1959 (9) TMI 33 - HC - VAT and Sales Tax

Retrospective Legislation Validates Sales Tax Assessments

The State of Madras Versus Asher Textiles Ltd.

The High Court held that assessments under the Madras General Sales Tax Act were validated by the retrospective operation of the Sales Tax Validation Act ... - ISSUES PRESENTED AND CONSIDERED 1. Whether retrospective validation legislation enacted after an appellate/tribunal decision can render valid prior assessments of sales tax on inter-State deliveries intended for consumption within the State, which had been held invalid under the prevailing constitutional interpretation at the time of that decision. 2. Whether a superior court exercising revisional jurisdiction under the statutory provision analogous to section 12-B may take notice of and apply a subsequently enacted retrospective statute when the subordinate tribunal's order was correct according to the law as it stood on the date of that order. 3. The legal character and scope of revisional jurisdiction (as conferred by the statutory provision analogous to section 12-B) - whether it is essentially appellate in nature and, if so, whether that permits the court to re-hear or mould relief in the light of changes in law or facts occurring after the subordinate order. 4. Whether inter-State sales delivered within the State for consumption fall within the taxing power of the State Legislature in light of constitutional limitations (including the scope of the Explanation to the constitutional provision prohibiting State taxation of inter-State trade), and whether such levies are susceptible to retrospective validation. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Effect of retrospective validation legislation on prior invalid assessments Legal framework: A subsequent enactment (an ordinance later replaced by an Act) purported to validate all levies and collections of sales tax in respect of inter-State sales for a specified retrospective period. The State taxing statute contained provisions (definition of 'sale' and a charging provision) that, before the constitutional interpretation changed, permitted inclusion of inter-State deliveries for consumption in taxable turnover. Precedent treatment: Earlier authoritative judicial interpretation held that, except so far as Parliament provided otherwise, no State law could impose tax on sales occurring in the course of inter-State trade or commerce; that decision had the effect of rendering State levies on such inter-State sales invalid for the period after a specified date. Interpretation and reasoning: The validating enactment did not itself impose a tax but removed the constitutional ban (for the retrospective period) by validating levies that had been made pursuant to State legislation. Because there existed, at the time of the assessments, statutory provisions in the State law that purported to levy tax on inter-State deliveries for consumption, the validating Act operated to cure the constitutional invalidity during the specified period and to render the prior assessments lawful. Ratio vs. Obiter: Ratio - A retrospective validating statute that removes a constitutional bar (by legislative validation) can render previously invalid State tax assessments lawful where a State legislative provision originally purported to levy the tax. Conclusion: The assessments under challenge were rendered valid by the retrospective validating legislation insofar as the taxed turnovers represented inter-State purchases delivered within the State for consumption during the validated period. Issue 2 - Power of a revisional court to apply subsequent retrospective legislation to set aside a subordinate tribunal's order which was correct at the time it was made Legal framework: The revisional provision confers power on the High Court to determine questions of law, and to reverse, affirm, amend, or remit an order with opinion on questions of law. The statutory scheme contemplates interference where conditions for revision are satisfied; the nature of the jurisdiction informs the scope of remedies available. Precedent treatment: Decisions were considered both supporting the proposition that revision/appeal is in the nature of a re-hearing and that appellate courts may take note of subsequent changes in law, and decisions holding more limited 'error on the face of the record' approaches. Authorities treating revision as akin to appellate jurisdiction were preferred. Interpretation and reasoning: The Court held that the principle allowing appellate courts to take account of changes in law subsequent to the subordinate decision is inherent in appellate jurisdiction and not solely dependent on express procedural rules. Where the revisional jurisdiction is essentially appellate in character, and where the statute gives plenary powers to determine questions of law and to mold relief, the revisional court can apply retrospective legislation that alters the legal position retrospectively to the date of the subordinate order. The Court adopted the view that a retrospective enactment is to be read as if it had effect from the earlier date (legal fiction), and where that renders the subordinate order inconsistent with the later-treated-as-existing law, the subordinate order contains an error of law apparent from the record for purposes of revision. Ratio vs. Obiter: Ratio - A revisional court vested with appellate-type powers under the statute may take notice of and apply a retrospective statute enacted after the subordinate tribunal's order, and may set aside that order if the retrospective law renders the order legally erroneous. Conclusion: The revisional court had jurisdiction under the statutory revisional provision to set aside the tribunal's order (which had been correct under the law as it stood when made) because the retrospective validating statute must be treated as having existed at the earlier date and its effect could be applied in revision to correct the error of law. Issue 3 - Nature and scope of revisional jurisdiction under the statutory provision analogous to section 12-B Legal framework: The statutory provision empowers the High Court to determine questions of law, and to reverse, affirm, amend, or remit orders with opinions on questions of law; comparison was made with civil appellate and revisional provisions in procedural codes. Precedent treatment: Authorities treating revision as appellate in nature (including Full Bench authority) were relied upon; decisions treating proceedings under extraordinary writ jurisdiction as original (and thus not necessarily bound to apply intervening legislation) were distinguished; earlier local decisions limiting revisional powers were noted and either overruled or considered not applicable. Interpretation and reasoning: The Court concluded that revision under the statutory provision is essentially appellate in nature and not merely a limited jurisdiction to correct errors apparent on the record; the statutory limits condition only the circumstances in which the power is exercised, not the intrinsic appellate character. Consequently, the revisional court possesses, subject to statutory conditions, all powers inherent in an appellate or original trial court and can re-examine matters of law and fact, take notice of subsequent events or laws, mould relief, and remit with opinion. Ratio vs. Obiter: Ratio - Revision under the provision is part of appellate jurisdiction and carries plenary powers to rectify errors of law, including those arising by reason of retrospective legislation; statutory conditions delimit but do not nullify the breadth of the jurisdiction. Conclusion: The revisional jurisdiction conferred is sufficiently broad to permit application of subsequent retrospective enactments and to afford the relief necessary to give effect to such enactments. Issue 4 - Taxability of inter-State deliveries for consumption and the scope of the constitutional prohibition/explanation Legal framework: The State taxing statute defined 'sale' and provided for inclusion of deliveries made within the State for consumption in the taxable turnover; the constitutional provision prohibits State imposition of tax on sales in the course of inter-State trade or commerce, with an Explanation addressing certain inter-State dealings. Precedent treatment: Earlier decisions had held that State legislation could validly tax inter-State sales delivered for consumption within the taxing State; a later authoritative constitutional interpretation held that no State law could impose tax on sales in the course of inter-State trade or commerce (except as Parliament might provide), rendering such State levies invalid for the relevant period. Interpretation and reasoning: The Court recognized both lines of authority, noting that the State statute did purport to levy tax on inter-State deliveries for consumption but that the later constitutional interpretation nullified such levies until Parliament or a validating measure intervened. The validating legislation, by removing the constitutional ban for the retrospective period, effectively restored the State's taxing power for those transactions. Ratio vs. Obiter: Ratio - Inter-State deliveries intended and effected for consumption within the State were within the ambit of State taxing provisions as originally enacted; however, the constitutional prohibition as interpreted later invalidated such levies until the validating legislation cured the defect. Conclusion: The taxed turnovers representing the price of cotton purchased outside the State and delivered for consumption within the State were assessable under the State statute and, having been validated by the retrospective enactment, are lawfully includible in the assessable turnover for the specified period.