M-S. SOMAIYA ORGANICS (INDIA) LTD. v. STATE OF UTT AR PRADESH AND ANR

Citation: [2001] 3 S.C.R. 33

Court: Supreme Court of India

Bench: B.N. KIRPAL, S.S.M. QUADRI, M.B. SHAH, RUMA PAL, K.G. BALAKRISHNAN

Judgment text

MIS. SOMAIYA ORGANICS (INDIA) LTD. v. STATE OF UTTAR PRADESH AND ANR. APRIL 17, 2001 [B. N. KIRPAL, SYED SHAH MOHAMMED QUADRI, M. B. SHAH, RUMA PAL AND K. G. BALAKRISHNAN, JJ. ] Excise Law: U. P Excise Act, 1910: Section 39. Excise Revenue-Vend fee-Industrial alcohol-Levy on-Supreme Court declared levy ofvend fee on industrial alcohol as illegal, prospectively w. e. f 25. 10. 1989-However, State sought to recover vend fee prior to 25. l 0. 1989-Validity of-Held: Vendfee already realised not to be refunded- However, State cannot collect any vend fee notwithstanding issue of notice ofdemand. 1"- Excise Revenue-Vend fee-Industrial alcohol-Levy on-Vend fee deposited during pendency of writ petitions-Such deposits were to be kept in a separate account-Subsequently, levy of vend fee declared illegal prospective~y w. e. f 25. l 0. 1989-Refimd of deposit Entitlement--Held: Deposits are realisations for the purposes of U.

P Excise Act-Hence, such deposits are not to be refunded although they were kept in a separate account. Excise Revenue-Vend fee-Industrial alcohol-Levy on-Bank guarantee furnished during pendency ofwrit petitions-Subsequently, levy of vend fee declared illegal prospectively w. e. f 25. l 0. 1989-Invoking of bank guarantee-Held: Furnishing ofbank guarantee does not amount to payment ofvend fee-Hence, State not entitled to encash bank guarantee and realise vend fee in respect of the period prior to 25. l 0. 1989. Constitution of India, 1950: Article 265. "Levy" and "collect"-Meaning of-Held: 'Levy' means assessment or charging or imposing tax-While 'collect' means physical realisation oftax which is levied or imposed-Collection oftax is normally subsequent to levy of the same-Words and Phrases. Doctrines: Doctrine of Prospective Overruling-Applicability of The applicant manufactured industiial alcohol on which vend fee payable under the U. P. Excise Act, 1910 was exempted.

Subsequently, the respondent- State withdrelv the exemption from payment of vend fee on indu! l1rial alcohol. This was challenged by the appellant and the High Court, by an interim order, required the a1lpellant to give a bank guarantee and/or to pay the amount due; it directed the res1londent-State to keep the amount in a separate account Subsequently, in Synthetics and Chemicals case, [1990] 1 SCC 109 (second Synthetics case) this Court struck down the llrovision imposing vend fee on industrial alcohol proSJlectively i. e. from 25. 10. 1989. However, the High Court held that the res1londent-State was entitled to realise the vend fee for the period prior to 25. 10. 1989. Hence these appeals. On behalf of the a1lpellant it was contended that under Article 265 of the Constitution no tax could be levied or collected without the authority of law; that in respect of the pel"iod 1irior to 25. 10.

1989 even if tax had been ¥ levied and/or demand raised the same could not be collected; that in those cases where money was deposited with the State on the condition that the same would be kept in a separate account and would be subject to the outcome ofthe writ petition, the allllellant would be entitled to refund thereof; and that furnishing of a bank b'llarantee did not tantamount to the payment oftax and, therefore, the respondent was not entitled to encash it. On behalf of the respondent it was contended that the appellant had realised the amount of vend fee payable by taking that figure into account while determining the sale llrice of industrial alcohol and, therefore, the respondent was entitled to recover the same as it othenvise would result in . indue enrichment Allowing the appeal, the Court HEID: (Per Kirpal, J, for himself, Quadri, J, Shah, J and Balakrishnan, J) 1. Prospective overruling, des11ite the terminology, is only a recognition SOMAIYA ORGANICS (INDIA) LTD. v.

STATE 35 of the principle that the court moulds the relief claimed to meet the justice of the case - justice not in its logical but in its equitable sense. As far as this country is concerned, the power has been expressly conferred by Article 142 of the Constitution, which allows th~s Court "to pass such decree or make such order as is necessary for doing complete justice in any cause or matter 1>ending before it". In exercise of this power, this Court has often denied the relief claimed despite holding in the claimants' favour in order to do 'complete justice'. [48-F] I. C. Golaknath v. State ofPunjab, [1967] 2 SCR 762; India Cement Ltd. v. State ofTamil Nadu, [1990) 1 SCC 12; Orissa Cement Ltd. v. State of Orissa, [1991) Sup1>. 1 SCC 430; Union ofIndia v. Mohd. Ramzan Khan, [1991] 1 SCC 588; Managing Director, ECIL, Hyderabad v. B. Karunakar, [1993] 4 SCC 727; Supreme Court Bar Association v. Union ofIndia, [1998] 4 SCC 409; Narayanibai v.

State of Maharashtra, [1969) 3 SCC 468 and Ashok Kumar Gupta v. State ofU. P. , [1997] 5 SCC 201, referred to. 2. 1. The words used in Article 265 of the Constitution are 'levy' and 'collect'. In taxing statute the words 'levy' and 'collect' are not synonymous terms. While 'levy' would mean the assessment or charging or imposing tax, 'collect' in Article 265 would mean the physical realisation of the tax, which is levied or imposed. Collection of tax is normally a stage subsequent to the levy of the same. The enforcement of levy could only mean realisatfon of the tax imposed or demanded. [49-F] Synthetics and Chemicals Ltd. v. State of U. P. , [1990) 1 SCC 109, followed. Sachid Hussain v. State of U. P. , (Writ Petition Nos. 7452 of 1981 and 3571 of 1982 decided by S. C. on 26. 2. 1990); Yawar Ali v. State ofU. P. , (Writ Petition No. 8435of1981 decided by S. C. on 12. 3. 1990) and Belsund Sugar Co. Ltd. v. State ofBihar, [1999) 9 SCC 620, relied on.

Assistant Collector of Central Excise, Calcutta Division v. National Tobacco Co. ofIndia Ltd. , [1972) 2 SCC 560, referred to. .... 2. 2. It is true that in respect of the same period i. e. prior to 25. 10. 1989 1>ersons who had obtained stay orders or had othenvise not paid the levy would be better off than those who have deposited the sums with the Government and are not entitled to receive any refund. This situation, however, is unaviodable for the simple reason that Article 265 does not permit collection of tax without the authority of law. Even though levy prior to 25. 10. 1989 may be valid but when in fact no collection was made pursuant to the said levy, then post judgment collection is not permissible. After 25. 10. 1989 there was no valid law in existence, which permitted the collection of tax. After 25. 10. 1989 the provisions of Section 39 of the U. P. Excise Act, 1910 which provides for recovery of excise revenue would be inapplicabie. [52-F-G] Synthetics and Chemicals Ltd.

v. State of U. P, [1990) 1 SCC 109 and M. P V. Sundararamier and Co. v. State ofAndhra Pradesh, [1958) SCR 142, referred to. 3. A bank guarantee which is furnished cannot be regarded as llayment of excise levy which the Government is entitled to retain. The furnishing of a bank 1,,ruarantee is ordered normally in order to ensure collection of dues. Where, however, the State, as in the present case, has been held not to be entitled to collect or realise vend fee after 25. 10. 1989 it cannot be allowed to invoke the bank guarantee and realise the amount of vend fee. What cannot be done directly cannot be done indirectly either. Furnishing of bank guarantee is only a promise by the bank to pay to th~ beneficiary the amount under ce11ain circumstances contained in the bank guarantee. Furnishing of bank guarantee cannot tantamount to making of payment as it was to avoid making payment of the vend fee that the bank guarantees were issued.

The respondents, therefore, are not entitled to encash the hank gtiarantees and realise vend fee in respect of the period prior to 25. 10. 1989. [53-F] Osival Agro Mills Ltd. v. Asstt. Collector of Central Excise Division, Ludhiana, (1994) 2 SCC 546, relied on. 4. 1. It is true that the effect of a legislation without legislative competence is that it is non est. Nevertheless, a law enacted without legislative competence remains on the statute book till a Court of competent jurisdiction adjudicates thereon and declares it to be void. When the Court declares it to be void it is only then that it can be said that it is non est for all purposes. In the second Synthetics and Chemicals case the invalidity of the provisions was a declaration under Article 141 of the Constitution. It was for doing complete justice that the Court in exercise of its jurisdiction under Article 142 moulded the relief in such a way as to give effect to its declaration prospectively.

It is not possible to accept that such an ·order of prospective overruling is contrary to law. An invalid law has not been held to be valid. All that has happened is that the declaration of invalidity of the legislation was directed to take effect from a future date. [54-B-C] SOMAIYA ORGANICS (INDIA) LTD. v. STATE 37 4. 2. The principle of prospective overruling is too well enshrined in this country's jurisprudence for it to be disturbed. Therefore, by reason of the decision in the second Synthetics case what bas actually happened is collection and non-collection of vend fee prior to 25. 10. 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' in the sense the word has been used in taxation statutes in general and the U. P. Excise Act, 1910 in particular.

Howe\•er, 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 ke1,t 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 notwith!. 1anding, the interim orders which required the State to keep it in a separate account but, at the same time, what hl;ls not been collected by the State cannot be realised by it, even in those cases where a bank guarantee had been furnished. (54-D-F] Behram Khurshed Pesikaka v. State of Bombay, (1951) 1 SCR 613, R. M. D. ; Chamarbaugwalla v. Union of India, (1957) SCR 930; MP. v. Sundararamier and Co. , (1958] SCR 1422 and Mahendra Lal Jailni v. State ofU. P. , (1963) Su1)p. 1 SCR 912, relied on. Synthesis and Chemicals Ltd. ~v.

State of U. P. , (1990) 1 SCC 109, explained. 5. The principle of unjust enrichment does not apply in the present case, in view of the direction given in the second Synthetics case that no refund be given. This is in line with the principle of unjust enrichment But that principle cannot be extended to give a right to the State to recover or realise vend fee after the statute has been struck down and it has been categorically stated ''the respondent State are restrained from enforcing the said levy any further..... ". The contention of the respondents in the teeth of the aforesaid direction cannot, therefore, be accepted. This is apart from the fact that there is no factual basis on which this Court can conclude that the appellants have in fact realised the amount of vend fee and allowing them to retain it will result in their getting enriched unjustly. (55-B-C] Mafatlal Industries Ltd. v. Union of India, (1997) 5 SCC 536, held inap11licable. Synthetics and Chemicals Ltd. v.

State of U. P. , [1990J 1 sec 109, x explained. 6. The vend fee realised by the States is not to be refunded to the appellants and, at the same time, the State cannot coHect any vend fee for the period prior to 25. 10. 1989 or thereafter notwithstanding that notices of demand may have been issued or recovery proceeding initiated. [55-D] Synthetics and Chemicals Ltd v. State of U. P. , [1980] 2 SCC 441 and Hindustan Sugar Mills Ltd v. State of U. P. , [1994] 4 SCC 149, referred to. Per Ruma Pal, J. (Supplementing): 1. By 11rospective overruling the Court does not grant the relief claimed even afte.. holding in the claimant's favour. In the second Synthetics case, the Court held that the ~1atutory provision im1losing vend fee was invalid. Strictly speaking, this would have entitled the appellant to a refund from the respondents of all amounts collected by way of vend fee.

But because, as stated in the second Synthetics decision itself, over a period of time imposts and levies had been·imposed by virtue of the earlier decision and that the "' -Vas observed as follows: - "112........ Under these circumstances, keeping in view the peculiar facts and circumstances of these cases, we deem it fit to Jirect in exercise our powers under Article 142 of the Constitution of India that the present decision will have only a prospective effect. Meaning thereby that after the pronouncement of this judgment all future transactions ofpurchase of sugarcane by the sugar factories concerned in the market areas as well ·as the sale of manufactured sugar and ·molasses produced by therefrom by utilising this purchased sugarcane by these factories will not be subjected to the levy of market fee under Section 27 of the Market Act by the Market Committees concerned.

All past transactions up to the date of this judgment which have suffered the levy of market fee will not be covered by this judgment and the collected market fees on these past transactions prior to the date of this judgment will not be required to be refunded to any of the sugar mills which might have paid these market fees. 113. However, one rider has to be added to this direction. If any of the Market Committees has been restrained from recoveril'. g market fee from the writ petitioners in the High Court or if any of the writ petitioners in the High Court has, as an appellant before this Court, obtained stay ofthe payment ofmarket fee, then for the period during which such stay has operated and consequently market fee was not paid on the transactions covered by such stay orders, there will . remain no occasion for the Market Committee concerned to recover such market fee from the sugar mill concerned after the date of this ,, judgment even for such past transactions.

In other words, market fees paid in the past shall not be refunded. Similarly market fees not • collected in the past also shall not be collected hereafter. The impugned judgments ofthe High Court in this group of sugar matters will stand set aside as aforesaid. The writ petition directly filed before this Court also will be required to be allowed in the aforesaid terms. " The aforesaid observations make clear what was implicit in paragraph 89 ofthe second Synthetics case, namely, that where payment has not actually been made to the Market Committee for a period prior to the announcement of the judgment, by reason of the -assessee having obtained a stay, the Market Committee was not entitled to recover the market fee, payment of which had been stayed. It was pithily put in Belsund Sugar Co. Ltd. s, case (supra) that "in other words market fees paid in the past was not to be refunded. Similarly market fees ! lot collected in the past was not to be collected hereafter".

These observations are in consonance with the directions given in paragraph 89 of the judgment in second Synthetics case and applying the said principles to the present appeals the only conclusion which can be ,..... arrived at is that this Court intended the status quo as on 25th October, 1989 to be maintained as regards actuat payment or levy was concerned. What had gone to the coffers to the Government with or without any string attached, was to remain with it and what was not received could not be realised by the Govemlnent. It is, of course, true that in respect of the same period i. e. prior to 25th October, 1989 persons who had obtained stay orders or had otherwise not ... ;( paid the levy would be better off than those who have deposited the sums with the Government and are not entitled to receive any refund; This situation, however, is unavoidable for the simple reason that Article 265 does not pernlit collection of tax without the authority oflaw.

Even though levy prior to 25th · October, 1989 may be valid but when in fact no collection was made pursuant to the said levy, then post judgment in the second Synthetics case collection is not permissible. 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 ofexcise 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 t 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 c. f the U. P. Act as being ultra vires insofar as it enables the imposition of excise duty on industrial alcohol. Furthermore in view of the enunciation of the law by this Court in Oswal · Agro Mills Ltd.

case (supra), a bank guarantee which is furnished cannot be regarded as payment of excise levy which the Government is entitled to retain. The furnishing of a bank guarantee is ordered normally in order to ensure collection of dues. Where, however, the State, as in the present case, has been held not to be entitled to collect or realise vend fee after 25th October, 1989 it cannot be allowed to invoke the bank guarantee and realise the amount of vend fee. What cannot be done directly cannot be done indirectly either. Furnishing of bank guarantee is only a promise by the bank to pay to the beneficiary the amount under certain circumstances contained in the bank guarantee. Furnishing of bank guarantee cannot tantamount to making of payment as it was to avoid; . making payment of the vend fee that bank guarantees were issued. The respondents, in other words, are not entitled to encash the bank guarantees and realise vend fee in respect ofthe period prior to 25th October, 1989.

It is true that the effect of a legislation without legislative competence is that it is non est. [See: Behram Khurshed Pesikaka v. The State o/Bombayl 2 at 652, 653, R. MD. Chamarbaugwalla v. The Union ofJndia at 940, MP. V. -. Sundararamier & Co. v. The State ofAndhra Pradesh & Another, (supra} at 1468 and Mahendra Lal Jaini v. The State of Uttar Pradesh and Others3 at 1. (1955] 1 SCR 613. 2. [1957) SCR 930. 3. (1963) Supp. 1 SCR 912. 937-941. ] Nevertheless a law enacted without legislative competence remains on ~ the statute book till a Court ofcompetent jurisdiction adjudicates thereon and .. declares it to be void. When the Court declares it to be void it is only then that it can be said that it is nonest for all purposes. In Synthetics and Chenlicals case the invalidity of the provisions was a declaration under Article 141 of the Constitution.

It was for doing complete justice that the Court in exercise of its jurisdiction under Article 142 moulded the reliefin such a way as to give effect to its declaration prospectively. It is not possible to accept that such an order of prospective overruling is contrary to law. An invalid law has not been held to be valid. All that has happened is that the declaration of invalidity of the legislation was directed to take effect from a future date. The principle of prospective over-ruling 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 noncollection ofvend 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 U. P. 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. • Lastly, while relying on Ma/at/al Industries Ltd. and Others v. Union 1 ,,...

ofIndia and Others , Shri Dwivedi submitted that the appellants had realised the amount of vend fee payable by taking that figure into account while determining their sale price and, therefore, the State is entitled to recover the ~ same as it would otherwise result· in unjust enrichment to the appellants. 1. (1997) s sec S36. SOMAIYA ORGANICS (INDIA) LTD. v. STATE [RUMA PAL, J. ) 55 In Mafatlal's case (supra) the principle of unjust enrichment was invoked as refund was claimed even though the amount of excise duty paid had y already been recovered. This principle resulted in the court declining to order refund. The principle ofunjust enrichment does not apply in the present case, in view of the direction given in second Synthetics case (supra) that no refund be given. This is in line with the principle of unjust enrichment.

But that principle cannot be extended to give a right to the State to recover or realise vend fee after the statute has been struck down and it has been categorically stated that "the respondent States are restrained from enforcing the said levy any further.... ". The contention of the respondents in the teeth of the aforesaid direction cannot, therefore, be accepted. This is apart from ~ the fact that there is no factual basis on which this Court can conclude that the appellants have in fact realised the amount of vend fee and allowing them to retain it will result in their getting enriched unjustly. For the aforesaid reasons, C. A. No. 4093of1991 is allowed. Civil Appeal No. 2853 of 2001 is dismissed. It is declared that the vend fee realised by the States is not to be refunded to the appellants and, at the same time, the State cannot collect any vend fee for the period prior to 25th October, 1989 or thereafter notwithstanding that notices of demand may have been i .

conclusions reached by my learned brother Kirpal, J. , I wish to add my views on an aspect of the 'prospective over-ruling' which was sought to be effected by the decision of the Constitution Bench of this Court in Synthetics and Chemicals Ltd. and Others v. State of U. P and others, [1990] 1 SCC 109. One of the arguments of the appellant as noted by my learned brother was that the Court in the Synthetics case by resorting to prospective overruling had in a fact sought to uphold a law upto the period of the judgment which law had held to have been passed without competence. It is submit~ed that the finding that the States were not competent to levy tax on industrial alcohol meant that the State Acts were non est and that the Court could not by giving prospective effect to its judgment breathe life into a dead statute up to the date of the judgment.

It was also contended by the appellant that even under Article 142, the Court could not whittle down or act in derogation of any constitutional provision. By declaring that the statute was valid up to the date ofthe judgment, according to the appellant, the specific constitutional provisions, namely, Article 246 and Article 245 were infringed. Reliance has been placed on the decision of this Court in Prem Chand Garg v. Excise Commissioner, UP, Allahabad, [1963] 1 SCR 885 and Supreme Court Bar Association V. Union ofIndia and Another, [1998] 4 sec 409. The argument of the appellant proceeds on a misunderstanding of the effect ofprospective over-ruling. As has been elaborately stated in my learned brother's judgment, by prospective over-ruling the Court does not grant the relief claimed even after holding in the claimant's favour. In this case, the Court held that the statutory provision imposing vend fee was invalid.

Strictly speaking, this would have entitled the appellant to a refund from the respondents of all amounts collected by way of vend fee. But because, as stated in the Synthetics decision itself, over a period of time imposts and levies had been imposed by virtue of the earlier decision and that the States as well as the petitioners and manufacturers had adjusted their rights and their positions on that basis, this relief was denied. The Court did not, by denying the relief, authorise or validate what had been declared to be illegal or void nor did it imbue the legislature with competence upto the date of the judgment. - VS. S. C. A. No. 4093/91 allowed. C. A. No. 2853/2001, dismissed. I. A. Nos. I & 3 in WP. (C) No. 1892/73, dispossed of.