of gold and the cost of manufacture . This notification was issued on July 1, 1949. During the course of his business, the petitioner manufactures gold ornaments by supplying the gold to the artisans and getting ornaments prepared by them under his supervision and when the ornaments are so prepared, he sells them in his shop and has been showing the value of gold and the cost of manufacture separately. That is why the petitioner alleges that he is entitled to claim the benefit of the exemption notification.
2. Consistently with this plea, the petitioner filed his returns before the Sales-tax Officer at Berhampur and had been claiming exemption of sales-tax on the sales as being entitled to exemption under the said notification. Upto June, 1952, the claim for exemption made by him was upheld and the amount represented by sales of the said gold ornaments was deducted from the taxable turnover shown by the petitioner in his returns. Subsequently, however, these assessments were re-opened under S. 12 (7) of the act and it was claimed that the deductions were made on certain sale transactions of gold ornaments were not justified and to that extent, the petitioner had escaped assessment. The petitioner resisted this attempt to reopen the assessment and he pleaded that he was entitled to claim exemption under the notification, because he belonged to the class of manufacturers to which the notification referred.
3. The Sales-tax Officer, however, disallowed the petitioner s contention and proceeded to levy tax on the sale transactions in question. The petitioner then challenged the said decision by preferring appeals, but the said appeals were also dismissed. While the appeals were pending similar assessments made in respect of other dealers including the petitioner were challenged by them by writ petition before the High Court of Orissa (Nos. 151, 161, 162, 204, 209 and 110 of 1957 respectively.)
4. The Division Bench of the Orissa High Court which heard the writ petitions upheld the petitioners case and issued appropriate writs directing the Sales-tax Officer to allow the petitioner s claim for exemption under the notification in question. The main controversy before the High Court was about the precise denotation of the word manufacturer used in the notification. The High Court held that the expression manufacturer meant the first owner of the finished products for whom it was made either by his paid employee or even by independent artisans on receipt of raw materials and labour charges from him. According to this view, the petitioners before the High Court were found to be manufacturers and as such entitled to claim exemption in respect of sale of gold ornaments made by them. This judgment was pronounced on March 13, 1959. Against this judgment the State of Orissa has filed appeals to this Court and they are numbered as Civil App
