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PETITIONER: D. CAWASJI AND CO. MYSORE

       Vs.

RESPONDENT: THE STATE OF MYSORE AND ANR.

DATE OF JUDGMENT26/09/1984

BENCH: SEN, AMARENDRA NATH (J) BENCH: SEN, AMARENDRA NATH (J) BHAGWATI, P.N. MISRA RANGNATH

CITATION:  1984 AIR 1780            1985 SCR  (1) 825  1984 SCC  Supl.  490     1984 SCALE  (2)545  CITATOR INFO :  RF         1988 SC 587  (15)

ACT:      Mysore Sales Tax Act 1957, Mysore Act 25 of 1957-Second Schedule  Column  No.  3  Serial  No.  39-Provision  whether constitutionally valid.      Arrack-Sale  by  Government  to  licensed  contractors- Recovery of  sales tax  at 6112%  on total amount of selling price-High Court  holding provision  void and that sales tax can be  collected only on basic price excluding excise duty- Amendment introduced by the Mysore Sales Tax (Amendment) Act 1969-Rate of  tax enhanced  to 45% with retrospective effect from April 1, 1969-Validity of amendment.      Interpretation of Statutes: Amending Act and Validating Act-Difference between-Explained.

HEADNOTE:      The appellants  were Excise Contractors who had secured the excise  privilege of  retail sale  of Toddy,  Arrack  or Special Liquor. The State Government had the monopoly of the first sale  of Arrack  which is  country liquor  other  than Toddy. The  manufacture of Arrack by distillation is done in the State  under  State  control  and  the  entire  quantity manufactured in  the State  is sold  to the State Government which in  its turn  supplies it  to  the  bonded  depots  in Taluks.      Under the Mysore Excise Act, Arrack is liable to excise duty at  rates prescribed  by the Government. The State does not collect  excise  duty  from  the  distillers.  From  the distillery arrack is transferred to Bonded Depots and excise duty together  with cesses  thereon is  collected  from  the contractors who  are given  the privilege or right to effect retail sales of Arrack.      The exclusive privilege of retail vending of Arrack for each excise  year which  commences on  the first day of July and ends  on 30th  June of the following year is sold by the State by  auction. Under  the terms and conditions governing the  licenses,  granted  to  the  contractor  whose  bid  is accepted and  to whom  the licenses  for vending  arrack  is granted, the licensees were required to deposit in the State Treasury under  separate heads  of  account  the  sales  tax

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payable to  the State  Government and  the excise  duty with cesses. 826      However, with effect from 1.4.1966 the State Government started collecting  sales tax  computed on the sale price of Arrack together with excise duty and cesses payable thereon. So computed  sales tax  came to about 24 Paise a litre which was collected  alongwith the  price of  Arrack sold  to  the licensees.      The validity  of the collection of the sales tax on the aforesaid basis was challenged by the appellants. A Division Bench of  the High  Court  allowed  the  writ  petition,  D. Cawasji and Co. Mysore v. State of Mysore 1969 (1) Mys. L.J. 461, holding  that the State Government could not under S.19 of the Sales Tax Act, collect sales tax on excise duty which is not  a part  of the  selling price  of Arrack. The appeal preferred  by   the  State  Government  to  this  Court  was withdrawn.      During the  pendency of  the appeal  the privileges  of vending liquor  in the excise year 1968-69 were sold without any variation in the price of Arrack fixed by the Government during the  previous year  at 55  paise a  litre. During the year  1968-69  the  State  Government  collected  sales  tax computing the same @ 6.1/2% of the actual sale price without including therein excise duty and cess.      As the  liability of  the States  to refund  the amount collected as sales tax in excess amounted to lacs of Rupees, and with  the object  of avoiding the liability of refund by the State  Government of the excess amount so collected, the State passed  Ordinance No.  3 of  1969 on  17th July,  1969 which was  replaced by the Mysore Sales Tax (Amendment) Act, 1969 on 19th July, 1969.      The validity of this Amending Act was challenged by the appellants  on   the  ground   that  the  Amending  Act  was unreasonable and  arbitrary but the High Court dismissed the writ petition.      In the appeal to this Court, it was contended on behalf of the  appellant that  the Amending  Act does  not seek  to rectify or remove the defect or lacuna on the basis of which the collection of the excess sales tax had been set aside by the High  Court, and  that the increase in the rate of sales tax from  61/2% to  45% with retrospective effect is clearly arbitrary and  unreasonable for if, any particular provision of the  statute is  for some lacuna or defect in the statute declared unconstitutional  or invalid,  it is  open  to  the Legislature to  pass a  Validating  Act  with  retrospective effect so  that the  State may not be saddled with liability of refund  or other consequences which may arise as a result of the particular provision being declared invalid.      On behalf of the respondent-State it was contended that by the  enactment of  S.2 of the impugned Act the very basis of the  complaint made by the appellants in the earlier writ petitions that  the State  was collecting  amounts by way of tax in  excess of what was authorised under the Act had been removed.      Allowing the Appeals, 827 ^      HELD: 1.  The  only  object  of  enacting  the  amended provision it  appears  is  to  nullify  the  effect  of  the judgment which  became conclusive and binding on the parties to  enable   the  State  Government  to  retain  the  amount wrongfully and  illegally collected  as sales  tax and  this object has  been sought  to  be  achieved  by  the  impugned amendment which  does not  even purport or seek to remedy or

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remove the  defect and  lacuna but merely raises the rate of duty from  6.1/2% to 45% and further proceeds to nullify the judgment and order of the High Court. [841E-F]      2. The  enhancement of  the rate of duty from 6.1/2% to 45%  with   retrospective  effect   is  in   the  facts  and circumstances   of    the   case   clearly   arbitrary   and unreasonable. The  defect or lacuna is not even sought to be remedied and  the only  justification for  the steep rise in the rate  of duty by the amended provision is to nullify the effect of the binding judgment. [841 F]      3. The vice of illegal collection in the absence of the removal of  the illegality  which led to the invalidation of the earlier  assessments  on  the  basis  of  illegal  levy. continues to  taint the  earlier levy.  This is not a proper ground for  imposing  the  levy  at  the  higher  rate  with retrospective effect. [841G]      4. It may be open to the Legislature to impose the levy at the  higher rate  with prospective  operation but levy of taxation at  higher rate  which really amounts to imposition of tax  with retrospective  effect has  to be  justified  on proper and cogent grounds. [841H]      5. The amendment does not proceed to cure the defect or the  lacuna  by  bringing  in  an  amendment  providing  for exigibility of  sales tax  on excise  duty, health  cess and education cess.  The impugned  Amending Act cannot therefore be considered to be a Validating Act. A Validating Act seeks to  validate   the  earlier   Acts  declared   illegal   and unconstitutional by  Courts by removing the defect or lacuna which led  to invalidation  of the  law. With the removal of the defect  or lacuna resulting in the validation of any Act held invalid  by a competent Court, the Act may become valid if the  Validating Act  is lawfully enacted. To provide that no liability  may be imposed on the State in respect of acts done before  the passing  of the  Validating Act making such act  valid,   a  Validating   Act  is  usually  passed  with retrospective effect.  The retrospective  operation relieves the State  of the  consequences of  acts done  prior to  the passing of  the Validating  Act. The retrospective operation of a  Validating Act  properly passed curing the defects and lacuna which  might have  led to  the invalidity  of any act done may be upheld, if considered reasonable and legitimate. [840E-A]      In the instant case, the State instead of remedying the defect or  removing the lacuna has by the impugned amendment sought to  raise the  rate of  tax from  6.1/2% to  45% with retrospective effect  from the  1st April  1966 to avoid the liability of  refunding the  excess amount collected and has further purported  to nullify  the judgment and order passed by the  High Court directing the refund of the excess amount illegally collected by providing that the levy at the higher 828 rate of 45% will have retrospective effect from 1st of April 1966. The  judgment of  the High Court declaring the levy of sales tax  on excise duty, education cess and health cess to be bad  became conclusive and was binding on the parties. It may or may not have been competent for the State Legislature to validly  remove the  lacuna and  remedy the defect in the earlier levy  by seeking  to impose  sales tax  through  any amendment on excise duty, education cess and health cess but in any  event, the  State Government has not purported to do so through the Amending Act. [841A-D]      D. Cawasji  & Co.  Mysore v.  State of Mysore, 1969 (1) Mys. L.J.  461, D.  Cawasji & Co. and Others v. The State of Mysore 1968 (16) L.R. 641, Janapada Sabha, Chindwara etc. v. The Central  Provinces  Syndicate  Ltd.,[1970]  3  SCR  745,

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Municipal Corporation  of  the  City  of  Ahmedabad  v.  New Shorock Spq.  and Wvg.  & Co.  Ltd. etc [1971] 1 SCR 288 and Shri Prithi Cotton Mills Ltd. and Anr. v. The Broach Borough Municipality and Ors., [1970] 1 SCR 388, referred to.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil Appeal Nos. 1353 & 1354 of 1973.      Appeals from  the Judgment  and  Order  dated  the  6th December, 1972  of the  Mysore High  Court in Writ Petitions Nos. 3964 & 3996/1970.      S.T:  Desai,   D.N.  Mishra  and  Mrs.  Verma  for  the Appellants.      M. Veerappa for the Respondents.      The Judgment of the Court was delivered by      AMARENDRA NATH  SEN, J.  The question of constitutional validity of  the Mysore  Sales  Tax  (Amendment)  Act,  1969 (Mysore Act  of 1969),  (hereinafter referred to as the Act) falls for  determination in  these two  appeals preferred by the appellants  with certificate  granted by  the High Court under Art. 133(1) of the Constitution.      The question arises under the following circumstances:      The appellants  are Excise  Contractors who had secured excise privilege  of retail sale of Toddy, Arrack or Special Liquor. The  State Government  has the monopoly of the first sale of Arrack which is country liquor other than Toddy. The manufacture of  Arrack by  distillation is done in the State under State  control and the entire quantity manufactured by distillation in  the State  is sold  to the State Government which in  its turn  supplies  Arrack  to  bonded  depots  in Taluks. Under the Mysore Excise Act Arrack is liable 829 to excise  duty at  the rates  prescribed by the Government. The State  does not collect excise duty from the distillers. From the  distillery arrack  is transferred to Bonded Depots and excise  duty together  with cesses  thereon is collected from the contractors who are given the privilege or right to effect retail  sales of  Arrack. The  exclusive privilege of retail  vending   of  Arrack  for  each  excise  year  which commences on  the first day of July and ends on 30th June of the following  year, is  sold by  the State  by auction. The successful bidders  whose  bids  are  accepted  are  granted licences for  the exclusive privilege of retail vending. The retail selling  price of Arrack by the licensees is fixed by the State  Government at  or before  the time  of  notifying sales of  the exclusive  privilege in  respect of each year. The excise  duty of  arrack together with cesses there on is collected from  the licensees  before the  date of delivery. Under the  terms and  conditions  governing  the  licensees, granted to the contractors whose bid is accepted and to whom the license  for exclusive  privilege of  vending arrack  is granted, the licensees were required to deposit in the State Treasury under  separate heads  of  account  the  sales  tax payable to  the State  Government and  the excise  duty with cesses. There  was no  dispute as to the amount of sales tax payable by the licensees upto 1.4.1966. However, with effect from 1.4.1966, the State Government started collecting sales tax computed  on the  sale price  of  Arrack  together  with excise duty  and cesses  payable thereon.  So computed sales tax came  to about  24 paise  a litre  which  was  collected alongwith the price of Arrack sold to the licensees.      Challenging the validity of the collection of the sales tax on  the aforesaid  basis  the  appellant  filed  a  writ

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petition in the High Court of Mysore at Bangalore being writ petition No.  644 of  1966. As this writ petition No. 644 of 1966. related to the excise year 1966-67 only, the appellant filed two  other writ  petitions being  writ petitions  nos. 1012 and  1013 both  of 1966  for subsequent  excise  years. These three  writ petitions  of  the  appellant  along  with similar writ  petitions  filed  by  other  contractors  were disposed of  by a common judgment by a division Bench of the Mysore High  Court on 12th July, 1968. The Mysore High Court for reasons recorded in the judgment held:           "We allow  the rest of the petitioners only to the      extent of  holding that  the State  Government  is  not      entitled 830      to collect  from the  petitioners any  amount by way of      Sales Tax  on the  following, viz., Excise Duty, Health      Cess and  Education Cess  imposed on  arrack or special      liquor. In  the said  petitions, we  hereby issue writs      directing  the   State  Government   to  forbear   from      collecting from the petitioners any amount representing      Sales Tax  on the  following viz.  Excise Duty,  Health      Cess and  Education Cess  imposed on  arrack or special      liquor, and  to refund  to the  petitioners any  amount      that might  have been  collected from  them, by  way of      Sales Tax  on items  of Excise  Duty, Health  Cess  and      Education Cess on arrack or special Liquor."      The Division  Bench in the course of the Judgment in D. Cawasji &  Co. Mysore  v. State of Mysore(1), observed at p. 483:-      "It is  difficult to  see how  Excise Duty paid, not by      the  seller   but  by   the  purchaser,  to  the  State      Government, can become a part of the price at which the      goods are  sold by  that seller  to that  purchaser. If      that  is   the  true   position,  we  think  the  State      Government cannot,  under S.19  or the  Sales Tax  Act,      collect Sales  Tax on  Excise Duty which is  not a part      of its selling price."      Against the  judgment of  the Mysore  Court  the  State preferred an appeal to the Supreme Court; but the appeal was subsequently withdrawn.  It appears that during the pendency of the appeal the privileges of vending liquor in the excise year 1968-69 were sold without any variation in the price of Arrack fixed  by the  Government during the previous year at 55  paise  a  litre.  During  the  year  1968-69  the  State Government collected  Sales Tax computing the same @61/2% of the actual  sale price without including therein excise duty and cess.      It may  be noticed  that although  the  appellants  had obtained an  order of  stay of payment of the disputed sales tax amounts  from 27.4.1966  from the High Court, there were various other  contractors who had paid the same computed on the sale  price of  Arrack together with excise duty and the cess. When the decision of the 831 High Court  pronouncing  the  illegality  of  the  levy  and collection of sales tax on the price of Arrack, including in the price  the  excise  duty  and  cess,  became  final  and conclusive in  consequence of  the withdrawal  of the appeal filed by  the State  in this Court against the said judgment and decision  of the High Court, the State Government became liable to refund the excess amount of sales tax collected to the licensees and contractors. It appears that the liability of the  State to refund the amount collected as sales tax in excess amounted to lacs of Rupees. Faced with this situation and with  the object  of avoiding the liability of refund by

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the State  Government of the excess amount so collected, the Governor of the State passed Ordinance No. 3 of 1969 on 17th July, 1969.  The Ordinance  was replaced by the impugned Act which came into force on 19th July, 1969.      It will  be convenient  at this  stage to  set out  the provisions of  the Act,  which is  a short one consisting of four  sections,   in  its  entirety.  The  Act  provides  as follows:-           S.1 (1).  This Act  may be called the Mysore Sales      Tax (Amendment) Act, 1969.           (2). It shall be deemed to have come into force on      the nineteenth day of July, 1969.           S.2. In  the Second  Schedule to  the Mysore Sales      Tax Act,  1957 (Mysore  Act 25  of 1957) in Column 3 of      Sl. No.  39, for  the words  "Six and a half per cent",      the words  "Forty-five per cent", shall be and shall be      deemed to  have been  substituted with  effect from the      first day of April, 1966.           S.3. Notwithstanding  anything  contained  in  any      judgment,  decree  or  order  of  any  court  or  other      authority, the  sales tax  on country liquor other than      toddy levied  or collected  or purported  to have  been      levied or  collected shall, for all purposes, be deemed      to be  and  to  have  always  been  validly  levied  or      collected in  accordance with  law, as  if this Act had      been in  force at  all material times when such tax was      levied or collected and accordingly-           (a)  all acts, proceedings or things done or taken                by any 832                authority or  officer or person in connection                with the  levy or  collection  of  such  tax,                shall, for  all purposes, be deemed to be and                to  have   always  been   done  or  taken  in                accordance with law;           (b)  no suit  or proceeding  shall be entertained,                maintained or  continued in any court for the                refund of any tax as paid; and           (c)  no court  shall enforce  any decree  or order                directing the refund of any tax so paid.                S.4-The   Mysore    Sales   Tax   (Amendment)           Ordinance, 1969  (Mysore Ordinance  No. 3 of 1969)           is hereby repealed.      The Statement of objects and Reasons for the passing of the amendment  may appropriately  be set  out at this stage. The Statement of Objects and Reasons runs as follows:-      "Clause (j)  of sub-rule  (4) of  Rule 6  of the Mysore Sales Tax  Rules, 1957, provided for the exclusion of excise duty paid  by a  dealer from  the computation of his taxable turnover. By Government Notification No. GSR 882, dated 16th March, 1966, this clause was deleted from the rules with the object of  recovering sales  tax even  on  the  excise  duty portion of  the turnover  of dealers.  In respect  of arrack which falls  under entry  relating to  Sl.  No.  39  of  the Schedule,  sales   are  made   by  Government   to  licensed contractors and  sales tax was recovered from them at 6 1/2% on the  total amount  payable by  them including  the excise duty from 1st April, 1966. The Mysore High Court in W.P. No. 644 of  1966 D.  Cawasji &  Co. and  Others v.  The State of Mysore,(1) held  that on  the sales of arrack, the sales tax cannot be  collected on  the total  amount  but  has  to  be collected only  on the  basic price excluding excise duty on the ground  that the  duty in such a case does not form part of the  sale price  but is  a separate  "levy" made  by  the Government at  the time  of releasing  the stocks  from  the

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Government Bonded  warehouses. Consequently,  a considerable amount already  recovered may become refundable. In order to get over the effects of the High Court 833 decision and  retain the  money  already  recovered  by  the Government, it  is proposed  to enhance  the rate  of tax on arrak to 45% with retrospective effect from 1st April, 1966. The enhanced  rate of  tax  on  the  basic  price  would  be absorbed in  the price  already recovered, and no additional tax is  expected to  be realised  from this  Bill. Since the Legislature was  not in  session and in view of the urgency, an ordinance  was promulgated.  The Bill  is to  replace the ordinance."      The validity  of this  Amending Act has been challenged on the  ground that  the Amending  Act is  unreasonable  and arbitrary. The  principal contention raised on behalf of the appellant is  that the Amending Act does not seek to rectify or remove  the defect  or lacuna  on the  basis of which the collection of the excess sales tax had been set aside by the High Court.  It is  argued by  the learned  counsel for  the appellant that  the High  Court had  held that the sales tax could not  be levied on collected on Excise duty Health cess and Education  cess imposed  on Arrack or special liquor and had directed  the refund  of the  amount collected on excise duty and  cess which  were included  in the selling price of arrack. The  learned  counsel  has  submitted  that  by  the amendment the  said lacuna or defect of including the excise duty and  cess in the price of Arrack on which the sales tax has been  charged has not been sought to be removed, as this defect or  difficulty could  not possibly have been removed, because sales  tax could  not be  levied on  excise duty  by virtue of  the judgment  of  the  High  Court.  The  learned counsel points  out that  the appeal  which was filed by the State Government  against the judgment of the High Court had been withdrawn  by the State and as such the judgment of the High Court  has become final and conclusive and on the basis of the judgment, a large amount has become refundable by the State to the appellants. It is the submission of the learned counsel that  the amendment  has been brought about only for the purpose  of circumventing the judgment of the High Court with the  object of  avoiding the  liability to  refund  the amount wrongfully  and illegally collected as sales tax from the appellant  by raising  the amount  of tax from 6 1/2% to 45%. The  learned counsel  contends that the increase in the rate of  sales tax  from 6  1/2% to  45% with  retrospective effect is  clearly arbitrary  and unreasonable.  It  is  the contention of  the learned  counsel that  if any  particular provision of the statute is for some lacuna or defect in the statute declared unconsti- 834 tutional or invalid, it is open to the legislature to pass a Validating Act  with retrospective  effect so that the State may not  be  saddled  with  liability  of  refund  or  other consequences which  may arise  as a result of the particular provision being declared invalid. The learned counsel argues that such  a Validating Act with retrospective operation can be passed  if the lacuna or the defect, because of which the provision is declared to be unconstitutional and invalid, be properly rectified  by  the  Amending  Act  which  seeks  to validate the  statutory provision which has been struck down as unconstitutional  and invalid.  It is  his argument  that without seeking  to remove  or rectify the defect or lacuna, no Validation  can be  made to  defeat the  judgment of  the Court striking  down any particular statutory provision. The learned counsel contends that enhancing the rate of tax from

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6 1/2%  to 45% with retrospective effect must necessarily be held to  be  arbitrary.  It  is  his  contention  that  mere enhancement of  the rate  without seeking  to  validate  the provision by  removing or  rectifying  the  defector  lacuna clearly results  in retrospective  imposition of tax and any such imposition  of tax  with retrospective  effect must  be held to  be unreasonable  and arbitrary.  In support  of the submissions made, particular reliance has been placed on the two decisions  of this  Court in the case of Janapada Subha, Chindwara etc.  v. The  Central Provinces  Syndicate Ltd(1), and Municipal  Corporation of  the City  of Ahemdabad v. New Shorock Spg. & Wvg. Co. Ltd. etc.(2)      The material  facts in  the  case  of  Janapada  Sabha, Chindwara (supra) may briefly be indicated.      In 1935, the Independent Mining Local Board, Chindwara, constituted under  C.P. Local  Self  Government  Act,  1920, resolved to levy a cess on coal extracted within the area at 3 pies  per ton.  The sanction  of the  Local Government, as required by  S.51 (2)  of Act, was obtained for the levy. In 1943, the levy was enhanced to 4 pies, in 1946 to 7 pies and in 1947  to 9  pies. The  validity of  the enhanced levy was challenged  and   this  Court,  in  appeal,  held  that  the increased levy  would also  require the previous sanction of the Local  Government and  such  sanction  not  having  been obtained, the levy at a rate higher than 3 pies was illegal. The State  Legislature thereafter enacted the Madhya Pradesh Koyala Upkar (Manyata 835 karan)  Adhinayam,   1964.  Section   3(1)   provides   that ’notwithstanding a  judgment of  any Court,  cesses imposed, assessed or  collected by  the Board  in  pursuance  of  the notifications and  notices specified  in the Schedule shall, for all  purposes, he  deemed to be, and to have always been validly imposed,  assessed or  collected as if the enactment under which they were issued stood amended at material times so as  to empower the Board to issue the said notifications. In the  Schedule  were  specified  the  three  notifications enhancing the  rate of  cess. On  the question  whether  the enhanced levy  was validated  by the  1964 Act, a five Judge Bench of  this Court  held that it did not give legal effect to the  imposition of  cess at the enhanced rate. This Court observed at p. 751:           "The nature of the amendment made in Act 4 of 1920      has not  been indicated.  Nor is  there anything  which      enacts  that   the  notifications  issued  without  the      sanction of the State Government must be deemed to have      been issued validly under S.51 (2) without the sanction      of the  Local Government. On the words used in the Act,      it is  plain that the Legislature attempted to overrule      or set  aside the  decision of this Court. That, in our      judgment is not open to the Legislature to do under our      constitutional scheme.  It is  open to  the Legislature      within certain limits to amend the provisions of an Act      retrospectively and  to declare  what the  law shall be      deemed to  have  been,  but  it  is  not  open  to  the      Legislature to  say that a judgment of a Court properly      constituted and rendered in exercise of its powers in a      matter  brought   before  it  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 etc. v.  New Shorock  Spg. &  Wvg. Co. Ltd. etc. (supra) the appellant corporation  assessed the  immovable properties of the respondents  to property-tax  for the  year 1964-65  and 1965-66 on  the basis  of the  ’flat rate’  method under the

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Bombay Provincial  Municipal Act. 1949. The assessments were challenged  in   the  High  Court  but  the  petitions  were dismissed. While  appeals were  pending in  this Court,  the Municipal  Corporation,   initiated  proceedings   for   the recovery of  the taxes  and attached  the properties  of the assessees.   The   assessees   challenged   the   attachment proceedings but their petitions were 836 again dismissed.  In appeal  against these  orders  in  this Court the  assessees prayed for interim stay, but this Court did not  grant stay  because the  Municipal Corporation  had undertaken  to   return  the   amounts  if  the  respondents succeeded. This  Court thereafter allowed the appeals by the assessees. Meanwhile  an Amending  8 Act  called the  Bombay Provincial Municipal  Corporation (Gujarat  Amendment)  Act, 1969 had been passed introducing s. 152 A into the 1949 Act, but that  provision was  not brought  to the  notice of this Court. However,  when the  assessees demanded  refund of the amounts illegally  collected from  the Municipal Corporation did not  comply and hence the assessees moved the High Court again.  These  petitions  were  allowed  and  the  Municipal Corporation appealed  to this  Court. While the appeals were pending the Bombay Provincial Municipal Corporation (Gujarat Amendment  and  Validity  Provision)  Ordinance,  1969,  was passed and sub-s. (3) was introduced in s. 152A.      Sub-section (3)  which was  introduced by the ordinance was in the following terms:           "Not  withstanding   anything  contained   in  any      judgment, decree  or order  of any  Court, it  shall be      lawful, and shall be deemed always to have been lawful,      for the  Municipal Corporation of the City of Ahmedabad      to withhold  refund of  the amount already collected of      recovered in  respect of  any of  the property taxes to      which  sub-section   (1)  applies  till  assessment  or      reassessment of  such property  taxes is  made and  the      amount of  tax to be levied and collected is determined      under sub-section (1):           Provided that  the Corporation  shall  pay  simple      interest at  the rate  of six per cent per annum on the      amount of excess liable to be refunded under subsection      (2), from  the date  of decree  or order  of the  Court      referred to  in subsection  (1) to  the date  on  which      excess is refunded,"      This Court  held that under. S. 152 A of the Act before the  Corporation   could  detain  any  amount  collected  as property tax  there must  be an assessment according to law; but in  the present  case there were no assessment orders in accordance with  the provisions of 1949 Act and the rules as amended by the Amending 837 Act, 1968  and, therefore, the appellant corporation was not entitled to  retain the  amount collected as the Section did not  authorise   the  Corporation   to  retain  the  amounts illegally collected.  This Court  has further held that sub- section (3)  of S.  152 A  which commands the Corporation to refuse to  refund the amount illegally collected despite the orders of  this Court  and the  High Court.  makes a  direct inroad into  the judicial  powers  of  the  State;  and  the Legislatures  which  under  the  Constitution  have,  within prescribed limits  powers to  make  laws  prospectively  and retrospectively are competent in exercise of these powers to remove the  basis of  a decision passed by a competent Court thereby  rendering   the  decision   ineffective,   but   no legislature  in   this  country   has  power   to  ask   the instrumentalities of  the State  to disobey or disregard the

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decision given  by Court  and S.  152 A (3) was repugnant to the Constitution.  This Court  at p. 295 has referred to the following observations made in Shri Prithi Cotton Mills Ltd. and Anr. v. The Broach Borough Municipality and Ors:-           "Before we  examine s. 3 to find out whether it is      effective in  its purpose or not we may say a few words      about  validating   statutes   in   general.   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  impose 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 838      done only  if the  grounds of  illegality or invalidity      are capable  of being  removed and  are in fact removed      and the  tax thus  made legal. Sometime this is done by      providing for  jurisdiction where  jurisdiction had not      been properly  invested before.  Sometimes this is done      by re-enacting retrospectively a valid and legal taxing      provision and  then by  fiction making  the tax already      collected to stand under the reenacted law." This Court  at p. 296 and 297 relied on the earlier decision of this  Court in  the case  of Janapada Sabha, Chindwara v. The Central  Provinces Syndicate  Ltd. (supra).  This  Court finally observed at page 297:           "We are  clearly of  the opinion  that sub-section      (3) of S. 152A introduced by the ordinance is repugnant      to our  Constitution. That  apart, the  said  provision      authorises  the   Corporation  to  retain  the  amounts      illegally collected and treat them as loans. That is an      authority to  collect forced  loans. Such conferment of      power is impermissible under our Constitution."      The learned  counsel appearing  on behalf  of the State has submitted  that this  very contention that the State has sought to  enhance the rate of tax without seeking to remove or rectify the lacuna which was there in the earlier Act and for which  the earlier provision has been struck down by the High Court,  was raised  in the  writ petition  filed in the High Court  by the  appellant. It  is the  submission of the learned counsel  that this  contention has  been rejected by the High  Court for  reasons indicated  in the judgment. The learned counsel  has referred  to the  following observation made by the High Court:-           "This Court  has not held that the State is not at      all entitled to collect any amount by way of tax on the      sale of  arrack. The  sale price  of arrack  during the      years 1966  to 1969  was fixed at 55 paisa a litre. The      amount which  the State  was authorised  to collect was      six and  a half  per cent  of 55 paise on the sale of a

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    litre of  arrack which  comes to about three and a half      paise; instead,  the State  collected 24  paise and the      excess collection was 20.5 paise a litre. The 839      decision of  this  Court  is  that  the  State  without      authority of  law was  collecting excess amounts by way      of tax  on the  sale of arrack. It is relevant to state      that under  the Act  where the  State is deemed to be a      dealer entitled  to collect tax under Section 19, there      is no  provision for making an assessment of tax by the      assessing  authorities  as  in  the  case  of  ordinary      dealers  Without   making  an   assessment,  the  State      Government is entitled to collect amounts by way of tax      in the  same manner  as  any  other  registered  dealer      authorised to  do so under Section 1B. By enhancing the      rate of  tax from  six and  half to  45 per  cent  with      retrospective effect  by  enacting  Section  2  in  the      impugned Act,  it has to be deemed that the rate of tax      under the  Act has  always been  45  per  cent  of  the      taxable turnover  ever since  1. 4.  66. If the rate of      tax was  45 per  cent on the sale price of arrack which      was 55  paise a  litre, then  the amount  the State was      authorised to  collect comes to about 25 paise. Thus it      will be  seen that by the enactment of Section 2 of the      impugned Act  the very  basis of  the complaint made by      the petitioners  before this  Court in the earlier writ      petitions as  also the  basis of  the decision  of this      Court in  Cawasji’s case  that the  State is collecting      amounts by  way of tax in excess of what was authorised      under the  Act has  been removed.  Thus the decision of      this Court has been rendered ineffective."      The  learned  counsel  seeks  to  adopt  the  aforesaid observations of  the  High  Court  as  his  submissions  and contends that  in view  of the aforesaid reasoning which are cogent and  sound  it  cannot  be  said  that  the  impugned amendment is  unconstitutional. He submits that there are no valid grounds  for interfering with the judgment of the High Court.      In the  earlier  case  between  the  parties  to  which reference has already been made, the High Court issued writs directing the  State Government to fore-bear from collecting from the  appellant any amount representing the sales tax on the  following,   namely,  excise   duty,  health  cess  and education cess  imposed on  Arrack or  special liquor and to refund to  the appellant what might have been collected from them by way of sales tax on items of excise, health cess and education cess  on Arrack  or special liquor. The High Court had 840 passed the  aforesaid order issuing appropriate writ in view of the High Court’s finding that sales tax is not payable on excise duty, health cess and education cess.      In view  of the  aforesaid judgment and order passed by the High  Court amounts  collected by  the States  by way of Sales Tax on items of excise, health cess and education cess on Arrack  or  special  liquor  from  the  appellant  became refundable to the appellant. The impugned amendment has been passed, as  the Statement  of objects  which we have earlier set out  clearly indicates  to over-ride the judgment of the High Court  and to enable the State to hold on to the amount collected as  sales tax  on excise  duty,  health  cess  and education cess,  if any, on Arrack or special liquor. It has to be  noted that the said judgment of the High Court in the earlier case had become final and conclusive inasmuch as the special leave  petition filed  against the  judgment by  the

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State was  withdrawn. The  State instead  of seeking to test the correctness  and effect of the judgment and order of the High Court  thought it  fit to  have the  judgment and order nullified  by   introducing  the   impugned  amendment.  The amendment does  not proceed to cure the defect or the lacuna by bringing  in an  amendment providing  for exigibility  of sales tax  on excise  duty, health  cess and education cess. The impugned  Amending Act may not, therefore, be considered to be  a Validating  Act. A Validating Act seeks to validate the earlier  Acts declared  illegal and  unconstitutional by Courts by  removing  the  defect  or  lacuna  which  led  to invalidation of  the law.  With the removal of the defect or lacuna resulting  in the  validation of any Act held invalid by a  competent Court,  the Act  may become  valid,  if  the Validating Act  is lawfully  enacted. But  the question  may still arise  as to what will be the fate of acts done before the Validating  Act curing  the defect  has been  passed. To meet such  a situation  and to provide that no liability may be imposed  on the State in respect of such acts done before the passing  of the  Validating Act making such act valid, a Validating Act  is usually passed with retrospective effect. The  retrospective  operation  relieves  the  State  of  the consequences of  acts done  prior  to  the  passing  of  the Validating Act.  The retrospective operation of a Validating Act properly  passed curing  the defects  and  lacuna  which might have  led to  the invalidity  of any  act done  may be upheld, if considered reasonable and legitimate. 841      In the instant case, the State instead of remedying the defect or  removing the lacuna has by the impugned amendment sought to  raise the  rate of  tax from  6.1/2% to  45% with retrospective effect  from the  Ist April  1966 to avoid the liability of  refunding the  excess amount collected and has further purported  to nullify  the judgment and order passed by the  High Court directing the refund of the excess amount illegally collected by providing that the levy at the Higher rate of  45% will  have retrospective  effect  from  Ist  of April, 1966.  The judgment  of the  High Court declaring the levy of  sales tax on excise duty, education cess and health cess to  be bad  has become conclusive and is binding on the parties. It may or may not have been competent for the State Legislature to  validly remove  the lacuna  and  remedy  the defect in  the earlier  levy by  seeking to impose sales tax through any  amendment on  excise duty,  education cess  and health cess;  but in any event, the State Government has not purported to  do so through the Amending Act. As a result of the judgment  of the High Court declaring such levy illegal, the  State  became  obliged  to  refund  the  excess  amount wrongfully and illegally collected by virtue of the specific direction to that effect in the earlier judgment. It appears that the only object of enacting the amended provision is to nullify the  effect of  the judgment which became conclusive and binding on the parties to enable the State Government to retain the  amount wrongfully  and  illegally  collected  as sales tax  and this object has been sought to be achieved by the impugned  amendment which  does not even purport or seek to remedy  or remove the defect and lacuna but merely raises the rate  of duty from 6.1/2% to 45% and further proceeds to nullify the  judgment and  order of  the High  Court. In our opinion, the  enhancement of the rate of duty from 6.1/2% to 45%  with   retrospective  effect   is  in   the  facts  and circumstances   of    the   case   clearly   arbitrary   and unreasonable. The  defect or lacuna is not even sought to be remedied and  the only  justification for  the steep rise in the rate  of duty by the amended provision is to nullify the

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effect  of   the  binding  judgment.  The  vice  of  illegal collection in  the absence  of the removal of the illegality which led  to the invalidation of the earlier assessments on the basis  of illegal  levy, continues  to taint the earlier levy. In  our opinion,  this is  not  a  proper  ground  for imposing the  levy at  the higher  rate  with  retrospective effect. It may be open to the Legislature to impose the levy at the  higher rate  with prospective  operation but levy of taxation at  higher rate  which really amounts to imposition of tax with retrospective operation has 842 to be justified on proper and cogent grounds. This aspect of the matter  does not appear to have been properly considered by the  High Court  and the  High Court  in our view was not right in  holding that  by the  enactment of  S.  2  of  the impugned Act  the very  basis of  the complaint  made by the petitioner before this Court in the earlier writ petition as also the  basis of  the decision  of this Court in Cawasji’s case that  the State  is collecting amounts by way of tax in excess of  what  was  authorised  under  the  Act  has  been removed". We,  accordingly, set aside the judgment and order of the  High Court  to the extent it upholds the validity of the impugned amendment with retrospective effect from Ist of April, 1966  and to  the extent  it  seeks  to  nullify  the earlier judgment  of the High Court. We declare that S. 2 of the impugned  amendment to  the extent  that it  imposes the higher levy  of 45%  with retrospective  effect from the Ist day of  April, 1966  and S. 3 of the impugned Act seeking to nullify the judgment and order of the High Court are invalid and unconstitutional.      We accordingly  allow the  appeals to  this extent. The appellants shall  be entitled to costs of these appeals with one set of hearing fee. N.V.K.    Appeals allowed. 843