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PETITIONER: STATE OF TAMIL NADU

       Vs.

RESPONDENT: THIRUMAGAL MILLS LTD.  ETC.

DATE OF JUDGMENT17/11/1971

BENCH: GROVER, A.N. BENCH: GROVER, A.N. HEGDE, K.S.

CITATION:  1972 AIR 1148            1972 SCR  (2) 395  1972 SCC  (1) 176  CITATOR INFO :  RF         1973 SC1045  (3)  F          1985 SC1748  (6)

ACT: Madras  General Sales Tax Act, 1959, s. 2(d) as  amended  by Madras  General  Sales Tax (Second Amendment)  Act,  1964-If retrospective-- Effect of s. 9.

HEADNOTE: The  assessee was a spinning mill.  It opened a  fair  price shop   to  provide  an  amenity  to  its  workmen  so   that commodities  may be made available to them at  fair  prices. For  the  assessment year 1960-61  the  assessing  authority under  the Madras General Sales Tax Act, 1959,  included  in the assessee’s turnover the sale value of groceries sold  in the  fair  price shop.  The Tribunal held in favour  of  the assessee  and the High Court, on reference, found  that  the assessee  was not carrying on ’business’ within the  meaning of the Act in the fair price shop and confirmed the orders. In  appeal  to this Court it was contended that  the  Second Amendment  Act.  1964,  substituted  a  new  definition   of ’business’ in the Act, which, read with s. 9 of the Act, had retrospective effect. Dismissing the appeal, HELD  :  Validation  of tax which has been  declared  to  be illegal  may  be done only if the ground  of  illegality  or invalidity  are  capable of being removed and  are  in  fact removed.   The  Legislature  can give its  own  meaning  and interpretation of law under which the tax was collected  and by  legislative flat make the new meaning binding  upon  the courts. [399 C-D] But in the present case, none of the methods for  validating a  tax  has  been  adopted.   Although  the  definition   of ’business’ was amended it was not made retrospective by  the usual  words  that it should be deemed to have  been  always substituted nor was any other language employed to show that the substantive provision was being amended retrospectively. On  the contrary, the definition of the word ’business’  was amended only prospectively.  In the absence of retrospective effect being given to the definition, s.     9  was  of   no avail to the Revenue. [399 E-G] State of Tamil Nadu v. M. Rayappa Gounder, A.I.R. 1971  S.C.

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231,   Shri   Prithvi  Cotton  Mills   v.   Broach   Borough Municipality, [1970] 1 S.C. R. 388; 79 I.T.R. 136, followed.

JUDGMENT: CIVIL  APPELLATE JURISDICTION : Civil Appeals Nos.  1454  of 1969 and 148 of 1971. Appeals by special leave from the judgments and orders dated April 6, 1967 and January 22, 1969 of the Madras High  Court in Tax Cases Nos. 152 of 1964, and 300 of 1968 respectively. S.   T.  Desai and A. V. Rangam, for the appellant (in  both the appeals) --L500 Sup.CI/72 396 K.   Parasaran,  T. Vadivel, R. Shanmughan and  K.  Jayaram, for the respondent (in C.A. No. 1454/69). T.   A.  Ramachandran,  for  the  respondent  (in  C.A.  No. 148/71). B Sen, S. P. Mitra and G. S. Chatterjee, for intervener (in C.A. No. 1454 of 1969). The Judgment of the Court was delivered by Grover, J. These appeals by special leave from a judgment of the Madras High Court involve a common question. The facts in the first of these appeals may be stated.   The assessee,  who is the respondent herein, is a spinning  mill manufacturing  cotton  yarn.  It was assessed to  sales  tax under  the Madras General Sales Tax Act,  1959,  hereinafter called  the  ’Act’.   For the assessment  year  1960-61  the assessing authority included in the taxable turnover certain amounts  representing  the  sale  value  of  foodgrains  and groceries  sold in the fair price shop run by the mills  and the  amount  realised  by sale of articles of  food  in  the canteen which was run for its employees.  The assessee filed an  appeal  questioning its liability to pay  tax  on  these items  The appellate authority dismissed that  appeal.   The assessee  thereupon filed a further appeal to the Sales  tax Appellate  Tribunal  which allowed the appeal  and  directed that the turnover in question be deleted.  The Revenue  went up  in  revision to the High Court of  Madras.   A  division bench of that court dismissed the revision. The  Appellate Tribunal had found that the fair  price  shop and the canteen were run exclusively for the benefit of  the employees  and  there was no profit motive  in  running  the same.   The  High Court referred to the  relevant  statutory provisions and expressed the view that the primary requisite of  ’business’  as defined by the Act should be a  trade  or commerce  or adventure in the nature of trade  or  commerce. Presence  or  absence  of profit was not  material  but  the activity must be of a commercial character in the course  of trade  or commerce.  It was found that the assessee had  not been carrying on business in the fair price shop.  The  High Court  looked  into  the  articles  of  association  of  the assessee  and  found no article empowering it  to  carry  on business  in fair price shop.  The assessee had opened  that shop  only  to  provide an amenity to its  workmen  so  that commodities  may be made available to them at  fair  prices. According  to  the High Court if as a matter of  fact,  some profit  accrued that would be wholly immaterial because  the assessee  never  intended to run the fair price  shop  as  a business having an element of commercial activity.  397 Section   2  of  the  Act  ’gives  the   definitions.    The definitions  of "business" given in cl. (d), of "dealer"  as given  in  cl.  (g) and of "sale" as given in  cl.  (n)  are

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reproduced below:               (d)   "business" includes any trade,  commerce               or manufacture or any adventure or concern  in               the  nature of trade, commerce or  manufacture               whether  or not any profit accrues  from  such               trade,  commerce,  manufacture,  adventure  or               concern."               (g)   "dealer" means any person who carries on               the business of buying, selling, supplying  or               distributing  goods,  directly  or  otherwise,               whether  for cash or for deferred  payment  or               for commission, remuneration or other valuable               consideration and includes-               (i).....................               (iii) a  commission agent, a broker or  a  del               credere  agent, or an auctioneer or any  other               mercantile agent, by whatever name called, who               carries  on the business of  buying,  selling,               supplying  or distributing goods on behalf  of               any principal.                (iv)               (n)   "sale"   with   all   its    grammatical               variations and cognate expressions means every               transfer  of  the  property in  goods  by  one               person  to another in the course  of  business               for  cash  or for deferred  payment  or  other               valuable   consideration,   and   includes   a               transfer of property in goods involved in  the               execution  of a works contract, but  does  not               include  a mortgage, hypothecation, charge  or               pledge".               By  the  Madras  General  Sales  Tax   (Second               Amendment)  Act, 1964, clause (d) of s. 2  was               substituted by the following clause               "business" includes-               (i)   any  trade, commerce or  manufacture  or               any  adventure  or concern in  the  nature  of               trade, commerce or manufacture whether or  not               such  trade, commerce, manufacture,  adventure               or concern is carried on with a motive to make               gain  or profit and whether or not any  profit               accrues    from    such    trade,    commerce,               manufacture, adventure or concern and               (ii)  any  transaction in connection  with  or               incidental   or  ancillary  to,  such   trade,               commerce, manufacture,, adventure or concern". 398 Section 9 validated the levy and collection of certain taxes in the following terms :               S.9.  "Notwithstanding anything  contained  in               any judgment, decree or order of any Court, no               levy  or  collection  of  any  tax  under  the               provisions  of the principal Act and of  rules               made  thereunder  in respect of sales  in  the               course  of  business,  whether or  not  it  is               carried  on  with  a motive to  make  gain  or               profit  shall be deemed to be invalid or  ever               to  have been invalid on the ground only  that               such levy or collection was not in  accordance               with  law and such tax levied or collected  or               purporting  to have been levied  or  collected               shall,  for all purposes, be deemed to be  and               always   to  have  been  validly   levied   or               collected and accordingly--               (a)   all acts, proceedings or things done  or

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             taken  by  the  State  Government  or  by  any               officer  of  the State Government  or  by  any               other authority 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 other proceedings  shall  be               maintained  or continued in any Court  against               the   State  Government  or  any   person   or               authority whatsoever for the refund of any tax               so paid; and               (c)   no  Court  shall enforce any  decree  or               order directing the refund of any tax so paid;               (d)   any such tax levied under the  principal               Act,  before the commencement of this Act  but               not collected before such commencement or  any               such tax leviable under the Principal Act  but               not  levied  before such commencement  may  be                             collected  (after  levy  of  the  tax  wherever               necessary)  in  the  manner  provided  in  the               principal Act)". It has not been contended before us on behalf of the Revenue that  the turnover of the sales by the fair price  shop  and the  canteen  could  be included  in  the  taxable  turnover according to the definition of "business" as it stood in the original  Act.   The contention raised is that S. 2  of  the Second Amendment Act 1964 substituted the new definition  of "business" with retrospective effect.  This result flows, it is said, from the language of S. 9 although in S. 2 of  that Act no such language has been used as can give retrospective operation  to  the amendment made.  We are unable  to  agree that S. 9 by itself would make the definition of  "business" as  substituted  in s. 2 retrospective.  In State  of  Tamil Nadu &  399 Another  v.  M. Rayappa Gounder etc.(1) s. 7 of  the  Madras Entertainment Tax (Amendment) Act 1966 which was similar  to S. 9 mentioned above came up for consideration. The question was  whether the assessments were validly protected by  that section.  Reliance  was place on certain decisions  of  this Court  which  laid down that it is open to  the  legislature within  certain  limits to amend the provisions of  the  Act retrospectively and to declare what the law shall be  deemed to  have been but it was not open to the legislature to  say that a judgment of a court properly constituted and rendered shall  be deemed to be ineffective. Hence it was  held  that the impugned assessment in that case could not be sustained. The  principle  which  has been laid down  clearly  is  that validation of tax which has been declared to be illegal  may be done only if the grounds of illegality or invalidity  are capable of being removed and are in fact removed.  Sometimes this   is   done  by  providing   for   jurisdiction   where jurisdiction   had  not  been  properly   invested   before. Sometimes  this is achieved by reenacting retrospectively  a valid and legal taxing provision and then by fiction  making the tax already collected to stand under the reenacted  law. The legislature can give its own meaning and  interpretation of  the  law  under  which the  tax  was  collected  and  by legislative  fiat  make  the new meaning  binding  upon  the courts. None of these methods has  been   adopted   in   the present case. [see Shri Prithvi Cotton Mills Ltd. v.  Broach Borough Municipality & Ors.(2)].      Although  the definition of "business’ was  substituted by  the  Second  Amendment  Act of  1964  it  was  not  made

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retrospective by the usual words that it should be deemed to have  been  always substituted nor was  any  other  language employed to show that the substantive provision, namely, the definition of "business" was being amended  retrospectively. Section 9, therefore, can be of no avail to the Revenue.  It has been pointed out that in the other decision rendered  by this  Court in which similar validation  provision  appeared the substantive section had not been amended at all.   That, in  our  judgment will not make any difference  because  the essence  of  the matter is that the definition of  the  word "business" which was material was amended only prospectively and  not with retrospective effect. It is common ground  and has not been disputed that if retrospective operation is not given  to  S.  2(d) of the Second  Amendment  Act  1964  the Revenue must fail in these appeals. We may add that we  have not considered the question of the liability of the assessee to  be  Assessed  subsequent to the amendment  made  by  the Second Amendment Act of 1964.      In the result the appeals are dismissed with costs. V.P.S.                         Appeals dismissed. (1)  A.I.R. 1971 S.C. 231. (2)  [1970] 1 S.C.R. 388; 79 I.T.R. 136. 400