2001 (4) TMI 84 - SC - Central Excise

No vend fee after 25 October 1989; deposits retained, but unrecovered dues, even under bank guarantees, unrealisable u/s 39

SC held that, following its earlier prospective declaration of invalidity of the relevant provisions authorising vend fee on industrial alcohol, there was ... Doctrine of prospective overruling - Whether the vend fee which had been levied by the appropriate State enactments, but not collected whether by reasons of the orders of the Court or otherwise, can be collected now when the said provisions by the said judgment dated 25th October, 1989 have been held to be invalid prospectively? Held that:- 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. It is true that the effect of a legislation without legislative competence is that it is nonest. The principle of prospective overruling 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 UP. 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. Issues Involved:1. Legislative competence of the State to levy excise duty or vend fee on industrial alcohol.2. Interpretation of the doctrine of prospective overruling and its application.3. Validity of recovery of vend fee for the period prior to 25th October 1989.4. The effect of interim orders and bank guarantees on the recovery of vend fee.5. The principle of unjust enrichment in the context of vend fee recovery.Detailed Analysis:1. Legislative Competence of the State:The primary issue was whether the State Legislature had the authority to levy excise duty or vend fee on industrial alcohol. The appellants argued that under Entries 8 and 51 of List II, the State could only impose excise duty on potable liquor, and that industrial alcohol fell under Entry 52 of List I, making it subject to Parliament's jurisdiction. The court reaffirmed that the State lacked legislative competence to levy such a fee on industrial alcohol, as established in the second Synthetics case.2. Doctrine of Prospective Overruling:The court examined the doctrine of prospective overruling, which was applied in the second Synthetics case to declare the impugned provisions illegal prospectively. This meant that while the provisions were unconstitutional, they were not invalidated retrospectively. The court emphasized that prospective overruling is a principle that allows the court to mould relief to meet the justice of the case and is rooted in equity. The court concluded that the declaration of invalidity was to take effect from a future date, thus not affecting past transactions.3. Validity of Recovery of Vend Fee:The court held that the State could not recover vend fee for the period prior to 25th October 1989. This interpretation was consistent with the doctrine of prospective overruling, which aimed to prevent the State from enforcing the levy any further while not obligating the State to refund taxes already collected. The court clarified that the words 'levy' and 'collect' are not synonymous; while 'levy' refers to the imposition of tax, 'collect' refers to the actual realization of the tax. Since the levy was invalidated prospectively, any uncollected tax for the period before the judgment could not be collected post-judgment.4. Effect of Interim Orders and Bank Guarantees:The court addressed the issue of interim orders and bank guarantees, ruling that deposits made under interim orders should be treated as realizations. It was determined that the State could retain amounts deposited as vend fee, even if kept in a separate account due to interim orders. However, the court held that the State could not encash bank guarantees for the period prior to 25th October 1989, as this would indirectly allow the State to collect an invalidated levy.5. Principle of Unjust Enrichment:The respondents argued that allowing the appellants to retain the vend fee would result in unjust enrichment. The court rejected this argument, stating that the principle of unjust enrichment does not apply in this context, as the second Synthetics case explicitly stated that no refund should be given. The court also noted the lack of evidence to support the claim that the appellants had passed on the vend fee to their customers.Conclusion:The court allowed Civil Appeal No. 4093 of 1991, declaring that the vend fee realized by the States need not be refunded, and the State could not collect any vend fee for the period prior to 25th October 1989 or thereafter. The court dismissed Civil Appeal No. 2853 of 2001, upholding the principle that what was not collected by the State before the judgment could not be realized later. The court's decision reinforced the principles of legislative competence, prospective overruling, and equitable relief, ensuring that the State could not benefit from an invalidated levy while maintaining the status quo as of the judgment date.