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CASE NO.: Appeal (civil)  4093 of 1991

PETITIONER: SOMAIYA ORGANICS (INDIA) LTD.

RESPONDENT: STATE OF UTTAR PRADESH & ANR.

DATE OF JUDGMENT: 17/04/2001

BENCH: B.N.KIRPAL & S.S.M.QUADRI & M.B.SHAH & RUMA PAL & K.G.BALAKRISHNAN

JUDGMENT: JUDGMENT

DELIVERED BY:

B.N.KIRPAL, J. RUMA PAL, J.

With    C.A.  No.  2853 of 2001         (arising out of SLP(C) No.  20018 of 1991)         Civil Appeal No. 4093 of 1991 and         C.A. No. 2853 of 2001         ( Arising out of SLP (C) No. 20018 of 1991)         Leave granted in SLP (C) No. 20018 of 1991.

KIRPAL, J.

   These  appeals are sequel to a judgment of this Court in Synthetics and Chemicals Lt.  and Others vs.  State of U.P. and Others wherein it was held that in respect of industrial alcohol  the States were not authorised to impose the impost they  had  purported to do.  By that judgment  delivered  on 25th  October, 1989 the Court overruled its earlier decision in  State of U.P.  and Others vs.  Synthetics and  Chemicals Ltd.   and Others wherein the validity of such an impost had been  upheld.  By the second Synthetics case it was declared that the impugned provisions were illegal prospectively.

   The  question  which arises for consideration  in  these appeals is whether the vend fee which had been levied by the appropriate  State enactments, but not collected whether  by reasons  of  the  orders of the Court or otherwise,  can  be collected  now when the said provisions by the said judgment dated  25th  October,  1989  have been held  to  be  invalid prospectively.

   For  the sake of convenience, we shall briefly refer  to the  facts  in  C.A.   No.  4093 of  1991  Somaiya  Organics (India)  Ltd.  vs.  State of U.P.  & Anr.  The said  company had  established  a  plant at Barabanki for  manufacture  of intermediaries  out  of  industrial alcohol.   Its  promoter company  had sold and transferred to the appellant  industry distillery  located at Captainganj.  The industrial  alcohol manufactured  by the distillery at Captainganj was captively consumed.   On  8th  October, 1970 the  appellant  had  been exempted  from paying vend fee which was leviable under  the U.P.   Excise Act, 1910.  On 9th October, 1979, the State of

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U.P.    withdrew   the  exemption   from  payment  of   vend fee/purchase tax on industrial alcohol.  This was challenged by  the appellant by filing writ petitions in the  Allahabad High  Court.   During  the pendency of  the  writ  petitions interim  orders  were passed by the High Court  whereby  the petitioners before it were required to give a bank guarantee and/or  pay  to the State the amounts directed by the  Court which, in an earlier order, the High Court had directed that it should be kept by the State in a separate account.

   As  noticed  hereinabove,  vide decision of  a  Division Bench  of  this Court in first Synthetics &  Chemicals  case rendered  on 19th December, 1979 the validity of the  impost was upheld.  Subsequently, on the matter being referred to a Bench  of  Seven  Judges,  by  the  second  Synthetics  case decision in 1989, the validity of the provisions of the said Acts  permitting levy of excise duty in the form of vend fee was struck down prospectively.

   The  High  Court  by the impugned  judgment  dated  29th August,  1990 in Somaiyas case interpreted the direction in the   second  Synthetics  case   relating   to   prospective declaration  to  mean  that  for the period  prior  to  25th October, 1989 the amount payable in respect thereto could be recovered.   It held that once the levy for the period prior to  25th  October, 1989 was saved further  steps  consequent upon such levy were equally saved and recovery in respect of the  dues  prior to 25th October, 1989 could be effected  by the State.  The State was held to be entitled to realise the vend fee for the period prior to 25th October, 1989.

   When these appeals against the said decision came up for hearing  in this Court a Division Bench vide its order dated 26th  April, 1994 in Hindustan Sugar Mills Ltd.  vs.   State of  U.P.   &  Others  observed   that  the  directions   and observations  made  in the second Synthetics case  had  been differently  construed by Benches of this Court.  In view of this  apparent  conflict  these appeals were referred  to  a larger Bench.  It is in pursuance thereto that these appeals have been heard.

   It was contended by Shri K.K.  Venugopal, learned senior counsel  for  the appellants, that in respect of  industrial alcohol  the State Legislature had no legislative competence to  levy excise duty or any tax in that nature.  Drawing our attention  to  Entry 8 and 51 of List II, he submitted  that the  State  can impose excise duty only on  potable  liquor. Corresponding  to  that is Entry 84 in List I which  enables the Parliament to levy excise duty except in regard to those items referred to in Entry 51 of List II.  Furthermore under Entry  52 of List I the I.D.R.  Act had been promulgated  by the  Parliament  and  in  the First Schedule  Item  No.   26 related  to  fermentation  industries.  In  respect  of  the industries  referred to in the First Schedule to the  I.D.R. Act it is only the Parliament which has jurisdiction to levy taxes  in  respect  thereto.  As such levy of  vend  fee  on industrial alcohol by the States was not valid.

   It  is also submitted that Article 162 provides that the executive  power  of  a  State   is  co-extensive  with  its legislative  power.  Inasmuch as a State cannot levy  excise duty  on industrial alcohol being outside the ambit of Entry 51  of List II, the State Government cannot, in exercise  of its  executive  power, recover the excise duty.  After  25th October,  1989  law ceased to exist in respect of  levy  and

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collection of excise duty on industrial alcohol by reason of want   of  legislative  competence.   As  such   the   State Government  could  not exercise executive power and  collect excise duty on industrial alcohol.

   It  was  contended  that  under   Article  265  of   the Constitution  no tax can be levied or collected without  the authority  of law.  The submission was that authority of law means  that  there  should  be   a  lawful  enactment  which authorised  the  levy and collection of tax.  Tax cannot  be levied  and collected by virtue of a decision of a Court  in the  absence  of  any statutory provision.  It  was  further submitted  that in series of decisions of this Court, one of the  examples being that of M.P.V.  Sundararamier & Co.  vs. The  State of Andhra Pradesh & Another it had been held that the  law  which  is  declared ultra vires  due  to  lack  of legislative  competence would be void ab initio and the same could  not  be  made operative.  The effect  of  the  second judgment  in  Synthetics case was that after  25th  October, 1989  no levy or collection could take place.  In respect of the  period prior to 25th October, 1989 even if tax had been levied  and/or  demand raised the contention of the  learned counsel was that the same could not be collected.

   On  behalf  of the respondents it was contended by  Shri Rakesh  Dwivedi that declaration of the provisions as  being illegal prospectively meant that prior to 25th October, 1989 all the provisions were valid.  He submitted that this meant that  the said provisions were capable of being enforced for the  period  prior  to  the said date.   He  contended  that liability  to  pay  vend  fee   gets  attracted  the  moment industrial  alcohol is issued.  Since this was issued during the  period  31st  May,  1979 and  25th  October,  1989  the appellants  had  become liable to pay vend fee.   Once  this liability  prior  to 25th October, 1989 is held to be  valid then  the  State  was  entitled to  collect  the  same.   He strongly relied on the reasoning of the High Court which had observed  that it would be unreasonable if the  observations in  the second Synthetics case were understood as  entitling the  appellants  to retain the vend fee despite  prospective overruling  because those who have paid the vend fee for the same  period would stand in a disadvantageous position  when compared  to  those who did not pay the vend fee in view  of the  interim orders although in both the cases liability  to tax  arises at the time of issuance of the alcohol.  Such an interpretation,  it  was contended, would be  arbitrary  and violative of Article 14 of the Constitution.

   The  doctrine of prospective overruling was simply based on  equity  and  full effect must be given thereto  and  the State  should  be  permitted to recover the unpaid  levy  in respect  of  the period prior to 25th October,  1989.   Shri Dwivedi  further  submitted that in any case payments  which have  been  made under the interim orders of the High  Court could  be retained by the State and this clearly flows  from the directions of this Court in paragraph 89 of the judgment in  second Synthetics case.  The learned counsel, of course, contended  that  even in respect of amounts secured by  bank guarantee the State would be entitled to collect the same.

   In  the  present case the State of Uttar  Pradesh,  like some  other  States,  had  levied vend  fee  in  respect  of industrial  alcohol  under the U.P.  Excise Act, 1910.   The validity  of the same was challenged and a Division Bench of

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this  Court in State of U.P.  and Others (supra) had  upheld its  validity.  Subsequently a review petition was filed  in respect  of the said judgment and another Writ Petition  No. 182  of  1980 was also filed by Synthetics & Chemicals  Ltd. challenging a notification dated 31st August, 1979 whereby a new rule was introduced, in place of existing one, providing for  levy  of vend fee.  This was challenged and a Bench  of Seven  Judges  in Synthetics and Chemicals Ltd.  and  Others (supra)  in  paragraph 82 recorded its conclusion  that  the relevant  provisions  of the U.P.  Act and similar  Acts  of Andhra Pradesh, Tamil Nadu and Bombay were unconstitutional insofar  as  these purported to levy a tax or charge  impost upon industrial alcohol, namely, alcohol used and usable for industrial purposes.

   Having  come  to  the  conclusion   that  the  levy  was unconstitutional  the  Court,  as  far  as  the  relief  was concerned, observed as follows:

   89.   We must, however, observe, that these imposts and levies  have been imposed by virtue of the decision of  this Court  in Synthetics & Chemicals Ltd.  case.  The States  as well  as  the  petitioners and manufacturers  have  adjusted their  rights and their position on that basis except in the case of State of Tamil Nadu.  In that view of the matter, it would  be  necessary  to  state that  these  provisions  are declared  to be illegal prospectively.  In other words,  the respondents  States  are restrained from enforcing the  said levy  any further but the respondents will not be liable for any  refund and the tax already collected and paid will  not be  refunded.  We prospectively declare these imposts to  be illegal  and  invalid,  but do not affect  any  realisations already  made.   The  writ  petitions and  the  appeals  are disposed of accordingly.  The review petitions, accordingly, succeed  though  strictly no grounds as such have been  made out  but  in  view  we  have  taken,  the  decision  in  the Synthetics  & Chemicals Ltd.  case cannot be upheld.  In the view we have taken also, it is not necessary to decide or to adjudicate  if the levy is valid as to who would be  liable, that  is  to  say, the manufacturer or the producer  or  the dealer.

   90.   With  regard  to Writ Petition No.  4051  of  1978 (Chemicals  & Plastics India Ltd.  v.  State of Tamil Nadu), certain  orders  were  passed by this Court on  November  1, 1978,  September  1, 1986, October 1, 1986 and  October  10, 1986.   It is stated that the present demand of the  Central Excise Department from March 1, 1986 on alcohol manufactured by  the  company in their captive distillery is over Rs.   4 Crores.   This  Court by its order dated October 1, 1986  as confirmed  on  October  16,  1986 had  permitted  the  State Government  to  collect the levy on alcohol manufactured  in company’s  captive  distillery  subject   to  adjustment  of equities  and restrained the central excise authorities from collecting  any  excise  duty  on   such  alcohol.   It  is, therefore,  necessary  to declare that in future no  further realisation  will  be made in respect of this by  the  State Government  from  the  petitioners.   So  far  as  the  past realisations  made  are  concerned,  we  direct  that   this application  for  that  part  of the  direction,  should  in accordance  with  our  decision herein be  placed  before  a Division  Bench  for disposal upon notice both to the  State Government and the Central Government.

   It  is  contended on behalf of the appellants  that  the

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declaration  in  paragraph 82 of the said judgment that  the impugned  provisions of the said Acts were  unconstitutional was  a  declaration by this Court under Article 141  of  the Constitution.  The observations and the directions contained in  paragraphs 89 and 90 supra indicated the exercise of the Courts jurisdiction under Article 142.

   In  the  present case in respect of the period prior  to 25th  October,  1989,  when the second Synthetics  case  was decided in respect of the appellants, demand had been raised under the impugned Acts and for some period payment had been made  and  in respect of other periods payment to the  State Governments  had  not  been  made.  The  contention  of  the appellants is that in view of the observations of this Court in  paragraph 89 the appellants may not be entitled to claim refund  of the taxes already paid but, at the same time, the State  Government  is not entitled to collect the  taxes  in respect of the period prior to 25th October, 1989, i.e.  the date  on which the judgment was delivered.  It was, however, submitted that in those cases where money was deposited with the  State on the condition that the same will be kept in  a separate  account and would be subject to the outcome of the writ  petition,  the appellants would be entitled to  refund thereof.

   Shri  R.F.   Nariman,  learned senior  counsel  for  the appellants  referred  to Supreme Court Bar  Association  vs. Union  of India and Another (at page 430) and contended that under Article 142 of the Constitution this Court cannot pass any  order  which  is  contrary  to  any  constitutional  or statutory   provision.   The  effect  of  the  decision   in Synthetics  case  being that the impugned Acts were  without legislative  competence  and those laws must be regarded  as nonest  as if they did not exist.  The validity of the  said laws  which had earlier been upheld in the first  Synthetics case  got wiped out with a review petition against the first Synthetics  case being allowed and the declaration of law in the Synthetics case.  He contended that the directions given in  paragraph  89 was to do complete justice in exercise  of the  power  under Article 142 and the effect of  prospective overruling  was clearly specified in the said para where  it is observed that in other words, the respondents States are restrained  from enforcing the said levy any further but the respondents  will  not be liable for any refund and the  tax already collected and paid will not be refunded.

   It  was also submitted by Shri Nariman that there is  no jurisprudential   basis  for  applying   the   doctrine   of prospective  overruling  in India.  He submitted  that  this doctrine  was first invoked in I.C.  Golak Nath & Ors.   vs. State  of Punjab & Anrs.  where Chief Justice K.  Subba  Rao for  himself  and  five  other judges  invoked  an  American doctrine  to  that effect.  Shri Nariman contended that  the other six judges did not subscribe to this and in fact three of  the  judges  through  the judgment  of  Justice  Wanchoo expressly  came  to  the  conclusion that  the  doctrine  of prospective overruling was against the provisions of Article 13(2)  of  the  Constitution.   In our  opinion  it  is  not necessary  nor appropriate for us to go into this  question. We  are only concerned with the interpretation and effect of the  Second judgment in Synthetics case and not with  regard to the correctness of the same.

   It was contended by Shri Nariman that the vend fee which

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was  deposited  in  Court consequent on  the  interim  order passed  in respect thereto clearly stipulated that the  same should  be  kept  in  a separate  account.   He,  therefore, submitted  that  this  cannot be regarded as a  payment  the refund  of which the appellant was not entitled to by reason of  the  aforesaid observations in the second  Synthetics  & Chemicals  judgment.  He contended that the direction,  that the  amount  received  by  the State should  be  kept  in  a separate  account,  entitled the appellants to get back  the said  amount  once  it was held that the  State  Legislature lacked  legislative  competence to impose such a  levy.   He further  submitted that in any case the High Court was wrong in  coming  to  the  conclusion that there  was  any  unjust enrichment  and, therefore, there should be no refund of the levy in question.

   Shri  Sunil  Gupta  appearing  on  behalf  of  Hindustan Polymers  Ltd.   while reiterating the submissions of  other counsel   further  contended  that   furnishing  of  a  bank guarantee does not tantamount to payment of tax.  He invited our  attention to the decision of this Court in the case  of Oswal Agro Mills Ltd.  and Another vs.  Asstt.  Collector of Central  Excise,  Division  Ludhiana and Others .   In  that case,  pursuant  to  an interim order passed by  this  Court staying  the  recovery of excise duty a bank  guarantee  had been  furnished.   The assessees appeal was allowed and  it claimed  the refund of the bank guarantee which had  already been  encashed  by  the  excise  authorities.   The  Revenue contended  that the bank guarantee should be deemed to  have been  an equivalent to money deposited in Court and as  such Section  11-B  of  the Excise Act stood  attracted  and  the appellants having failed to establish before the authorities concerned  that they had not passed on the incidence thereof to  the  customers, the authorities were entitled to  encash the  bank guarantee and retain the amount thereof.  Allowing the  appeal and holding that the provisions of Section  11-B were  not  applicable in the case of furnishing of the  bank guarantee, this Court observed as follows:

   9.  Section 11-B applies when an assessee claims refund of  excise  duty.   A  claim  for  refund  is  a  claim  for repayment.   It  presupposes that the amount of  the  excise duty  has  been paid over to the excise authorities.  It  is then  that the excise authorities would be required to repay or refund the excise duty.

   10.   The question, therefore, is whether it can be said that  the furnishing of a bank guarantee for all or part  of the  disputed excise duty pursuant to an order of the  court is  equivalent to payment of the amount of the excise  duty. In  our  view,  the  answer is in  the  negative.   For  the purposes of securing the revenue in the event of the revenue succeeding  in  proceedings before a court, the court, as  a condition  of  staying  the demand for the disputed  tax  or duty,  imposes a condition that the assessee shall provide a bank  guarantee  for the full amount of such tax or duty  or part  thereof.   The bank guarantee is required to be  given either  in favour of the principal administrative officer of the  court or in favour of the revenue authority  concerned. In  the  event  that the revenue fails  in  the  proceedings before the court the question of payment of the tax or duty, the  amount of which is covered by the bank guarantee,  does not  arise and, ordinarily, the court, at the conclusion  of its  order,  directs  that the bank  guarantee  shall  stand discharged.   Where  the revenue succeeds the amount of  the

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tax  or duty becomes payable by the assessee to the  revenue and  it is open to the revenue to invoke the bank  guarantee and  demand payment thereon.  The bank guarantee is security for  the revenue, that in the event the revenue succeeds its dues will be recoverable, being backed by the guarantee of a bank.   In the event, however unlikely, of the bank refusing to  honour  its  guarantee  it would be  necessary  for  the revenue  or,  where the bank guarantee is in favour  of  the principal  administrative officer of the court, that officer to  file a suit against the bank for the amount due upon the bank guarantee.  The amount of the disputed tax or duty that is secured by a bank guarantee cannot, therefore, be held to be  paid to the revenue.  There is no question of its refund and Section 11-B is not attracted.

   When  this Court decided in I.C.  Golak Naths case that the power of amendment under Article 368 of the Constitution did  not allow Parliament to abridge the fundamental  rights in  Part  III  of  the Constitution, it  made  the  decision operative  with  prospective  effect.    This  was  done  in recognition  of the fact that between the coming into  force of the Constitution on 26th January 1950 and the date of the judgment,  Parliament  had  in fact exercised the  power  of amendment  in  a  way which, according to  the  decision  in Golaknath  was void.  If retrospectivity were to be given to the  decision,  it  would  introduce  chaos  and  unsettled conditions  in  our  country.  On the other  hand  it  also recognised   that  such  possibility  of  chaos   might   be preferable  to the alternative of a totalitarian rule.   The Court,   therefore,  sought  to   evolve  some   reasonable principle  to  meet  this   extraordinary  situation.   The reasonable  principle which was evolved was the doctrine  of prospective overruling.

   Although  the doctrine of prospective overruling,  was drawn from American jurisprudence, it has/had, of necessity, to  develop  indigenous characteristics.  The parameters  of the power as far as this country is concerned were sought to be laid down in Golaknath itself when it was said:

   As  this Court for the first time has been called  upon to  apply the doctrine evolved in a different country  under different circumstances, we would like to move warily in the beginning.   We  would lay down the following  propositions: (1)  The doctrine of prospective over-ruling can be  invoked only  in matters arising under our Constitution;  (2) it can be  applied only by the highest court of the country,  i.e., the  Supreme Court as it has the constitutional jurisdiction to  declare law binding on all the courts in India;  (3) the scope  of  the retroactive operation of the law declared  by the  Supreme Court superseding its earlier decisions is left to  its  discretion  to be moulded in  accordance  with  the justice of the cause or matter before it.

The parameters have not been adhered to in practice.

   The  word  prospective overruling implies  an  earlier judicial  decision  on  the same issue which  was  otherwise final.   That  is  how  it   was  understood  in  Golaknath. However, this Court has used the power even when deciding on an issue for the first time.  Thus in India Cement Ltd.  and Others vs.  State of Tamil Nadu and Others , when this Court held  that the cess sought to be levied under Section 115 of the  Madras Panchayats Act, 1958 as amended by Madras Act 18 of  1964, was unconstitutional, not only did it restrain the

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State  of Tamil Nadu from enforcing the same any further, it also  directed  that the State would not be liable  for  any refund of cess already paid or collected.

   This direction was considered in Orissa Cement Ltd.  vs. State  of  Orissa and Others at page 498 where it  was  held that:

   .   The  declaration  regarding the invalidity  of  a provision and the determination of the relief that should be granted  in consequent thereof are two different things and, in  the  latter sphere, the Court has, and must be  held  to have,  a certain amount of discretion.  It is a well settled proposition  that it is open to the Court to grant, mould or restrict  the  relief  in a manner most appropriate  to  the situation  before  it  in  such  a way  as  to  advance  the interests of justice.  It will be appreciated that it is not always  possible  in  all situations to give a  logical  and complete effect to a finding..

   Again  in  Union of India and Others vs.  Mohd.   Ramzan Khan  ,  it  was held that non-furnishing of a copy  of  the inquiry  report to an employee amounted to violation of  the principles  of  natural justice and any disciplinary  action taken  without  furnishing such report was liable to be  set aside.   However, it was made clear that the decision  would have  prospective application so that no punishment  already imposed would be open to challenge on this count.  (See also Managing  Director,  ECIL,  Hyderabad  and  Others  vs.   B. Karunakar and Others .

   In   the  ultimate   analysis,  prospective  overruling, despite  the  terminology,  is  only a  recognition  of  the principle  that the court moulds the reliefs claimed to meet the  justice of the case  justice not in its logical but in its  equitable sense.  As far as this country is  concerned, the power has been expressly conferred by Article 142 of the Constitution which allows this Court to pass such decree or make  such order as is necessary for doing complete  justice in  any cause or matter pending before it.  In exercise  of this  power, this Court has often denied the relief  claimed despite  holding  in  the claimants favour in  order  to  do complete justice.

   Given  this  constitutional discretion, it  was  perhaps unnecessary  to  resort  to  any  principle  of  prospective over-ruling  a  view which was expressed in Narayanibai  vs. State of Maharashtra & Others at page 470 and in Ashok Kumar Gupta  and Another vs.  State of U.P.  and Others .  In  the latter case, while dealing with the doctrine of prospective overruling, this Court said that it was a method evolved by the  Courts  to adjust competing rights of parties so as  to save transactions whether statutory or otherwise, that were effected  by the earlier law.  According to this Court,  it was  a  rule of judicial craftsmanship with pragmatism  and judicial  statesmanship  as a useful outline to bring  about smooth  transition  of the operation of law  without  unduly affecting  the  rights of the people who acted upon the  law operated  prior  to the date of the judgment overruling  the previous  law. Ultimately, it is a question of this Courts discretion  and  is, for this reason, relatable directly  to the words of the Court granting the relief.

   Reading  the  two paragraphs 89 and 90 together it  does appear  that  this  Court regarded the  declaration  of  the

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provisions  being illegal prospectively as only meaning that if  the States had already collected the tax they would  not be liable to pay back the same.  It is the States which were protected  as  a result of the declaration for otherwise  on the  conclusion  that the impugned Acts  lacked  legislative competence the result would have been that any tax collected would  have  become refundable as no State could retain  the same  because levy would be without the authority of law and contrary  to  Article 265 of the Constitution.  At the  same time,  it  was  clearly  stipulated  that  the  States  were restrained  from enforcing the levy any further.  The  words used  in  Article 265 are levy and collect.   In  taxing statute  the  words levy and collect are not  synonymous terms,  (refer  to  Assistant Collector of  Central  Excise, Calcutta  Division vs.  National Tobacco Co.  of India  Ltd. at  page  572,  while levy would mean  the  assessment  or charging  or  imposing tax, collect in Article  265  would mean  the physical realisation of the tax which is levied or imposed.   Collection of tax is normally a stage  subsequent to the levy of the same.  The enforcement of levy could only mean  realisation of the tax imposed or demanded.  That  the States  were  prevented to recover the tax, if  not  already realised,  in  respect of the period prior to 25th  October, 1989  is further evident from paragraph 90 of the  judgment. The said paragraph shows that as on the date of the judgment for  the period subsequent to 1st March, 1986 the demand  of the  Central  Excise Department on the alcohol  manufactured was  over  Rs.  4 Crores.  The Court referred to its  orders dated  1st October, 1986 and 16th October, 1986 whereby  the State  Government  was  permitted  to collect  the  levy  on alcohol  manufactured  in the companys distilleries.   With respect to the said amount of Rs.  4 Crores, it was observed that  it is, therefore, necessary to declare that in future no  further  realisation will be made in respect of this  by the State Government from the petitioners.  The implication clearly  was  that  if  out  of  Rs.   4  Crores  the  State Government  had collected some levy the balance  outstanding cannot be collected after 25th October, 1989.

   After  the  decision  in  second  Synthetics  case  Writ Petition  Nos.   7452  of  1981 and 3571 of  1982  -  Sachid Hussain  &  Anr.  vs.  The State of U.P.  & Ors.  - came  up for hearing.  A Bench of Three Judges presided over by Chief Justice  Mukherji, who had delivered the judgment in  second Synthetics  case  vide  order   dated  26th  February,  1990 disposing of the said writ petitions observed as follows:

   In  view  of the judgement of this Court in  Synthetics and Chemicals Limited and Others vs.  State of Uttar Pradesh 1990  (1)  SCC  109,  these   writ  petitions  are   allowed prospectively   and  the  levy  is   declared  to   be   bad prospectively.  Since no refund is claimed, there will be an order  in terms of prayers (1) and (2) of the writ petitions viz.   the  recovery  order issued by the  Excise  Inspector dated  14th September, 1981 for a sum of Rs.68,200/- against the petitioners are quashed and the respondents are directed not to recover the amount of Rs.68,200/- from the petitioner towards vend fee for the period from 9.4.75 to 11.7.78.

   To  the  same effect is another order dated 12th  March, 1990  again  by  a  Bench presided  over  by  Chief  Justice Mukherji  in Writ Petition No.  8435 of 1981 - Yawar Ali vs. The  State of U.P.  & Ors.  By these two orders the State of U.P.   was  directed not to recover the amounts  outstanding

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despite  recovery notices having been issued on a date prior to  25th  October,  1989.  These two  orders  are  important inasmuch  as the author of the judgment in second Synthetics case  understood his own decision of prospective  overruling to  imply  that if a levy in respect of the  period  earlier than 25th October, 1989 has not been recovered by the excise authorities  then  notwithstanding a recovery  order  having been  issued  the  State  was not entitled  to  recover  the amount.  It can be said that in 1990 Chief Justice Mukherji, along  with  two  companion Judges interpreted  his  earlier decision  in a manner which clearly showed that paragraph 89 of  the  judgment  in the second Synthetics case  could  not entitle  the  State  to  physically receive  any  amount  in respect  of  the levy for the period prior to 25th  October, 1989  even though it could be said that the levy before that date  was not invalid because of the doctrine of prospective overruling.

   The  doctrine  of prospective overruling was applied  in Belsund  Sugar  Co.  Ltd.  vs.  State of Bihar and Others  . The question which arose for consideration there was whether market  fee  could  be levied under  the  Bihar  Agriculture Produce  Markets  Act,  1960 in respect to  transactions  of purchase  of  sugarcane, sugar and molasses by sugar  mills. In view of the provisions of the Bihar Sugarcane (Regulation of  Supply and Purchase) Act, 1981 read with Sugar (Control) Order,  1966 issued under the Essential Commodities Act,  it was  held  that the provisions of the Sugarcane Act and  the Sugarcane  Order, on the one hand, and the Bihar Market  Act on  the other could not operate harmoniously and, therefore, the Sugarcane Act and the Sugarcane Order prevailed over the Market  Act.   It  was then contended  that  the  appellants therein  should  be allowed to get refund of the market  fee which  they  had paid under the Market Act subject to  their showing  that  they  had  not passed on the  burden  on  the principle  of  unjust  enrichment.  Dealing with  the  above contentions, it was observed as follows:

   112.  .Under these circumstances, keeping in view the peculiar  facts and circumstances of these cases, we deem it fit  to  direct in exercise our powers under Article 142  of the  Constitution  of India that the present  decision  will have  only a prospective effect.  Meaning thereby that after the  pronouncement of this judgment all future  transactions of purchase of sugarcane by the sugar factories concerned in the  market areas as well as the sale of manufactured  sugar and  molasses  produced  by   therefrom  by  utilising  this purchased sugarcane by these factories will not be subjected to the levy of market fee under Section 27 of the Market Act by  the Market Committees concerned.  All past  transactions up to the date of this judgment which have suffered the levy of  market fee will not be covered by this judgment and  the collected  market  fees on these past transactions prior  to the  date  of  this  judgment will not  be  required  to  be refunded  to  any of the sugar mills which might  have  paid these market fees.

   113.   However,  one  rider  has to  be  added  to  this direction.   If  any  of  the  Market  Committees  has  been restrained   from  recovering  market   fee  from  the  writ petitioners  in  the  High  Court  or if  any  of  the  writ petitioners  in  the High Court has, as an appellant  before this Court, obtained stay of the payment of market fee, then for  the  period  during which such stay  has  operated  and consequently  market  fee was not paid on  the  transactions

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covered  by such stay orders, there will remain no  occasion for  the  Market Committee concerned to recover such  market fee  from  the sugar mill concerned after the date  of  this judgment  even for such past transactions.  In other  words, market  fees  paid  in  the  past  shall  not  be  refunded. Similarly  market fees not collected in the past also  shall not  be collected hereafter.  The impugned judgments of  the High  Court  in this group of sugar matters will  stand  set aside as aforesaid.  The writ petition directly filed before this  Court  also  will  be required to be  allowed  in  the aforesaid terms.

   The  aforesaid observations make clear what was implicit in  paragraph 89 of the second Synthetics case, namely, that where  payment  has  not actually been made  to  the  Market Committee  for  a  period prior to the announcement  of  the judgment,  by reason of the assessee having obtained a stay, the  Market Committee was not entitled to recover the market fee,  payment of which had been stayed.  It was pithily  put in  Belsund  Sugar Co.  Ltd.s case (supra) that  "in  other words  market fees paid in the past was not to be  refunded. Similarly  market fees not collected in the past was not  to be   collected  hereafter.   These   observations  are   in consonance  with the directions given in paragraph 89 of the judgment  in  second Synthetics case and applying  the  said principles  to the present appeals the only conclusion which can be arrived at is that this Court intended the status quo as  on 25th October, 1989 to be maintained as regards actual payment or levy was concerned.  What had gone to the coffers to  the Government with or without any string attached,  was to  remain  with it and what was not received could  not  be realised by the Government.

   It  is,  of  course, true that in respect  of  the  same period  i.e.   prior to 25th October, 1989 persons  who  had obtained  stay  orders  or had otherwise not paid  the  levy would  be better off than those who have deposited the  sums with  the  Government  and are not entitled to  receive  any refund.   This  situation, however, is unavoidable  for  the simple reason that Article 265 does not permit collection of tax without the authority of law.  Even though levy prior to 25th  October,  1989  may  be  valid but  when  in  fact  no collection  was  made pursuant to the said levy,  then  post judgment  in  the second Synthetics case collection  is  not permissible.   After  25th October, 1989 there was no  valid law  in  existence  which permitted the collection  of  tax. Shri  Venugopal  is  right  in contending  that  after  25th October,  1989  the  provisions of Section 39  of  the  U.P. Excise  Act,  1910  which provides for  recovery  of  excise revenue  would be inapplicable.  The said section inter alia states  that  all excise revenue may be recovered  from  the person  primarily liable to pay the same, as arrears of land revenue or in the manner provided for the recovery of public demands  by  any law for the time being in  force.   Section 3(1)  defines excise revenue as meaning revenue derived or derivable  from  any  duty  if the taxes  etc.   imposed  or ordered  under the provisions of the Act or of any other law for  the time being in force.  Section 3(3a) defines excise duty  and countervailing duty as meaning any such  excise duty or countervailing duty, as may be mentioned in Entry 51 of  List  II  of the Seventh Schedule of  the  Constitution. There  can  be no excise duty under the U.P.  Excise Act  on industrial  alcohol because that would be outside the  ambit of  Entry  51 of List II of the Seventh Schedule.  Vend  fee being regarded as excise duty on industrial alcohol which is

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not valid as not falling under Entry 51 of List II cannot be regarded  as  excise revenue and, therefore, at least  after 25th  October, 1989 it would be unrecoverable being  outside the purview of the Section 39 of the U.P.  Excise Act, 1910. This  would clearly be the position as a result of the Court having  declared  relevant  provisions of the U.P.   Act  as being  ultra  vires insofar as it enables the imposition  of excise duty on industrial alcohol.

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

   It  is  true  that the effect of a  legislation  without legislative  competence is that it is nonest.  [See:  Behram Khurshed  Pesikaka  vs.   The State of Bombay at  652,  653, R.M.D.   Chamarbaugwalla  vs.   The Union of India  at  940, M.P.V.   Sundararamier  &  Co.   vs.  The  State  of  Andhra Pradesh & Another (supra) at 1468 and Mahendra Lal Jaini vs. The State of Uttar Pradesh and Others at 937-941.]

   Nevertheless   a   law   enacted   without   legislative competence  remains  on  the statute book till  a  Court  of competent  jurisdiction adjudicates thereon and declares  it to  be  void.  When the Court declares it to be void  it  is only  then  that  it can be said that it is nonest  for  all purposes.   In Synthetics and Chemicals case the  invalidity of the provisions was a declaration under Article 141 of the Constitution.   It  was for doing complete justice that  the Court  in  exercise  of its jurisdiction under  Article  142 moulded  the  relief in such a way as to give effect to  its declaration  prospectively.   It is not possible  to  accept that  such an order of prospective overruling is contrary to law.   An  invalid law has not been held to be  valid.   All that  has happened is that the declaration of invalidity  of the  legislation  was directed to take effect from a  future date.

   The  principle  of prospective over-ruling is  too  well enshrined  in  our  jurisprudence for it  to  be  disturbed. Therefore,  by  reason of the decision in second  Synthetics case   what   has  actually   happened  is  collection   and non-collection  of  vend fee prior to 25th October, 1989  is left untouched.  However, the Court in the second Synthetics case did not specifically deal with the question of deposits made  pursuant  to interim orders of Courts.  The word  used there  was realisation.  It might have been arguable  that the deposits were not realisations in the sense the word has  been  used  in  taxation statutes in  general  and  the

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U.P.Excise  Act,  1910 in particular.  However, the  interim orders passed by the High Court show that deposits were made of vend fee and the purchase tax.  Although these deposits were  to be kept in a separate account, nevertheless in  the circumstances  of  this case, it would be mere sophistry  to hold  that  the monies so deposited were not  realisations for  the purposes of the U.P.  Excise Act.  Therefore,  what was  deposited by the appellants with the State would remain with  it notwithstanding, the interim orders which  required the  State to keep it in a separate account but, at the same time,  what  has not been collected by the State  cannot  be realised  by it, even in those cases where a bank  guarantee had been furnished.

   Lastly,  while relying on Mafatlal Industries Ltd.   and Others  vs.   Union  of  India and  Others  ,  Shri  Dwivedi submitted  that  the appellants had realised the  amount  of vend  fee  payable by taking that figure into account  while determining  their  sale price and, therefore, the State  is entitled to recover the same as it would otherwise result in unjust enrichment to the appellants.

   In  Mafatlals  case  (supra) the  principle  of  unjust enrichment was invoked as refund was claimed even though the amount of excise duty paid had already been recovered.  This principle  resulted in the court declining to order  refund. The  principle  of unjust enrichment does not apply  in  the present  case,  in  view of the direction  given  in  second Synthetics case (supra) that no refund be given.  This is in line  with  the  principle of unjust enrichment.   But  that principle cannot be extended to give a right to the State to recover  or  realise  vend fee after the  statute  has  been struck  down and it has been categorically stated that  the respondent  States  are restrained from enforcing  the  said levy  any further..  The contention of the respondents  in the  teeth of the aforesaid direction cannot, therefore,  be accepted.   This  is  apart from the fact that there  is  no factual  basis  on  which this Court can conclude  that  the appellants  have in fact realised the amount of vend fee and allowing  them  to  retain it will result in  their  getting enriched unjustly.

   For  the  aforesaid reasons, C.A.  No.  4093 of 1991  is allowed.   Civil Appeal No.  2853 of 2001 is dismissed.   It is  declared that the vend fee realised by the States is not to  be refunded to the appellants and, at the same time, the State  cannot  collect any vend fee for the period prior  to 25th  October,  1989  or   thereafter  notwithstanding  that notices  of  demand  may  have   been  issued  or   recovery proceeding initiated.  Parties to bear their own costs.

   C.A.   Nos.  324 of 1981, 455, 2795, 1604 of 1980,  624, 625,  125, 2049 of 1981, C.A.  Nos.  1122, 181 of 1981,  SLP (C)  Nos.  4181, 4297-4298 of 1980, C.A.  Nos.  215, 341  of 1981,  T.C.   Nos.  37-39 of 1989, C.A.  Nos.  2777 of  1981 and 1607 of 1980

   In  these  appeals apart from the points decided by  the judgment in Somaiyas case (Civil Appeal No.  4093 of 1991), one  of the issues which arises pertains to the validity  of the  export pass fee sought to be levied and realised by the State.   Counsel  for the parties agree that this and  other issues,  not covered by the judgment in Somaiyas case,  can now be decided by an appropriate Bench.

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_________________________________________________________________________________

RUMA PAL, J.

   While  I  respectfully  concur with  the  reasoning  and conclusions reached by my learned brother Kirpal, J., I wish to   add  my  views  on  an  aspect  of   the   prospective over-ruling which was sought to be effected by the decision of  the  Constitution Bench of this Court in Synthetics  and Chemicals  Ltd.   and Others vs.  State of U.P.  and  others 1990 (1) SCC 109.

   One  of  the arguments of the appellant as noted  by  my learned  brother was that the Court in the Synthetics  case by resorting to prospective over-ruling had in a fact sought to  uphold  a law upto the period of the judgment which  law had  held  to  have been passed without competence.   It  is submitted  that  the  finding  that   the  States  were  not competent  to levy tax on industrial alcohol meant that  the State  Acts  were  non est and that the Court could  not  by giving  prospective effect to its judgment breathe life into a  dead statute up to the date of the judgment.  It was also contended  by the appellant that even under Article 142, the Court  could  not whittle down or act in derogation  of  any constitutional provision.  By declaring that the statute was valid  up  to  the date of the judgment,  according  to  the appellant,  the specific constitutional provisions,  namely, Articles  246 and Article 245 were infringed.  Reliance  has been placed on the decision of this Court in Prem Chand Garg vs.   Excise Commissioner, U.P., Allahabad 1963 (1) SCR  885 and  Supreme  Court Bar Association V.  Union of  India  and Another 1998 (4) SCC 409.

   The   argument   of   the   appellant  proceeds   on   a misunderstanding  of the effect of prospective  over-ruling. As  has  been  elaborately stated in  my  learned  brothers judgment,  by  prospective  over-ruling the Court  does  not grant  the  relief  claimed  even   after  holding  in   the claimants  favour.   In this case, the Court held that  the statutory provision imposing vend fee was invalid.  Strictly speaking, this would have entitled the appellant to a refund from the respondents of all amounts collected by way of vend fee.   But  because,  as stated in the  Synthetics  decision itself,  over  a period of time imposts and levies had  been imposed  by  virtue  of the earlier decision  and  that  the States  as  well  as the petitioners and  manufacturers  had adjusted  their  rights and their positions on  that  basis, this  relief was denied.  The Court did not, by denying  the relief,  authorise or validate what had been declared to  be illegal  or  void  nor  did it imbue  the  legislature  with competence upto the date of the judgment.