Case: National Organic Chemical Industries Limited &amp; Others Vs. State of Maharashtra

2.Facts in brief, relevant for the purpose of this Petition, are asOrganic Chemical Industries Limited (NOCIL for short) and Polyolefins Industries Limited (PIL for short) were two companies duly registered under the Companies Act, 1956. NOCIL is engaged in the business of manufacture of Rubber and Plastic Products. These two Companies decided to amalgamate and the terms and conditions of the Scheme of Amalgamation were finalised and approved by the Board of Directors of NOCIL on 8.3.1994. As per the Scheme, the amalgamation was to be effective from 1.4.1993 (appointed date for short). On 17th May, 1994 NOCIL presented the Scheme of Amalgamation before the Bombay High Court for approval under Section 391 of the Companies Act, 1956. On being satisfied that all the requirements of Section 391 of the Companies Act, 1956 are complied with, the High Court by an order dated 10th November, 1994 approved the amalgamation of the two companies from the appointed date i.e. 1st April, 1993. On 24th November, 1994 the order of the High Court was filed before the Registrar of Companies. Thus, PIL stood amalgamated with NOCIL with effect from 1st April, 1993.3.As per the Scheme of Amalgamation, PIL was to carry on its business activities as Trustee for and on behalf of NOCIL from the appointed date i.e. 1st April, 1993 till the Scheme was approved by the High Court. Accordingly, from the appointed date i.e. 1st April 1993 till the date of approval of the Scheme on 10th November, 1994 the business was carried on by PIL as Trustee of NOCIL. However, as a matter of abundant caution, in respect of the goods supplied by NOCIL to PIL during the period 1st April, 1993 to 10th November, 1994 Sales Tax was collected by NOCIL from PIL. In the Sales Tax Return filed by NOCIL for the period 1st April, 1993 to 31st March, 1994 the total turnover of sale declared included transfer of goods by NOCIL to PIL. The value of the goods supplied by NOCIL to PIL during 1.4.1993 to 10.11.1994 was Rs.64.57 crores and the Sales Tax provisionally collected pending approval of the Scheme of Amalgamation was Rs.2.67 crores. However, it was categorically stated in the Sales Tax Return that the Sales Tax in respect of the goods supplied by NOCIL to PIL from 1st April, 1993 is being paid provisionally subject to the outcome of the Amalgamation Proceedings pending before the Bombay High Court.4.During the Assessment Proceedings, the Assessing Officer took note of the approval granted by the High Court for amalgamation of the two companies with effect from 1st April, 1993, and accordingly passed the Assessment Order on 31st March, 1997, holding that NOCIL and PIL being one legal entity w.e.f. 1st April, 1993, the transactions between NOCIL and PIL from 1st April, 1993 cannot be treated as sales liable to tax. As per the Assessment Order the Sales Tax Rs.2.67 crores paid by NOCIL provisionally was refunded by the Sales Tax Department to NOCIL on 2nd April, 1997.5.NOCIL had filed an Appeal against the aforesaid Assessment Order on certain other issues, such asTurnover Tax, Purchase Tax etc. In the said Appeal, the Deputy Commissioner of Sales Tax (Appeals) issued a Show Cause Notice on 19th November, 1997 calling upon NOCIL to show cause as to why supply of goods worth Rs.64.57 crores by NOCIL to PIL from 1st April, 1993 should not be treated as Sales liable to tax under the BST Act. The Petitioners in their reply letter submitted that from 1st April, 1993 PIL stood merged with NOCIL as per the High Courts Order dated 10.11.1994 and, therefore, there being no two separate legal entities from 1st April, 1993, the transactions between NOCILPIL cannot be considered a sale transactions and consequently there was no liability to pay Sales Tax. The Appellate Authority, however, by an order dated 31st March, 1998 passed under Section 55(6) of the BST Act, rejected the contention of the Petitioners and held that the amalgamation of one company into another can always be prospective and not retrospective, and that the High Court could not approve the amalgamation of two companies with retrospective effect from 1st April, 1993. By the said order, the Deputy Commissioner of Sales Tax (Appeals) held that the goods supplied by NOCIL to PIL from 1st April,1993 to 10th November, 1994 are liable to Sales Tax and accordingly directed issuance of Demand Notice for recovery of Sales Tax. Challenging the order of the Dy. Commissioner of Sales Tax (Appeals), NOCIL filed a Second Appeal before the Maharashtra Sales Tax Tribunal. During the pendency of the said Second Appeal, the State Legislature enacted Maharashtra Tax Laws (Levy and Amendment) Act, 2002 and the same was published in the Maharashtra Government Gazette on 4.5.2002. By the said Act, Section 33C was inserted to the BST Act with retrospective effect from 1st July, 1981. Validity of this newly inserted Section 33C is challenged in the present Petition.6.Few more facts may also be noted at this stage. Pursuant to the order of the High Court approving amalgamation, PIL applied for cancellation of its Sales Tax Registration w.e.f. 1st April, 1993 and the same was granted by the Sales Tax Authorities. However, PIL realising that the cancellation of its registration w.e.f. 1st April 1993 would adversely affect third parties who had transactions with PIL, filed an Appeal requesting that its registration be cancelled w.e.f. 10th November, 1994 i.e. the date on which the High Court passed order approving amalgamation of the two companies. Accordingly, the Appellate Authority has cancelled the registration of PIL w.e.f. 10th November, 1994.

Court's reasoning:
44. In our opinion Section 33C in fact creates a new liability by treating theany carrying on business as Agent or Trustee of theas two separate entities from the appointed date till the date of approval of the scheme by the Court. But for this new impost Sales Tax could not be levied in respect of the transactions between theany carrying on business as Agent of theIn the light of several decisions of the Apex Court set out hereinabove where the transferor and the transferee form one entity it cannot be said that there were sale transactions between two entities. Even if the State is competent to create such a legal fiction it cannot be created retrospectively. Under these circumstances we have no hesitation in holding that Section 33C imposes new levy a new principle and therefore the same cannot be said to be clarificatory or explanatory in nature.45. It is true by declaring that the amalgamation shall take place from a particular date the Company Court is not giving any direction to the Sales Tax Authorities. But once the Court declares that the corporate personality of a company shall be destroyed from a particular date the corporate personality of that company cannot be restored by the State Legislature as it amounts usurping the judicial power.46. Although the amalgamation is the voluntary act of the parties in deciding to amalgamate from the appointed date that voluntary act acquires legal status and in law theceases to exist from the appointed date declared by the Court. Such a legal status which flows from the High Court Order cannot be altered by the State Government.47. It is true that there cannot be any inherent limitation on the powers of the State Government to retrospectively levy a tax. The contention of the State that in the instant case retrospective operation of Section 33C does not cause any hardship to the Petitioners because at the relevant time when the transactions took place two companies were distinct and separate entities is also without any merit. As stated hereinabove from 1st April, 1993 business was carried on by PIL as Agent or Trustee of NOCIL and not as separate and distinct entity. The rights and liabilities of the companies in amalgamation as well as the taxable income of NOCIL and PIL has been determined on the footing that the PIL ceases to exist from 1st April, 1993. If Section 33C is to operate retrospectively then the entire scenario relating toratio, bargains by the shareholders and the assessed income of the two companies will be severely affected.The contention of the State that Section 33C must be judged on the parameters as applicable to Validating Law cannot be accepted because by the retrospective insertion of Section 33C the order of the Court itself is nullified which is not permissible in law.It must be remembered that in the present case it is not the infirmity or deficiency pointed out by the Court which is sought to be remedied. On the contrary it is the order of the Court which is sought to be nullified by the impugned legislation. In other words, in the present case the basis of amalgamation which has been approved and acknowledge by the High Court is sought to be nullified by the impugned legislation. In none of the decisions cited on behalf of the State it is held that the State can render the judicial decision nugatory or worthless. The State has failed to establish the nexus or the rationale behind introducing Section 33C with retrospective effect from 1st July, 1981. None of the provisions inserted to the BST Act on 1st July, 1981 pertained to the effective date of amalgamation of Companies. Therefore, there was no question of clarifying or explaining the provisions which were inserted to the BST Act on 1st July, 1981. As stated hereinabove by the retrospective insertion of Section 33C, the State has infact sought to nullify the Court Order which is not permissible in law.50. For all the aforesaid reasons, we hold that the Section 33C is unconstitutional in so far as it purports to apply retrospectively. In other words, Section 33C in so far as it applies for the period prior to 4th May, 2002 is declared to be unconstitutional. So far as first challenge to the provision of Section 33C set up by Mr. Dada relating to the legislative competence of the State Legislature is concerned, in our opinion, it needs no consideration in the facts and circumstances of the case. In view of our finding on the retrospectivity of Section 33C of the BST Act, pronouncement on the question of legislative competence is not strictly necessary for the disposal of this case. The Apex Court in the case of Basheshar Nath vs. Commissioner of Income Tax, 1959 Supp. (1) S.C.R. 528 : AIR 1959 SC 149   ruled that the Court should not make any pronouncement on any question which is not strictly necessary for disposal of the case before it.51. In the case of Union of India vs. C. DamaniCo., AIR 1980 SC 1149   the Apex Court expressed that the Court should examine the constitutionality of a statute only if it is absolutely necessary. In this view of the settled law, in our opinion, it was not at all necessary to examine larger question referred lo hereinabove, raised by Mr. Dada appearing for the Petitioners, especially when the Petition can be decided on the narrower question though it related to the constitutionality of the provision in question.By inserting Section 33C to the BST Act retrospectively with effect from 1st July, 1981 the State has in fact sought to nullify the effective date of amalgamation of companies declared by the Court in all cases after 1st July, 1981. Once the Court has declared that the corporate personality of a company shall come to an end from a particular date, then that status can be altered only by the Court. The said status cannot be altered by the State even in exercise of its legislative powers as it would amount to directly interfering with the order passed by the Court. Moreover, there cannot be different dates of amalgamation for different Authorities. It cannot be said that for the purposes of Companies Act a company loses its corporate personality from a particular date and for the purpose of BST Act the said company loses its corporate personality from another date. Once the Court declares that a company stands destroyed from a particular date then the corporate personality of that company is destroyed completely from that date. Prospectively for the purposes of Sales Tax, it may be open to the State Legislature to artificially preserve the separate identity of the Companies upto the date on which the Court approves the Scheme of Amalgamation. However, in respect of the Amalgamation Orders passed by the Court prior to the insertion of Section 33C are concerned, the effective date of amalgamation declared by the Court cannot be altered by the State Legislature as it amounts to overruling the orders of the Court or declaring that the judicial decisions are not binding.36. It is well established in law that the Legislature cannot declare that the judicial decisions of the Court are not binding, as it amounts to reversing the decisions rendered in exercise of judicial power. Courts decision always binds unless the conditions on which the decision is based, are fundamentally altered. In all cases, where the Court, from 1st July, 1981 has declared that the effective date of amalgamation shall be from a date anterior to the date on which the Scheme of Amalgamation is sanctioned by retrospectively inserting Section 33C, the State is not altering the basis on which the Court Order is founded, but in fact, the State is nullifying the Court Order itself. The origin and destruction of a corporate personality flows from the provisions under the Companies Act. The State cannot declare as to when a corporate entity shall come into existence or cease to exist. Even assuming that by inserting Section 33C the State is trying to preserve the identity of the Amalgamated Company upto the date on which the Scheme of Amalgamation is approved, such provisions can take effect only prospectively and not retrospectively because there will be nothing to preserve after the corporate personality of a company is destroyed from the effective date as per the order of thein the eye of law, complete destruction of the corporate body of the Amalgamated Company takes place from the effective date declared by the Court. Any law enacted by the State to the contrary would be directly overruling the Court Order and render the Judicial order nugatory. Such a law which encroaches upon the judicial domain is liable to be declared as unconstitutional.The contention of the State that the Companies Act (Central Legislation) and the BST Act (State Legislation) operate in separate fields and, therefore the orders passed under the Companies Act, 1956 does not affect the proceedings under the BST Act cannot be accepted. As stated hereinabove the juristic personality of a company flows from the provisions of the Companies Act. High Court under Section 391 of the Companies Act is empowered to declare the effective date of amalgamation of companies and from that effective date the Amalgamated Company is destroyed completely. By a deemed fiction it may be open to the State to preserve prospectively the identity of the Amalgamated Company up to the date on which the Scheme of Amalgamation is approved by the Court. However Section 33C in so far as it purports nullify the Amalgamation Orders passed by the Court from 1st July 1981 must be held to be unconstitutional.41. The contention of the State that Section 33C is only clarificatory or explanatory and merely treats the reality as reality for the purpose of Sales Tax Laws is also not correct. It cannot be disputed that from 1st April, 1993 PIL as per the Scheme of Amalgamation has carried on business as Agent of NOCIL. This reality to accepted and acknowledged by the Court and the same cannot be set at naught by the State Legislature. Any legislation which directly makes inroads in to the judicial domain renders itself being declared unconstitutional.42. It may be open to the State Legislature to enact prospectively that for the purposes of Sales Tax Tax Amalgamated and Amalgamating Companies are two separate and distinct entities up to the date on which the Scheme of Amalgamation is approved by the Court so that the Company Court while passing the order under Section 391 of the Companies Act would take note of the said provisions while sanctioning the Scheme of Amalgamation. We expressly keep this issue open and do not express any opinion as to the prospective validity of Section 33C of the BST Act. However. to the extent Section 33C seeks to alter the effective date of amalgamation of companies determined by the Court from 1st July 1981 till 3rd May, 2002, must be held to be unconstitutional.43. The contention of the State that by retrospective insertion the State has merely reiterated the law as existed cannot be accepted. As stated hereinabove in law thecarrying on business as Agent or Trustee of a transferee cannot be said to be carrying on business as a separate entity. The State by a fiction has sought to declare that thecarrying on business as Trustee or Agent of ais a separate entity for the purposes of the Sales Tax. Therefore the fiction created by the State cannot be said to be reiterating the law as it existed.In our opinion Section 33C in fact creates a new liability by treating theany carrying on business as Agent or Trustee of theas two separate entities from the appointed date till the date of approval of the scheme by the Court. But for this new impost Sales Tax could not be levied in respect of the transactions between theany carrying on business as Agent of theIn the light of several decisions of the Apex Court set out hereinabove where the transferor and the transferee form one entity it cannot be said that there were sale transactions between two entities. Even if the State is competent to create such a legal fiction it cannot be created retrospectively. Under these circumstances we have no hesitation in holding that Section 33C imposes new levy a new principle and therefore the same cannot be said to be clarificatory or explanatory in nature.45. It is true by declaring that the amalgamation shall take place from a particular date the Company Court is not giving any direction to the Sales Tax Authorities. But once the Court declares that the corporate personality of a company shall be destroyed from a particular date the corporate personality of that company cannot be restored by the State Legislature as it amounts usurping the judicial power.It is true that there cannot be any inherent limitation on the powers of the State Government to retrospectively levy a tax. The contention of the State that in the instant case retrospective operation of Section 33C does not cause any hardship to the Petitioners because at the relevant time when the transactions took place two companies were distinct and separate entities is also without any merit. As stated hereinabove from 1st April, 1993 business was carried on by PIL as Agent or Trustee of NOCIL and not as separate and distinct entity. The rights and liabilities of the companies in amalgamation as well as the taxable income of NOCIL and PIL has been determined on the footing that the PIL ceases to exist from 1st April, 1993. If Section 33C is to operate retrospectively then the entire scenario relating to, bargains by the shareholders and the assessed income of the two companies will be severely affected.The contention of the State that Section 33C must be judged on the parameters as applicable to Validating Law cannot be accepted because by the retrospective insertion of Section 33C the order of the Court itself is nullified which is not permissible in law.t must be remembered that in the present case it is not the infirmity or deficiency pointed out by the Court which is sought to be remedied. On the contrary it is the order of the Court which is sought to be nullified by the impugned legislation. In other words, in the present case the basis of amalgamation which has been approved and acknowledge by the High Court is sought to be nullified by the impugned legislation. In none of the decisions cited on behalf of the State it is held that the State can render the judicial decision nugatory or worthless. The State has failed to establish the nexus or the rationale behind introducing Section 33C with retrospective effect from 1st July, 1981. None of the provisions inserted to the BST Act on 1st July, 1981 pertained to the effective date of amalgamation of Companies. Therefore, there was no question of clarifying or explaining the provisions which were inserted to the BST Act on 1st July, 1981. As stated hereinabove by the retrospective insertion of Section 33C, the State has infact sought to nullify the Court Order which is not permissible in law.50. For all the aforesaid reasons, we hold that the Section 33C is unconstitutional in so far as it purports to apply retrospectively. In other words, Section 33C in so far as it applies for the period prior to 4th May, 2002 is declared to be unconstitutional. So far as first challenge to the provision of Section 33C set up by Mr. Dada relating to the legislative competence of the State Legislature is concerned, in our opinion, it needs no consideration in the facts and circumstances of the case. In view of our finding on the retrospectivity of Section 33C of the BST Act, pronouncement on the question of legislative competence is not strictly necessary for the disposal of this case. The Apex Court in the case of Basheshar Nath vs. Commissioner of Income Tax, 1959 Supp. (1) S.C.R. 528 : AIR 1959 SC 149   ruled that the Court should not make any pronouncement on any question which is not strictly necessary for disposal of the case before it.51. In the case of Union of India vs. C. Damani, AIR 1980 SC 1149   the Apex Court expressed that the Court should examine the constitutionality of a statute only if it is absolutely necessary. In this view of the settled law, in our opinion, it was not at all necessary to examine larger question referred lo hereinabove, raised by Mr. Dada appearing for the Petitioners, especially when the Petition can be decided on the narrower question though it related to the constitutionality of the provision in question.