Prospective invalidity of vend fee barred fresh recovery, preserved past realisations, and prevented encashment of bank guarantees.

A prospective declaration of invalidity of vend fee meant the State could retain sums already realised before the cut-off date, including amounts deposited under interim orders, but it could not make any fresh recovery for unpaid amounts after that date because there was no valid authority to collect the levy. The distinction was drawn between actual realisation and mere security: a bank guarantee was not payment and could not be encashed to satisfy a levy the State was no longer entitled to enforce. Article 265 barred collection without authority of law, while Article 142 supported moulding relief to preserve past realisations.

---

---

Issues: Whether the State could recover vend fee for the period prior to 25 October 1989 after the levy on industrial alcohol had been declared invalid prospectively; whether amounts already realised under interim orders could be retained; and whether bank guarantees furnished in lieu of payment could be encashed for such levy.

Analysis: The Constitution Bench interpreted the earlier declaration of prospective invalidity to mean that the States were protected only to the extent of realisations already made, while they were restrained from enforcing the levy further. The distinction drawn was between levy and collection: although the levy for the earlier period was not disturbed for purposes of past realisations, no fresh recovery could be made after the date of judgment because there was then no valid law authorising collection. Amounts actually deposited with the State pursuant to interim orders were treated as realisations and were allowed to remain with the State. By contrast, a bank guarantee was only security and could not be treated as payment or realisation; the State could not invoke it to recover a levy it was no longer entitled to collect. The reasoning was anchored in Article 142 of the Constitution of India as the source of relief moulding and in Article 265 of the Constitution of India as forbidding collection without authority of law.

Conclusion: The State could not collect vend fee not already realised for the period before 25 October 1989, and could not encash bank guarantees for that purpose; however, amounts already collected and deposited were not refundable.

Final Conclusion: The decision preserves past realisations but prohibits any further recovery of the invalid vend fee, thereby granting only partial relief to the assessees and denying refund of amounts already paid.

Ratio Decidendi: When a levy is declared invalid prospectively, the State may retain sums already realised before the cut-off date, but it cannot thereafter enforce or collect the levy in respect of unpaid amounts, and a bank guarantee cannot be treated as payment of tax.

---