1996 (4) TMI 406 - SC - VAT and Sales Tax

Supreme Court Upholds Amended Tax Act, Clarifies Retrospective Changes in Law

Comorin Match Industries (Pvt.) Ltd. Versus State of Tamil Nadu

The Supreme Court upheld the validity of the amended provisions of the Central Sales Tax Act, allowing the State to recover refunded tax. The court ... Whether by introduction of sub-section (2) to section 10 of the amending Act with retrospective effect, the respondents were absolved of their liability and were exonerated from the responsibility of complying with the direction given by the High Court in the earlier writ petition filed on behalf of the writ petitioner? Held that:- Appeal dismissed. As in the contempt proceeding the court was only endeavouring to ensure that the order of refund passed by the writ court was carried out. In the contempt jurisdiction the court was not really concerned with the merit of the case. 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. Issues Involved:1. Validity of the Central Sales Tax Act provisions.2. Inclusion of excise duty in the computation of turnover.3. Legislative power to nullify judicial decisions.4. Res judicata in contempt proceedings.5. Recovery of tax refunded under court orders.Detailed Analysis:1. Validity of the Central Sales Tax Act Provisions:The appellant, a manufacturer of safety matches, challenged the assessment orders levying Central sales tax on turnover that included excise duty, claiming the provisions of sub-sections (2), (2-A), and (5) of section 8 of the Central Sales Tax Act were ultra vires the Constitution of India. The High Court initially agreed, following its decision in Larsen and Toubro Ltd. v. Joint Commercial Tax Officer [1967] 20 STC 150, but this was later overturned by the Supreme Court in State of Madras v. N.K. Nataraja Mudaliar [1968] 22 STC 376; AIR 1969 SC 147, which upheld the validity of the provisions but declared the inclusion of excise duty in turnover illegal.2. Inclusion of Excise Duty in the Computation of Turnover:The controversy centered on whether excise duty should be included in the computation of turnover under the Central Sales Tax Act. The Madras High Court had ruled that excise duty should be excluded, aligning with the Madras General Sales Tax Act, 1959. However, the Supreme Court in N.K. Nataraja Mudaliar's case held that excise duty should not be included in the turnover, leading to an amendment in the Central Sales Tax Act in 1969 to clarify that turnover should be determined according to the provisions of the Act and its rules.3. Legislative Power to Nullify Judicial Decisions:The appellant argued that the Legislature could not nullify a judicial decision by passing an Act. This argument was based on the judgment in Madan Mohan Pathak v. Union of India [1978] 3 SCR 334; AIR 1978 SC 803, where it was held that the Legislature cannot reverse a court's decision without altering the underlying law. However, the Supreme Court clarified that if the Legislature amends the law retrospectively, changing the basis of the judgment, then it is permissible. This principle was confirmed in Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality [1970] 1 SCR 388; [1971] 79 ITR 136 (SC).4. Res Judicata in Contempt Proceedings:The appellant contended that an order in a contempt application directing the State to refund the tax should operate as res judicata, preventing the State from reclaiming the tax. The Supreme Court rejected this argument, stating that the contempt proceeding was solely to ensure compliance with the court's order and did not address the validity of the assessment orders. Hence, no res judicata applied.5. Recovery of Tax Refunded Under Court Orders:The Supreme Court held that the tax demands, validated by the Amendment Act of 1969, remained enforceable despite the earlier refund ordered in contempt proceedings. The court emphasized that the legislative amendment retrospectively validated the assessment orders, making the tax demand a debt owed by the assessee, which the State could legally recover.Conclusion:The Supreme Court dismissed the appeal, upholding the validity of the amended provisions of the Central Sales Tax Act and allowing the State to recover the refunded tax. The court clarified that legislative amendments could retrospectively change the law's basis, nullifying the effect of prior judicial decisions without directly overturning them. Each party was ordered to bear its own costs.