IN IN IN THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORDINARY ORDINARY ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION WRIT WRIT WRIT PETITION NO. 1467 OF 1990. PETITION NO. 1467 OF 1990. PETITION NO. 1467 OF 1990. 1. Godrej Soaps Ltd. Pirojshanagar, Eastern Express Highway, Vikhroli, Bombay- 400 079. 2. Vasant Narayan Gogate, Senior Vice President (Finance) & Secretary, C/o. Godrej Soaps Ltd., Pirojshanagar, Eastern Express Highway, Vikhroli, Bombay- 400 079. ... Petitioners. V/s. 1. The State of Maharashtra, (Service through the Govt. Pleader, High Court (O.S.) Bombay. 2. The Commissioner of Sales Tax, Vikrikar Bhavan, Mazgaon, Bombay- 400 010. 3. Assistant Commissioner of Sales Tax (Assessment), 48, LMNT Ward, Unit-II, Konkan Bhavan, New Bombay. ... Respondents. P.S.Jetly for the petitioners. S.K.Nair, A.G.P. for the respondents. - 2 - CORAM CORAM CORAM : V.C.DAGA AND J.P.DEVADHAR, JJ. : V.C.DAGA AND J.P.DEVADHAR, JJ. : V.C.DAGA AND J.P.DEVADHAR, JJ. RESERVED RESERVED RESERVED ON : ON : ON : 2nd September 2005. 2nd September 2005. 2nd September 2005. PRONOUNCED PRONOUNCED PRONOUNCED ON : 28th October 2005. ON : 28th October 2005. ON : 28th October 2005. JUDGMENT JUDGMENT JUDGMENT : : : -------- -------- -------- . The petitioners, M/s.Godrej Soaps Ltd., Mumbai have filed this petition under Article 226 of the Constitution of India to challenge the amendment to section 2(17) of the Bombay Sales Tax Act, 1959 ("Act" for short), by Maharashtra Act No.IX of 1989 ("Act No.IX of 1989) with retrospective effect i.e. with effect from 1st January, 1960, contending it to be illegal, invalid and ultra vires the constitution of India. Factual Factual Factual Matrix : Matrix : Matrix : -------------- -------------- -------------- 2. The factual matrix depicts that petitioner No.1 is a public limited company engaged in manufacturing and selling of soaps, toiletries and fatty acids, etc. The petitioners purchase expeller groundnut oil and soyabean oil from other dealers in Maharashtra; who are registered under section 22 of the Act. the petitioners also purchase such oil from dealers located in different States of the country. - 3 - 3. According to the petitioners, the oil so purchased is edible. It can be used for human consumption without refining. However, with a view to find out a better market for the oil, petitioners carry on activity of refining of oil only to put the oil purchased in a more acceptable condition. The petitioners, during the calender year 1981, under legal advice based on the judgment of the Supreme Court in the case of Tungabhadra Industries v. Tungabhadra Industries v. Tungabhadra Industries v. Commercial Commercial Commercial Tax Officer, Kurnool Tax Officer, Kurnool Tax Officer, Kurnool, (1960) 11 STC 827, that the process of refining oil does not amount to manufacture, did not pay tax on the sale of the oil which was purchased from the registered dealers in the State of Maharashtra; on which tax was paid at the time of purchase because they were entitled to claim resale without payment of tax by virtue of section 8 of the Act. 4. The petitioners also stated that from the year 1981 onwards they have been claiming resale under section 8(ii) of the Act in respect of unrefined oil purchased by them from the registered dealers in the State of Maharashtra and which has been sold after refining. The assessing authority did not accept this claim and the petitioners were required to file appeals under section 55 of the Act to the appellate authority. The petitioners’ assessments upto and including the year ending on - 4 - 30th June, 1986 have been completed by the assessing authority; wherein their claim for resale has not been accepted. The petitioners have, therefore, filed appeals for these periods, which are pending for hearing and final disposal before the appellate authority. 5. The petitioners stated that the Special Bench of the Maharashtra Sales Tax Tribunal at Bombay ("Tribunal" for short) by its order dated 22nd August, 1988 in Appeal No.62 of 1980 passed in the case of the petitioners and other connected cases held that the activity of refining of crude soyabean oil, sunflower oil and/or rape seed oil was not a process of "manufacture" within the meaning of section 2(17) of the Act. In view of this decision, petitioners claimed for set off under rules 42 and 43 of the Bombay Sales Tax Rules, 1959 ("BST Rules" for short) for the assessment period from 1973 to 1980 and resale under section 8(ii) of the Act for the assessment period from 1981 to 1988-89 was upheld. 6. The petitioners stated that respondent No.2 also filed reference application being Reference Application No.22 of 1989; wherein the questions of law were sought to be referred to this Court under section 61 of the Act. All the - 5 - questions framed by Revenue for reference centers around the issue: whether or not the process of refining oil amounts to manufacture. 7. The reference application is still pending before the Tribunal for final disposal. During the pendency of the reference application, Explanation-II came to be inserted with retrospective effect from 1st January 1960 by the Act No.IX of 1989 in section 2(17) of the of the Act to the effect that "for the purpose of this clause, refining of oil shall be deemed to be manufacture". 8. The petitioners stated that by the said retrospective amendment to section 2(17) of the Act, the claim of resale under section 8(11) of the Act made by the petitioners became inadmissible. The returns filed by the petitioners are rendered false and untrue because of the retrospective effect given to the amendment. The The The Legislation : Legislation : Legislation : --------------- --------------- --------------- 9. Before proceeding to recapitulate the rival submissions, it may be proper to read the relevant provisions for a break up of the statutory limbs. - 6 - 10. The provisions of section 8 to the extent relevant for the purpose of deciding this petition are: Section Section Section 8: 8: 8: Single point levy of sales tax on goods specified in Schedule C. There shall be levied a sales tax on the turnover of sales of goods specified in Schedule C at the rate set out against each of them in column 3 thereof, but after deducting from such turnover, - (i) resales of goods on the purchase of which the dealer is liable to pay purchase tax under section 14; (ii) resales of goods, purchased by the dealer on or after the appointed day from a Registered dealer, otherwise than on a declaration furnished under section 11 or 12, if the requirements of section 12A are satisfied; (Provided that, resales of goods purchased by the dealer from a registered dealer during the period commencing on the 1st July 1981 and ending on the day immediately preceding the date of commencement of the Maharashtra Tax Laws (Levy and Amendment) Act, 1988, on a declaration furnished under section 8A shall not be deducted from such turnover). (iii) resale of goods purchased by the dealer on or after the appointed day from a dealer liable to pay tax under section 4, if a certificate as provided in sub-section (2) of section 12A is furnished; and (iv) sales of goods or resales of goods to which clause (ii) or clause (iii) does not apply, to an Authorised dealer, a Recognised dealer or a Commission agent holding a Permit, who purchases on behalf of a principal upon such dealer or Commission agent, as the case may be, furnishing a declaration as provided in Section 12). - 7 - Section 2(17) of the Act prior to its amendment by the Act No.IX of 1989 read as under: Clause Clause Clause (17) of section 2 : (17) of section 2 : (17) of section 2 : "manufacture" with all its grammatical variations and cognate expressions, means producing, making, extracting, altering, ornamenting, finishing or otherwise processing, treating, or adapting any goods; but does not include such manufactures or manufacturing processes as may be prescribed; Explanation - For the purposes of this clause, the cutting, sawing, shaping, sizing or hewing of timber, shall be deemed to be manufacture. Section 2(17) to the Act, after its amendment by Act No.IX of 1989, reads as under: Clause Clause Clause (17) of section 2 : (17) of section 2 : (17) of section 2 : ..... ..... ..... Explanation - ..... ..... Explanation-II: For the purpose of this clause refining of oil shall be deemed to be manufacture. Grounds Grounds Grounds of Challenge : of Challenge : of Challenge : -------------------- -------------------- -------------------- 11. The petitioners contend that Explanation-II inserted with a view to amend section 2(17) of the Act is beyond legislative competence of the State of Maharashtra in so far as it operates retrospectively because; (i) it retrospectively - 8 - imposes a fresh levy for the first time; (ii) its retrospective operation for 29 years is not reasonable and it infringes Articles 14 and 19(1)(g) of the Constitution and (iii) there is discrimination vis-a-vis the petitioners and others who carry on identical/similar activity by virtue of rule 3 of the Act, which deals with process not includible in manufacture. There is no reasonable nexus with the object sought to be achieved so far as the retrospective insertion of Explanation-II is concerned. Submissions Submissions Submissions : : : ----------- ----------- ----------- 12. At the outset, we may mention that Mr.Jetly, learned counsel for the petitioners restricted his challenge to the amended provision to the extent it operates retrospectively. He, relying on the grounds of challenge set out hereinabove, submits that an explanation cannot retrospectively enlarge the scope of the main clause. In this connection he invited our attention to the Maharashtra Tax Laws (Levy and Amendment) Act, 1994; whereby clause (17) of section 2 was substituted and the explanation was included in the definition itself. - 9 - 13. Mr.Jetly further submits that a six judge Bench of the Supreme Court in the case of Tungabhadra Tungabhadra Tungabhadra Industries Ltd. Industries Ltd. Industries Ltd. (supra) held that hydrogenated groundnut oil commonly called Vanaspati is groundnut oil within the meaning of rule 18(2) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939. According to him, the case of the petitioners is squarely covered by this decision. He submits, this judgment has been applied and followed in several cases, viz., Panchalingal Panchalingal Panchalingal Carbonic Carbonic Carbonic Gas Pvt.Ltd. v. State of Andhra Pradesh Gas Pvt.Ltd. v. State of Andhra Pradesh Gas Pvt.Ltd. v. State of Andhra Pradesh, (2005) 141 STC 161 (AP)(FB); Raj Solvex Ltd. v. Raj Solvex Ltd. v. Raj Solvex Ltd. v. Addl.Commissioner, Addl.Commissioner, Addl.Commissioner, Commercial Taxes Commercial Taxes Commercial Taxes, (2003) 133 STC 333 (Raj)(TT); Teejan Beverages Ltd. v. State of Teejan Beverages Ltd. v. State of Teejan Beverages Ltd. v. State of Kerala Kerala Kerala, (2003) 131 STC 538 (Ker.); C.S.T. v. Oil C.S.T. v. Oil C.S.T. v. Oil Processors Processors Processors Pvt.Ltd. Pvt.Ltd. Pvt.Ltd., (1998) 108 STC 44 (Bom.); New New New Nagpur Nagpur Nagpur Copra Industries v. The State of Copra Industries v. The State of Copra Industries v. The State of Maharashtra Maharashtra Maharashtra, (1985) 60 STC 380 (Bom.). 14. Mr.Jetly submits that the subsequent decision of the Supreme Court in B.P.Oil Mills v. B.P.Oil Mills v. B.P.Oil Mills v. Sales Sales Sales Tax Tribunal and others Tax Tribunal and others Tax Tribunal and others, (1998) 111 STC 188 has overlooked the import of its earlier decision in the case of Tungabhadra Industries Ltd. Tungabhadra Industries Ltd. Tungabhadra Industries Ltd. (supra). He submits that the decision the Apex Court in the case of Tungabhadra Industries Ltd. Tungabhadra Industries Ltd. Tungabhadra Industries Ltd. (supra) will be binding and will have precedence over B.P.Oil Mills B.P.Oil Mills B.P.Oil Mills case case case (supra). In support of his submission, he - 10 - relied upon the decision of the Apex Court in Pradip Pradip Pradip Chandra Chandra Chandra Parija v. Pramod Chandra Patnaik Parija v. Pramod Chandra Patnaik Parija v. Pramod Chandra Patnaik, 2002 (144) ELT 7 (SC); with various other decisions of various High Courts, viz., in the case of State of State of State of Andhra Andhra Andhra Pradesh Pradesh Pradesh v. Balajee Audio & video Co. v. Balajee Audio & video Co. v. Balajee Audio & video Co., (2005) 140 STC 73 (AP) and Ushodaya Enterprises Ltd. v. Ushodaya Enterprises Ltd. v. Ushodaya Enterprises Ltd. v. Commissioner Commissioner Commissioner of of of Commercial Taxes Commercial Taxes Commercial Taxes, (1998) 111 STC 711 (AP)(FB); decision of Calcutta High Court in Jindal Jindal Jindal (India) (India) (India) Ltd. v. Asst.Commissioner, Commercial Ltd. v. Asst.Commissioner, Commercial Ltd. v. Asst.Commissioner, Commercial Taxes Taxes Taxes, (2004) 136 STC 492 (Cal); and decision of the Madras High Court in C.I.T. v. Sundaram C.I.T. v. Sundaram C.I.T. v. Sundaram Industries Industries Industries Ltd. Ltd. Ltd., (2002) 253 ITR 396 (Mad). Per Per Per Contra : Contra : Contra : ---------- ---------- ---------- 15. Mr.Nair, learned "A" Panel Counsel appearing for the respondents submits that the Special Bench of the Tribunal for the first time in Appeal No.62/1980 decided on 22nd August, 1988 had held in the petitioners’ case that the activity of "refining of crude soyabean oil" is not a manufacturing activity. In the assessment orders passed in the case of the petitioners, the activity was held as manufacturing activity and resale claim was disallowed. In his submission, since 1961, the departmental authorities were treating such activity as "manufacture". According to him, the assessments of most of the dealers doing activity of refining of - 11 - the oil were held as manufactures. He submits that in view of the decision of the Special Bench of the Tribunal, substantial amount would have been required to be refunded. In the circumstances, amendment to section 2(17) of the Act by Act IX of 1989 was necessary with retrospective effect. 16. Mr.Nair further submits that consistent view of the Government was that activity of refining of oil is nothing but a manufacturing activity, as such amendment sought to be challenged is nothing but a clarificatory amendment as such retrospectivity given to it is justified. In this view of the submission, he tried to justify the retrospectivity of the amendment. 17. Mr.Nair, to justify his submission, placed reliance on the speech delivered by the Finance Minister of the Government of Maharashtra in Legislative Assembly on 10th March, 1989 while introducing budget estimates for the year 1989-90; wherein the Finance Minister said as under: " Refining of vegetable oil has all along been treated as manufacture, attracting 4 per cent tax under the sales tax law. This well established procedure has recently been upset by a decision of the Sales Tax Tribunal holding that refining of sunflower oil would not amount to manufacture. Since tax has been collected for many years now on such refining of oil and the judgment has - 12 - serious revenue implications, SI propose to make an explicit statutory retrospective amendment clarifying that refining of oil is a manufacturing process. 18. Mr.Nair further submits that retrospective effect was required to be given from 1st January, 1960 as the scheme for levy of tax was changed from 1960. Since that date consistent view of the Government was that refining process of oil was a manufacturing activity. He pointed out that the Tribunal had also taken a similar view on the basis of unamended definition of the word "manufacture" in S.A.No.1978 of 1974 (Kisangopal Shrikisandas Domani Kisangopal Shrikisandas Domani Kisangopal Shrikisandas Domani v.v.v. State of Maharashtra State of Maharashtra State of Maharashtra) decided on 28th February, 1975 and S.A.No.53/1976 (Rajini Oil Industries v. Rajini Oil Industries v. Rajini Oil Industries v. State State State of Maharashtra of Maharashtra of Maharashtra) decided on 24th September, 1978. 19. Mr.Nair submits that because of the decisions of the Tribunal, the assessee doing refining of oil must have included incidence of tax liability while fixing the sale price of the oil. According to him, normally, incidence of tax liability is passed on to the customers. No assessee will pay tax from his pocket. There is no statutory bar for passing on the same to the customers. He, thus, submits that this aspect of the matter was also taken into consideration while - 13 - giving retrospective effect to Explanation-II. According to him, merely because retrospective effect is given for 29 years will not make the law void or illegal. Inordinately long retrospective effect given to the provision by itself does not make that provision unconstitutional. That is how Mr.Nair tried to justify the retrospectivity of the legislation with effect from 1st January, 1960 on certain justifiable grounds referred to hereinabove. 20. Mr.Nair placed reliance on various judgments of the Apex Court, viz., B.P.Oil Mill Ltd. B.P.Oil Mill Ltd. B.P.Oil Mill Ltd. v.v.v. Sales Tax Tribunal & ors. Sales Tax Tribunal & ors. Sales Tax Tribunal & ors. [(1998) 111 STC 188 (SC)]; Tilak Chand Prasan Kumar & Anr v. State of Tilak Chand Prasan Kumar & Anr v. State of Tilak Chand Prasan Kumar & Anr v. State of U.P. U.P. U.P. & ors. & ors. & ors. [(1973) 31 STC 179 (SC)]; Ujagar Ujagar Ujagar Prints Prints Prints v. Union of India & ors. v. Union of India & ors. v. Union of India & ors. [74 STC 401]; M/s.Krishnamurthi M/s.Krishnamurthi M/s.Krishnamurthi & Co. v. State of Madras & anr. & Co. v. State of Madras & anr. & Co. v. State of Madras & anr. [(1973) 2 SCR 54]; and M/s.Misrilal Jain v. State M/s.Misrilal Jain v. State M/s.Misrilal Jain v. State of of of Orissa & anr. Orissa & anr. Orissa & anr. (AIR 1977 SC 1686) in support of his submissions. He, thus, prayed for dismissal of the petition holding it to be without any substance. The The The Issue : Issue : Issue : --------- --------- --------- 21. The main issue involved in this petition is: whether retrospective effect given to section 2(17) of the Act as amended by the Act IX of 1989, which though came on the Statute Book on 1st April, - 14 - 1989 but with effect from 1st January, 1960; is valid and legal. Determination Determination Determination of Issue : of Issue : of Issue : ---------------------- ---------------------- ---------------------- 22. Having heard learned counsel for the petitioners, we, at the outset, must mention that the restricted challenge; restricted to the retrospectivity of the amendment presupposes or is pregnant with an admission, on the part of the petitioners, that process of refining could be termed as "manufacture" by legislative device but cannot be with retrospective effect. It is, therefore, not necessary for us to examine legislative competence to enact Amending Act in question. On this aspect of the matter, there is no serious dispute between the parties. What is required to be examined is whether or not the process of refining of oil has been brought within the purview of word "manufacture" for the first time by virtue of the impugned amendment and whether or not the retrospective effect given to the amending provision is justified. 23. Before adverting to the above questions, it is necessary to consider the circumstances leading to the amendment to section 2(17) of the Act with retrospective effect, keeping in mind the rival - 15 - submissions advanced by learned counsel appearing for the rival parties. 24. It is not in dispute that for a considerable long time judicial view of the Tribunal was that the crude cotton seeds oil washed with caustic soda to obtain refined cotton seed oil did amount to "manufacture" within the meaning of unamended section 2(17) of the Act [see Kisangopal Kisangopal Kisangopal Shrikisandas Shrikisandas Shrikisandas case case case (supra)]. It is also not in dispute that for a considerable long time it was the judicial view that the crude oil and washed oil are two different commercial commodities [see Rajani Oil Rajani Oil Rajani Oil Industries Industries Industries (supra)]. 25. In S.A.No.53/1976, the then Fourth Bench of the Tribunal for the first time in the year 1978 formed a view that the decision given by the Tribunal in the case of Rajani Oil Industries Rajani Oil Industries Rajani Oil Industries (supra); M/s.Kisangopal Shrikisandas case M/s.Kisangopal Shrikisandas case M/s.Kisangopal Shrikisandas case (supra); and M/s.Vengoils Limited v. State of Maharashtra M/s.Vengoils Limited v. State of Maharashtra M/s.Vengoils Limited v. State of Maharashtra (Appeal No.100 of 1980) decided on 18th January, 1982 required reconsideration in the light of the decision of the Apex Court in the case of Tungabhadra Tungabhadra Tungabhadra Industries v. Commercial Tax Officer Industries v. Commercial Tax Officer Industries v. Commercial Tax Officer, (1960) 11 STC 827 and decision of this Court in Commissioner Commissioner Commissioner of Sales Tax v. Dunken Coffee of Sales Tax v. Dunken Coffee of Sales Tax v. Dunken Coffee Manufacturing Manufacturing Manufacturing Co. Co. Co., (1975) 35 STC 493. This, - 16 - ultimately, led to the reference to a Special Bench; wherein the petitioners along with other assessees were parties to the proceedings. 26. The Special Bench after taking detailed survey of various judgments of the Apex Court and applying the test enunciated by the Apex Court as well as by this Court reached to the conclusion that the activity of the assessees like petitioners of refining of crude/soyabean oil, crude/sunflower oil or crude rape-seed oil was not a process of "manufacture" within the meaning of section 2(17) of the Act. However, the State Government entertained an opinion that this view of the Tribunal is contrary to the legislative mandate and likely to create serious revenue implications. The Government, therefore, thought it fit to amend section 2(17) by introducing Explanation-II in the said provision with retrospective effect. 27. Let us now turn to the legal principles affirming the legislative power to amend with retrospective effect. 28. Where a statute is passed for the purpose of supplying an obvious omission in a former statute or to "explain" a former statute, the subsequent statute has relation back to the time when the prior - 17 - Act was passed. The rule against retrospectivity is inapplicable to such legislations as are explanatory and declaratory in nature. A classic illustration is the case of Attorney General v. Pougett Attorney General v. Pougett Attorney General v. Pougett, (1816) 2 Price 381 : 146 ER 130 (at p.392). By a Customs Act of 1873 (53 Geo. 3, c.33) a duty was imposed upon hides of 9s 4d, but the Act omitted to state that it was to be 9s 4d per cwt., and to remedy this omission another Customs Act (53 Geo. 3, c.105) was passed later in the same year. Between the passing of these two Acts some hides were exported, and it was contended that they were not liable to pay the duty of 9s 4d per cwt., but Thomson, C.B., in giving judgment for the Attorney General Attorney General Attorney General, said: (ER p.134) " The duty in this instance was, in fact, imposed by the first Act; but the gross mistake of the omission of the weight, for which the sum expressed was to have been payable, occasioned the amendment made by the subsequent Act: but that had reference to the former statute as soon as it passed, and they must be taken together as if they were one and the same Act." (Price at p.392) 29. Maxwell states in his work on Interpretation of Statutes (12th Edn.) that the rule against retrospective operation is a presumption only, and as such it "may be overcome, not only by express words in the Act but also by circumstances sufficiently strong to displace it" (p.225). If the dominant intention of the legislature can be clearly - 18 - and doubtlessly spelt out, the inhibition contained in the rule against perpetuity becomes of doubtful applicability as the "inhibition of the rule" is a matter of