Pannalal Kankariya and Sons Vs Additional Assistant Commissioner of Sales Tax and Others

@JUDGMENTTAG-ORDER

G.P. Singh, C.J.

By the order passed on 10th May, 1975, the Additional Assistant Commissioner of Sales Tax imposed a penalty of Rs. 30,000 on the petitioner u/s 17(3) of the Madhya Pradesh General Sales Tax Act, 1958, read with Section 9(2) of the Central Sales Tax Act, 1956. The petitioner filed a revision which was allowed by the Commissioner on 9th June, 1976, and the order imposing penalty was set aside solely on the basis of the decision of the Supreme Court in Khemka and Co. (Agencies) Pvt. Ltd. Vs. State of Maharashtra, . The Additional Assistant Commissioner issued a notice of demand dated 17th March, 1977, requiring the petitioner" to deposit the amount of penalty of Rs. 30,000 imposed by his order dated 10th May, 1975. This notice was issued in pursuance of the Central Sales Tax (Amendment) Act, 1976, which was enacted by Parliament to get over the decision in Khemka and Co. (Agencies) Pvt. Ltd. Vs. State of Maharashtra, . The petitioner then filed this petition under Article 226 of the Constitution for quashing of the said notice.

The first contention raised by the learned counsel for the petitioner is that the effect of the amending Act is not to revive the order of penalty passed by the Additional Assistant Commissioner of Sales Tax which was set aside in revision by the Commissioner by order dated 9th June, 1976. The second contention of the learned counsel is that Sub-section (2A) inserted in Section 9 of the principal Act and Section 9(1) of the amending Act which make applicable the provisions relating to penalties of the general sales tax law of each State in relation to the assessment, reassessment, collection and the enforcement of payment of any tax under the Central Act are void for excessive delegation.

By Section 6 of the amending Act, Sub-section (2A) was inserted in Section 9 of the Central Act, which reads as follows :

(2A) All the provisions relating to offences and penalties (including provisions relating to penalties in lieu of prosecution for an offence or in addition to the penalties or punishment for an offence but excluding the provisions relating to matters provided for in Sections 10 and 10A) of the general sales tax law of each State shall, with necessary modifications, apply in relation to the assessment, reassessment, collection and the enforcement of payment of any tax required to be collected under this Act in such State or in relation to any process connected with such assessment, reassessment, collection or enforcement of payment as if the tax under this Act were a tax under such sales tax law.

Section 9 of the amending Act, which deals with validation, is as under :

9. Validation.-(1) The provisions of Section 9 of the principal Act shall have effect, and shall be deemed always to have had effect, in relation to the period commencing on the 5th day of January, 1957, and ending with the date immediately preceding the date of commencement of this Act as if that section also provided-

(a) that all the provisions relating to penalties (including provisions relating to penalties in lieu of prosecution for an offence or in addition to the penalties or punishment on conviction for an offence but excluding the provisions relating to matters provided for in Sections 10 and 10A of the principal Act and the provisions relating to offences) of the general sales tax law of each State shall, with necessary modifications, apply in relation to-

(i) the assessment, reassessment, collection and enforcement of payment of any tax required to be collected under the principal Act in such State; and

(ii) any process connected with such assessment, reassessment, collection or enforcement of payment; and

(b) that for the purpose of the application of the provisions of such law, the tax under the principal Act shall be deemed to be tax under such law.

(2) Notwithstanding anything contained in any judgment, decree or order of any court or tribunal or other authority, all penalties under the general sales tax law of any State imposed or purporting to have been imposed in pursuance of the provisions of Section 9 of the principal Act and all proceedings, acts or things taken or done for the purpose of, or in relation to, the imposition or collection of such penalties, before the commencement of this Act shall, for all purposes, be deemed to be and to have always been imposed, taken or done as validly and effectively as if the provisions of Sub-section (1) had been in force when such penalties were imposed or proceedings or acts or things were taken or done and, accordingly,-

(a) no suit or other proceedings shall be maintained or continued in or before any court or any tribunal or other authority for the refund of any amount received or realised by way of such penalty;

(b) no court, tribunal or other authority shall enforce any decree or order directing the refund of any amount received or realised by way of such penalty;

(c) where any amount which had been received or realised by way of such penalty had been refunded before the commencement of this Act and such refund would not have been allowed if the provisions of Sub-section (1) had been in force on the date on which the order for such refund was passed, the amount so refunded may be recovered as an arrear of tax under the principal Act;

(d) any proceeding, act or thing which could have been validly taken, continued or done for the imposition of such penalty at any time before the commencement of this Act if the provisions of Sub-section (1) had then been in force but which had not been taken, continued or done, may after such commencement be taken, continued or done.

(3) Nothing in Sub-section (2) shall be construed as preventing any person,-

(a) from questioning the imposition or collection of any penalty or any proceedings, act or thing in connection therewith; or

(b) from claiming any refund, in accordance with the provisions of the principal Act read with Sub-section (1).

Explanation.-In computing the period of limitation, if any, for questioning as provided in Clause (a) or for claiming as provided in Clause (b), the period commencing on 27th day of February, 1975, and ending with the date of commencement of this Act shall be excluded.

(4) Any interest charged or paid or purporting to have been charged or paid, and any proceeding, act or thing taken or done or purporting to have been taken or done for charging or paying any interest, under the provisions of the general sales tax law of any State read with Section 9 of the principal Act, before the commencement of this Act, shall be deemed to be and to have always been as validly charged, paid, taken or done as if the amendment made by Clause (b) of Section 6 had been in force when such interest was charged or paid or when such proceeding, act or thing was taken or done.

Explanation.-For the purposes of this section, ''general sales tax law'' shall have the same meaning as in the principal Act.

In Khemka and Co. (Agencies) Pvt. Ltd. Vs. State of Maharashtra, , the Supreme Court by a majority of three against two held that the provisions of penalty in the State Acts do not apply for purposes of the Central Act. Sub-section (2A) inserted by the amending Act in Section 9 of the Central Act supplied this deficiency. Further, the validating provision contained in Sub-section (1) of Section 9 of the amending Act incorporates similar provision retrospectively with effect from 5th January, 1957. Sub-section (2) of Section 9 further says that notwithstanding anything contained in any judgment, decree or order of any court or tribunal or other authority, all penalties under the general sales tax law of any State imposed or purporting to have been imposed in pursuance of the provisions of Section 9 of the principal Act and all proceedings, acts or things taken or done for the purpose of, or in relation to, the imposition or collection of such penalties, before the commencement of this Act shall, for all purposes, be deemed to be and to have always been imposed, taken or done as validly and effectively as if the provisions of Sub-section (1) had been in force when such penalties were imposed. The combined effect of Sub-sections (1) and (2) of Section 9 of the amending Act is to declare that the penalty imposed by the order of the Additional Assistant Commissioner dated 10th May, 1975, u/s 17(3) of the State Act read with Section 9(2) of the Central Act was validly imposed. The argument that as the order of the Additional Assistant Commissioner imposing penalty was set aside by the Commissioner in revision Sub-section (2) of Section 9 of the amending Act does not revive the order imposing penalty, ignores the opening words of Sub-section (2) which are "notwithstanding anything contained in any judgment, decree or order of any court or tribunal or other authority". This notwithstanding clause makes the Commissioner''s order in revision inoperative and revives the order of the Additional Assistant Commissioner imposing penalty. This is further clear from Clauses (a) to (c) of Sub-section (2). We do not accept the argument that there should be a fresh order imposing penalty under Clause (d) of Sub-section (2). Clause (d) will apply in those cases where there was no order at all imposing penalty. That Clause has no application to those cases where penalty was imposed but was set aside relying solely upon Khemka and Co. (Agencies) Pvt. Ltd. Vs. State of Maharashtra, . We need not deal with this argument any further as a similar argument was negatived in Laxmandas v. State of M.P. 1980 MPLJ 607 by a Division Bench of this Court, where it was observed as follows:

The learned counsel''s argument that there should be a fresh order imposing penalty under the new provisions and that such an order alone can be enforced and the orders which were previously cancelled and had become dead for all purposes, are not made effective, does not give full effect to the notwithstanding Clause in Sub-section (2). The view taken by us is further supported by Clauses (b) and (c) of Sub-section (2). Clause (b) specifically provides that no court, tribunal or other authority shall enforce any decree or order directing the refund of any amount received or realised by way of such penalty. This clause presupposes that the decree or order directing the refund has become ineffective and inoperative because of Sub-section (2) and the penalty imposed has become operative. Clause (c) also proceeds upon the same hypothesis when it provides that where any amount which had been received or realised by way of such penalty had been refunded before the commencement of the amending Act and such refund would not have been allowed if the provisions of Sub-section (1) of Section 9 had been in force on the date on which the order for such refund was passed, the amounts so refunded may be recovered as arrears of tax. It is implicit in this provision that the order directing refund on cancellation of penalty becomes inoperative because of the validating provisions contained in Section 9 of the amending Act and the penalty refunded can be recovered back as arrears of tax. For the reasons given above, we are of the opinion that the effect of the validating provisions of Section 9 of the amending Act is that the order passed by the Commissioner in rectification proceedings which proceeded solely on the ground that penalty could not be imposed in view of the law laid down by the Supreme Court in Khemka and Co. (Agencies) Pvt. Ltd. Vs. State of Maharashtra, has become inoperative and ineffective and the orders imposing penalty which were cancelled by the said order have become operative.

As regards the second contention, the argument of the learned counsel is that Parliament makes applicable by Sub-section (2A) inserted in Section 9 of the principal Act and Section 9(1) of the amending Act the provisions relating to penalties of the relevant State Acts which may have been in force from 5th January, 1957, which may now be in force and which in future may be in force, and such a legislation amounts to abdication of legislative functions and is unconstitutional. The learned counsel in this connection referred to a passage from the judgment of Beg, J., in Khemka and Co. (Agencies) Pvt. Ltd. Vs. State of Maharashtra, , which reads as under:

Relying upon the principles indicated by this court in In re Delhi Laws Act AIR 1951 SC 332. I think one could say that in 1956 the Parliament could not have applied its mind to provisions which came into existence afterwards. It could not, therefore, have incorporated them by reference as parts of a procedure applicable to assessments which took place after 1959 when the Bombay Act of 1953 was repealed. At the time of the passing of the Central Act, the relevant statute in existence in Bombay was the Bombay Act of 1953. But, Section 16(4) of the Bombay Act of 1953, under which the sales tax authorities purported to act, did not exist on the statute book at the time of assessment. Unless we assume that Section 9(2) of the Central Act, by a necessary implication, authorises the State Legislatures to go on imposing such penalties for such breaches of duty as it pleases them to lay down on behalf of Parliament, subsequently enacted provisions of State enactments would not be available.

I also find from the Mysore Act of 1957, that Section 13 of the Act was entirely recast in 1958. It would, I think, be carrying the theory of referential legislation too far to assume that Section 9(2) of the Central Act, 1956, purported to authorise the State Legislatures to impose liabilities in the nature of additional tax or penalties leaving their rates and conditions for their imposition also to be determined by the State Legislatures as and when the State Legislatures decided to impose or amend them. It is evident that these differ from State to State, and, in the same State, at different times. A conferment of such an uncontrolled power upon the State Legislatures could, if it was really intended, be said to travel beyond the province of permissible delegated legislation on the principles laid down long ago by this court in In Re: The Delhi Laws Act, 1912, the Ajmer-Merwara (Extension of Laws) Act, 1947 and the Part C States (Laws) Act, 1950, , as no guidelines are given in Section 9(2) about the nature, conditions or extent of penalties leviable. If such a power was really conferred would it not amount to an abdication of an essential legislative function with respect to a matter found as item 92A of the Union List I of the Seventh Schedule, so that, according to Article 246(1) of our Constitution, Parliament has exclusive power to legislate on a topic covered by it ? As this question was not argued before us I would only say that the correct canon of construction to apply in such a case is that we should so interpret Section 9(2) of the Central Act, if possible, that no part of it may conceivably be invalid for excessive delegation. The wellknown maxim applicable in such cases is : ut res magis valeat quam pereat.

The question of constitutional validity of Section 9(2) of the principal Act did not arise for decision in Khemka and Co. (Agencies) Pvt. Ltd. Vs. State of Maharashtra, . It was for this reason that Mathew and Chandrachud, JJ., did not express any opinion on that question. The passages from the opinion of Beg, J., which have been quoted above, also do not expressly say that Parliament could not validly incorporate by reference the provisions in the general sales tax law of the States which come to be enacted in future in the Central Act. His observations that "it would be carrying the theory of referential legislation too far to assume that Sub-section (2) of the Central Act purported to authorise the State Legislatures to impose liabilities in the nature of additional tax or penalties leaving their rates and conditions for their imposition also to be determined by the State Legislatures as and when the State Legislatures decide to impose or amend them" were made in the context of applying the proper canon of construction for interpreting Sub-section (2). Beg, J., specifically made it clear in that ease that if Sub-section (2) were construed that way whether it would amount to abdication of essential legislative function, was a question which was not argued and, therefore, he was referring to that aspect only for determining the correct canon of construction. The opinion expressed by Beg, J., cannot be taken to be decisive on the question that if Parliament by suitable amendment in Section 9 makes applicable the penalty provisions in the general sales tax law of the States that may be enacted from time to time for purposes of assessment and collection of Central sales tax, that would amount to excessive delegation and, therefore, invalid.

It may be taken to be well-settled that the legislature cannot delegate essential legislative functions of choosing of the legislative policy and of formally enacting that policy into a binding rule of conduct. In determining the question whether the legislature has crossed the constitutional limits of legislative delegation and abdicated its functions, it must be seen whether the legislature has enacted in the law concerned the legislative policy which it had in mind. The courts in this task have been quite generous and liberal, for it is now well-established that having regard to the complexity of problems which a modern State has to face, delegated legislation is a necessity and has its own advantages. If on a liberal construction of a given statute a legislative policy and guidance for its execution are discernible, the statute, even if skeleto, will be upheld.

Sub-section (2A) of Section 9 by the amending Act makes all the provisions relating to offences and penalties of the general sales tax law of each State applicable in relation to the assessment, reassessment, collection and the enforcement of the payment of any tax required to be collected under the Central Act. It will be noticed that in Sub-section (2A) the incorporation is not of any particular provision of any particular statute and reference is made in general terms to the provisions relating to offences and penalties in the general sales tax law of each State. The reference in these terms will be construed to refer to the law as it stands at the time it is sought to be applied with all the changes made from time to time; in other words, the provisions relating to offences and penalties in the State Acts as existing oh the date when their application is called for will apply for purposes of the Central Act: see Sutherland Statutory Construction, 3rd Edition, page 550; Bharat Aluminium Co. v. Special Area Development Authority [1979] MPLJ 344 and Bajaya Vs. Gopikabai and Another, . The legislative policy behind Sub-section (2A) is to bring about complete current uniformity on the subject of offences and penalties in relation to assessment, reassessment, collection and the enforcement of payment of the Central sales tax and the State sales tax. That is the whole theme of Section 9 which makes the machinery under the general sales tax law of a State applicable for assessment, reassessment, collection and enforcement of payment of tax under the Central Act. When the policy of bringing about complete current uniformity is clear from Sub-section (2A) added in Section 9, it cannot be said that Parliament abdicated its functions in favour of the State Legislatures by enacting Sub-section (2A). Parliament cannot be said to have delegated any function to the State Legislature, for it has itself determined the policy of complete current uniformity in the matter of offences and penalties in relation to assessment, reassessment and the enforcement of payment of taxes under the Central and the State Acts and it has itself made it a binding rule of conduct by enacting Sub-section (2A). The provisions relating to offences and penalties contained in the State Acts become applicable for the assessment, reassessment, collection and enforcement of payment of Central sales tax not because of the will of the State Legislatures but because of the will of Parliament as expressed in Sub-section (2A). Thus there is no question of any delegation or abdication of functions by Parliament here. In United States v. Sharpnack 355 US 286, the question before the Supreme Court of United States was whether a law made by the Congress which automatically made applicable to a federal enclave current criminal laws of the State in which the enclave was situated was constitutionally valid, or, whether the Congress by making the said law had delegated its legislative function and the law was invalid. The court by majority overruled the objection to the validity of the law and held that there was no element of delegation in it as the Act passed by the Congress brought about complete current uniformity between the criminal laws of the enclave and the criminal laws of the State where the enclave was situated. It was observed that as the basic legislative decision for maintaining complete uniformity was taken by the Congress and as the law was also made by the Congress to give effect to this legislative decision, there was no element of delegation and the law was valid. The same principle applies here also. As already stated, Parliament took the basic decision to bring about complete current uniformity between the provisions relating to offences and penalties applicable for assessment, reassessment, collection and enforcement of payment of tax under the Central Act and the provisions made for that purpose in the sales tax law of each State. Sub-section (2A) inserted in Section 9 was enacted by Parliament to give effect to this policy decision. In Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. Vs. The Asstt. Commissioner of Sales Tax and Others, , the Supreme Court upheld the validity of Section 8(2)(b) of the Central Sales Tax Act and held that Parliament with a view to prevent evasion of tax can make a provision that Central sales tax shall be levied at the same rate at which sales tax is levied under the State Act. This case holds that there is no constitutional prohibition for adopting a provision of law including its future amendments made by another legislature when there is "a special reason or purpose for such adoption" : see Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. Vs. The Asstt. Commissioner of Sales Tax and Others, see Krishna Chandra Gangopadhyaya and Others Vs. The Union of India and Others, . Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. Vs. The Asstt. Commissioner of Sales Tax and Others, was followed in International Cotton Corpn. (P) Ltd. Ors. Vs. Commercial Tax Officer, Hubli, and Others, , which upheld the validity of Section 8(2)(b) of the Central Sales Tax Act which applies the rate of tax under the appropriate State Act to sales of declared goods in the course of inter-State trade or commerce. It was pointed out that the legislative policy was that the inter-State trade should not be discriminated against and that a comprehensive provision be made avoiding the necessity of unending series of amendments every time one State or other altered its rate of tax. On the principles stated above, we do not find any invalidity in Sub-section (2A) of Section 9 of the Act.

The learned counsel for the petitioner relied upon the well-known case of B. Shama Rao Vs. The Union Territory of Pondicherry, . In that case the Pondicherry Legislature enacted the Pondicherry General Sales Tax Act, 1965, which was to come into force on issue of a notification by the Government, the effect of which was to apply to Pondicherry the Madras General Sales Tax Act, 1959, with all amendments up to the date of the notification. The Supreme Court held the Pondicherry Act to be invalid on the ground that it enabled the application of future amendments made by the Madras Legislature in the Madras Act up to the date of the enforcement of the Pondicherry Act. The court refused to follow its earlier decision in In Re: The Delhi Laws Act, 1912, the Ajmer-Merwara (Extension of Laws) Act, 1947 and the Part C States (Laws) Act, 1950, , where a power conferred on the Central Government by a Central Act to extend to Part C States (now Union Territories) future laws was upheld, and distinguished it on the ground that the delegation was upheld because of the special position of the Part C States concerned which, at that time, had no legislature of their own. B. Shama Rao Vs. The Union Territory of Pondicherry, now does not hold the field. In Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. Vs. The Asstt. Commissioner of Sales Tax and Others, , the ruling in B. Shama Rao Vs. The Union Territory of Pondicherry, was confined to its own facts, which is another way of overruling a decision,

We now take up the challenge to Section 9(1) of the amending Act which deals with validation. The effect of Section 9(1) is that all the provisions relating to penalties of the general sales tax law of each State that were in force from 5th January, 1957, up to the date of the commencement of the amending Act were applied retrospectively for purposes of assessment, reassessment, collection and enforcement of payment of the Central sales tax as part of the machinery of Section 9 of the Central Act. Although the words "from time to time" do not occur in Section 9(1), the effect of that section is to incorporate not the provisions of the State Act as in force on 5th January, 1957, but all the subsequent amendments up to the date of the commencement of the amending Act. Section 9(1) of the amending Act does not deal with laws to be enacted in future by the State Legislatures but only with past and present laws. There can be no constitutional impediment for Parliament in incorporating by retrospective legislation any existing State law or laws previously enacted by the State Legislatures. It must be expected that Parliament was fully aware of the laws in force from time to time from 5th January, 1957, up to the date of the commencement of the amending Act in the/various States and it decided to apply them for the purposes of the Central Sales Tax Act by enacting Section 9(1) of the amending Act to give effect to the policy of complete uniformity and for validating penalties already imposed. There is no element of delegation or abdication in Section 9(1). Thus we do not find any merit in the contention relating to the constitutional validity of Sub-section (2A) of Section 9 of the Central Sales Tax Act inserted by the amending Act or of Section 9(1) of the amending Act.

The petition fails and is dismissed without any order as to costs. The security amount be refunded to the petitioner.