IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE K.M.JOSEPH MONDAY, THE 27TH JULY 2009 / 5TH SRAVANA 1931 WP(C).No. 21777 of 2008(P) -------------------------------------- PETITIONER(S): ---------------------- M/S.THRISSUR BUILDERS (P) LTD. MACHINGAL LANE, NORTH END THRISSUR 680 001, REPRESENTED BY ITS MANAGING DIRECTOR SRI.K.A.PADMAKUMAR BY ADV. SRI.ARSHAD HYDAYATHULLAH (SENIOR) SRI.E.K.NANDAKUMAR SRI.A.K.JAYASANKAR NAMBIAR SRI.K.JOHN MATHAI SRI.P.BENNY THOMAS SRI.ANIL D. NAIR RESPONDENT(S): ------------------------- 1. THE COMMERCIAL TAX OFFICER (AA) OFFICE OF THE ASSISTANT COMMISSIONER (AA) DEPARTMENT OF COMMERCIAL TAXES, THRISSUR 680 004 2. THE DEPUTY COMMISSIONER OF COMMERCIAL TAXES (APPEALS), ERNAKULAM, KOCHI 682 015. 3. THE STATE OF KERALA, REPRESENTED BY THE SECRETARY (TAXES), GOVERNMENT OF KERALA, SECRETARIAT, THIRUVANANTHAPURAM 695 001 R1 TO R3 BY SENIOR GOVERNMENT PLEADER SRI.VINOD CHANDRAN. THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 27/03/2009, THE COURT ON 27/07/2009 DELIVERED THE FOLLOWING: K.M.JOSEPH, J. ------------------------------------------------------ W.P.(C) No.21777 of 2008-P ---------------------------------------------- Dated, this the 27th day of July, 2009 J U D G M E N T Petitioner is a registered dealer under the Kerala Value Added Tax Act, 2003 (hereinafter referred to as “the Act”). Petitioner opted to pay tax at the compounded rate under Section 8 of the Act for the assessment years 2005- 2006, 2006-2007 and 2007-2008. The complaint of the petitioner is directed against Sec.30 (2) of the Act to the extent it excludes the dealers who pay compounded tax under clause (a) to clause (d) of Sec.8 of the Act from the facility to collect the tax under the Act from the awarders of the contract or the buyers. Accordingly, a declaration is sought that Sec.30 of the Act to the extent it excludes the persons paying compounded tax under clause (a) to clause (d) of Sec.8 from the benefit of the provision enabling collection of tax amount from the buyers is discriminatory and hence unconstitutional. Exts.P1 to P3 are orders of assessments for the years already mentioned and a direction is sought not to recover any amount towards differential tax pursuant to Exts.P1 to P3 WPC No. 21777/2008 -2- assessment orders by placing reliance on the provisions of Sec.30 (2) of the Act. I heard learned senior counsel for the petitioner Sri.Arshad Hydayathullah and learned Special Government Pleader Sri.Vinod Chandran. 2. Sri. Sri.Arshad Hydayathullah, learned senior counsel appearing for the petitioner would contend that in view of substitution of Sec.30 (2) the substituted provisions will hold sway from the commencement of the Act. The fact that it is provided that the substitution is with effect from 1.4.2008 would not entitle the respondents to contend that it is to have effect only from 1.4.2008 runs the argument of the petitioner. The date 1.4.2008 is mentioned only to indicate that substitution has come into play but its effect will be from the commencement of the Act itself, he contends. He further contends that if it is found that the substituted provisions will have only effect from 1.4.2008 the court would have to necessarily consider the constitutional validity of Sec. 30 (2) and hold the provisions of Sec.30 (2) as unconstitutional being discriminatory. Expatiating the arguments he contended that the petitioner is one among the category of assessees WPC No. 21777/2008 -3- declared eligible under Sec.8 to opt to pay tax at compounded rate and the dealers in gold as also others allowed to compound constitute a single class. However, the impugned provision enabled the gold dealers alone to collect tax even though they were also allowed to compound. It is pointed out that there is no basis for the discrimination. It is contended that there is no plea or material produced to show how treating of the two similarly circumstanced categories can be justified. He would contend further that it is open to the court at any rate to hold that the petitioner should be given the relief and the provision is to be read down. 3. Sri.Vinod Chandran, on the other hand would contend that the substituted provision has only prospective operation and it has come into effect only from 1.4.2008 and it has no retroactive operation. He would contend that the petitioner has not pleaded or established a case of discrimination under Art.14. He also would submit that there is no basis at all in the writ petition. 4. What is the effect of substitution of Sec.30 (2) of the Act by the amending Act of 2008 ? Sec.30 as it WPC No. 21777/2008 -4- originally stood read as follows: 30. Collection of tax by dealers:-(1) A registered dealer may, subject to the provisions of sub-sections (2) and (3), collect tax (at the rates specified under section 6), on the sale of any goods, from the person to whom he sells the goods and pay it over to Government in such manner as may be prescribed. (2) Dealers registered under this Act, except those dealers paying presumptive tax under sub-section (5) of section 6 and those paying compounded tax under clause (a) to clause (d) of Section 8 alone shall be eligible to collect any sum by way of, or purporting to be by way of tax under this Act . Subsequently, by amendment Act Sec.30 (2) reads as follows: (2) Dealers registered under this Act, except those dealers paying presumptive tax under sub-section (5) of section 6 and those paying (tax under clause (a) of Section 8 by those undertaking works of Government of Kerala, Kerala Water Authority and Local Authorities, and under clause (b), clause © (ii) and clause (d) of section 8), alone shall be eligible to collect any sum by way of, or purporting to be by way of tax under this Act. 5. It is thus contended by the petitioner that the Legislature itself having realised the discrimination flowing from the provisions of the Act decided to consciously intervene and it resorted to the Legislative device of substitution of the previously obtaining provisions with the provisions as are WPC No. 21777/2008 -5- extant at present. It is pointed out that under Sec.30 (2) as it stands after substitution the petitioner is also entitled to collect tax even if it has proceeded to opt for compounding. He would submit, in such circumstances when a provision is substituted it will have operation from the date of commencement of the Act and thus argue that this court has to give effect to the said principle and hold that amendment carried out by way of substitution in 2008 will have effect from the date on which the Act was commenced. In this regard learned senior counsel sought to draw considerable support from the decision in Government of India and Others Vs. Indian Tobacco Association { (2005 ) 7 SCC 396 } . It is necessary to notice the facts of the case. Respondent was an association of cultivators of tobacco. An incentive scheme was introduced. 'Guntur' was not mentioned in the notification dated 7-4-1997. A representation was made. Thereafter an amendment to the notification was made on 27.11.1997. As per clause 'b' Guntur was among the places which were included by way of substitution. The writ petition filed by the respondent came to be allowed. The High Court took the view WPC No. 21777/2008 -6- that Legislature intended benefit to enure to the exports and imports from Guntur and hence notification dated 27.11.1997 was issued. It is necessary to refer the following paragraph. 15. “The word “substitute” ordinarily would mean “to put(one) in place of another”; or “to replace”. In Black's Law Dictionary, 5th Edn., at p.1281, the word “substitute” has been defined to mean “to put in the place of another person or thing”, or “to exchange”. In Collins English Dictionary, the word “substitute” has been defined to mean “to serve or cause to serve in place of another person or thing”; “to replace (an atom or group in a molecule) with (another atom or group)”; or “a person or thing that serves in place of another, such as a player in a game who takes the place of an injured colleague.” Reliance is placed by the learned senior counsel to the following paragraphs also. 23. If the Central Government intended to extend the benefit to the members of the respondent Association only with prospective effect, it could have said so explicitly. Such a benefit could also have been extended by taking recourse to the proviso appended to sub-clause (iv) of clause (2) of the notification dated 7.4.1997. It may, therefore, be safely concluded that by reason of the amended notification, the Central Government only intended to rectify a mistake and, thus, the same will have retrospective effect and retroactive operation.” 25. In Zile Singh v. State of Haryana wherein the effect of an amendment in the Haryana Municipal Act, 1973 by Act 15 of 1994 whereby the word”after” was substituted by the word “upto” fell for consideration, wherein Lahoti, C.J. speaking for a three-Judge Bench held the said amendment to have a retrospective WPC No. 21777/2008 -7- effect being declaratory in nature as thereby obvious absurdity occurring in the first amendment and bring the same in conformity with what the legislature really intended to provide was removed, stating (SCC p.12, paras 23-25) “23. The text of Section 2 of the Second Amendment Act provides for the word 'upto' being substituted for the word 'after'. What is the meaning and effect of the expression employed therein--'shall be substituted? 24. The substitution of one text for the other pre-existing text is one of the known and well- recognised practices employed in legislative drafting. 'Substitution' has to be distinguished from 'supersession' or a mere repeal of an existing provision. 25. Substitution of a provision results in repeal of the earlier provision and its replacement by the new provision (see Principles of Statutory Interpretation, ibid., p.565). If any authority is need in support of the proposition, it is to be found in West U.P.Sugar Mills Assn. v. State of U.P., State of Rajasthan v. Mangilal Pindwal, Koteswar VittalKamath v. K.Rangappa Baliga and Co. and A.L.V.R.S.T Veerappa Chettiar v.S.Michael. In West U.P.Sugar Mills Assn. case a three-Judge Bench of this Court held that the State Government by substituting the new rule in place of the old one never intended to keep alive the old rule. Having regard to the totality of the circumstances centring around the issue the Court held that the substitution had the effect of just deleting the old rule and making the new rule operative. In Mangilal Pindwal case this Court upheld the legislative practice of an amendment by substitution being incorporated in the text of a statute which had ceased to exist and held that the substitution would have the effect of amending the operation of law during the period in which it was in force. In Koteswar case a three-Judge Bench of this WPC No. 21777/2008 -8- Court emphasised the distinction between 'supersession' of a rule and 'substitution' of a rule and held that the process of substitution consists of two steps: first, the old rule is made to cease to exist and, next, the new rule is brought into existence in its place.” 6. Senior counsel for the petitioner would accordingly contend that the legislature intended to replace the earlier provision by the substituted provisions as it stands and thereby removes the anomaly and invidious discrimination which was prevalent and it should be accordingly interpreted as a provision having full effect from the date of the commencement of the Act. Learned Government Pleader on the other hand referred me to the decision of the Apex Court in Bhagat Ram Sharma Vs. Union of India and Others {1988 (Supp) SCC 30). That was a case where the member of the Punjab Legislative Assembly raised a claim for pension under the Legislative Act of 1977. Punjab State Public Service Commission (Conditions of Service) Regulations, 1958) conferred pensionary benefits only upon members drawn from the service of Central or State Government. The Regulation was amended in 1972 and a new Regulation was substituted. WPC No. 21777/2008 -9- The new Regulation conferred pensionary benefits even upon those members who were not in Government service at the time of appointment. The question arose whether the provision as substituted came into effect from 1.11.56 and entitling the petitioner to payment of pension with effect from the 2nd January, 1959 which was the date of superannuation of the writ petitioner. He had resigned the membership of the Assembly and became a member of the Public Service Commission in 1953 and he retired on 2nd January, 1959. It is necessary to refer to paragraphs 17, 18, 19 of the said judgment. Paragraphs 17,18 and 19 read as under: 17. It is a matter of legislative practice to provide while enacting an amending law, that an existing provision shall be deleted and a new provision substituted. Such deletion has the effect of repeal of the existing provision. Such a law may also provide for the introduction of a new provision. There is no real distinction between 'repeal' and an 'amendment'. In Sutherland's Statutory Construction, 3rd edn., Vol. 1 at p.477, the learned author makes the following statement of law: The distinction between repeal and amendment as these terms are used by the courts, is arbitrary. Naturally the use of these terms by the court is based largely on how the legislatures have developed and applied these terms in labelling their enactments. When a section is being added to an Act or a provision added to a section, the legislatures commonly entitle the Act as an amendment.......When a provision is WPC No. 21777/2008 -10- withdrawn from a section, the legislatures call the Act an amendment, particularly when a provision is added to replace the one withdrawn. However, when an entire Act or section is abrogated and no new section is added to replace it, legislatures label the Act accomplishing this result a repeal. Thus as used by the legislatures, amendment and repeal may differ in kind--addition as opposed to withdrawal or only in degree--abrogation of part of a section as opposed to abrogation of a whole section or Act; or more commonly, in both kind and degree--addition of a provision to a section to replace a provision being abrogated as opposed by abrogation of a whole section of an Act. This arbitrary distinction has been followed by the courts, and they have developed separate rules of construction for each. However, they have recognised that frequently an Act purporting to be an amendment has the same qualitative effect as a repeal--the abrogation of an existing statutory provision-and have therefore applied the term 'implied repeal' and the rules of construction applicable to repeals to such amendments. 18. Amendment is, in fact, a wider term and it includes abrogation or deletion of a provision in an existing statute. If the amendment of an existing law is small, the Act professes to amend; if it is extensive, it repeals a law and re-enacts it. An amendment of substantive law is not retrospective unless expressly laid down or by necessary implication inferred. 19. For the sake of completeness, we wish to add that the mere use of the word 'substitution' does not imply that Regulation 8 (3) must relate back to November 1, 1956, the appointed day. The problem usually arises in case of repeal by substitution. in the case of executive instructions, the bare issue of a fresh instrument on the same subject would replace a previous instrument. But in the case of a legislative enactment, there would be no repeal of an existing law unless the substituting act or provision has been validly enacted with all the required formalities. In State of Maharashtra v. Central Provinces manganese Ore Co.Ltd. a three Judges Bench WPC No. 21777/2008 -11- repelled the argument that since the word 'substituted' was used in the amending Act of 1949, it necessarily followed that the process embraces two distinct steps, one of repeal and another of a fresh enactment. In that case, the whole legislative process termed 'substitution' proved to be abortive inasmuch the amending Act did not receive the assent of the Governor General under Section 107 of the Government of India Act, 1935 and was thus void and inoperative. Distinguishing the two earlier decisions in Firm A.T.B.Mehtab Maajid & Co. v. State of Madras and Koteswar Vittal Kamath v. K.Rangappa Balia & Co. the court observed that the mere use of the word 'substituted' does not ipso facto or automatically repeal a provision until the provision which is to take its place is constitutionally permissible and legally effective. It relied upon the following principle of construction stated in Halsbury's Laws of England, Third Edition, Vol 36, p.474: Where an Act passed after 1850 repeals wholly or partially any former enactment and substitutes provisions for the enactment repealed, the repealed enactment remains in force until the substituted provisions come into operation. And observed: (SCC p.651, para 18) We do not think that the word substitution necessarily or always connotes two severable steps, that is to say, one of repeal and another of a fresh enactment even if it implies two steps. Indeed, the natural meaning of the word “substitution” is to indicate that the process cannot be split up into two pieces like this. If the process described as substitution fails, it is totally ineffective so as to leave intact what was sought to be displaced. That seems to us to be the ordinary and natural meaning of the words “shall be substituted.” 7. It is therefore contended that the amendment WPC No. 21777/2008 -12- Act of 2008 which substituted the erstwhile provisions contained in Sec.30 (2) did not have retrospective operation and it is to have effect only from 1.4.2008. It is also necessary to notice the decision of the Apex Court in State of Rajasthan Vs. Mangilal Pindwal (1996 5 SCC 60). This decision is also referred to by the Apex Court in Indian Tobacco Association case (supra). The respondent who was working as U.D.Clerk was compulsorily retired by the order of the Collector dated 31.3.1973 on payment of three months' pay and allowances in lieu of notice. The said order was passed under sub-rule (2) of Rule 244 of the Rules. The writ petition filed by him was allowed by the learned Single Judge taking the view that there is non-compliance of sub-rule 2 inasmuch as the amount paid to the respondent towards three months pay and allowances was short by Rs.120/-. A notification dated 11.3.1976 was published by which Rule 244 (2) was substituted. The amendment operated from 19-8- 1972 and was to prevail upto 1.9.1975. Under the said provisions the requirement of payment of three months pay and allowances in lieu of notice was done away and it was WPC No. 21777/2008 -13- instead provided that Government servant would be entitled to claim three months pay in lieu of notice. The Apex court had to deal with the question as to what is the effect of the amendment or substitution on 11.3.1976. It is necessary to refer to paragraphs 3, 5, 6, 8, 9, and 12 which read as follows. 3. On 31-3-1973, the date of the passing of the order of compulsory retirement, sub-rule (2) of Rule 244 of the Rules provided as under: “244. (2). The Government, may, after giving at least three months' previous notice in writing or by payment of three months' pay and allowances in lieu of such notice require a government servant to retire from the service on the date on which he completes 25 years of qualifying service or on any date thereafter.” 5. By notification dated 2.9.1975,, sub-rule (2) of Rule 244 of the Rules was substituted by the following provision: “244. (2) The Government, may, after giving at least three months' previous notice in writing or by payment of three months' pay and allowances in lieu of such notice require a government servant to retire from the service on the date on which he completes 20 years of qualifying service or the date on which he attains the age of 50 years whichever is earlier, or on any date thereafter.” 8. By a subsequent notification dated 26.11.1975, Rule 244 of the Rules was substituted with effect from 2.9.1975. Sub-rule (2) of Rule 244, thus substituted, read as follows: WPC No. 21777/2008 -14- “244. (2) (i) The Government, may after giving at least three months' previous notice in writing require a government servant to retire from the service on the date on which he completes 20 years of qualifying service or the date on which he attains the age of 50 years whichever is earlier, or on any date thereafter: Provided that such government servant may be retired from service forthwith, and on such retirement the government servant shall be entitled to claim three months' pay and allowances in lieu of notice. (ii). The Government may publish the order of such retirement in Rajasthan Rajpatra, and the government servant shall be deemed to have retired on such publication, if he has not been served with the retirement order earlier.” 8. The learned Judges of the High Court have held that as a result of the substitution of sub-rule (2) of Rule 244 by notifications dated 2.9.1975 and 2.111975, provisions of sub-rule (2) of Rule 244, as applicable during the period from 19-8-1972 till 1-9- 1975 , stood substituted and, as a result, the said provisions ceased to exist and must be treated to have been obliterated and, therefore, Rule 244 (2), as it stood on 19-8-1972, was no longer available for supersession, amendment or substitution on 11.3.1976, since the same stood amended and substituted by new provisions contained in notifications dated 2-9-1975 and 26-11-1975. The High Court has placed reliance on the following passages from Craies on Statute Law and Sutherland on Statutory Construction: “When an Act of Parliament is repealed.” said Lord Tenterden in Surtees v. Ellison, “it must be considered (except as to transactions past and closed) as if it had never existed. That is the general rule.” Tindal C.J. stated the exception more widely. He said: “The effect of repealing a statute is to WPC No. 21777/2008 -15- obliterate it as completely from the records of Parliament as if it had never been passed; and it must be considered as a law that never existed except for the purpose of those actions which were commenced, prosecuted and concluded whilst it was an existing law.” “Since an amendatory act alters, modifies, or adds to a prior statute, all courts hold that a repealed act cannot be amended, that is, no court will give effect to a repealed law because the legislature attempted to amend it.” 9.As pointed out by this court, the process of a substitution of statutory provision consists of two steps; first the old rule is made to cease to exist and, next, the new rule is brought into existence in its place. (See Koteswar Villal Kamath v. K.Rangappa Baliga & Co., SCR at p.48). In other words, the substitution of a provision results in repeal of the earlier provision and its replacement by the new provision. As regards repeal of a statute the law is thus stated in Sutherland on Statutory Construction. “The effect of the repeal of a statute where neither a saving clause nor a general saving statute exists to prescribe the governing rule for the effect of the repeal, is to destroy the effectiveness of the repealed act in futuro and to divest the right to proceed under the statute, which, except as to proceedings past and closed, is considered as if it had never existed. ” (Vol.I para 2042, pp.522-523). 12. This means that as a result of repeal of a statute the statute as repealed ceases to exist with effect from the date of such repeal but the repeal does not affect the previous operation of the law which has been repealed during the period it was operative prior to the date of such repeal. The effect of the