IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH C.W.P. No. 7499 OF 2006 Date of Decision: April 11, 2006 M/s Kumar Brothers (Chemists) Pvt. Ltd. ...Petitioner Versus The Union Territory of Chandigarh and others …Respondents CORAM: HON'BLE MR. JUSTICE M.M. KUMAR HON'BLE MR. JUSTICE AJAY KUMAR MITTAL Present: Mr. K.L. Goyal, Advocate for the petitioner. Mr. Rajesh Garg, Central Govt. Standing Counsel, for respondent Nos. 1 and 2. Mr. Arun Palli, Senior Advocate, with Mr. Jai Bhagwan, Advocate, for respondent No. 3. JUDGMENT M.M.KUMAR, J. The question of law raised in the instant petition filed under Article 226 of the Constitution is ‘whether a notification (like Annexure P-9, dated 30.11.2005) reducing the rate of sales tax can be issued with retrospective effect, especially when tax at higher rate has been paid and also credited by the seller to the manufacturer’. The petitioner has prayed for quashing notification dated 30.11.2005 (P-9) issued by respondent No. 1, purportedly in exercise of powers C.W.P. No. 7499 of 2006 conferred by sub-section (1) of Section 5 of the Punjab General Sales Tax Act, 1948 (for brevity, ‘the Act’), as amended by the Punjab General Sales Tax (Second Amendment and Validation) Act, 2000 (Punjab Act No. 7 of 2000), as applicable to the Union Territory, Chandigarh, directing that notification bearing No. 3153-FII(8)- 2004/1375, dated 25.2.2005 (P-8), issued earlier was to operate retrospectively with effect from 13.7.2000. It has further been prayed that impugned notification dated 30.11.2005 (P-9) be declared as ultravires of Section 5(1) of the Act because retrospective effect given to the notification dated 25.2.2005 (P-8) is without any express or implied power conferred by Section 5(1) of the Act. Brief facts of the case are that the petitioner is a limited company engaged in the business of sale and purchase of medicines, surgical and disposable goods. The petitioner is registered with the Assessing Authority, Union Territory, Chandigarh, under the Act as well as under the provisions of the Central Sales Tax Act, 1956 since the year 1980. The petitioner is also registered under the new Act, namely, the Punjab General Sales Tax Act, 2005, as applicable to Union Territory, Chandigarh, and obtained licence for the sale of drugs on retail and wholesale basis under the Drugs and Cosmetic Act, 1940. On 23.7.2002, the bid of the petitioner for supply of medicines/drugs in pursuance to tender floated by the Post Graduate Institute of Medical Education and Research, Chandigarh-respondent No. 3 (for brevity, ‘PGI’), was accepted and a letter of acceptance, dated 22.8.2002 was issued to it by respondent No. 3 (P-1). The 2 C.W.P. No. 7499 of 2006 petitioner was awarded contract at 21% discount on Maximum Retail Price (MRP), for supply of medicines for a period of two years from 23.8.2002 to 22.8.2004. On the basis of letter of acceptance the petitioner deposited required security and then a contract was executed between the petitioner and the PGI (P-2). The petitioner started supply of medicine as per contract and charged sales tax at the rate of 8.8%. According to the stipulation in the agreement (P-2) it was provided that any tax to be charged was to be clearly mentioned. However, the PGI raised the issue of charging sales tax at the rate of 4.4% against D-Forms to be issued by it. In that regard instructions were issued by its Purchase Department. Accordingly, the petitioner sent a letter dated 8.10.2002 (P-5) to the PGI asserting that the medicines are taxed at the first stage and every retailer is purchasing medicines from distributor/whole seller after paying sales tax as applicable, which is to be recovered from the customer. A reference has been made to the stipulation made in the agreement that the local purchase were to be made on retail price less the agreed discount. The petitioner expressed its helplessness to supply on local purchase to the PGI unless the issue of D-Form/sales tax was resolved amicably by keeping in view the terms and conditions of the tender. The petitioner has claimed that the PGI was suffering under a wrong impression and belief that although it was an autonomous body but considered itself entitled to be treated at par with Government of India or State Government. On that analogy PGI thought that the rate of tax applicable for the sales made to the Government of India or State Government should be levied. The aforementioned belief had 3 C.W.P. No. 7499 of 2006 emanated from a notification dated 30.6.1966, which was further amended vide notification dated 31.10.1970 (P-6) and the autonomous bodies like the PGI were included in the list of such institutions, who were entitled to the benefits in addition to Government of India and State Government. The situation changed because the notification dated 31.10.1970 (P-6) was repealed by subsequent notification dated 13.7.2000 (P-3) as the PGI was not included in the Schedule like Government of India and State Government. The petitioner has claimed that on account of the aforementioned fact, the PGI could not have claimed that it should be subjected to rate of tax @ 4.4% by accepting D-Forms and moreover the goods being sold by the petitioner are taxed at the first stage on which the petitioner had already paid tax and, therefore, the benefit could not be extended in the second sale. In its reply submitted to the PGI on 10.10.2002 (P-7), the petitioner had asserted that the PGI cannot issue D-Forms since it is not State Government or Central Government to whom the benefit of concessional rate of sales tax has been extended and vide notification dated 13.7.2000 the concession stood omitted. However, the controversy between the petitioner and PGI subsisted for some time, which resulted in filing of C.W.P. No. 17748 of 2002. The petitioner claimed the relief that the PGI be restrained from insisting upon charging of concessional rate of tax as applicable to the Central/State Government departments. It was further claimed that it could not take unilateral decision in that regard. The writ petition was admitted. The petitioner filed another writ petition, bearing C.W.P. 4 C.W.P. No. 7499 of 2006 No. 1945 of 2002 in which the action of PGI in debarring the petitioner from supplying medicines to it for a period of two years was challenged. The bar was imposed on the ground of charging higher rate of sales tax. The order debarring the petitioner was quashed as opportunity of hearing was not granted. After issuance of show cause notice, the petitioner was again debarred, vide order dated 18.9.2003, which was challenged in C.W.P. No. 3905 of 2004. The said writ petition was rendered infructuous and the same was withdrawn on 7.3.2005 because the bar for a period of two years had expired. On their part, the PGI also filed C.W.P. No. 6413 of 2004, seeking directions to the Union Territory, Chandigarh, to allow it the benefit of concessional rate of tax on production of D-Form, as was done by issuance of notification earlier on 31.10.1970. The writ petition was eventually withdrawn by the PGI because the Union Territory, Chandigarh Administration had issued a notification dated 25.2.2005 (P-8). However, it is evident from the perusal of order dated 13.5.2005, passed by the Division Bench of this Court (R-3/1) that the PGI raised the issue of operating the notification dated 25.2.2005 from a retrospective date. The Division Bench observed that a comprehensive representation was to be filed by the PGI and the same was to be considered by the authority concerned in its correct perspective. As a consequence thereof it appears that notification dated 30.11.2005 (P-9) was issued. It is pertinent to notice that the PGI also filed a civil suit for recovery of Rs. 47,04,381/- from the petitioner, which is pending consideration of the 5 C.W.P. No. 7499 of 2006 Civil Judge (Junior Division), Chandigarh. The aforementioned notification as has already been noticed, is subject matter of challenge in the instant petition. Mr. K.L. Goyal, learned counsel for the petitioner has argued that the impugned notification dated 30.11.2005 (P-9), has been given retrospective effect by operating it from 13.7.2000. According to the learned counsel, no notification can be issued by the executive or the State Government from a retrospective effect in the absence of any power conferred by the legislation. In that regard, learned counsel has placed reliance on Section 5(1) of the Act and submitted that there is no such power either by express words or by necessary intendment conferred on the respondents to issue a notification from a retrospective date. Learned counsel has also pointed out that legislation alone can clothe the executive with the power to issue a notification from retrospective effect but the same cannot be done by the executive. In that regard he has placed reliance on the judgments of Hon’ble the Supreme Court in the cases of Income-tax Officer, Alleppey v. M.C. Ponnoose, (1970) 75 ITR 174 (SC) and Bakul Cashew Co. v. Sales Tax Officer, Quilon, (1986) 62 STC 122 (SC), as well as two Division Bench judgments of this Court in the cases of Baldev Raj Hari Kishan v. State of Punjab, (1999) 114 STC 223 (P&H) [Annexure P-11] and Jiwan Agricultural Implements Workshop Co-operative Industrial Society Limited v. State of Punjab, (2000) 119 STC 340 (P&H) [Annexure P-10]. Mr. Goyal has further argued that the impugned notification even otherwise is vitiated because no opportunity of 6 C.W.P. No. 7499 of 2006 hearing in terms of proviso to Section 5(1) of the Act has been afforded to the petitioner or any person, which require that draft notification may be issued by giving 10 days time to any person with respect to the draft amendment. According to the learned counsel the draft notification was published on 24.1.2005 and there is no indication that the respondents wish to operate the same retrospectively. A copy of the draft notification dated 24.1.2005 is taken on record as Mark-‘A’. Mr. Rajesh Garg, learned counsel for respondent Nos. 1 and 2 has argued that the impugned notification issued on 30.7.2005 (P-9) giving effect from 13.7.2000 is merely clarificatory in nature as the same provision has been enforced by the respondents since 31.2.1970 (28.2.1970?) (P-6). According to the learned counsel, it is only for the gap period from 13.7.2000 to 30.11.2005 that the aforementioned provision did not remain in force, which was the result of inadvertent omission. He has maintained that the clarification seeks to rectify that omission and, therefore, the petitioner cannot be permitted to challenge the retrospective effect of the notification. In support of his submission learned counsel has placed reliance on the judgments of Hon’ble the Supreme Court in the cases of WPIL Ltd., Ghaziabad v. Commissioner of Central Excise, Meerut, U.P., (2005) 3 SCC 73 and Sun Export Corporation, Bombay v. Collector of Customs, Bombay, (1997) 6 SCC 564 and argued that in cases a gap is inadvertently left out in a notification concerning the period or an item then such an omission can be removed by clarification. He has also placed reliance on 7 C.W.P. No. 7499 of 2006 another judgment of Hon’ble the Supreme Court in Ashok Lanka v. Rishi Dikshit, (2006) 9 SCC 90 for the same proposition. We have thoughtfully considered the rival submissions made by the learned counsel for the parties and have perused the record. It would be apposite to first refer to Section 5(1) of the Act, which is as under:- “S. 5 Rate of Tax. (1) Subject to the provisions of this Act, there shall be levied on the taxable turnover of a dealer, a tax at the rate not exceeding twenty paise in a rupee, as the State Government may specify by notification from time to time; PROVIDED that the rate of tax on the goods as categorized in Schedule ‘A’ shall be such, as has been specified for those goods in this Schedule. The State Government after giving, by notification ten days notice of its intention so to do, may by like notification, add to or delete from this Schedule, and thereupon the Schedule shall deemed to have been amended accordingly: PROVIDED FURTHER that if the State Government is satisfied that circumstances exist, which render it necessary to take immediate action, it may dispense with the condition of previous publication: PROVIDED FURTHER that the rate of tax shall not exceed four paise in a rupee in respect of declared goods. 8 C.W.P. No. 7499 of 2006 Explanation:- The amount of tax shall be calculated to the nearest rupee by ignoring fifty paise or less and counting more than fifty paise as one rupee.” A bare perusal of Section 5(1) and its proviso would show that the legislation has not conferred any power on the competent authorities to issue a notification with retrospective effect. It is well established that in the absence of express or implied provision in the legislation itself, the State Government cannot issue a notification from a retrospective effect. In that regard reliance has been rightly placed by the learned counsel for the petitioner on the judgment of Hon’ble the Supreme Court in the case of Bakul Cashew Co. (supra), wherein following the view taken in the case of Income- tax Officer, Alleppey (supra), their Lordships’ observed as under:- “ Notification G.O. Ms. No. 127/73/TD dated October 12, 1973, issued by the State Government of Kerala granting retrospectively an exemption in respect of tax payable under section 5 of the Kerala General Sales Tax Act, 1963, by cashew manufacturers in the State on the purchase turnover of cashew-nuts imported from outside India through the Cashew Corporation of India for the period September 1, 1970, to September 30, 1973, was validly cancelled by the Government by its subsequent Notification bearing G.O. Ms. No. 143/73/TD dated November 9, 1973, because on the date of the notification granting exemption the State Government did not have power under section 10 as it 9 C.W.P. No. 7499 of 2006 then stood to grant an exemption retrospectively. It was only subsequently in 1980 when section 10(1) was amended by inclusion of the specific words “either prospectively or retrospectively” that the State Legislature conferred power on the State Government to grant exemption with retrospective effect. An authority which has the power to make subordinate legislation cannot make it with retrospective effect unless it is so authorised by the legislature which has that power conferred on it.” The aforementioned view has also been followed and applied by two Division Benches of this Court in the cases of Baldev Raj Hari Kishan (supra) and Jiwan Agricultural Implements Workshop Co-operative Industrial Society Limited (supra). It is also pertinent to mention that the same view has been reiterated and followed by Hon’ble the Supreme Court in the case of Mahabir Vegetable Oils (P) Ltd. v. State of Haryana, (2006) 3 SCC 620. In paras 41 and 42 their Lordships’ have observed as under:- “41. We may at this stage consider the effect of omission of the said Note. It is beyond any cavil that a subordinate legislation can be given a retrospective effect and retroactive operation, if any power in this behalf is contained in the main act. Rule making power is a species of delegated legislation. A 10elegate therefore can make rules only within the four corners thereof. 42. It is a fundamental rule of law that no statute shall 10 C.W.P. No. 7499 of 2006 be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication. [See West v. Gwynne, (1911) 2 Ch. 1]” It is, thus, obvious that notification dated 30.11.2005 (P-9) issued by respondent Nos. 1 and 2 with retrospective effect from 13.7.2000, could not be issued by giving the earlier notification dated 25.2.2005 retrospective effect and stating that it must be deemed to have come into force on and with effect from 13.7.2000 because there is neither any express power conferred by the legislation on the concerned authorities to issue such a notification by giving it retrospective effect. We are also unable to find either by the process of interpretation or otherwise from necessary intendment any intention of the legislature to confer such a power on the competent authority. Therefore, notification dated 30.11.2005 (P-9) is liable to be set aside. It is also pertinent to notice that as per notification dated 15.4.1977 (P-4), issued by the Union Territory Administration, Chandigarh, sales tax under Section 5(1) of the Act was levied at the first stage of sale, which included medicines. The expression ‘first stage’ was also clarified by stating that in the case of a dealer who brings to Union Territory of Chandigarh any of those goods, which included medicines, from any place outside Union Territory of Chandigarh, would be considered the stage of sale when such dealer sells such goods for the first time within the Union Territory of Chandigarh. The aforementioned portion of the notification dated 11 C.W.P. No. 7499 of 2006 15.4.1977 (P-4) reads thus:- “ (iv) Medicines and pharmaceutical preparations. The first stage that: (a) In the case of a dealer who brings into the Union Territory of Chandigarh, these goods or any of them from any place outside the Union Territory of Chandigarh, be the stage of sale when such dealer sells such goods for the first time within the Union Territory of Chandigarh; (b) In the case of a dealer who manufactures these goods or any of them within the Union Territory of Chandigarh be the stage of sale when such dealer sells such goods for the first time within the Union Territory of Chandigarh; and (c) In the case of any other dealer who has got purchased these goods or any of them from a dealer referred to in the preceding clause, be the stage at which such dealer sells these goods or any of them for the first time in the Union Territory of Chandigarh.” It is further worthwhile to notice that the PGI could not have issued any D-Forms to claim concessional rate of sales tax of 4.4% as there was no provision in respect of the period for which supply of medicines from 23.8.2002 to 22.8.2004 was to be made by 12 C.W.P. No. 7499 of 2006 the petitioner. The petitioner has also claimed that it has paid sales tax to its whole seller or manufacturer @ 8.8%. It is also pertinent to notice that a draft notice for issuance of notification dated 25.2.2005, was published on 24.1.2005. By way of draft amendment, Entry 49 was sought to be added by covering sales to the PGI and considering the same as sales to the Central/State Government. It was nowhere specified that the notification was to be given retrospective effect. We have taken on record the draft notification as Mark-‘A’. Therefore, the impugned notification is liable to be set aside for these additional grounds. The argument of learned counsel for the respondents that the situation has continued from 1970 to 2000 and the PGI had always been included in the list of State/Central Government, has not impressed us because the omission of non-inclusion of the PGI in the Schedule cannot be considered as inadvertent. In the absence of any proper notification, the PGI could not be considered as State or Central Government. The judgment in the case of WPIL Ltd., Ghaziabad (supra), on which reliance has been placed by the learned counsel for the respondents, does not come to the rescue of the respondents because in that case power driven pumps and their parts used for manufacturing pumps had been exempted from Excise Duty since 1978 under various notifications. Those large number of exemption notifications were consolidated by issuing one notification on 1.3.1994. At this stage while granting exemption to power driven pumps, the mention for parts thereof used captively in manufacturing pumps was inadvertently omitted and accordingly when it was 13 C.W.P. No. 7499 of 2006 brought to the notice of the Government another notification on 25.4.1994 i.e. within a period of about two months was issued and it was in these circumstances that their Lordships’ regarded the notification dated 25.4.1994 as clarificatory in nature. It is obvious that the aforementioned case has no application to the facts and circumstances of the present case. Likewise, the judgment in the case of Sun Export Corporation, Bombay (supra) is distinguishable because in that case no question with regard to retrospectivity was under consideration. The only question considered was whether pre- mix of Vitamin AD-3 (feed grade) imported by the assessee could be classified under notification dated 1.11.1982, which granted exemption or it was classifiable under Heading 29.01/45(17) for which no exemption was available. Therefore, we are of the view that the judgment does not help the respondents. For the reasons aforementioned, this petition succeeds and the impugned notification dated 30.11.2005 (P-9) is set aside. Taking into account the nature of the controversy, we order that the parties should bear their own costs. (M.M.KUMAR) JUDGE (AJAY KUMAR MITTAL) April 11, 2008 JUDGE Pkapoor FIT FOR INDEXING 14