Case: Rai Ramkrishna &amp; Others Vs. State of Bihar

On March 30, 1950, the Bihar Legislature passed the Bihar Finance Act, 1950 (Bihar Act XVII of 1950); this Act levied a tax on passengers and goods carried by public service motor vehicles in Bihar. Nearly a year after this Act came into force, the appellants challenged its validity by instituting a suit No. 60 of 1951: in the Court of the First Subordinate Judge at Gaya on May 5, 1951. In this suit, the appellants prayed that the provisions of Part III of the said Act were unconstitutional and asked for an injunction restraining the respondent, the State of Bihar, from levying and realising the said tax. It appears that a similar suit was instituted (No. 47 of 1951) on behalf of the passengers and owners of goods for obtaining similar reliefs against the bus operators. This latter suit was filed by the passengers and owners of goods in a representative capacity under O. 1 Rule 8. Both these suits were transferred to the Patna High Court which heard the said two suits dismissed them on May, 8, 1952. The High Court found that the said Act of 1950 did not contravene Article 301 of the Constitution and so, its validity was beyond challenge The appellants then preferred an appeal to this Court No. 53 of 1952. Pending the said appeal in this Court, a simliar question had been decided by this Court in the Case of Atiabari Tea Co., Ltd. v. State of Assam. 1961-1 SCR 809   : (AIR 1961 SC 232  ). In consequence, when the appellants appeals came for disposal before this Court, it was conceded by the respondent that the said appeal was covered by the decision of this Court in the case of Atiabari Tea Co., Ltd. 1961-1 SCR 809  : (AIR 1961 SC 232  ) and that in accordance with the said decision, the appeal had to be allowed. That is why the appeal was allowed and the appellants were granted the declaration and injunction claimed by them in their suit. This Judgment was pronounced on December 12, 1960.3. The respondent then issued an Ordinance (Bihar Ordinance No. II of 1961) On August 1, 1961. By this Ordinance the material provisions of the earlier Act of 1950 which had been struck down by this Court were validated and brought into force retrospectively from the date when the earlier Act had purported to come into force. Subsequently, the provisions of the said Ordinance were incorporated in the Act which was duly passed by the Bihar Legislature and received the assent of the President on September 23, 1961. As a result of the retrospective operation of this Act, its material provisions are deemed to have come info force on April l, 1950, that is to say, the date on which the earlier Act of 1950 had come into force. That, in brief, is the background of the present legislation.4. The appellants and the other petitioners who had joined by filing several Petitions in the Patna High Court had challenged the validity of the Act on several grounds. The High Court has rejected all these grounds and has taken the view that the Act in its entirety is valid. The High Court has found that the provisions of the Act no doubt take it within the purview of Part XIII of the Constitution; but it has held that the Act has been passed with the previous sanction of the President and the restrictions imposed by it are otherwise reasonable, and so, it is saved under Article 304 (b) of the Constitution. The plea made by the respondent that the taxing provisions of the Act were compensatory in character and were, therefore, valid, was rejected by the High Court. The High Court held that the principle that a taxing statute which levies a compensatory or regulatory tax is not invalid which has been laid down by the majority decision of this Court in the case of Automobile Transport (Rajasthan) Ltd., v. State of Rajasthan AIR 1962 SC 1406  , was not applicable to the provisions of the Act. The argument that the Act was invalid because it required the appellants to act as the Agents of the respondent for collecting the tax from the passengers, and from the owners of the goods without payment of any remuneration, was rejected by the High Court. It was also urged that the Act contravened the provisions of Article 199(4) of the Constitution, but the High Court was not impressed with this argument, and the plea that the matters in dispute between the appellants and the respondent are really concluded by res judicata, appeared to the High Court without any substance. That is how the writ petitions filed by the appellants failed, and so, they have come to this Court confining their challenge only to the validity of the retrospective operation of the Act.

Court's reasoning:
11. It is also true that though the Legislature can pass a law and make its provisions retrospective, it would be relevant to consider the effect of the said retrospective operation of the law both in respect of the legislative competence of the Legislature and the reasonableness of the restrictions imposed by it. In other words, it may be open to a party affected by the provisions of the Act to contend that the retrospective operation of the Act so completely alters the character of the tax imposed by it as to take it outside the limits of the entry which gives the Legislature competence to enact the law; or it may be open to it to contend in the alternative that the restrictions imposed by the Act are so unreasonable that they should be struck down on the ground that they contravene his fundamental rights guaranteed under Art. 19(1) (f) and (g).It is, of course, true that the power of taxing the people and their property is an essential attribute of the Government and Government may legitimately exercise the said power by reference to the objects to which it is applicable to the utmost extent to which Government thinks it expedient to do so. The objects to be taxed so long as they happen to be within the legislative competence of the Legislature can be taxed by the Legislature according to the exigencies of its needs because there can be no doubt that the State is entitled to raise revenue by taxation. The quantum of tax levied by the taxing statute, the conditions subject to which it is levied the manner in which it is sought to be recovered, are all matters within the competence of the Legislature, and in dealing with the contention raised by a citizen that the taxing statute contravenes Art. 19, Courts would naturally be circumspect and cautious. Where for instance it appears that the taxing statute is plainly discriminatory, or provides no procedural machinery for assessment and levy of the tax, or that it is confiscatory, Courts would be justified in striking down the impugned statute as unconstitutional. In such cases, the character of the material provisions of the impugned statute is such that the Court would feel justified in taking the view that, in substance the taxing statute is a cloak adopted by the Legislature for achieving its confiscatoryapart from that, it seems to us that the nature of the tax in the present case is the same both in regard to prospective and retrospective operations, and so, it is difficult to entertain the argument that the tax has ceased to be tax on passengers and is, therefore outside Entryargument that the retrospective operation of the Act is beyond the legislative competence of the Bihar legislature must, therefore, beposition therefore, appears to be well settled that if in its essential features a taxing statute is within the legislative competence of the Legislature which passed it by reference to the relevant entry in the List, its character is not necessarily changed merely by its retrospective operation so as to make (sic take) the said retrospective operation outside the legislative competence of the said Legislature, and so, we must hold that the challenge to the validity of the retrospective operation of the Act on the ground that the provision in that behalf is beyond the legislative competence of the Bihar Legislature must be rejected.We do not think that such a mechanical test can be applied in determining the validity of the retrospective operation of the Act. It is conceivable that cases may arise in which the retrospective operation of a taxing or other statute may introduce such an element of unreasonableness that the restrictions imposed by it may be open to serious challenge as unconstitutional; but the test of the Length of time covered by the retrospective operation cannot, by itself, necessarily be a decisive test.We may have a statute whose retrospective operation covers a comparatively short period and yet it is possible that the nature of the restriction imposed by it may be of such a character as to introduce a serious infirmity in the retrospective operation.On the other hand, we may get cases where the period covered by the retrospective operation of the statute, though long, will not introduce any such infirmity. Take the case of a Validating Act. If a statute passed by The Legislature is challenged in proceedings before a Court and the challenge is ultimately sustained and the statute is struck down, it is not unlikely that the judicial proceedings may occupy a fairly long period and the Legislature may well decide to await the final decision in said proceedings before it uses its legislative power to cure the alleged infirmity in the earlier Act. In such a case, if after the final judicial verdict is pronounced in the matter the Legislature passes a validating Act, it may well cover a long period taken by the Judicial proceedings in Court and yet it would be inappropriate to hold that because the retrospective operation covers a long period, therefore, the restriction imposed by it is unreasonable. That is why we think the test of the length of time covered by the retrospective operation cannot be treated as a decisive test.18. Take the present case. The earlier Act was passed in 1950 and came into force on the 1st of April 1950, and the tax imposed by it was being collected until an order of injunction was passed in the two suits to which we have already referred. The said suits were dismissed on the 8th May, 1952, but the appeals preferred by the appellants were pending in this Court until the 12th December 1960. In other words between 1950 and 1960 proceedings were pending in Court in which this validity of the Act was being examined, and if a Validating Act had to be passed, the Legislature cannot be blamed for having awaited the final decision of this Court in the said proceedings. Thus, the period covered between the institution of the said two suits and their final disposal by this Court cannot be pressed into service for challenging the reasonableness of the retrospective operation of theposition therefore, is that the retrospective operation of Section 23(a) and (b) covers respectively cases of payments actually made under the provisions of the earlier Act, and cases pending inquiry, and the retrospective operation of Section 3(3) read with Section 1(3) only applies to cases of persons who did not pay the tax during the whole of the period, or whose cases were not pending; and it is this limited class of persons whose interests are represented by the appellants before us.Having regard to the somewhat unusual circumstances which furnish the background for the enactment of the impugned statute, we do not think that we could accept Mr. Setalvads argument that the retrospective operation of the Act imposes restriction on the appellants which contravene the provisions of Article 19(1) (f) and (g). In our opinion, having regard to all the relevant facts of this case, the restrictions imposed by the said retrospective operation must be held to be reasonable and in the public interest under Article 19(5) and (6) and also reasonable under Articlemeasures or measures imposing compensatory taxes for the use of trading facilities do not come within the purview of the restrictions contemplated by Article 301 and such measures need not comply with the requirements of the proviso to Article 304(b) of the Constitution.