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PETITIONER: EPARI  CHINNA  KRISHNA  MOORTHY,  PROPRIETOR,  EPARI  CHINNA

       Vs.

RESPONDENT: STATE OF ORISSA(With Connected Petition)

DATE OF JUDGMENT: 12/03/1964

BENCH: GAJENDRAGADKAR, P.B. (CJ) BENCH: GAJENDRAGADKAR, P.B. (CJ) WANCHOO, K.N. SHAH, J.C. AYYANGAR, N. RAJAGOPALA SIKRI, S.M.

CITATION:  1964 AIR 1581            1964 SCR  (7) 185  CITATOR INFO :  RF         1972 SC2455  (11)  R          1976 SC 182  (25)  MV         1985 SC 421  (73)

ACT: Fundamental  Rights-Notiftcation  by  Government   exempting certain  articles from sales tax-Petitioner claiming  exemp- tion under the notification-Validation Act coming into force Retrospective  operation-Validity-Enactment, if  unconstitu- tional--Orissa Sales Tax Act, 1947, (14 of 1947), s. 6-Sales Tax  Validation Act, 1961 (7 of 1961) s.  2-Constitution  of India, Arts. 14,19(1)(g).

HEADNOTE: The petitioner, a merchant, carrying on business in "bullion and  specie" and gold and silver ornaments was a  registered ’dealer’  under  the  Orissa  Sales  Tax  Act,  1947.    The Government  purporting to exercise its authority under s.  6 of  the  said  Act issued a notification  on  July  1,  1949 exempting  certain  articles  from  the  operation  of   the charging  section of that Act.  Under the notification  gold ornaments  were ordered to be exempted from sales  tax  when the  manufacturer  selling them charges separately  for  the value  of gold and the cost of manufacture.  The  petitioner filed  his returns before the Sales-tax Officer and  claimed exemption  of sales-tax under the said notification.  Up  to June   1952,   the   claim   for   exemption   was   upheld. Subsequently, however, these assessments were reopened under s.  12(7) of the Act and it was claimed that the  deductions made on certain sale transactions of gold ornaments were not justified  and the petitioner had escaped  assessment.   The petitioner pleaded that lie was entitled to exemption, because he belonged to the  class of  manufacturers to which the notification  referred.   The Sales-tax  Officer disallowed the  petitioner’s  contention. The   petitioner  then  challenged  the  said  decision   by preferring   appeals,  but  the  said  appeals   were   also dismissed. Pending  these appeals, similar assessments made in  respect

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of other dealers including the petitioner were challenged by writ petitions before the High Court.  The High Court upheld the petitioner’s case and issued writs directing the  Sales- tax  Officer to allow the petitioners’ claim for  exemption. After  this judgement was pronounced, the impugned  Act  was passed  by  the  legislature  on  August  1,  1961  and  was published  on September 18, 1961, containing  one  operative provision in s. 2. It provided that notwithstanding anything contained  in any judgement, decree or order of  any  court, the  word  ’manufacturer’ occuring against item  33  in  the schedule  to the notification of the Government  dated  July 28, 1947 as amended by another notification of the 1st July, 1949  shall mean and shall always be deemed to have meant  a person  who  by  his  own labour  works  up  materials  into suitable  forms and a person who owns or runs a  manufactory for  the  purpose of business with respect to  the  articles manufactured  therein.   The validity of  this  section  was challenged in the present writ petition. 186 It was urged (i) that since the exemption was granted by the State Government by virtue of the Powers conferred on it  by s.  6, it was not open to the legislature to take away  that exemption  retrospectively; (ii) that the provision in s.  2 of   the  impugned  Act  was  discriminatory  and  as   such contravened  the equality before the law guaranteed by  Art. 14  and  (iii)  that  the  retrospective  operation  of  the impugned section should be struck down as  unconstitutional, because  it  imposes  an  unreasonable  restriction  on  the petitioner’s fundamental right under Art. 19 (1) (g) Held:     (i) What the legislature had purported to do by s. 2  of  the impugned Act, was to make the  intention  of  the notification clear.  And, if the State Government was  given the  power either to grant or withdraw the  exemption,  that could  not possibly affect the legislature’s  competence  to make  any provision in that behalf either  prospectively  or retrospectively. (ii) The notification as interpreted by s. 2 of the impugned Act  benefits the artisans who produce ornaments  themselves and  who run manufactories.  That is why the main object  of granting  exemption  can be said to be achieved  by  holding that ,manufacturer’ means either a manufacturer properly  so called  or  one  who engages artisans  to  manufacture  gold ornaments.   In  the present case the petitioners  were  not directly  concerned  with the production of  ornaments,  and admittedly,   they  did  not  produce  the  said   ornaments themselves.   Therefore, the persons who get the benefit  of the exemption notification as a result of the provisions  of s.  2  of the impugned Act cannot be said to belong  to  the same  class as that of the petitioners.  The two  categories are distinct and there is no sameness or similarity  between them,  and if that is so, the main argument on the basis  of Art. 14 does not subsist. (ii) It  would  be  difficult to accept  the  argument  that because  the retrospective operation may operate harshly  in some  cases, therefore, the legislation itself  is  invalid. In  the  circumstances of the present case it would  not  be possible to hold that by making the provision of s. 2 of the impugned  Act  retrospective the legislature has  imposed  a restriction  on  the petitioner’s fundamental  rights  under Art.  19(1)  (g) which is not reasonable and is not  in  the interest of the general public.

JUDGMENT:

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ORIGINAL JURISDICTION: Writ Petition Nos. 125--135, and  233 of 1963. Petition  under  Art. 32 of the Constitution  of  India  for enforcement of Fundamental Rights. A.   V.  Vishwanatha  Sastri, T. A.  Ramachandran,  B.  Par- thasarathy,  0.  C. Mathur, J. B.  Dadachanji  and  Ravinder Narain, for the petitioner (in W. P. Nos. 125-135 1963). H.   N.  Sanyal, Solicitor-General, N. S. Bindra and  R.  N. Sachthey, for the respondents (in W. P. Nos. 125-135 / 63). O.   C. Mathur, J. B. Dadachanji and Ravinder Narain for the petitioner (in W. P. No. 233 / 1963). R.   N. Sachthey, for the respondents (in W.P. No. 233/ 63). 187 March  12,  1964.  The Judgment of the Court  was  delivered by-- GAJENDRAGADKAR, C. J.-This group of 12 writ petitions raises a  common question about the validity of the(  Orissa  Sales Tax  Validation Act, 1961 (Act No. 7 of  1961)  (hereinafter referred to as the Act).  The facts on which the petitioners rely are similar, and so, we shall mention the facts in  the first  group  consisting of writ petitions Nos.  125-135  of 1963.   The  petitioner in this group is Shri  Epari  Chinna Krishna Moorthy, Proprietor, Epari Chinna Krishna Moorthy  & Sons,  Berhampur, Orissa.  He is a merchant who  carries  on business  in  "bullion  and  specie"  and  gold  and  silver ornaments  at  Berhampur and as such merchant, he  has  been registered as ’dealer’ under the Orissa Sales Tax Act,  1947 (Act  No. 14 of 1947).  After the said Act came into  force, the   Government  of  Orissa  purporting  to  exercise   its authority  under  s. 6 of the said Sales Tax  Act  issued  a notification  exempting certain articles from the  operation of   the   charging  section  of  that  Act.    Under   this notification,  gold  ornaments were ordered to  be  exempted from  sales-tax ’when the manufacturer selling them  charges separately   for  the  value  of  gold  and  the   cost   of manufacture.’  This notification was issued on July 1,  1949 Durinh   the   course  of  his  business,   the   petitioner manufactures  gold  ornaments by supplying the gold  to  the artisans  and getting ornaments prepared by them  under  his supervision and when the ornaments are so prepared, he sells them in his shop and has been showing the value of gold  and the  cost  of  manufacture  separately.   That  is  why  the petitioner alleges that he is entitled to claim the  benefit of the exemption notification. Consistently  with  this  plea,  the  petitioner  filed  his returns  before the Sales-tax Officer at Berhampur  and  had been  claiming exemption of Sales-tax on the sales as  being entitled  to  exemption under the said  notification.   Upto June,  1952, the claim for exemption made by him was  upheld and  the  amount  represented  by sales  of  the  said  gold ornaments  was deducted from the taxable turnover  shown  by the petitioner in his returns.  Subsequently, however, these assessments were re-opened under s. 12(7) of the Act and  it was  claimed  that  the deductions  made  on  certain  sales transactions  of  gold ornaments were not justified  and  to that  extent,  the petitioner had escaped  assessment.   The petitioner  resisted this attempt to re-open the  assessment and he pleaded that he was entitled to claim exemption under the  notification,  because  he belonged  to  the  class  of manufacturers to which the notification referred. The Sales-tax Officer, however, disallowed the  petitioner’s contention  and proceeded to levy tax on the sales  transac- tions in question.  The petitioner then challenged the said 188 decision  by preferring appeals, but the said  appeals  were

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also  dismissed.   While the appeals  were  pending  similar assessments  made in respect of other dealers including  the petitioner were challenged by them by writ petitions  before the High Court of Orissa. (Nos. 151, 161, 162, 204--209  and 110 of 1957 respectively). The Division Bench of the Orissa High Court which heard  the writ  petitions  upheld  the petitioner’s  case  and  issued appropriate  writs directing the Sales-tax Officer to  allow the petitioner’s claim for exemption ’under the notification in question.  The main controversy before the High Court was about the precise denotation of the word ’manufacturer’ used in   the  notification.   The  High  Court  hold  that   the expression  manufacturer’  meant  the  first  owner  of  the finished  products for whom it was mad(. either by his  paid employee  or even by independent artisans on receipt of  raw materials  and labour charges from him.  According  to  this view, the petitioners before the High Court were found to be manufacturers  and  as such entitled to claim  exemption  in respect  of  sale  of -old ornaments  made  by  them.   This judgement  was pronounced on March 13, 1959.   Against  this judgement  the  State of Orissa has filed  appeals  to  this Court  and they are numbered as Civil Appeals Nos. 92 to  94 of 1963.  These appeals are till pending disposal. After the Orissa High Court pronounced its judgement in  the writ  petitions  to  which  reference  has  been  made,  the impugned Act was passed by the Orissa Legislature on  August 1,  1961.  This Act received the assent of the  Governor  on September 10, 1961, and was published on September 18, 1961. It  contains  one  operative provision in s.  2.  Section  2 provides  that  notwithstanding anything  contained  in  any judgment, decree or order of any court, the word ’manufactu- rer’  occurring  against  item 33 in  the  schedule  to  the notification of the Government of Orissa dated July 28, 1947 as  amended  by another notification of the 1st  July,  1949 shall  mean  and  shall always be deemed to  have  meant  a, person  who  by  his  own labour  works  up  materials  into suitable  forms and a person who owns or runs a  manufactory for  the  purpose of business with respect to  the  articles manufactured  therein.  It is the validity of  this  section which  is  challenged before us by the  petitioners  in  the present writ petitions. It  is clear that the object of s. 2 of the impugned Act  is to  make it clear that the legislature’s intention was  not, as  the  High  Court  had  held,  to,  include  within   the notification  all  persons  who  are  first  owners  of  the finished  product  of  gold.   Section  2  shows  that   the legislative  intention  was  to give  benefit  of  the  said exemption  only to persons who themselves work  and  produce gold  ornaments  or  who run or own a  manufactory  for  the purpose   of   business  with  respect   to   the   articles manufactured therein.  In other words, the intention of  the Government  in issuing the notification was not to give  the benefit of the exemption to traders or shop-keepers who were no  more than commission agents and who did not  personally, work  for making gold ornaments or who did not own  a  manu- factory  employing  artisans  for  that  purpose.   If  this section  is valid, it is common ground that the  petitioners are  not  entitled ,to claim the exemption.   On  the  other hand,  if this section is invalid, the petitioners would  be the  first owners of gold ornaments and may be  entitled  to claim exemption. The  first  argument which has been urged before us  by  Mr. Sastri is that since the exemption was granted by the  State Government by virtue of the powers conferred on it by s.  6, it was not open to the legislature to take away that  exemp-

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tion retrospectively.  Section 4 of the parent Sales-tax Act is  the  charging  section and s. 6  is  the  section  which confers   on   the  State  Government  power  to   issue   a notification exempting from the tax the sale of any goods or class  of  goods and likewise withdraw  any  such  exemption subject  to  such conditions and exceptions as it  may  deem fit.   The argument is, the power to grant exemption  having been  conferred  on  the State Government,  it  was  validly exercised by the State Government and though the legislature may    withdraw   such   exemption,   it   cannot   do    so retrospectively.    It   is  obvious  that  if   the   State ,Government  which  is the delegate of the  legislature  can withdraw the exemption granted by it, the legislature cannot be  denied such right.  But it is urged that once  exemption was  validly  granted, the legislature  cannot  withdraw  it retrospectively,  because  that would  be  invalidating  the notification itself.  We are not impressed by this argument. What  the  legislature has purported to do by s.  2  of  the impugned  Act is to make the intention of  the  notification clear.   Section 2 in substance declares that the  intention of  the  delegate  in  issuing  the  notification   granting exemption  was to confine the benefit of the said  exemption only  to  persons who, actually produce  -old  ornaments  or employ  artisans  for that purpose.  We do not see  how  any question of legislative incompetence can come in the present discussion.   And,  if the State Government  was  given  the power either to grant or withdraw the exemption that  cannot possibly  affect  the legislature’s competency to  make  any provision   in   that   behalf   either   prospectively   or retrospectively.   Therefore, there is no substance  in  the argument  that  the retrospective operation of s. 2  of  the impugned Act ’is invalid. Then  Mr. Sastri contends that this provision is  discrimina tory  and as such, contravenes the equality before the  law, guaranteed by Art. 14.  This argument is also  misconceived, is not seriously disputed that the petitioners belong to the 190 class  of  traders or shopkeepers who  are  like  commission agents. They give gold to the artisans, paying the  artisans their  labour  charges  and  when  the  ornaments  are  thus produced, they charge commission before they are sold to the customers.  In such a case, it is not easy to understand how this  class of traders can be said belong to same  class  of persons  who  produce  gold  ornaments  themselves  or   run manufactories where artisans are engaged for producing them. The  counter-affidavit  filed on behalf of  the  respondent- State  has also averred that the petitioners sometimes  sell goods manufactured by firms outside the State of Orissa  and in  no  case  had they  manufactured  ornaments  themselves. Whether  the gold which they give to the artisans  is  their own  or is supplied to them by customers is not a matter  of any   significance,  because  what  is  important  in   this connection is that they are not directly concerned with  the production of ornaments, and admittedly, they do not produce the  said ornaments themselves.  Therefore, the persons  who get the benefit of the exemption notification as a result of the provisions of s. 2 of the impugned Act cannot be said to belong to the same class as that of the petitioners, and  if that  is so, the main argument on the basis of Art. 14  does not subsist. Besides,  one of the objects of the impugned Act appears  to be to make it clear that the legislature intends to  benefit the  goldsmiths  who actually make gold ornaments  and  that object  can be carried out only if exemption is  granted  to persons who keep in their continuous employment artisans who

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produce gold ornaments.  If a person produces gold ornaments himself  and  if a person employs artisans to  produce  gold ornaments  for him, they fall within the protection  of  the exemption.  In the case of the petitioners, however, they do not  keep any artisans in their continuous  employment,  and so, if the legislature thought it was not necessary to  give them  the benefit of the exemption, it cannot be  said  that the  classification made by the legislature has no  rational connection  with the object intended to be achieved  by  it. This  argument assume,,, that the petitioners belong to  the same  class  as  the  persons to whom  the  benefit  of  the exemption  is  available.  But as we  have  already  stated, these  two categories are distinct and there is no  sameness or similarity between them. It  was also suggested by Mr. Sastri that the result of  the impugned  provision is to deny the benefit of the  exemption to  the  poorer classes of persons who are  engaged  in  the business  of manufacturing gold ornaments, and in that  con- nection, he has commented on the fact that the  notification gives the benefit of the exemption to persons who run  manu- factories but it denies that benefit to persons who carry on the work of producing gold ornaments on a smaller scale, and 191 so, are unable to run a manufactory.  This argument is  fal- lacious.   The  notification as interpreted by s. 2  of  the impugned  Act  benefits the artisans who  produce  ornaments themselves and that obviously covers a very large section of independent artisans engaged in the trade.  The notification also benefits persons who run manufactories and that ensures the continuous employment of artisans.  That is why it seems to us that the main object of -ranting exemption can be said to  be achieved by holding that ’manufacturer, means  either a,  manufacturer  properly  so called  or  one  who  engages artisans lo manufacture gold ornaments. Mr. Sastri also argued that the retrospective operation  ,of the  impugned  section should be struck  down  as  unconsti- tutional,, because it imposes an unreasonable restriction on the petitioners’ fundamental right under Art. 19(1)(g).   It is  true  that  in considering the question  as  to  whether legislative  power to pass an Act retrospectively  has  been reasonably ,exercised or not, it is relevant to enquire  how the  retrospective  operation  operates.  But  it  would  be difficult   to   accept  the  argument  that   because   the retrospective  operation may operate harshly in some  cases, therefore,  the legislation itself is invalid.  Besides,  in the  present  case,  the retrospective  operation  does  not spread over a very long period either.  Incidentally, it  is not  clear  from  the record that the  petitioners  did  not recover  sales, tax from their customers when they sold  the gold ornaments to them.  The counter-affidavit filed by the, respondent-State  alleges that even where sales-tax has  not been  charged separately, the price charged included  sales- tax  because it was the usual practice of  every  registered dealer  ,doing similar business to collect sales-tax  either by  showing  it  as such  separately  and  thereby  claiming deduction  of  the, ,sales-tax from the  gross  turnover  to arrive  at the taxable turn-, ,over shown separately  or  by including  it  in the price and thereby collecting it  as  a part  of the price charged.  In any event, -we do not  think that in the circumstances of this case it would be  possible to  hold  that  by  making the provision of  s.  2  of’  the impugned  Act  retrospective the legislature has  imposed  a restriction on the petitioners’ fundamental right under Art. 19(1)(g) which is not reasonable and is not in the  interest of the general public.

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The  result  is, the petitions fail and are  dismissed  with costs.  One set of hearing fees. Petitions dismissed. 192