Case: State Of Tamil Nadu Vs. Thirumagal Mills Ltd. Etc

2. The facts in the first of these appeals may be stated. The assessee, who is the respondent herein, is a spinning mill manufacturing cotton yarn. It was assessed to sales tax under the Madras General Sales Tax Act, 1959, hereinafter called the Act. For the assessment year 1960-61 the assessing authority included in the taxable turnover certain amounts representing the sale value of foodgrains and groceries sold in the fair price shop run by the mills and the amount realised by sale of articles of food in the canteen which was run for its employees. The assessee filed an appeal questioning its liability to pay tax on these items. The appellate authority dismissed that appeal. The assessee thereupon filed a further appeal to the Sales Tax Appellate Tribunal which allowed the appeal and directed that the turnover in question be deleted. The Revenue went up in revision to the High Court of Madras. A division bench of that court dismissed the revision3. The Appellate Tribunal had found that the fair price shop and the canteen were run exclusively for the benefit of the employees and there was no profit motive in running the sameThe High Court referred to the relevant statutory provisions and expressed the view that the primary requisite of business as defined by the Act should be a trade or commerce or adventure in the nature of trade or commerce. Presence or absence of profit was not material but the activity must be of a commercial character in the course of trade or commerce. It was found that the assessee had not been carrying on business in the fair price shop. The High Court looked into the Articles of Association of the assessee and found no article empowering it to carry on business in fair price shop. The assessee had opened that shop only to provide an amenity to its workmen so that commodities may be made available to them at fair prices. According to the High Court if as a matter of fact some profit accrued that would be wholly immaterial because the assessee never intended to run the fair price shop as a business having an element of commercial activity.

Reasoning: Hence it was held that the impugned assessment in that case could not be sustained. The principle which has been laid down clearly is that validation of tax which has been declared to be illegal may be done only if the grounds of illegality or invalidity are capable of being removed and are in fact removed. Sometimes this is done by providing for jurisdiction where jurisdiction had not been properly invested before. Sometimes this is achieved by re-enacting retrospectively a valid and legal taxing provision and then by fiction making the tax already collected to stand under the re-enacted law. The legislature can give its own meaning and interpretation of the law under which the tax was collected and by legislative fiat makes the new meaning binding upon the Courts. None of these methods has been adopted in the present caseAlthough the definition of "business" was substituted by the Second Amendment Act of 1964 it was not made retrospective by the usual words that it should be deemed to have been always substituted nor was any other language employed to show that the substantive provision, namely, the definition of "business" was being amended retrospectively. Section 9, therefore, can be of no avail to the Revenue. It has been pointed out that in the other decision rendered by this Court in which similar validation provision appeared the substantive section had not been amended at all. That, in our judgment will not make any difference between the essence of the matter is that the definition of the word "business" which was material was amended only prospectively and not with retrospective effect. It is common ground and has not been disputed that if retrospective operation is not given to Section 2 (d) of the Second Amendment Act 1964 the Revenue must fail in these appeals. We may add that we have not considered the question of the liability of the assessee to be assessed subsequent to the amendment made by the Second Amendment Act of 1964We are unable to agree that S.9 by itself would make the definition of "business" as substituted in S.2 retrospective. In State of Tamil Nadu v. M. Rayappa Gounder etc. AIR 1971 SC 231, S.7 of the Madras Entertainment Act (Amendment) Act 1966 which was similar to Section 9 mentioned above came up for consideration. The question was whether the assessment were validly protected by that sectionReliance was placed on certain decisions of this Court which laid down that it is over to the legislature within certain limits to amend the provisions of the Act retrospectively and to declare what the law shall be deemed to have been but it was not open to the legislature to say that a judgment of a Court properly constituted and rendered shall be deemed to be ineffective.