IN THE HIGH COURT OF GUJARAT AT AHMEDABAD For Approval and Signature: Hon'ble CHIEF JUSTICE MR DM DHARMADHIKARI and Hon'ble MR.JUSTICE B.C.PATEL ============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements? 2. To be referred to the Reporter or not? : YES 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? : NO -------------------------------------------------------------- SPECIAL CIVIL APPLICATION NO. 5723 OF 1988 (SHARMA METAL ROLLING MILLS) WITH SPECIAL CIVIL APPLICATION NO. 6915 OF 1988 (SHRI RAJENDRA ROLLING MILLS) WITH SPECIAL CIVIL APPLICATION NO. 2101 OF 1989 (UDAYA UYDOG) WITH SPECIAL CIVIL APPLICATION NO. 2195 OF 1989 (GAGLANI UDYOG) WITH SPECIAL CIVIL APPLICATION NO. 2460 OF 1989 (TRIVENI MARBLES PVT. LTD.) WITH SPECIAL CIVIL APPLICATION NO. 4582 OF 1988 (SHAKTI ROLLING MILLS) WITH SPECIAL CIVIL APPLICATION NO. 748 OF 1988 P.T. MEHTA INDUSTRIES & ANR WITH SPECIAL CIVIL APPLICATION NO. 6794 OF 1988 (J K STEEL & ALLOWYS) WITH SPECIAL CIVIL APPLICATION NO. 6795 OF 1988 (VIDYA WIRES PVT. LIMITED) WITH SPECIAL CIVIL APPLICATION NO. 6796 OF 1988 (NARANLALA ROLLING PVT. LTD.) WITH SPECIAL CIVIL APPLICATION NO. 6913 OF 1988 (ARIHANT METALS) WITH SPECIAL CIVIL APPLICATION NO. 5491 OF 1988 (SWAMI NARAYAN STEEL RE-ROLLING MILL) WITH SPECIAL CIVIL APPLICATION NO. 6914 OF 1988 (SAKARIYA METAL ROLLING MILLS) WITH SPECIAL CIVIL APPLICATION NO. 5924 OF 1988 (ATLAS WIRES PVT. LTD.) WITH SPECIAL CIVIL APPLICATION NO. 5925 OF 1988 (MAHESHWAR STEEL ROLLING MILL) WITH SPECIAL CIVIL APPLICATION NO. 5926 OF 1988 (VICTOR STEEL INDUSTRIES) WITH SPECIAL CIVIL APPLICATION NO. 5927 OF 1988 (MOHAN METALS) WITH SPECIAL CIVIL APPLICATION NO. 5928 OF 1988 (MADHUSUDAN STEEL & RE-ROLLING WORKS) WITH SPECIAL CIVIL APPLICATION NO. 5929 OF 1988 (KAMAL METAL ROLLING MILLS) WITH SPECIAL CIVIL APPLICATION NO. 5930 OF 1988 (BHUPENDRA IRON STEEL RE-ROLLING MILLS) WITH SPECIAL CIVIL APPLICATION NO. 3563 OF 1991 (SURYAVIJAY WOODEN SAW MILLS) WITH SPECIAL CIVIL APPLICATION NO. 5964 OF 1988 (NAVSARI PROCESSING INDUSTRY) WITH SPECIAL CIVIL APPLICATION NO. 5965 OF 1988 (GURU BHOMIYA METAL INDUSTRIES) WITH SPECIAL CIVIL APPLICATION NO. 5966 OF 1988 (TRIVEDI IRON & STEEL INDUSTRIES) WITH SPECIAL CIVIL APPLICATION NO. 5967 OF 1988 (JALARAM INDUSTRIES) WITH SPECIAL CIVIL APPLICATION NO. 5968 OF 1988 (PATEL STEEL CRAFT & RE-ROLLING MILLS) WITH SPECIAL CIVIL APPLICATION NO. 5969 OF 1988 (INDIA STEEL ROLLING MILLS) WITH SPECIAL CIVIL APPLICATION NO. 5970 OF 1988 (JAGDISH UDYOG) WITH SPECIAL CIVIL APPLICATION NO. 5971 OF 1988 (B.R. METAL INDUSTRIES) WITH SPECIAL CIVIL APPLICATION NO. 5972 OF 1988 (ROLLING MILLS (INDIA) & ORS.) WITH SPECIAL CIVIL APPLICATION NO. 5973 OF 1988 (LALIT METAL INDUSTRIES) WITH SPECIAL CIVIL APPLICATION NO. 6011 OF 1988 (ATUL STEEL ROLLING MILLS PVT. LTD.) WITH SPECIAL CIVIL APPLICATION NO. 6012 OF 1988 (NARAN LAL METAL WORKS LTD.) WITH SPECIAL CIVIL APPLICATION NO. 6013 OF 1988 (MEHTA UDYOG) WITH SPECIAL CIVIL APPLICATION NO. 6014 OF 1988 (SULEKH RAM & SONS STEEL ROLLING MILLS) WITH SPECIAL CIVIL APPLICATION NO. 6015 OF 1988 (SHREE ATUL METAL RE-ROLLING MILL) WITH SPECIAL CIVIL APPLICATION NO. 6016 OF 1988 (SWASTIK IRON & STEEL ROLLING MILLS) WITH SPECIAL CIVIL APPLICATION NO. 6017 OF 1988 (RAJKAMAL RE-ROLLING ENGINEERING CO.) WITH SPECIAL CIVIL APPLICATION NO. 6018 OF 1988 (AHMEDABAD STEEL CRAFT & ROLLING MILLS PVT. LTD) WITH SPECIAL CIVIL APPLICATION NO. 6019 OF 1988 (LAXMI STEEL ROLLING MILL) WITH SPECIAL CIVIL APPLICATION NO. 6020 OF 1988 (IRON & ROLLING MILLS PVT. LTD.) WITH SPECIAL CIVIL APPLICATION NO. 6111 OF 1988 (AHMEDABAD ADVANCE MILLS LIMITED) WITH SPECIAL CIVIL APPLICATION NO. 6112 OF 1988 (ORION STEEL CORPORATION) WITH SPECIAL CIVIL APPLICATION NO. 6113 OF 1988 (ORION WIRES MFG. CO.) WITH SPECIAL CIVIL APPLICATION NO. 6114 OF 1988 (SIRHIND STEEL PVT. LTD.) WITH SPECIAL CIVIL APPLICATION NO. 6115 OF 1988 (PRAKASH INDUSTRIES) WITH SPECIAL CIVIL APPLICATION NO. 6116 OF 1988 (PARRY ENGG. & ELECTRONICS PVT LTD) WITH SPECIAL CIVIL APPLICATION NO. 6117 OF 1988 (MAHA GUJARAT STEEL ROLLING MILLS) WITH SPECIAL CIVIL APPLICATION NO. 6253 OF 1988 (INDUSTRIAL FASTNERS OF GUJARAT PVT. LTD) WITH SPECIAL CIVIL APPLICATION NO. 6254 OF 1988 (AMBICA RE-ROLLING MILLS) WITH SPECIAL CIVIL APPLICATION NO. 6255 OF 1988 (PUNJAB STEEL ROLLING MILLS PVT. LTD.) WITH SPECIAL CIVIL APPLICATION NO. 6256 OF 1988 (MALHOTRA STEEL INDUSTRIES PVT. LTD.) WITH SPECIAL CIVIL APPLICATION NO. 6310 OF 1988 (GUJARAT IRON & STEEL CO. LTD.) WITH SPECIAL CIVIL APPLICATION NO. 6375 OF 1988 (GANDHI IRON & STEEL RE-ROLLING MILLS) WITH SPECIAL CIVIL APPLICATION NO. 7729 OF 1988 (MOHANLAL CHOTALAL RAJORA) WITH SPECIAL CIVIL APPLICATION NO. 8420 OF 1988 (SOMNATH STEEL INDUSTRIES) WITH SPECIAL CIVIL APPLICATION NO. 1427 OF 1989 (VIJAPUR TALUKA POWER LOOMS) WITH SPECIAL CIVIL APPLICATION NO. 1538 OF 1989 (PREMIER RE-ROLLING MILLS) WITH SPECIAL CIVIL APPLICATION NO. 2591 OF 1989 (DIVAYANG ROLLING MILLS) WITH SPECIAL CIVIL APPLICATION NO. 7272 OF 1989 (AJAYKUMAR RAMESHCHAND JAIN) WITH SPECIAL CIVIL APPLICATION NO. 3563 OF 1990 (PERFECT BRIGHT STEEL INDS.) WITH SPECIAL CIVIL APPLICATION NO. 2190 OF 1991 (MAHENDRA & COMPANY) WITH SPECIAL CIVIL APPLICATION NO. 3561 OF 1991 (KALYAN SAW MILL) WITH SPECIAL CIVIL APPLICATION NO. 3562 OF 1991 (BHARAT SAW MILL) WITH SPECIAL CIVIL APPLICATION NO. 611 OF 1992 (M/S. WELDING ROD MFG. CO.) --------------------------------------------------------- Appearance: IN ALL MATTERS EXCEPT SCA NO. 2460/89, 7729/88, 1427/89, 2591/89, 7272/89, 3561/91, 3562/91 MR. KS NANAVATI for petitioners IN SCA NO.2460/89 MR S.K. JHAVERI for petitioners IN SCA NO.7729/88 MR RA MISHRA for petitioners IN SCA NO.1427/89 MR KIRIT I PATEL for petitioners IN SCA NO. 2591/89 MR BK DAMANI for petitioners (Absent) IN SCA NO. 7272/89 Mr. NAGIN M GANDHI for petitioner IN SCA NO. 3561/91 & 3562/91 MR. MANISH R BHATT for petitioners (Absent) FOR RESPONDENTS MR JM THAKORE, ADVOCATE GENERAL with MR AD OZA, GOVT. PLEADER with MS. DEVANI, A.G.P. for State MR. MD PANDYA for Gujarat Electricity Board MR. HB SHAH for Ahmedabad Electricity Co. Ltd. -------------------------------------------------------------- CORAM : CHIEF JUSTICE MR DM DHARMADHIKARI and MR.JUSTICE B.C.PATEL Date of decision: 20/06/2000 C.A.V. JUDGEMENT (Per Patel, J.) In this group of matters, petitioners have prayed for a declaration that section 2 (2) (a) and Section 3 of the Bombay Electricity Duty (Gujarat Amendment) Act, 1988 (Gujarat Act No. 7 of 1988) are unconstitutional and ultravires being violative of the fundamental rights guaranteed under Part III of the Constitution of India and, therefore, unenforceable as against the petitioners and consequently, have prayed to quash and set aside the demand at Annexure 'A' to the petition. 2. With a view to dispose of this group of matters, short facts are required to be taken into consideration, and such facts, as it appears in one of the Special Civil Applications, being Spl. C.A. No. 5723/81, are as under :- 2.1 The petitioner firm used to purchase re-rollable scrap from the ship-breaking yard at Alang. The petitioner used to manufacture flat bars upto 5 mm. in thickness of various sizes. The petitioner unit is classified as a Small Scale Unit, and, therefore, the unit was paying electricity duty at the rate of 10% as applicable at the relevant time under the Bombay Electricity Duty Act. The liability of the petitioner for making payment at 10% was on the basis of having only low tension connection. 2.2 However, from October 1986 to June 1988, the third respondent, Gujarat Electricity Board (for brevity, Board, hereinafter), raised a demand for electricity duty at 30%. The petitioner paid the same as per the demand at 30% from October 1986 to June 1988. For the first time in or about August 1988, the second respondent raised a demand enhancing the rate of electricity duty at 30% with retrospective effect from October 1982 to October 1986 on the basis of the Gujarat Electricity Duty (Amendment) Ordinance, 1988. This Ordinance has been replaced by Gujarat Electricity Duty (Amendment) Act No. VII of 1988. The petitioner's unit was treated as a "Service Undertaking" under the ordinance and thereafter under the Act. 2.3 It is contended by the petitioner that at no point of time, the petitioner firm was engaged in any job work. The petitioner was manufacturing flat bars for its own, and not for any one else on job work basis. For the purpose of running the unit, power is supplied by the Board, the third respondent, through low tension connection, and, therefore, as contended by the petitioner, it was required to pay at the prescribed tariff and the electricity duty to the concerned respondent under provisions of Bombay Electricity Duty (Gujarat Amendment) Act 1988. 2.4 In this connection, it is relevant to note here that earlier Special Civil Applications were filed in this High Court being Spl. C.A. No. 3190 of 1984 and other allied matters by GUJARAT RE-ROLLING MILLS' ASSOCIATION AND OTHERS v/s. STATE OF GUJARAT & OTHERS reported in 1988 (1) GLH 414, decided by a Division Bench of this Court (Coram: P.R. Gokulakrishnan, CJ and G.T. Nanavati, J) on 1.2.1988. It was contended that the petitioners are not "service undertakings" within the meaning of amended Section 2 (ee) of the Bombay Electricity Duty Act, 1958 but are "industrial undertakings" within the meaning of amended section 2 (bb) read with explanation thereto of the Bombay Electricity Duty Act, 1958 and are therefore liable to pay electricity duty under item No. 5.A of the First Schedule to the Bombay Electricity Duty Act, 1958 read with amended section 2 (bb) thereof. The Division Bench of this Court, after considering various contentions raised by rival parties for interpreting the phrases "service undertaking" and "industrial undertaking", held that the "service undertaking" occurring in section 2 (ee) of the Act will relate only to job work. In view of this, it is submitted that as the petitioner unit was engaged in the manufacture and production of goods, it could be only covered in the category of "industrial undertaking". In the aforesaid case, the Division Bench directed the second Respondent to examine the case of each petitioner on facts bearing in mind the guidelines given in the judgment. 3. It is contended before us that the first and second respondents occupied themselves with the implementation of the aforesaid judgment, issued notices to some of the petitioners to attend the hearing before the 2nd respondent and to furnish the relevant data necessary for a decision. It it further contended that however, the 1st respondent in the meanwhile moved the appropriate machinery and ultimately an Ordinance known as Gujarat Ordinance No. 3/88 called the Bombay Electricity Duty (Gujarat Amendment) Ordinance 1988 was promulgated with a view to further amend the Bombay Electricity Duty Act, 1958. Thereafter, the State Legislature by Gujarat Act No. 7 of 1988 called the Bombay Electricity Duty (Gujarat amendment) Act, 1988, amended Bombay Electricity Duty Act, 1958. It is in this background the case before us is to be appreciated. 4. So far as industrial undertaking is concerned, prior to Gujarat Act No. 17 of 1983, explaining section 3 (2)(vii)(b)(i) defined Industrial Undertaking as under: "An industrial undertaking means an industrial undertaking which manufactures or produces goods for sale or use in the manufacture or production of other goods but does not include an undertaking which manufactures or produces any kind of goods and drinks meant ordinarily for consumption on the premises of the undertaking, and .... " 4.1 This definition of industrial undertaking was deleted and instead, by Gujarat Act No. 17 of 1983, Section 2 (bb) and section 2 (ee) have been inserted which read as under:- "(bb). "industrial undertaking" means an undertaking engaged predominantly in the manufacture or the production of goods (other than eatables or drinks) or engaged in any job work involving the manufacture or the production of goods irrespective of whether any service of the nature specified in clause (ee) is involved in such job work, but does not include a service undertaking; Explaination.- For the purpose of this clause and clause (ee) an undertaking shall be construed to be engaged predominantly in the manufacture or the production of goods or, as the case may be, in providing service of the nature specified in clause (ee), if the gross income of such undertaking from the manufacture or the production or, as the premises of the undertaking is greater in relation to gross income from other activity of the undertaking in the same premises". "(ee). "service undertaking" means an undertaking which is engaged predominantly in providing all or any of the following services, namely :- (i). repairs, renovation, reconditioning, restoration, restitution or preservation, (ii). Cleaning (iii). Polishing or pressing (iv). Cutting ore pressing (v). drawing, stretching, twisting, rolling, re-rolling or orientation of non-ferrous and ferrous material including stainless steel materials, (vi) case hardening, carbonising or any other surface treatment, (vii). coating of any surface with any material. (viii). electronic data processing. (ix). such other service as the State Government may, by notification in the official gazette specify." 5. In view of the definition of "service undertaking", activities of rolling, re-rolling or orientation of non-ferrous and ferrous material including stainless steel materials were sought to be considered as service undertaking despite the fact that the unit was engaged in manufacture for itself. The Division Bench in the case of Gujarat Re-Rolling Mills (supra) considered the lengthy submissions and after considering the statement of objects and reasons held in paragraph 7 of the judgment that "the words 'providing all or any of the following services' occurring therein can only mean job work. In such a job work, if there is manufacture or production of goods, the same will come under the category of industrial undertaking irrespective of the fact whether any service of the nature specified in clause (ee) is involved in such job work". 6. The Division Bench, in paragraph 7 further held that: "Section 2 (ee) which defines the service undertaking clearly states that, such undertaking engages predominantly in providing all or any of the services enumerated therein. Hence, it is clear that providing service can only be for others and it will relate to only job work." 6.1 In the same paragraph, the Division Bench further observed that: "The definition further makes it clear that the job work involving manufacture or production of goods is considered to be industrial undertaking irrespective of the fact whether any service of the nature specified in clause (ee) is involved in such job work. No doubt, Section 2 (bb) clearly excludes from the definition of "industrial undertaking" the service undertaking:. 6.2 In paragraph 8 the Division Bench further held that: "When we read section 2 (bb), the enactment has made it clear that even if an undertaking is engaged in any job work in manufacturing or production of goods, it will not go out of the purview of industrial undertaking irrespective of the fact that the said undertaking in manufacturing or producing adopts any one of the processes mentioned in Section 2 (ee). This makes it clear that, for categorising an undertaking under Section 2 (ee), it must be a service undertaking pure and simple. An undertaking is said to come under the service undertaking only when that undertaking serves the other party who approaches it for the purpose of services enumerated in Section 2 (ee). If in the process of such service any manufacture or production comes into existence, then also the said undertaking which renders such service will fall under definition of "industrial undertaking" mentioned in section 2 (bb)." 6.3 In paragraph 8, the Division Bench further held: "To put in nutshell, if by any of the processes mentioned in Section 2 (ee), the value or utility is added, then it will be service undertaking. But if the nature or character of the articles gets changed or the use to which it can be put is different then it will have to be regarded as manufacture or production of new item which will make that undertaking as industrial undertaking. This is the test that has to be adopted in deciding as to whether an undertaking is an industrial undertaking or a service undertaking. We have already held that the definition of service undertaking occurring in Section 2 (ee) of the Act relates only to job work". 7. Learned counsel Mr. Nanavati for the petitioners submitted that in view of this decision, it was made clear that if the nature or character of an article gets changed or the use to which it can be put is different, then it will have to be regarded as manufacture or production of a new item which will make the undertaking an industrial undertaking. 8. On behalf of the respondents, it is contended that a unit might be engaged in the activities of manufacture for itself and might be doing work on job work basis. With a view to attract the duty at a higher rate if the unit is engaged in both type of activities, then how the duty is to be calculated would be a question. In the explanation clause, therefore, it was mentioned that an undertaking shall be construed to be engaged predominantly in the manufacture or the production of goods or as the case may be, in providing service of the nature specified in clause (ee) in the amended act w.e.f. 11.10.1983 by Act No. 17/83, if the gross income of such undertaking from the manufacture or the production or, as the premises of the undertaking is greater in relation to gross income from other activity of the undertaking in the same premises. It was submitted that the unit engaged in the manufacture for itself and manufacture on job work basis was expected to be governed by this provision. However, we are not entering into any discussion on this aspect as the view already taken by the Division Bench has become final and it is binding to the respondent State and other authorities. The petitioner unit is engaged in manufacture for itself is also required to be considered. In one case, a unit may be engaged only in manufacture or production of goods. In another case, a unit may be engaged in the manufacture or production of goods and also engaged in the nature of rendering services, (which cannot be said to be manufacture or production of goods) as referred in service undertaking. In third type of case, a unit may be engaged only in rendering services. The words 'industrial undertaking' if read it becomes clear that over and above manufacture or production of goods, it also includes job work which results in manufacture or production of goods. Therefore, what was intended to bifurcate was purely manufacture or production of goods and other than manufacture or production of goods. For attracting 'industrial undertaking' it does not matter reading the clause 'industrial undertaking' that one is manufacturing or producing for its own business or for others. 9. It is required to be noted that so far as 'industrial undertaking' as found in clause (bb) is concerned, it has been made operative from 11.10.1983 to 21.7.1987 by Act No. 7 of 1988. So far as clause (ee) is concerned, it has been deemed to have been substituted for the period commencing on the date of coming into force of the Bombay Electricity Duty (Gujarat amendment) Act, 1983 and ending on the 21st July 1987. It is interesting to note that the ordinance known as Gujarat Electricity Duty (Amendment) Ordinance, 1988 came into force atonce on the date of notification and its Statement as found in the Ordinance indicates that the provision is made with a view to rationalising the rates of electricity duty and augmenting the financial resources of the State. It is further stated in the statement as under :- "The Gujarat High Court has recently decided Special Civil Applications filed by certain undertakings which have been treated as service undertakings, by interpreting the aforesaid definitions of "industrial undertaking" and " service undertaking" according to which interpretation most of the service undertakings providing services involving manufacture or production of goods will have to be treated as industrial undertakings. This interpretation of the aforesaid definitions made by the High Court is not in consonance with the intention of the Legislature. If the competent authority has to decide the cases remanded to it by the High Court in the light of the High Court decision, it would result in substantial loss of revenue to the Government as undertakings which have paid duty as service undertakings will have to be treated as industrial undertakings and huge amounts will have to be refunded to them. With a view to making the intention of the Legislature in this behalf clear from the date of coming into force of the Amending Act, it is proposed to substitute the definitions of "industrial undertaking" and "service undertaking" with retrospective effect i.e. from 11th October 1983. The Minister of State (Energy) has made an announcement on the floor of the Gujarat Legislative Assembly on the 22nd July 1987 to consider levying lesser duty on service undertakings falling under items (v) and (vii) of the existing clause (ee) of section 2 so that they could be covered under the definition of "Industrial Undertaking". It is, therefore, proposed to exclude undertakings falling under items (v) and (vii) of the said clause (ee) from the proposed new definition of "service undertaking" with effect from the 22nd July 1987 with a view to implementing the aforesaid announcement." 10. So far as "Industrial Undertaking" and "Service Undertaking" are concerned, Ordinance of 1988 reads as under:- 2. Bom. XL of 1958 to be temporarily amended.- During the period of operation of this Ordinance, the Bombay Electricity Duty At, 1958 (Bom XL of 1958) (hereinafter referred to as "the principal Act") shall have effect subject to the amendments specified in section 3. 3. Amendment of section 2. of Bom. XL of 1958.- "In the principal Act, in section 2, (1). for clause (bb), the following clause shall be and shall be deemed always to have been substituted with effect from the date of coming into force of the Bombay Electricity Duty (Gujarat Amendment) Act, 1983, (Guj. 17 of 1983), namely :- (bb). "industrial undertaking" means an undertaking engaged predominantly in - (i) the manufacture or production of goods (other than eatables or drinks), or, (ii) any job work which results in the manufacture or production of goods (other than eatables or drinks); but does not include a service undertaking: Explanation.- For the purposes of this clause and clause (ee), an undertaking engaged in the manufacture or production of goods and also in any one or more of the activities specified in clause (ee),- (a). shall be deemed to be - (i). engaged predominantly in the manufacture of production of good (other than eatables or drinks) if the gross annual income of such undertaking from such manufacture or production for the accounting year of such undertaking preceding the period in respect of which the duty is levied is greater than the gross annual income of such undertaking for that accounting year from such activity or activities. (ii). a service undertaking, engaged predominantly in any one or more of the activities specified in clause (ee) if the gross annual income of such undertaking from such activity or activities for the accounting year of such undertaking preceding the period in respect of which the duty is levied is greater than the gross annual income of such undertaking for that accounting year from such manufacture or production. (b). shall, until such gross annual income is available, be deemed to be an undertaking falling under sub-clause (i) or, as the case may be, sub-clause (ii) of clause (a), on the basis of the declaration made by the undertaking to such authority as the State Government may, by notification in the Official Gazette, specify; and on the availability and verification of such income, the undertaking shall be treated as if it had always been the undertaking