IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. CASE NO.: LPA No.62 of 2004 in C.W.P. No. 18227 of 2002 DATE OF DECISION : April 24, 2009 M/s Nestle India Limited .......Appellant versus The State of Punjab and others ......Respondents CORAM : HON'BLE MR. JUSTICE ASHUTOSH MOHUNTA HON'BLE MS. JUSTICE NIRMALJIT KAUR. PRESENT: Mr. Ashok Aggarwal, Sr. Advocate with Mr. Sandeep Goyal, Advocate for the petitioner. Ms. Ambika Luthra, A.A.G., Punjab for the State. Mr. Salil Sagar, Sr. Advocate with Mr. Samarth Sagar, Advocate for private respondents. NIRMALJIT KAUR, J. The facts, in short, are that purchase tax on the purchase of milk was in operation under the PGST Act, 1948 for use in taxable goods. On 17-07-2000, the State Government introduced an Ordinance levying a milk cess under Section 12 of the Punjab Development Board Ordinance which reads as under :- “Section 12: Levy & Collection of Cess: Subject to the rules made under this Act, there shall be levied for the purposes of this Act, a cess at the rate of 10 paise per litre of the licensed capacity of a milk plant by abolishing the purchase tax being charged on milk.” LPA No.62 of 2004 in C.W.P. No. 18227 of 2002 -2- On 19-07-2000, Punjab Dairy Development Board Ordinance, 2000 was published in Punjab Government Gazette. The State Government issued Notification dated 24-07-2000 w.e.f. 19-07-2000 whereby purchase tax on milk was abolished under the PGST Act 1948. The said ordinance was converted into Act on 20-11-2000. The Act was challenged before this Court. This Court vide order dated 20-11-2001, struck down the Punjab Dairy Development Board Act being unconstitutional on the writ petitions filed by some milk processing units, which were affected by the fresh levy but were not liable to pay the purchase tax. The said judgment of this Court, striking down the Act, vide which the cess was levied, was challenged before the Hon'ble Apex Court. Vide order dated 25-02-2002, the Hon'ble Apex Court stayed the operation of the judgment of this Court. Meanwhile, on 22-07-2002, the Punjab Government issued draft Notifications for amendment in the Schedules appended to PGST Act 1948 intending to re-impose the purchase tax which was being levied before July 2000. A formal notification dated 12-09- 2002 was issued vide which the purchase tax on milk was levied. The present petitioner challenged the said notification dated 12-09-2002 vide which the purchase tax was levied before this Court on the ground that Section 12 of the Cess Act prohibits the imposition of any purchase tax and as such, the notifications issued are required to be declared ultra vires and beyond the executive authority of the State Government as the same are in contravention of Section 12(1) of the Punjab Dairy Development Act, 2002 (here-in-after referred to as “PDDA” Act). A Division Bench of this Court, while admitting the petition, granted the stay of recovery of purchase tax till LPA No.62 of 2004 in C.W.P. No. 18227 of 2002 -3- further orders. The operative part of this order is reproduced below :- “ Admitted To be heard along with CWP No.18503 of 2002. Parties will be at liberty to approach the court to have the matter fixed for actual hearing as and when the Supreme Court decides the appeal pending before it on behalf of the State or as and when the State Government brings about the necessary legislation to abolish the cess.” Meanwhile, the State Government amended the Ordinance and on 10-03-2003, introduced Punjab Dairy Development Board (Amendment) Ordinance, 2003 and abolition of Section 12 of the Cess Act with retrospective effect from 11-09-2002. The earlier ordinance lapsed due to efflux of time and the State Government, accordingly, introduced another Ordinance on 09-12-2003 and once again, gave retrospective effect from 11-09-2002. The petitioner amended the writ petition and the said writ petition stood dismissed vide order dated 27-02-2004. Learned Single Judge decided the issue in the writ petition in the following terms :- “(i) That Cess Act and Sales Tax Act are two different enactments, which are operating in altogether different fields. Both these Acts derive power from different Entries given in the Schedule attached to the Constitution of India. Since the very objective and purpose of both the Acts are different, therefore, the question of implied repeal by the later and Special Act would not come into question. The learned Single Judge further observed that at the maximum it can be concluded that Section 12 of the Cess Act has the effect of abolishing purchase tax on milk plants only as Cess Act shall be applicable only to the milk plants. It was, therefore, concluded that by the virtue of Section LPA No.62 of 2004 in C.W.P. No. 18227 of 2002 -4- 12 of the Cess Act, purchase tax could not have been presumed to be abolished on milk. (ii) That on the question of second issue, the learned Single Judge held that the publishing of notifications whereby purchase tax on milk was abolished were not merely recognition of statutory provisions but was exercise of powers given to State Government under the Sales Tax Act. (iii) That in view of the findings in Issue No.1, it was held that State Government was well within its powers to make amendments in Schedules A, B & C of the Sales Tax Act so as to impose purchase tax on milk on 22-07-2002, i.e. the date on which the draft notifications were published. (iv) That since the appellants were paying the purchase tax before the start of Cess Act and eve during the operation of the Cess Act, the petitioners were paying the cess, therefore, it cannot be concluded that imposition of purchase tax with retrospective effect has created unforeseen liability upon the appellant. (v) That on the issue No.(v), the learned Single Judge held that since the powers with the State Government under the Cess Act and under the Sales Tax Act is different, therefore, there was no bar upon the State Government to issue draft notification to amend the Schedules on 22-07-2002. (vi) That on the last issue, the learned Single Judge concluded that there is no colourable exercise of powers by way of introducing successive Ordinances being promulgated under Article 213 of the Constitution of India.” The appellant, aggrieved with the order of the learned Single LPA No.62 of 2004 in C.W.P. No. 18227 of 2002 -5- Judge, filed the present appeal on various grounds. No stay was granted. The assessee continued to pay the amount. However, during the pendency of the present Letters Patent Appeal, the Hon'ble Supreme court dismissed the S.L.P filed by the State Government, vide which the order of the High Court dated 20-11-2001, striking down the “PDDB” Act was challenged. The said judgment stands reported as Punjab Dairy Development Board vs. Cepham Milk Specialities Limited AIR 2004 Supreme Court 4466. Hon'ble the Apex Court while dismissing the S.L.P., held as follows :- “ XXX XXX XXX 15.We also find that the levy is discriminatory. There is no levy on the farmers and co-operative societies, who produce the milk and/or milk plants whose capacity is less than 10,000 litres per day. No explanation is given which justified this discrimination. Faced with this situation, it was submitted that this Court could read down the Act. It was submitted that from the definition of the term “milk plant” in Section 2(d) of the Act, the words “which was registered under the Milk and Milk Products Order, 1992” be deleted. It was submitted that the words “licenced capacity” in Section 12 be also deleted. It was submitted that it is settled law that wherever it is possible to uphold legislation by reading it down the Court must do so. 16.There can be no dispute with the principle that if possible the provision of the Statute must be saved by, if necessary, reading them down. However, in this case, we are unable to accept this submission. As stated above, the Act has been amended in 2004. This levy is already abolished. At present, the LPA No.62 of 2004 in C.W.P. No. 18227 of 2002 -6- purchase tax is again being levied. For the period during which the Act subsisted, it is not possible for us to read it down inasmuch as it would now affect persons, who never went to Court because during the period it existed it did not apply to them. Such parties are not before Court. We thus see no reason to delete the words as suggested on behalf of the Appellants. 19.It was next submitted that the ground that the Act is discriminatory and violative and, therefore, liable to struck down, has not been taken in the Writ Petitions. We are unable to accept this submission. In our view, the Writ Petitions contain the necessary averments and these have also been met in the reply of the Respondents. 20.Thus, even though the reasoning of the High Court may be erroneous, the ultimate result is that the levy of cess requires to be struck down as being arbitrary and discriminatory. In this view of the matter, we see no reason to interfere.” In view of the dismissal of the S.L.P., Mr. Ashok Aggarwal, Sr. Advocate has limited his prayer/argument only to the extent that the appellant is not liable to pay purchase tax from September 2002 upto 10-03-2003 and in support of the same, he has raised the following arguments:- (a) Vide notification dated 24-07-2000, the State Government levied the cess and abolished the purchase tax under the PGST Act, 1948. This Court struck down the Act being unconstitutional vide order dated 20-11-2001. The said judgment of this Court was challenged before Hon'ble the Apex Court and the operation of the judgment of this Court was LPA No.62 of 2004 in C.W.P. No. 18227 of 2002 -7- stayed vide order dated 25-02-2002. During the operation of the stay order, the State Government issued formal notification dated 12-09-2002 re-introducing the purchase tax on milk. Thus, according to learned counsel for the appellant, no such notification could have been issued during the pendency of the stay by the Hon'ble Apex Court as also on account of the fact that Section 12 of the Cess Act prohibits the imposition of any purchase tax and the notification issued was beyond the executive authority of the State Government being in contravention of Section 12(1) of the PDDB Act. However, we are not in agreement with the argument so raised by learned counsel for the appellant. In order to adjudicate upon this issue, it is necessary to consider the effect of interim order staying the operation of the judgment. To our mind, staying the operation of the order, under challenge does not wipe out the existence of the judgment. Once, the appeal is dismissed, the final order, deciding the appeal is crucial and is the deciding factor. The Hon'ble Apex Court, while interpreting the effect of an order staying operation of the order, under challenge, in the case titled as M/s Shree Chamundi Mopeds Limited v. Church of South India Trust Association, Madras, AIR 1992 Supreme Court 1439, held as follows :- “ XXX XXX XXX 10.In the instant case the proceedings before the Board under Ss. 15 and 16 of the Act had been terminated by order of the Board dated April 26, 1990 whereby the Board, upon consideration of the facts and material before it, found that the appellant-company had become economically and commercially on-viable due to its huge accumulated losses and liabilities and should be LPA No.62 of 2004 in C.W.P. No. 18227 of 2002 -8- wound up. The appeal filed by the appellant-company under S. 25 of the Act against said order of the Board was dismissed by the Appellate Authority by order dated January 7, 1991. As a result of these orders, no proceedings under the Act was pending either before the Board or before the Appellate Authority on February 21, 1991 when the Delhi High Court passed the interim order staying the operation of the Appellate Authority dated January 7, 1991. The said stay order of the High Court cannot have the effect of reviving the proceedings which had been disposed of by the Appellate Authority by its order dated January 7, 1991. While considering the effect of an interim order staying the operation of the order under challenge, a distinction has to be made between quashing of an order and stay of operation of an order. Quashing of an order results in the restoration of the position as it stood on the date of the passing of the order which has been quashed. The stay of operation of an order does not, however, lead to such a result. It only means that the order which has been stayed would not be operative from the date of the passing of the stay order and it does not mean that the said order has been wiped out from existence. This means that if an order passed by the Appellate Authority is quashed and he matter is remanded, the result would be that the appeal which had been disposed of by the said order of the Appellate Authority would be restored and it can be said to be pending before the Appellate Authority after the quashing of the order of the Appellate Authority. The same cannot be said with regard to an order staying the operation of the order of the Appellate Authority because in spite of the said order, the order of the Appellate Authority continues to exist in law and so long as it exists, it cannot be said that the appeal which has been LPA No.62 of 2004 in C.W.P. No. 18227 of 2002 -9- disposed of by the said order has not been disposed of and is still pending. We are, therefore, of the opinion that the passing of the interim order dated February 21, 1991 by the Delhi High Court staying the operation of the order of the Appellate Authority dated January 7, 1991 does not have the effect of reviving the appeal which had been dismissed by the Appellate Authority by its order dated January 7, 1991 and it cannot be said that after February 21, 1991, the said appeal stood revived and was pending before the Appellate Authority. In that view of the matter, it cannot be said that any proceedings under the Act were pending before the Board of the Appellate Authority on the date of the passing of the order dated August 14, 1991 by the learned Single Judge of the Karnataka High Court or winding up of the company or on November 6, 1991 when the Division Bench passed the order dismissing O.S.A. No.16 of 1991 filed by the appellant company against the order of the learned Single Judge dated August 14, 1991. Section 22(1) of the Act could not, therefore, be invoked and there was no impediment in the High Court dealing with the winding up petition filed by the respondents. This is the only question that has been canvassed in Civil Appeal No.126 of 1992, directed against the order for winding up of the appellant company. The said appeal, therefore, fails and is liable to be dismissed.” In the present case, the Government issued notification on 24-07-2000, whereby, cess was levied on deemed capacity of milk, purchase tax on milk was abolished. The said Ordinance was converted into Act on 20-11-2000. This Court struck down the said notification being unconstitutional, thereby, holding the purchase tax being levied earlier before passing of the notification dated 24-07-2000. In a petition filed by the PDDB, the Hon'ble Apex Court stayed the LPA No.62 of 2004 in C.W.P. No. 18227 of 2002 -10- operation of the judgment of this Court on 25-02-2002. Hon'ble the Apex Court finally dismissed the S.L.P. challenging the order of this Court (qua the constitutionality of Cess Act) on August 2004. Hence, by quashing of the notifications dated 19-07-2000/24-07-2000, it upheld the levy of purchase tax and held the levy of cess as unconstitutional. Thus, the argument of the learned counsel for the appellant that the State Government could not issue draft notification during this period when the stay was operating, does not hold good. The order of interim stay did not wipe out the judgment of this Court. The same still existed which was confirmed subsequently. Also, when looked at from another angle i.e. in case, the State Government had not issued the formal notification levying purchase tax on 12-09-2002, the S.L.P having been dismissed by the Hon'ble Apex Court would have automatically, in any case, restored/re- introduced the purchase tax which would relate back from the date when this Court had first passed the order dated 20-11-2001. The second argument that Section 12 of the Cess Act prohibits the imposition of any purchase Act, cannot be accepted, in view of Section 31 of the PGST Act, 1948. Section 31 of the PGST Act, 1948 gives ample power to issue a notification and Section 12, therefore, does not prevail as complete bar to the power of the State Government to legislate. Section 31 of the PGST Act, 1948 is reproduced hereunder :- “31. Power to amend Schedule `C' :- The State Government, after giving by notification not less than twenty days notice of its intention so to do, may by notification add to, or delete from, Schedule `C' any goods, and thereupon Schedule `C' shall be deemed to be amended accordingly.” LPA No.62 of 2004 in C.W.P. No. 18227 of 2002 -11- It was further argued that the said levy of purchase tax amounted to unforeseen liability. We feel the liability cannot be said to be unforeseen. The petitioners were paying the purchase tax before 2000. Thereafter, they were paying the Cess Tax till the judgment of this Court, passed on 20-11-2001. Hon'ble the Apex Court stayed the operation of judgment of this Court on 25-02-2002. The matter, as such, was still under consideration and the dispute remained alive although suspended for a short duration till finally set at rest on August 2004 when the S.L.P. against the judgment of this Court, was dismissed. Thereby, the purchase tax stood restored. The question of unforeseen liability, therefore, does not arise. Coming again to yet another argument that the said Ordinance dated 10-03-2003 could not have been given a retrospective effect w.e.f. 11-09-2002, loses its steam in view of the S.L.P., having been dismissed resulting in the restoration of the purchase tax as it existed before the notification dated 19-07-2000. Various judgments have been cited in support of the fact that the imposition of tax with retrospective effect has to be justified on proper and cogent grounds. Judgment of Hon'ble the Supreme Court titled as “D. Cawasji & Co. vs. State of Mysore and others” 150 ITR 648, “Solvex Oil and Fertilisers vs. State of Haryana” (1994) 094 STC 0383, “Shamanur Kallappa and Sons vs. State of Karnataka and another) (2004) 136 STC 0132 and “Bengal Paper Mill Co. Ltd. And another vs. Commercial Tax Officer, Calcutta and others” (1976) 038 STC 0163 are some of them. However, none of these judgments are applicable in the facts of the present case. In the present case, the purchase tax was operative LPA No.62 of 2004 in C.W.P. No. 18227 of 2002 -12- upto 24-07-2000. The said notification was struck down by this Court vide order dated 20-11-2001. The same was challenged before Hon'ble the Supreme Court and the operation of the judgment of this Court was stayed. The S.L.P was ultimately dismissed on August 2004. Thus, the purchase tax stood restored. Hence, the notification dated 12-09-2002 issued meanwhile, re-imposing the purchase tax which was being levied before July 2000 with retrospective effect does not cause any grievance in the facts of the present case as the same stood restored in any case once the S.L.P challenging the order of this Court was dismissed in August 2004 resulting in the same effect i.e. restoration of the purchase tax which was being levied before July 2000. Accordingly, we find no infirmity with the judgment passed by the learned Single Judge and we do not find any grievance or any unforeseen liability, having been caused to the petitioner in the facts of the present case. The Letters Patent Appeal is, accordingly, dismissed. (NIRMALJIT KAUR) JUDGE (ASHUTOSH MOHUNTA) JUDGE April 24, 2009 gurpreet