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PETITIONER: INDIAN ALUMINIUM CO. ETC. ETC.

       Vs.

RESPONDENT: STATE OF KERALA & CRS.

DATE OF JUDGMENT:       02/02/1996

BENCH: RAMASWAMY, K. BENCH: RAMASWAMY, K. G.B. PATTANAIK (J)

CITATION:  1996 AIR 1431            JT 1996 (2)    85  1996 SCALE  (1)780

ACT:

HEADNOTE:

JUDGMENT:                             WITH             CIVIL APPEAL NOS. 2771-2822 OF 1996             ----------------------------------- [Arising out  SLP [C]  Nos. 10334/95, 10335/95, 10697-98/95, 11267/95,  11268-70/95,   111318/95,   11319/95,   11321/95, 11322/95,   11340/95,   11655/95,   17898/95,   18047/64/95, 18471/95,  3512/96   [CC  3235/95],  3514/96  [CC  4093/95], 8077/95, 8297/95,  8305/95,  8446-48/95,  8488/95,  8490/95, 8826/95,  8846/95,   8878/95,  9055/95,   9077/95,  9079/95, 9083/95 & 9205/95]                       J U D G M E N T Ramaswamy. J.      Leave granted in all the special leave petitions.      This batch  of appeals  by special  leave  arises  from common judgment  dated November  22, 1994 of the Kerala High Court made in O.P. No.5957 of 1987 and batch.      By Section  36 of  Finance Act 1978, the Central Excise and Salt  Act, 1944  [for short, the Excise Act] was amended to impose central excise duty on electricity under Item II-E in the  Ist Schedule to the Excise Act and fixed 2 paise per kilo watt  of electricity  unit.  Consequently,  the  Kerala State Electricity Board [KSEB] was liable to pay excise duty on electricity  generated and produced by it. To recoup that loss, the  Government of  Kerala, exercising its power under Section  3   of  the   Kerala  Essential   Articles  Control [Temporary Powers] Act, 1961, issued an order. By clause [4] of the  said order,  surcharge at  the rate of 2.5 paise per unit of  electrical energy  was levied  on all  Supplies  of electrical energy  made  by  the  KSEB  either  directly  or through licensees  of Extra  High  Tension  [EHT]  and  High Tension  [HT]  consumers.  Thereunder,  the  licensees  were allowed to  retain 1%  of the anount collected as collection charges. On  October 1,  1984, the  Government of  India had withdrawn the  levy  of  excise  duty  on  electricity.  The Government of  Kerala in  supersession of  its  Order  dated

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April 6,  1979 had  notified the  State  Electricity  Supply [Kerala  State   Electricity  Board   and  licensees   Area] Surcharge Order,  1984 effective from October 1, 1984. Under clause [4]  of the  said Order  all supplies  of  electrical energy made  by KSEB  either directly  or through licensees, were liable  to surcharge at the rate fixed at 2.5 paise per unit. In  the explanatory  note it  was stated  that  though excise duty  was discontinued,  the State Government desired to continue  the levy of surcharge. The EHT and HT consumers had filed  writ petitions  challenging the  validity of  the 1984 Order.  Pending writ  petitions, on August 1, 1988, the State Government discontinued the levy of surcharge with effect from  that date  by issuing  an Ordinance  called the Kerala Electricity  Duty [Amendment]  Ordinance, 1988  which later on  became an  enactment. The rate of electricity duty was 30%  of the price of energy. Later, it was revised to 10 paise per  unit for  HT consumers and 6.5 paise per unit for EHT consumers.  After a  representation was made through the Association of  the HT  and EHT consumers, the Government of Kerala  decided   to  discontinue   the  surcharge   on  the electricity duty  of 10  paise per  unit. On  September  27, 1988, a  Division  Bench  of  the  High  Court  in  Chakolas Spinning &  Weaving Mills Ltd. v. K.S.E. Board (1988 [2] KLT 680] held  that the  levy of  surcharge is  in  substance  a compulsory exaction  intended to  enrich the  coffers of the State and  in effect  partakes the  character of  a  tax  on electricity. The  Government, acting as a delegate under the Kerala Essential  Articles Control  Act,  1986  [Act  16  of 1986], is  not competent  to  impose  any  tax.  A  writ  of mandamus  was   issued  directing   refund  of  excise  duty collected from those writ petitioners before the High Court. The  Kerala   State   Electricity   Supply   [Kerala   State Electricity Board  add Licensees Area] Surcharge Order, 1984 was declared  ultra vires the power of the State Government. The said judgment was confirmed by this Court dismissing the Special Leave Petitions in limine.      At this  stage, it may be necessary to mention that the Essential Articles  [Control] Act,  1963 was amended and Act 13 of  1988 was  enacted. It  is also  relevant to note that exercising the  power under  Entry 53  of  List  II  of  the Seventh Schedule,  the Kerala  State legislature had enacted Kerala Electricity  Duty Act,  1963 and  Rules were  made to levy electricity  duty at  varying rates. Orders were passed by this  Court on  April 13,  1989 dismissing  the  SLP  [C] Nos.4256-66 of  1989. The  Governor  of  Kerala,  exercising power under Article 213 of the Constitution issued Ordinance called  the   Kerala   Electricity   Surcharge   [Levy   and Collection] Ordinance, 1989 which later on became enactment, viz., Act  22 of 1989 [for short, "the Act"]. Under the Act, the appellants  are liable  to pay  2.5 paise  per  unit  of electrical energy  supplied. The  appellants challenged  the same by filing the writ petitions. The High Court upheld the validity of  the Act  and the  Order. Thus  these appeals by special leave.      Shri K.K.  Venugopal, learned  senior counsel  for  the first appellant  contended that the Act levies tax on supply of electrical  energy. It  is not  a tax  either on  sale or consumption of  electrical energy. Entries 26 and 27 of List II [State  List] of the Seventh Schedule to the Constitution empower the  State legislature,  subject to Entry 33 of List ITI [Concurrent  List]  to  enact  law  empowering  levy  of surcharge on  supply and distribution of goods and trade and commerce therein.  Entry 53  of the  State list empowers the State legislature to enact the law on sale or consumption of electricity. Having made the law under Entry 26 or 27, using

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the appropriate  language for  levy and collection of excise duty on  supply of  electricity, the Act cannot be construed to be  one made under Entry 53 of the State List. He further contended that  the word  ’supply’ has  its own connotation. Equally,  ’sale’   and  ’consumption’  of  electricity  bear different connotations. The State legislature having enacted the Electricity  Duty Act, 1963, imposes duty on electricity @  30%  and  reduced  it  to  10%  by  later  amendment  and discontinued the  levy of  excise duty  from August 1, 1988, and the  so-called duty  not having  been passed  on to  the public exchequer,  the Act  was made  only as  a  colourable device to  avoid refund  of excise duty to the tune of Rs.15 crores  wrongly   collected  from  the  consumers.  The  Act admittedly is not an amendment to the Excise Act. The excise duty is  levied on  supply of electricity. If excise duty is construed to  be a  tax under Entry 53, the Electricity Duty Act, 1963  being earlier  to the  Act and both occupying the same  field,   as  a   special  component   of  the  tax  on electricity,  the  later  Act  prevails  over  the  earlier. Therefore, the  State legislature did not intend to have the earlier enactment, viz., Electricity Duty Act, superseded by the Act  which imposes  levy of  only 2.5  paise per unit of electrical energy.  Therefore, the  imposition is  not a tax but a duty on supply of electricity. This deduction could be drawn  from   the  language  employed  in  the  Act  itself. Otherwise, nothing  prevented the  legislature to use such a language as  impost on  sale and consumption of electricity. The express  language employed  shows that  they intended to levy duty on supply of electricity. The Act was not intended to be  one made  under Entry  53 but  one under Entry 27. He sought  support   from  previous  judgments  of  this  Court upholding the  power of the legislature under Entries 21 and 26 imposing  duty on supply of electric energy in 1968 Order from the  State of  Kerala and  under similar  provisions in other States.      Shri R.F.  Nariman,  learned  counsel  for  some  other appellants contended that the legislature is devoid of power to enact  Section 11  of the  Act validating  the levy  with retrospective effect  which  is  blatant  encroachment  upon judicial power  of the  Courts. Judicial  review being basic structure of the Constitution, Section 11 is ultra vires the Constitution. Even  assuming that it could enact a law after Chakolas’ case  [supra], it  could do  so only prospectively but it  could not nullify the writ of mandamus issued by the High Court.  The law  is anti-judgment  validation  directly overruling the  judgment which  was upheld  by  this  Court. Therefore, Section 11 is unconstitutional. He contended that after Pathak’s case [infra], the legislature has no power to amend the law.      Shri K.V.  Vishwanathan, learned counsel for some other appellants contended  that the effect of Section 11 would be that any  judgment to  be rendered  by the  Court in  future would  be  nullified  and  in  effect  would  tantamount  to legislative declaration prohibiting judicial review, a basic feature of the Constitution. In other words, the legislature adjudicates  upon  the  disputes  and  gives  a  legislative declaration of  the law  which is  impermissible  under  the scheme of  the distribution  of the sovereign powers between the legislature, the executive and the judiciary.      Shri T.L.  Vishwanatha Iyer, learned senior counsel for the State contended that the language employed and the title of the  Act are  not conclusive.  Legislature derives  power from Entry  53 to  make the  Act.  It  is  law  on  sale  or consumption of  electricity. In  Chakolas case  [supra]  the Division Bench  of the  High Court  declared that  impost is

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compulsory exaction  for the  benefits to  the State and had declared that  the executive  was not competent to issue the predecessor Order  under the  Essential  Articles  [Control] Act. Section  3 thereof  had not  given express power to the Government to  levy and  collect excise  duty. Consequently, the levy  was declared  ultra vires.  The legislature  acted thereon and  enacted the  Act. Though  the  words"  sale  or consumption" of  electricity have not expressly been used in the Act and repeated as excise duty on supply of electricity duty, being  in the  nature of  a tax  impost  and  being  a compulsory exaction  for benefits to the State, it is a tax. The legislature,  therefore, enacted  law under  Entry 53 of List II of the 7th Schedule.      There is  no hiatus  between supply  and consumption of electricity. As  soon as  the electrical  energy passes  off from the  meter of  the consumer,  electricity is  consumed. From the  moment of  consumption it  becomes  sale.  It  is, therefore, in  substance a  tax on  consumption and  sale of electricity.  He  further  contended  that  the  legislature having competence  to enact  the law,  equally has  power to enact prospectively and retrospectively. The foundation that it is  a duty  levied under  the Order,  as held in Chakolas case, had  been  removed  making  it  a  tax,  the  base  of invalidity pointed  out by  the Court  had been  removed  by enacting the  Act and  having removed  the vice  the Act has given retrospective  effect  to  it.  It  is  not  a  direct encroachment on  the power  of judicial review but is one of legislative arrangement  exercising its  sovereign power  to amend the law and validate all past transactions. Therefore, Section 11 is not ultra vires the Constitution.      The legislature  did not put any express embargo on the power of  judicial review  nor a  declaration to that effect finds place  in any  of the provisions of the Act. Though it is open  to the  judiciary to  declare the  law; the  effect thereof could  suitably be removed. Resultantly, there is no invalidity  in   the  impost   as  electricity   duty.   The Electricity Duty  Act and the Act operate in the same field. The former  as principal Act; the Act is in the nature of an enactment imposing tax on duty. Both operate harmoniously in the respective fields without colliding in their operation.      Shri G.  Vishwanatha Iyer  for the Board contended that the KSEB had been receiving substantial financial assistance from the Government and the impost and the collection of the tax went  to the credit of the public exchequer except 1% in the form  of collection charges which goes to the account of KSEB. Instead of granting refund to the appellants the State retrospectively enacted  the law.  The validation Act merely intended to retain the collection already made not only from the  appellants   but  also   from  every   other  consumer. Retrospective  validation   was  made  to  avoid  cumbersome process of  refund and  recollection. There is no embargo on the exercise  of the power of judicial review either by this Court or the High Court.      The  primary   question,  therefore,  is:  whether  the impugned Act  enacted by  the State legislature is one under Entry 53  of the State List, viz., "Taxes on the consumption or sale  of electricity". Indisputably, the title of the Act as well  as the charging Section 3 employ the words ’duty on supply  of   electricity.  Under  Article  246  [3]  of  the Constitution, every  State legislature has explicit power to make  law  for  that  State  with  respect  to  the  matters enumerated in List II [State List of the Seventh Schedule to the Constitution. The State’s power to impose tax is derived from the Constitution. The Entries in the three Lists of the Seventh Schedule  are not  power of  legislation but  merely

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fields of  legislation. The  power is  derived under Article 246 and  other related  Articles of  the  Constitution.  The legislative fields  are of  enabling character  designed  to define and  delimit  the  respective  areas  of  legislative competence of  the respective legislatures. There is neither implied restriction  imposed on  the legislature  nor is any duty prescribed  to exercise  that legislative  power  in  a particular manner.  But the  legislation must  be subject to the limitations prescribed under the Constitution.      In Navinchandra Mafatlal v. The Commissioner of Income- Tax, Bombay  [(1955) 1  SCR 829  at 836-37], the controversy was whether  the  expression  "capital  gain"  used  in  the Income-tax Act,  inserted by  Section 12B of Income-tax Act, 1922 and  Government of  India Act,  1935, includes "income" under Entry  54 of list I [Union List]. A Constitution Bench of  this   Court  had   held  that   the  cardinal  rule  of interpretation is  that the  words should  be read  in their ordinary, natural  and grammatical  meaning subject  to this rider that  in construing  the  words  in  a  constitutional enactment conferring  legislative power,  the  most  liberal construction should  be put  upon the words so that the same may  have   effect  in   their  widest   amplitude.  It  was accordingly held  that the "capital gain" is an income under that Act.      In Banarasi  Das etc.  v. The  Wealth Tax Officer, Spl. Circle,  Meerut   [AIR  1965   SC  1387  at  1389],  another Constitution Bench,  interpreting the  word ’individuals’ as used in  Entry 86  of List  I and  the Wealth Tax Act, while dealing with the question whether Hindu family would include an individual,  this Court reiterated that the words used in the Entries  of the  Seventh  Schedule  must  receive  their widest interpretation.  It was further held that it would be unreasonable to  approach the  task of  interpretation in  a narrow or restrictive manner.      In Baldeo  Singh v.  Commissioner of Income-tax Delhi & Ajmer [AIR  1966 SC  736 at 742] interpreting the provisions of Income-tax  Act, 1922 this Court had held that payment of dividend is  a form  of income.  The Act was made to prevent avoidance of  super-tax. Therefore,  the entries in that Act and the words used thereunder must be construed liberally to prevent avoidance of the tax.      In M/s.  Burmah Construction Co. v. The State of Orissa & Ors.  [AIR 1962  SC 1320], after this Court had decided in State of  Orissa v.  Oriental Paper  Mills Ltd. [AIR 1962 SC 1320], after  this Court  had decided  in State of Orissa v. Oriental Paper  Mills Ltd.  [AIR 1961  SC 1438],  the Orissa Sales Tax  Act, 1947  was amended and Section 14 restricting grant  of   refund  of  tax  inappropriately  and  illegally collected, was  challenged. This Court had held that "if the power to  legislate in  respect of tax comprehends the power to legislate  "in respect  of refund  of tax  improperly  or illegally collected",  imposition  of  restrictions  on  the exercise of the right to claim refund will not be beyond the competence  of  the  Legislature.  Granting  refund  of  tax improperly or illegally collected and the restriction on the exercise of  that right  are both  ancillary  or  subsidiary matters relating  to the  primary head  of tax  on  sale  of goods". The  provisions of  Section  14  of  the  Act  were, therefore, not held ultra vires the State Legislature.      In The  Madurai District Central Co-operative Bank Ltd. v. The Third Income Tax Officer, Madurai [AIR 1975 SC 2016], when the  annuity scheme  was enacted  in the  Finance  Act, competence of  the Parliament in that regard was questioned. This Court  had held  that Income-tax  Act  is  a  permanent statute. Finance  Act passed every year prescribes the rates

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at which  the tax is to be charged under the Income-tax Act. The annuity is only one of the benefits for deduction of the income-tax in  calculation of  the income chargeable to tax. While  so   interpreting,  this   Court   had   given   wide interpretation and  upheld the power of the Parliament under Article 246 [11 read with Entry 82 of List I.      In Hoechst Pharmaceuticals Ltd. & Anr. etc. v. State of Bihar   &  Ors.  [(1983)  3  SCR  130]  relied  on  by  Shri Venugopal, the  question arose  whether levy of surcharge on sales-tax and  prohibition from  passing  on  the  liability thereof to purchasers was void in terms of the opening words of Article 246 [3] of the Constitution for being in conflict with the Drugs [Price Control] Order made under Section 3 of the  Essential   Commodities  Act.   In   interpreting   the respective legislative  fields of  the  Parliament  and  the State legislature (Concurrent List), with a view to subserve the power  of the  respective  legislatures  to  enact  law, restrictive interpretation  was  adopted  by  a  three-Judge Bench of  this Court.  It, therefore,  cannot be  understood that in respect of taxing statute, restictive interpretation would be put up.      In view of the legal position referred to hereinbefore, it must be held that the words ’sale or consumption’ used in Entry 53  of the  State List and the Act made in exercise of the power  under Article  246 [3] of the Constitution, would receive  wide   interpretation  so   as   to   sustain   the constitutionality of  the Act  unless  it  is  affirmatively established that the Act is unconstitutional.      When the  vires of  an enactment  is challenged,  it is very difficult  to ascertain  the limits  of the legislative power. Therefore, the controversy must be resolved as far as possible, in favour of the legislative body putting the most liberal construction  upon the relevant legislative entry so that it may have the widest amplitude. The Court is required to look  at the  substance of the legislation. It is equally settled law that in order to determine whether a tax statute is within the competence of the legislature, it is necessary to  determine   the  nature  of  the  tax  and  whether  the legislature had  power to  enact such  a  law.  The  primary guidance for  this  purpose  is  to  be  gathered  from  the charging section.  It is the substance of the impost and not the form that determines the nature of the tax.      In District  Board, Dehra  Dun  v.  Damodar  Dutt  [ILR (1944)  All.   611],  the   Allahabad  High   Court,   while considering  the   constitutionality  of   Professions   Tax Limitation Act,  1941 and  Section 2  thereof, had held that the name  given to  a tax  did not  matter. What  had to  be considered was  the pith and substance of it. The High Court had held that in pith and substance the impugned rax was one which attracted  the provisions  of Section  2 of  that Act. That ratio  was upheld by this Court in Pandit Ram Narain v. State of  U.P. &  Ors. [1956 SCR 664 at 673] and it was held that the  title of  the Act  and the words used therein were not conclusive  but the  pith and  substance of  the statute needed to be looked into.      The doctrine  of pith  and substance, though applied in determining the  true character  of the  statutes under List III [Concurrent  List] of  the respective legislative topics of the State legislature and the Parliament, it was extended for consideration  of the  true character of the legislation even  under   the  same  legislative  list.  In  all  cases, therefore, the name given by the legislature in the impugned enactment  is   not  conclusive   on  the  question  of  its competence to  make it.  It is the pith and substance of the legislation which  decides the  matter  which  needs  to  be

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decided with  reference to  the provisions  of  the  statute itself.      In Chaturbhai  M. Patel  v. Union  of India & Ors. [AIR 1960 SC  4251, another  Constitution Bench  had held that in every  case   where  the   legislative  competence   of  the legislature  in   regard  to   a  particular  enactment  was challenged with  reference to  the entries  in  the  various lists, it was necessary to examine the pith and substance of the Act  and if the matter came substantially within an item in the  Central List,  it could not be deemed to come within an entry in the Provincial list.      The  question,  therefore,  is:  whether  in  pith  and substance the  Act is  one  imposing  tax  on  the  sale  or consumption of  electrical energy  supplied to the consumer? It is  true that  in Northern India Caterers  (India Ltd. v. Lt. Governor  of Delhi  [(1979) 1  SCR 557]  and M/s. Gannon Dunkerley &  Co. & Ors. v. State of Rajasthan & Ors. [(1993) 1 SCC  364] this  Court had  held that the expression tax on the sale or purchase of goods" in Entry 54 of the State List included a tax on the transfer of property in goods, whether as goods  or in  some other form] involved in supplying food in a  restaurant or in the execution of a works contract and power to impose tax leviable thereon would be under Entry 54 of the State List. It was held that it was not liable to tax since there  was no  transfer  of  property  in  goods.  The Parliament amended  the Constitution and enacted clause [29- A] of Article 366 so as to bring it in conformity with Entry 33 of  List III of the Seventh Schedule, introducing a legal fiction of  tax on  sale or  purchase of goods including the transfer of  property in  goods, whether as goods or in some other form,  involved in  execution of the works contract or otherwise than  in pursuance  of the contract of property in goods  for   cash,  deferred   payment  or   other  valuable consideration.      It is common knowledge that for HT and EHT industries a sub-station at  the place of manufacture or establishment or at its  convenient  place  is  set  up  and  electricity  is supplied to  the sub-station  and  a  minimum  guarantee  of payment is  ensured therefor  under the  contract.  But  the question is  whether the  word ’supply’ used in Section 3 of the Act  would be  construed to mean ’consumption’ or ’sale’ of  electricity.   From  the   sub-station,  electricity  is connected to  the industrial  units through the meter put up in the factory. Continuity of supply and  consumption starts from the  moment the  electrical energy  passes through  the meters and sale  simultaneously takes place as soon as meter reading is  recorded. All  the three  steps or  phases  take place  without any hiatus. It is true that from the place of generating electricity,  the electricity is supplied to  the sub-station installed  at the units of the consumers through electrical  high-tension   transformers   and   from   there electricity  is  supplied  to  the  meter.  But  the  moment electricity is  supplied through  the meter, consumption and sale simultaneously  take place.  It is   true  that in  the definitions given  in the  New Encyclopaedia Britanica, Vol. 4, p.842  cited before  us, distinction  between supply  and consumption is stated but adopting a pragmatic and realistic approach, we  are of the considered view that as soon as the electrical energy  is  supplied  to  the  consumers  and  is transmitted  through  the  meter,  consumption  takes  place simultaneously With  the supply.  There is  no hiatus in its operation. Simultaneously sale also takes place. Charge will be quantified  at a  later date  as per  the recorded  meter reading or  escaped metering,  as the  case may be. The word ‘supply’ used  in the  charging Section 3 should, therefore,

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receive  liberal   interpretation   to   include   sale   or consumption of  electricity as  envisaged in Entry 53 of the State List.      It is true that when water supplied by the municipality to the  consumers through  their water mains, flows from the mains through the water meter and into the pipes fitted into the house  and from  there water is supplied from tap fitted to the  pipes. Thus  there  is  hiatus  between  supply  and consumption. When  water is  actually used  there  would  be consumption though  water supplied  gets recorded when water passes through  the meter  from the  water  mains.  But  the analogy thereof  to the  supply,  consumption  and  sale  of electric energy  is inappropriate as it cannot be separately stored after  the supply  but  before  consumption  or  sale thereof. However,  water  can,  incidentally  be  stored  or remain in  pipe for  use and  after  tap  is  opened  it  is consumed. Even  if it  percolates it  may be  a loss  to the consumer. This  operation thereof  is inapt.  Its analogy to electricity is, therefore, inapt and inappropriate.      The question  then is: whether The Electricity Duty Act gets eclipsed with the passing of the Act occupying the same field as  the Act?  In Bisra  Stone Lime Company Ltd. & Anr. etc. v.  Orissa State Electricity Board & Anr. [(1976) 2 SCR 307] it  was  held  that  surcharge  on  electricity  is  an additional tax.  "The word ’surcharge’ is not defined in the Act, but etymologically, inter alia, surcharge stands for an additional or  extra charge  or payment. Surcharge is thus a super-added charge,  a charge  over and  above the  usual or current dues".  The term  ’surcharge’  in  substance  is  an addition to the stipulated rate of tariff. The nomenclature, therefore, does not alter the position.      In CIT  v.  K.  Krinivasan  [(1972)  4  SCC  526],  The question arose  whether the  term "income-tax" as defined in Section 2  of the  Finance Acts 1964 would include surcharge and additional  charge, wherever  provided. This  Court  had held that  the word  surcharge includes  additional tax. The whole proceeds  of any  such charge were to form part of the revenue of  the State. In C.V. Rajagopalachariar v. State of Madras [AIR 1960 Mad 543], in the context of the Madras Land Revenue Surcharge  Act ,  1954 and  the Madras  Land Revenue (Additional Surcharge) Act, 1955, interpretation of the word ’surcharge’ came up for consideration. The ratio of the said case is  that ’surcharge’  includes an  excess or additional burden or  amount of  money charged  in excess  of the  land revenue and, therefore, it was held to be an additional land revenue. That  ratio was  approved by this Court in Sarojini Tea Co.  (P) Ltd.  v. Collector  of Dibrugarh  [(1992) 2 SCC 156]. Considering,  in  extenso,  this  Court  had  held  in paragraph 16 that "the expression ’surcharge’ in the context of taxation  means an additional imposition which results in enhancement of  the tax  and the  nature of  the  additional imposition is  the same as the tax on which it is imposed as surcharge. The  nature of such imposition is the same, viz., land revenue  on which  it is a surcharge". It would thus be settled law that surcharge is additional duty or tax imposed in addition to the original levy, on the same topic.      In A.B.  Abdul Kadir  & Ors.  etc. v.  State of  Kerala [(1976) 2  SCR 690],  the Finance Act, 1950 had extended the Central Excise  and Salt  Acts  1944  to  Part  B  State  of Travancore Cochin  and repealed the Cochin Tobacco Act, 1909 and the  Tobacco Act  [1 of  1087]. Thereafter,  a system of licensing  was   introduced  by  which  the  licensees  were required to  pay a  specified  fee  in  respect  of  tobacco imported into  the  State.  The  appellants  thereafter  had challenged in  the High  Court the collection of the licence

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fee for  the period.  The Act was declared ultra vires and a refund was ordered to be made of the fees so collected. When the appellants  thereafter filed  a writ  petition  claiming refund pending  writ petitions  Kerala Luxury Tax on Tobacco [Validation] Acts  1964 was enacted by the State legislature to provide  for the  levy  of  luxury  tax  on  tobacco  and validated the  levy and  collection of the fees for licences within the specified period which had received the assent of the President.  When the  validity thereof was challenged on the anvil of Article 304 (b) of the Constitution, this Court had held that the levy was sought to be made as a luxury tax as a  different character  on the production and manufacture of the  tobacco was  justified and  that, therefore  it  was within, the legislative competence to enact the law refusing refund of the collections illegally collected.      Levy of  duty goes  into the  public revenue.  It is an impost, a compulsory exaction for the benefit to the coffers of the public exchequer and, therefore, it is a tax. The Act in pith  and substance  is a  tax on  sale or consumption of electrical energy.  Therefore, the Act falls in Entry 53 and does not  fall in  Entry 27 of the State List of the Seventh Schedule  to   the  Constitution.   The  State  legislature, therefore, validly  enacted the Act under Article 246 [3] of the Constitution.      The next question is: whether the validation  provision contained in  Section 11  is constitutional?   Section ll of the Act reads thus:      "11. Validation.      [1]   Notwithstanding  anything  to      the    contrary  contained  in  any      judgment,   decree or  order of any      court, the  levy and  collection of      surcharge by  the  Board  or  other      licensees on  or after  the 1st day      of October,  1984   and before  the      1st day  of August,  1988 under the      Kerala State    Electricity  Supply      [Kerala State Electricity Board and      Licensees, Areas  Surcharge  Order,      1984, shall  be deemed  to be,  and      deemed always  to have been validly      levied and   collected  as  if  the      said Order  was  a  notified  order      under Section  3 of this Ordinance;      and accordingly-      (a)  all   acts,  proceedings,   or      things done  by the  Board or other      licensees in  connection with  such      levy, collection  and remittance of      surcharge shall,  for all  purposes      be deemed  to be, and deemed always      to have  been,  done  or  taken  in      accordance with this Ordinance;      (b) no  suit  or  other  proceeding      shall be maintained or continued in      any court  for the  refund  of  any      such surcharge, and      (c) no court shall enforce a decree      or order  directing the  refund  of      any such surcharge.      [2] For  the removal  of doubts, it      is hereby  declared that nothing in      sub-section [1] shall be considered      as  preventing   any  person   from      claiming refund  of  any  surcharge

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    already  paid   in  excess  of  the      amount due from him under the order      referred to in sub-section [1]."      A    reading    thereof    clearly    indicates    that notwithstanding anything  to the  contrary contained  in any judgment, decree  or order  of  any  court..  the  levy  and collection of  surcharge by  the Board or other licensees on or after the 1st day of October. 1984 and before the 1st day of August,  1988 under  the Kerala  State Electricity Supply [Kerala  State   Electricity  Board   and  Licensees   Area] Surcharge Order,  1984, shall  be deemed  to be,  and deemed always to  have been  validly levied and collected as if the said Order  was a notified order under Section 3 of the [Act 22 of  1984]. Accordingly  all acts,  proceedings or  things done by the Board or other licensees in connection with such levy collection  and remittance  of surcharge shall, for all purposes be  deemed to  be, and  deemed always to have been, done or  taken in  accordance with  the Act. Sub section [2] removes the doubts declaring that nothing in sub-section [l] shall be  considered as  preventing any person from claiming refund of any surcharge already paid in excess of the amount due from him under the order referred to in sub-section [l].      It is  seen that  the Act  does not limit to the period covered under  Section 11  of the Validation Act, Section 3, with a  non obstante  clause provides  that  notwithstanding anything to  the contrary contained in any agreement entered into with  any consumer  or the conditions of service agreed by the  Board, the  Government may by notified order provide for the  levy and  collection of surcharge on all HT and EHT supplies of  energy made  by the  Board whether  directly or through licensees  at such  rates not  exceeding ; paise per unit as may be specified therein etc. It is an Act to remain operational in  future. Admittedly,  the Act  is a permanent statute   operating    prospectively   and   retrospectively validating past  transactions as  if they  have  been  made, entered into or transacted under the Act.      While making  the Validation  Act, as  seen, Section  6 provides  for   recoveries  and   Section  7   provides  for penalties. Section  8 prescribes  offences by  companies and Section 9  gives rule making power to effectuate the purpose or the  Act by  making rules  enumerated thereunder  to give effect to  the provisions  of the  Act. Section  10 provides protection of  actions taken  by the officers in good faith. Section 4  deals with  books of accounts to be maintained by the  licensees   and  Section   5  authorises  officers  for inspection of  the  books  of  accounts  maintained  by  the licensees. It would thus be clear that the Act is a complete and self-contained code in itself.      The question,  therefore, is  whether Section  11 is an anti-judicial power  interfering with  or  encroaching  into judicial review  entrusted to the Courts, a basic feature of the Constitution  and  whether  it  directly  overrules  the judgment of  the High  Court? In  view of specific stand and vehement contention  that  the  legislature  can,  under  no circumstance, nullify  mandamus or  direction  issued  by  a court, we have to survey the decided cases in which relevant principles were  laid by this Court. The primary question is whether the legislature has trespassed and trenched into the preserve of  the  basic  feature  of  judicial  review,  The principle of  power of  validation vested in the legislature is no  longer res  integral. A  Constitution Bench  of  this Court in  Shri Prithvi  Cotton Mills  Ltd. 8  Anr. v. Broach Borough Municipality  & Ors.  [(1970) 1 SCR 388] which is an erudite leading judgment on this topic, laid by an unanimous Constitution Bench  of five  Judges that  Section 17  of the

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Bombay   Municipal   Boroughs   Act,   1925   empowers   the municipality to  levy ’rate  on building  or lands  or  both situate within  the municipality.  The Rules  made under the Act applied the rates on the percentage basis on the capital value  of   lands  and   buildings.  In   Patel   Gordhandas Hargovindas v.  Municipal Commissioner,  Ahmedabad [(1964) 2 SCR 608]  this Court  had held  that the term ’rate’ must be given the special meaning it had acquired in English law and must be  confined to  an impost  on the  basis of the annual letting value;  it could  not be validly levied on the basis of capital  value though capital value could be used for the purpose of working out the annual letting value. Thereafter, Gujarat legislature  amended the  Act  and  enacted  Gujarat Imposition of  Tax by Municipalities [Validation] Act, 1963. Section 3  thereof  which  validated  past  assessments  and collections an  rate, on lands and buildings on the basis of capital value or a percentage of capital value, was declared valid, despite  any judgment  of a  court or Tribunal to the contrary. Future  assessment and  collection on the basis of capital value  for the  period from and after the Validation Act, was  authorized. Section  99 was enacted in the Gujarat Municipalities Act to provide for the levy of a tax on lands and buildings  "to be  based on  the annual letting value or the capital  value or  a percentage  of capital value of the buildings or lands or both". The same was questioned and the High Court  dismissed the writ petition. On appeals when the constitutionality  thereof   was  challenged,   this   Court observed as under:      "...When a  legislature sets out to      validate a  tax declared by a court      to be  Illegally collected under an      ineffective or  an invalid law, the      cause   for    ineffectiveness   or      invalidity must  be removed  before      validation  can  be  said  to  take      place   effectively.    The    most      important condition,  of course, is      that the  legislature must  possess      the power  to impuse  the tax, for,      if it  does not.  the  action  must      ever   remain    ineffective    and      illegal.    Granted     legislative      competence, it is not sufficient to      declare merely that the decision of      the Court  shall not  bind for that      is  tantamount   to  reversing  the      decision in  exercise  of  judicial      power which  the  legislature  does      not possess  or exercise. A court’s      decision must  always  bind  unless      the conditions on which it is based      are so  fundamentally altered  that      the decision  could not  have  been      given in the altered circumstances.      Ordinarily, a  court holds a tax to      be invalidly  imposed because,  the      power to  tax  is  wanting  or  the      statute or  the rules  or both  are      invalid  or   do  not  sufficiently      create the jurisdiction. Validation      of a tax so declared illegal may be      done  only   if  the   grounds   of      illegality   or    invalidity   are      capable of being removed and are in      fact removed  and the tax thus made

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    legal. Sometimes  this is  done  by      providing  for  jurisdiction  where      jurisdiction had  not been properly      invested before.  Sometimes this is      done by  reenacting retrospectively      a valid  and legal taxing provision      and then  by fiction making the tax      already collected  to  stand  under      the reenacted  law.  Sometimes  the      legislature gives  its own  meaning      and interpretation of the law under      which the  tax was collected and by      legislative  fiat   makes  the  new      meaning binding  upon  courts.  The      legislature  may   follow  any  one      method or  all of them and while it      does  so   it  may  neutralise  the      effect of  the earlier  decision of      the court which becomes ineffective      after  the   change  of   the  law.      Whichever method is adopted it must      be within  the  competence  of  the      legislature and  legal and adequate      to attain the object of validation.      If the  legislature has  the  power      over   the    subject-matter    and      competence to  make a valid law, it      can at  any time  make such a valid      law and  make it retrospectively so      as to  bind even past transactions.      The validity  of a  Validating law,      therefore, depends upon whether the      legislature      possesses      the      competence which it claims over the      subject-matter   and   whether   in      making the  validation it  recovers      the defect  which  the  courts  had      found in the existing law and makes      adequate    provisions    in    the      Validating   law    for   a   valid      imposition of the tax". This Court  upheld the  constitutionality  of  the  impugned enactment.      The validity  of the validating Act is to be  judged by the following  tests: [i]  whether the  legislation enacting the validating  Act has  competence over the subject matter; [ii] whether  by validation,   the  legislature has  removed the-defect which  the court  had found  in the  previous law [iii] whether  the validating  law is  inconsistent with the provisions of  Chapter III of the Constitution. If tests are satisfied, the  Act can  confer jurisdiction  upon the Court with retrospective effect and validate the past transactions which were  declared to be unconstitutional. The legislature cannot assume  power of adjudicating a case by virtue of its enactment of  the law without leaving it to the judiciary to decide    it  with  reference  to  the  law  in  force.  The legislature  also is incompetent to overrule the decision of a Court   without  properly removing  the base  on which the judgment is founded.      In State  of Orissa  v. Oriental  Paper Mills  Ltd [AIR 1961  SC  1438].  the  Oriental  Paper  Mills  assessee  had successfully challenged  the assessability of the sales tax. After the  judgment was  delivered by this Court in State of Bombay v. United Motors India Ltd [1953 SCR 1063], the State legislature enacted  Section 14A  and incorporated by way of

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an amendment  Act 25  of 1958  to the  Orissa Sales Tax Act. When the constitutionality thereof was challenged on refusal to grant  refund of  the tax  paid under  the  invalid  law, contending that  Section 14A  deprived the  assessee of  the common law  right to  claim refund of the amount paid as tax under  the  invalid  law,  this  Court  had  held  that  the legislature was  competent to  exercise the power in respect of the subsidiary or ancillary matters of granting refund of tax  inappropriately   or  illegally  collected.  Therefore, Section 14A validating the illegal collection and refusal of the refund was upheld as valid. It was also held that it was not in violation of Article 19 [1] (f) of the Constitution.      In M/S  Misrilal Jain v. State of Orissa & Anr. [(1977) 3 SCC  212], a  larger Bench of seven Judges was required to construe the provisions of Orissa Taxation [on Goods Carried by Roads  or Inland Waterways] Act, 8 of 1968. By a judgment dated August  10, 1967  this Court  had declared  the Orissa Taxation [on  Goods Carried  by Roads  or Inland  Waterways] Act, 1962  as invalid  since it did not cure the defect from which the  Orissa Taxation  [on Goods  Carried by  Roads  or Inland Waterways]  Act, 7  of  1959  had  suffered.  It  was further held that the State was not entitled to recover  any tax. Under  the Validation  Act 8  of 1968 the imposition of the same  levy which  the State had unsuccessfully attempted to levy  earlier was  validated. After  the enactment of the Bill, previous assent of the President was obtained removing the  defect   pointed  out   earlier.  In  para  6,  it  was unanimously held by the Bench that the legislature cured the constitutional vice  from which the Act of 1959 suffered, by obtaining the  requisite sanction  of the President and thus armed, it  imposed as  new  tax  though  with  retrospective effect. The  imposition of  the taxes  or validation  of the action under  void law  is not the function of the judiciary and therefore,  by taking these steps the legislature cannot be accused  of trespassing on the preserve of the judiciary. Courts have  to be vigilant to ensure that non-compliance of power so  thoughtfully conceived  by our Constitution is not allowed to  be upset  but the  concern for  safeguarding the judicial power does not justify conjuring up trespassers for invalidating laws.  If the  vice  from  which  an  enactment suffered is  cured by  due  compliance  with  the  legal  or constitutional  requirements,   the  legislature   has   the competence to  validate the  enactment and  such  validation does not  constitute an  encroachment on the function of the judiciary. It  was held at page 218 that the legislature can pass laws  with retrospective effect nullifying the mandamus issued by the Court.      In M/S  Tirath Ram  Rajindra Nath  Lucknow v.  State of U.P. &  Anr. [(1973) 3 SCC 585], Section 3 of the U.P. Sales Tax Acts  1948 imposes  multi-point sales tax on the sale of certain goods. Section 3-A  empowered the Government to levy sales tax  on some of the goods "at such single-point in the series of  sales by successive dealers" as may be prescribed by the   State  Government. Rules  had been  made whereunder State   got power  to impose sales tax on the total turnover of  the  sale  of  bricks  at  the  point  of  sale  by  the manufacturer.  The   U.P.  Sales   Tax  Act  (Amendment  and Validation) Ordinance,  1970 was  amended substituting  such single point  of sale  as the State Government may  specify. In Gurnamal  v. U.P. [26 STC 270],  the Allahabad High Court had held  that before attracting Section 3-A, the goods must have been  the    subject  matter  of  multiple  sales.  The notification did  not fall within the purview of Section 3-A as bricks  were  sold  directly  to  the  consumers  by  the manufacturers. Section 3-A(1) was amended with retrospective

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effect by  U.P. Sales  Tax (Amendment  and Validation)  Act, 1970. The  validity thereof  was questioned.  The High Court had   held   that   Section   3   A(1),   as   amended   was unconstitutional as  it  delegated    essential  legislative functions to  the State  Government. Allowing the appeal and upholding the   validity,  this Court  had held  that  "this Court has  pointed out  in  several  cases  the  distinction between encroachment on the judicial power and nullification of the  effect of  a judicial  decision by  changing the law retrospectively. The former is outside the competence of the legislature  but   the  latter  is  within  its  permissible limits." The  legislature had  not purported either directly or by  necessary implication to overrule the decision of the Allahabad High  Court. On the other hand it had accepted the decision as  correct  but  had  removed  the  basis  of  the decision by retrospectively changing the law.      In The  Govt. of A.P. & Anr. v. Hindustan Machine Tools Ltd. [AIR  1975 SC 2037], the respondent had constructed its factory and  other  buildings  within  the  limits  of  Gram Panchayat ’K’  without its permission. Gram Panchayat passed a resolution  to collect  permission fee from the respondent on the  capital value of the factory building at a specified rate. They  also imposed  house tax and demanded payment for the period  1966  to  1969.  The  writ  petition  was  filed challenging the  power to levy house tax and other fees. The A.P. High  Court issued  a  mandamus  prohibiting  the  Gram Panchayat from  collecting the  amounts. The  High Court had held that  as per the definition of the house under the Act, the factory  and other building was not a house. Against the judgment an  appeal was filed in this Court. Pending appeal, the legislature  amended  the  definition  of  "house"  with retrospective effect  so as  to eliminate  the impediment on which the  High Court  rested its  judgment.  It  also  made validation of the actions by Section 4 of the Validation Act with  retrospective  effect.  On  that  basis  when  it  was contended  in   this  Court  for  the  respondent  that  the legislature had  overruled or  set aside the judgment of the High Court  and it  was constitutionally  g impermissible, a Bench of  three Judges  had held that  the State legislature had not  overruled or  set aside  the judgment  of the  High Court. It  had  amended  the  definition  of  the  house  by substituting a  new section  in the  place of  an  old  one, providing a  new definition  which had retrospective effect, notwithstanding   anything contained in any judgment, decree or order  of the  court or  other authority. In other words, this   Court had held that the legislature removed the basis of the  decision rendered  by the  High Court  so  that  the decision  could   not  have   been  given   in  the  altered circumstances.      In I.N.Saksena v. The State of M.P. [(1976) 3 SCR 237], the State  Government amended its memorandum to compulsorily retire a  government servant on attaining the superannuation of 58  years. However, it empowered the Government to retire a government  servant  on his attaining the age of 55 years. Subsequently,   statutory rules  under proviso to Art.309 of the   Constitution  were  framed.  However,  the  clause  to retire a  government servant  on attaining  the  age  of  55 years was  not incorporated,  though the superannuation  was retained at  58 years.  The appellant,  judicial officer was compulsorily retired  on his  completion of   55  years.  He successfully challenged  the order  of retirement  which was upheld by this Court. A Constitution Bench of this Court had held  that  the  distinction  between  legislative  act  and judicial act  is  well-known. The adjudication of the rights of the   parties is a judicial function. The legislature has

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to   lay down the law prescribing the norms or conduct which will govern  the parties  and transactions  to  require  the Court to  give effect  to that  law. Validating  legislation which removes the norms of invalidity of action or providing remedy is  not an  encroachment on judicial power. Statutory rule made  under the proviso  to Article 309 was upheld. The legislature cannot  by a  bare declaration, without anything more, directly  overrule, reverse  or  override  a  judicial decision at any time in exercise of the plenary power confer on the  legislature by Arts.245 and 246 of the Constitution. It can  render a judicial decision ineffective by enacting a valid  law   on  a   topic  within  its  legislative  field, fundamentally  altering   or  changing  with  retrospective, curative or  fulfilling effect, the conditions on which such a decision  is based.  In Hari  Singh & Ors. v. The Military Estate Officer  and Anr.  [(1973) 1  SCR 515], prior to 1958 two alternative  modes of eviction under Public Premises Act were  available.   When  the   eviction  was  sought  of  an unauthorised   occupant    by    summary    procedure    the constitutionality thereof was challenged and upheld. The Act was  subsequently   amended  in   1958  with   retrospective operation from  September  16,  1958.  Thereunder  only  one procedure for eviction was available. It was contended to be a legislative  encroachment of  judicial power.  A  Bench of three Judges  held that the legislature possessed competence over the subject matter and the  Validation Act could remove the defect  which the  court had found in the previous case. It was  not the  legislative encroachment  of judicial power but one  of removing  the defect which the Court had pointed out with a deeming date.      In A.B.  Abdul Kadir  & ors.  etc.v.  State  of  Kerala [(1976) 2 SCR 690] in the previous decision rendered in A.B. Abdulkadir & Ors v. The State of Kerala & Anr. [(1962) Supp. 2 SCR  741], the  Cochin Tobacco  Act  and  the  Rules  made thereunder  and   the  similar   Acts  were   in   substance corresponding to  the Central Excise and Salt Act, 1944. The Cochin  Tobacco   Act  stood  repealed  on  April  1,  1950. Consequently, there was no law operating to pay licence fee. The Rules  made in  the 1950  and 1951  and the repealed Act were  held   void  ab   initio.  Thereafter,   Kerala  State legislature   enacted   Kerela   Luxury   Tax   on   Tobacco [Validation] Act, 1964. Section 5 thereof validated the levy and demand  changing the  character of  the levy from fee to the tax.  When the  constitutionality of  the Validation Act was challenged,  a three-Judge Bench had held that the State Legislature had  competence to  enact luxury  tax on tobacco and to  recover the tax in the shape of licence fee for vend and stocking  of tobacco.  The legislature,  therefore,  has competence to  convert the  of character of collection "from impermissible excise duty into permissible luxury tax" which would not  render the  Act unconstitutional. Only conditions are that  the levy should be of a nature which can answer to the description  of luxury  tax" and  the State  legislature should be  competent to enact the law for recovery of luxury tax. It  was held  that both  the conditions were satisfied. Accordingly the  impugned enactment  was  upheld  as  valid. Validation  Act  can  also  be  provided  for  retrospective operation of the said provision validating the law which had been found to be invalid.      In  Central  Coal  Fields  Ltd.  v.  Bhubaneswar  Singh [(1984) 4  SCC 429]  this Court  had declared  that the sale price  of   the  stock   of  extracted  coal  lying  at  the commencement of  the appointed  date had  to be  taken  into account to  determine the  profit and loss during the period of management  of the  mines by the Central Government taken

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over  under   Section   3   of   the   Coking   Coal   Hines [Nationalisation]  Act,   1972.   Thereafter,   Coal   hines Nationalisation Laws  [Amendment] Act,  1986 was enacted. In Section 10,  sub-section (2)  of the  principal Act,  amount payable as  compensation was  to be  deemed to  include  and demmed always  to have  included the  amount required  to be paid to  the owner  in respect  of coal in stock on the date immediately before the appointed date. It was contended that the deeming provision was encroachment on the judicial power and     was,  therefore,   unconstitutional.  Repelling  the contention in  Bhuvaneswar Singh  & Ors.  v. Union  of India [(1994) 6  SCC 77],  a three-Judge,Bench  of this  Court had held that  when the  validating legislation removed cause of the  validity   it  could   not  be  considered,  to  be  an encroachment on  judicial power.  Any action  in exercise of the power  under the enactment which has been declared to be invalid by that Court cannot be made valid by validating Act by merely saying so unless the defect which has been pointed out by  the Court  is  removed  with  retrospective  effect. Unless the invalidity or lack of validity pointed out by the Court is  removed by subsequent enactment with retrospective effect. the  binding nature  of the  judgment of  the  Court cannot be ignored.      Same is  the view  taken in Udai Ram Sharma v. Union of India [(1968)  3 SCR  41], Krishan  Chandra Gangopadhyaya v. Union of  India [(1975)  Supp. SCR  151], Hindustan  Gum and Chemicals Ltd. v. State of Haryana [(1985) Supp. 2 SCR 630], UtkaL Contractors  and Joinery   [[P] Ltd v. State of Orissa [(1988)  1   SCR  314]   and  approved   by  this  Court  in Bhubaneshwar Singh’s case [supra].      In State of Orissa & Anr. v. Gopal Chandra Rath & Ors.- [(1995) 6 SCC 242] in the context of service law, validating statute with  retrospective  effect  was  affirmed  by  this Court.      In Janapada  Sabha,  Chhindwara  etc.  v.  The  Central provinces syndicate  Ltd. &   Anr.  etc. [(1970) 3 SCR 745], this Court  in  its  earlier  decision  in  The  Amalgamated Coalfields Ltd.  v. The  Janapada Sabha,  Chhindwara [(1963) Supp. 1  SCR  172]  had  held  that  the  expression  "first imposition" occurred in Section 51 [2] of the C.P. and Berar Local Government  Act, 4  of 1920. The imposition of levy at the  rate  of  9  paise  per  tonne  was  declared  illegal. Direction was  issued restraining  the Government to recover the same. The  Madhya Pradesh Act, 1964 was made and Section 3 thereof  validated the  invalid imposition  assessment and collection of  cess. A  Constitution Bench had held that Act 18 of  1964 is  a piece of clumsy drafting. By a fiction, it deemed the  Act of  1920 and  the Rules framed thereunder to have been  amended without  disclosing the  text or even the nature of  the amendment;  nor was there any indication that the invalid  notification must be deemed to have been issued validly under  Section 51  [2] of  the 1920  Act without the sanction of  the local  Government. It  was, therefore, held that it  is plain that the legislature attempted to overrule or set  aside the decision of this Court. It was open to the legislature under  the Constitutional  scheme within certain limits, to  amend the  provisions of the Act retrospectively and to  declare what  the law  shall be deemed to have been. But it  was not  open to  the legislature  to say  that  the judgment of  the Court  properly constituted  and  rendered, shall be deemed to be ineffective and "the interpretation of the law shall be otherwise than as declared by the Court.      In The  Municipal Corporation of the City of  Ahmedabad & Anr.   v.  the New  Shrock Spg.  & Wvg. Co. Ltd. etc. etc. [(1970) 2  SCC 280],  in  a  previous  proceeding  like  the

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respondent therein, this Court in New Manek Chowk Spinning & Weaving Mills  Co. Ltd.  & Ors.  v. Municipal Corporation of the City  of Ahmedabad & Ors. [(1967) 2 SCR 678] struck down the rules  framed under  the Bombay  Provincial Municipality and Corporation  Act, 1948  permitting  the  Corporation  to value the  land and  building on  flat rate  method. Writ of mandamus issued  directing the  municipality  to  treat  the relevant entries as assessment books for the relevant years, was held  to be  invalid and  cancelled. Section  152-A  was amended  by   Gujarat  Amendment  Act,  1968.  When  it  was challenged, this  Court had pointed out that the Corporation was not entitled to withhold the amounts illegally collected and writ of mandamus was issued directing the refund. Again, sub-section [3]  of Section  152-A was introduced validating the  collections   by  Gujarat   Amendment  and   Validation Ordinance, 1969 authorizing the Corporation and its officers to refuse  to refund  the amount of tax illegally collected; despite the  orders of  this Court as well as of the Gujarat High Court,  this Court had held that the legislature had no power to  disobey or  disregard the  decision given  by  the courts. Section 152-A [3] was declared unconstitutional.      In State  of Tamil  Nadu &  Anr. v.  M. Rayappa Counder [AIR 1971  SC 231] in a writ, the Madras High Court had held that the State had no power to reassess the escaped turnover under the  Entertainment Tax  Act, 1939.  In 1966, Amendment Act containing  a validating  provision  was  introduced  by Section 7 thereof. This Court had held that the said section did not  change the  law retrospectively.  It  attempted  to validate invalid assessments and to overrule the decision of the High Court. Section 7 was, therefore, held invalid.      In Madan  Mohan Pathak  v. Union  of India  & Ors. etc. [(1978) 3  SCR 334],  on the  basis of  a settlement,  bonus became payable  by the  LIC to  its Class  III and  Class IV employees. In  a writ,  a single  Judge of the Calcutta High Court issued mandamus directing payment of bonus as provided in the  settlement. During  the pendency  of  Letter  Patent Appeal, LIC  [Modification  of  Settlement]  Act,  1976  was enacted denying  bonus payable  to the employees. The appeal was withdrawn.  The validity  of 1976  Act was challenged in this Court  under Article 32 of the Constitution. A Bench of seven Judges  had held  that the Parliament was not aware of the mandamus  issued by  the Court  and it was declared that the 1976  Act was  void and  writ of  mandamus was issued to obey  the   mandamus  by   implementing  or   enforcing  the provisions of  that Act  and directed  payment of  bonus  in terms of  the settlement.  It was pointed out that there was no reference  to the  judgment of  the  High  Court  in  the statement of objects and reasons, nor any non obstante clause referring  to the  judgment of the Court was made  in Section 3  of the  Act Attention  of the  Parliament was not drawn to  the mandamus  issued by  the High  Court. When the mandamus issued by the High Court became final, the 1976 Act was held invalid. Shri R.F. Nariman laid special emphasis on the observations  of learned  Chief Justice  Beg  who  in  a separate judgment  had pointed  out that  the basis  of  the mandamus issued   by  the Court  could not  be taken sway by indirect   fashion as observed at page 743, C to F. From the observations made by Bhagwati, J. per majority, it is  clear that this Court did not intend to lay down that  Parliament, under no  circumstance, has power to amend  the law removing the vice  pointed out by the Court. Equally, the observation of Chief Justice Beg is to be understood in the context that as long as the effect of mandamus issued by the Court is not legally and  constitutionally made ineffective, the State is bound  to  obey  the  directions.  Thus  understood,  it  is

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unexceptionable. But  it does  not  mean  that  the  learned Chief Justice  intended to  lay down  the law  that mandamus issued by court cannot at all be made ineffective by a valid law made  b the legislature, removing the defect pointed out by the Court.      Subsequently, notice was issued on March 3, 1978 by the LIC to  the workmen  under Section  19 [2] of the Industrial Disputes  Act  declaring  its  intention  to  terminate  the settlement on  the expiry  of the  period of two months from that date.  Another notice  was issued  under Section  9A of that Act  intending to effect a  change from June 1, 1978 in the conditions  of  service  of  the  workmen.  The  Central Government on  May 26,  1978  issued  a  notification  under Section 49  of the LIC Act substituting a new Regulation for the existing Regulation. Simultaneously, an Amendment on the similar lines  was made in 1957 Order adding a new clause in sub-section [2]  of Section  11 of the LIC Act.  All of them came to  be challenged  by  filing  a  writ  petition  under Article 226  of the  Constitution which   was allowed by the High Court.  Per majority,  this  Court had held in The Life Insurance Corporation  of  India  v.  D.J.  Bahadur  &  Ors. [(1981) 2  SCR 1083]  that the  entire attempt  was to avoid compliance of the mandamus issued by the Calcutta High Court and, therefore,  it was  declared invalid.  It directed  the LIC to  give effect  to the  terms of the settlement of 1974 relating to bonus until superseded by a fresh settlement and industrial award or relevant legislation.      Thereafter, the  LIC [Amendment] Act, 1981 was enacted. Sub-section [2]  of Section  48, [2A],  [2B] and  [2C]  were added  providing  regulation  by  the  other  provisions  in respect of  terms and conditions of service of the employees w.e.f. January  31, 1981. Sub section [2B] empowered the LIC to make  rules under  clause  (cc)  of  sub-section  [23  to include power to give retrospective effect to such rules and to amend  by way  of  addition,  variation  or  repeal,  the regulations of the other provisions contained in sub-section [2A] with   retrospective effect but not from June 20, 1979. Sub-section  [2C]  provided  validating  clause  with  usual language. The  same was  challenged under  Article 32 of the Constitution and  this Court  understood in that perspective it in  A.V.  Nachane & Anr. v. Union of India & Anr. [(1982) 2 SCR  246] while  upholding the validation with effect from the date  the Amendment  had come  into  force, declared the retrospective legislation  as unconstitutional  holding that the rules  sought to  abrogate the  terms of 1974 settlement relating to  bonus which  would be complied with pursuant to the mandamus  issued by  the High  Court. Rule  3 sought  to supersede  the terms of 1974 settlement which could not make the writ  petition issued  by the  Court nugatory in view of the decision in M.M. Pathak’s case [supra] and the Amendment did not  have the  effect of nullifying the writ of mandamus issued by  the Calcutta  High Court and in The directions in Bahadur’s case did not stand neutralised.      In D.  Cawasji &  Co., Mysore  v. State of Mysore & Anr [(1984) Supp.  SCC 490]  the High Court in writ filed by the appellant had  held that  the State Government was devoid of power under Section 19 of the Sales Tax Act to collect sales tax and  excise duty  which is  not a  part of  the  selling price. Mandamus  for refund was issued. Appeal filed in this Court was   withdrawn  and the Sales Tax [Amendment] Act was enacted enhancing  sales tax from original 6% per cent to 45 per cent  with retrospective  effect. Section 3 validated he previous assessments.  This Court  struck down the Amendment so far  as it  related to  retrospectivity pointing out that the lacuna  pointed out  by the  Court was not cured and the

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judgment could not be nullified by legislative amendment.       In  State of  Haryana &  Ors. v. Karnal Co-op.Farmers’ Society Ltd  & Ors.  [(1993) 2 SCC 363 Punjab Village common Lands [Regulation]  Act,  1961,  the  pre-existing  law  was invalidated under  1961  Act.  Shamilat  deh  land  was  not defined to  achieve certain objects which did not find place in the  repealed Acts and 1961 [Amendment] Act declared that the definition  shall be deemed to have applied to all lands which are  shamilat deh  as defined  in 1961  Act with a non obstante clause.  The validity  thereof was challenged. This Court held  that  the  Amendment  Act  was  unconstitutional abrogating the  civil court’s orders in respect of the lands covered by the definition of shamilat deh.      In Re:  Cauvery Water Disputes Tribunal [(1993) Supp. 1 SCC 96]  the Inter-State Water Disputes Tribunal constituted under Inter-State Water Disputes Act, 1956 under Article 262 directed the  Karnataka State by an interim order to release water to  Tamil Nadu.  The Governor passed Karnataka Cauvery Basin Irrigation  Protection Ordinance,  1991 nullifying the Tribunal’s order.  On a  reference, a Constitution Bench had held that  by Article  262 of the Constitution, the power of this Court  under Article  131 and all other powers had been taken away  and vested in the Tribunal. The Tribunal’s order was  binding   on  the   disputant  States.   The  Ordinance interfered with  the obligatory  process  of  the  Tribunal. Therefore, it  amounted to  interference with  the  judicial power of the State vested in the Tribunal. It ran counter to the binding  decisions of the Court regarding the Tribunal’s power to  grant interim relief. Accordingly, it was declared unconstitutional. It  may be  pointed out at this stage that this decision is on the anvil of constitutional operation of the special  Tribunal constituted pursuant to the directions issued under the Inter-State Water Disputes Act which itself was made  under the Constitution, conferring exclusive power on the Tribunal to adjudicate inter-State water disputes.      In S.R.Bhagwat  & Ors. v. State of Mysore [(1995) 4 SCC 16]  the   controversy  related  to  Karnataka  State  Civil Services [Regulation  of Promotion,  Pay and  Pension]  Act, 1973. A  Division Bench  of the  High Court allowed the writ petitions  and   directed  collection  of  the  pay,  posts, seniority and  promotion with  all consequential benefits of par with  their juniors.  The Act was made denying financial benefits as  directed by  the Division  Bench  which  became final. They  were challenged under Article 32 and this Court held that  a writ of mandamus or directions which had become final could  not be nullified empowering the State to review such judgments  and orders. Therefore, all the provisions of the impugned  Act were  held ultra  vires the  powers of the State legislature.      From a  resume of  the above  decisions  the  following principles would emerge: [1] The  adjudication of  the rights  of the  parties is the essential judicial function. Legislature has to lay down the norms of  conduct or rules which will govern the parties and the transaction  and require  the court  to give  effect  to them; [2] The  Constitution delineated  delicate  balance  in  the exercise  of   the  sovereign   power  by  the  Legislature, Executive and Judiciary, [3] In  a democracy governed by rule of law, the Legislature exercises the  power under  Articles 245  and 246  and other companion Articles  read with  the entries in the respective Lists in the Seventh Schedule to make the law which includes power to amend the law. [4]  Courts  in  their  concern  and  endeavor  to  preserve

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judicial power  equally must  be  guarded  to  maintain  the delicate balance  devised by  the Constitution  between  the three sovereign  functionaries. In  order that  rule of  law permeates   to    fulfil   constitutional    objectives   of establishing an  egalitarian social  order,  the  respective sovereign functionaries  need free-play  in their  joints so that  the   march  of   social  progress  and  order  remain unimpeded. The  smooth  balance  built  with  delicacy  must always maintained; [5] In  its anxiety  to  safeguard  judicial  power,  it  is unnecessary to  be overjealous and conjure up incursion into the judicial preserve invalidating the valid law competently made; [6] The  Court, therefore, need to carefully scan the law to find out:  (a) whether the vice pointed out by the Court and invalidity suffered  by previous law is cured complying with the legal  and constitutional  requirements; (b) whether the Legislature has  competence to validate the law; (c) whether such validation  is consistent with the rights guaranteed in Part III of the Constitution. [7] The Court does not have the power to validate an invalid law or  to legalise  impost of  tax illegally made enact the law with  retrospective effect and authorise its agencies to levy and  collect the tax on that basis, make the imposition of levy  collected and  recovery  of  the  tax  made  valid, notwithstanding  the   declaration  by   the  Court  or  the direction given for recovery thereof. [9]  The   consistent  thread  that  runs  through  all  the decisions of  this Court  is  that  the  legislature  cannot directly overrule  the decision  or make  a direction as not binding on it but has power to make the decision ineffective by removing  the base  on which  the decision  was rendered, consistent  with   the  law  of  the  Constitution  and  the legislature must have competence to do the same.      Considered from  these perspectives,  the question  is: whether  Section   11  can   answer  the   tests  laid  down hereinbefore. It  is seen  that the duty was collected under an order  made in  exercise of  Section 3  of the  Essential Articles Act  and it was held to be not a tax but a duty for the benefit  of KSEB.  That duty being a compulsory exaction for the benefit of public exchequer is a tax. Duty on supply of electricity  was declared  to be  additional burden and a levy within  Entries 26  and 27 of List II, subject to Entry 33 of  List III  [Concurrent List].  Duty is  an  additional burden and partakes the character of a tax. Entry 53 of List II [State List] empowers the State Legislature to impose tax on consumption  or sale  of electricity. It is, therefore, a compulsory  exaction   for  the   benefit  of  the  Revenue. Therefore, it  is an  additional tax  in the  form of a duty under the  Act. The  vice pointed  out in  Chakolas case has been  removed   under  the  Act.  Consequently,  Section  11 validated  the  invalidity  pointed  out  in  Chakolas  case removing the  base. In the altered situation, the High Court would not  have s  rendered Chakolas  case under the Act. It has made  the writ  issued  in  Chakolas  case  ineffective. Instead of   refunding  the duty  illegally collected  under invalid law,  Section 11  validated the  illegal collections and directed the liability of the past transactions as valid under the  Act and also fastened liability on the consumers. In other words, the effect of Section 11 is that the illegal collection made  under invalid law is to be retained and the same  shall  now  stand  validated    under  the  Act.  Thus considered, we  hold that Section  11 is not an incursion on judicial power  of the  Court   and  is  8  valid  piece  of legislation as part of the  Act.

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    As already seen, the specific case of the State and the Board is  that the State has been expending its public money for the  effective functioning  for the  KSEB and  the  duty under the  Act is  flowing into  the public  exchequer  and, therefore, it  is not  a duty for the benefit of KSEB coming under Essential  Articles Act.  Equally, it  is not either a threat to the power of judicial review or form of  restraint to exercise  the power  of judicial  review over legislative action. It  is true  that under  the Electricity  Act  which admittedly has  been enacted  under Entry  53 of  the  State List, the  rate of  duty, as  amended, is  10 per  cent.  As stated above,  under the  To duty is an additional impost in the nature  of compulsory exaction for the benefit of public exchequer. When  we look  into the provisions of the Act  it is clear  that levy and collection of additional duty is not discontinued as contended by Shri Venugopal. As  held above, the  Act  is  a  complete  code  in  itself  and    operates retrospectively.  Therefore,   both  the   Acts      operate harmoniously and  do not  collide in  their operation  since 1984 Act is the principal Act and the Act is in addition to, but not  in substitution  of the  principal Act.  Therefore, 1984 Act does not get eclipsed with the passing of the Act.      Under these  circumstances, we  hold that  the  Act  is valid. The  direction with  regard to the refund of duty for the period  which the Act did not seek to cover, has already been given  by the High Court and no appeal has rightly been filed by the State. Therefore, to that extent that order has become final. We need not dwell upon it.      The appeals  are  accordingly  dismissed,  but  in  the circumstances without  costs.