Case: KRISHNA GOPAL TIWARY &amp; ANR Vs. UNION OF INDIA &amp; ORS

2. The appellants are employees of Coal India Limited. The Government of India approved enhancement of gratuity to the executives and Non-Unionized Supervisors of Central Sector Enterprises such as the Coal India Limited where the appellants were employed. The ceiling of the gratuity was raised to Rs.10 lakhs w.e.f. 1.1.2007 in terms of office memorandum of Government of India dated 26.11.2008.3. The appellants were paid such gratuity in terms of such office memorandum. However, later on, the Payment of Gratuity Act (For short, the Gratuity Act) was amended by Central Act No. 15 of 2010 which received the assent of the Honble President on 17.5.2010. The relevant provisions of the Amending Act read as under:1(1). This Act may be called the payment of Gratuity (Amendment) Act, 2010.(2) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.2.In Section 4 of the Payment of Gratuity Act, 1972, in subsection (3), for the words three lakhs and fifty thousand Rupees, the words ten lakh rupees shall be substituted.4. In terms of sub-section (2) of Section 1 of the Amending Act, a notification was issued by the Government of India on 24.5.2010 appointing the said date as the date on which the Amending Act came into force.

Court's reasoning:
10. The aforesaid judgment has come up for consideration before this Court in a judgment reported as State Government Pensioners Association & Ors. v. State of Andhra Pradesh (1986) 3 SCC 501  wherein the payment of gratuity from a specified date of retirement was held to be not unconstitutional. This Court held as under:2. … Similar is the case with regard to gratuity which has already been paid to the petitioners on the then prevailing basis as it obtained at the time of their respective dates of retirement. The amount got crystallized on the date of retirement on the basis of the salary drawn by him on the date of retirement. And it was already paid to them on that footing. The transaction is completed and closed. There is no scope for upward or downward revision in the context of upward or downward revision of the formula evolved later on in future unless the provision in this behalf expressly so provides retrospectively (downward revision may not be legally permissible even)….11. Similar view was taken in a judgment reported as Union of India v. All India Services Pensioners Association & Anr. (1988) 2 SCC 580  wherein it was held that the pension is payable periodically as long as the pensioner is alive whereas the gratuity is ordinarily paid only once on retirement. This Court held as under:8. From the foregoing it is clear that this Court has made a distinction between the pension payable on retirement and the gratuity payable on retirement. While pension is payable periodically as long as the pensioner is alive, gratuity is ordinarily paid only once on retirement. No other decision of this Court which has taken a view contrary to the decision of Thakkar and Ray, JJ. in Andhra Pradesh State Government Pensioners Association case [(1986) 3 SCC 501  : 1986 SCC (L&S) 676] and to the decision in N.L. Abhyankar case [(1984) 3 SCC 125  : 1984 SCC (L&S) 486] has been brought to out notice. The observations made in these two cases are binding on us insofar as the applicability of the rule in D.S. Nakara case [(1983) 1 SCC 305  : 1983 SCC (L&S) 145 : (1983) 2 SCR 165  : 1983 UPSC 263] to the liability of the Government to pay gratuity on retirement. We respectfully agree with the views expressed in those decisions. It is also not shown that the Government notification in question either expressly or by necessary implication directs that those who had retired prior to 1-1- 1973 would be entitled to any additional amount by way of gratuity. The Tribunal was, therefore, in error in upholding that gratuity was payable in accordance with the Government Notification No. 33/12/73-AISC(ii) dated 24-1- 1975 to all those members of the All-India Services who had retired prior to 1-1-1973.13. However, what is exempt from the Income Tax Act is the amount of gratuity received under the Gratuity Act to the extent it does not exceed an amount calculated in accordance with the provisions of sub-sections (2) and (3) of Section 4 of the Gratuity Act. The Gratuity Act contemplated rupees ten lakhs as the amount of gratuity only from 24.5.2010. Such gratuity is the amount payable only once. Thus, the cut-off date cannot be said to be illegal, it being one-time payment. Therefore, such amendment in the Gratuity Act cannot be treated to be retrospective. Therefore, the provisions of the statute cannot be said to be retrospective.14. In a judgment of this Court reported as Sri Vijayalakshmi Rice Mills, New Contractors Co. & Ors. v. State of Andhra Pradesh (1976) 3 SCC 37,  the new rate of supply of rice was made effective on 23.3.1964. The question arose was as to whether the rice supplied earlier would have the benefit of beneficial provision as contained in the later notification dated 23.3.1964. This Court held that price as was prevalent on the date of sale alone would be payable and not the higher price introduced by amendment. It was held as under:6. The aforesaid sales in the instant cases having been made by the appellants before the coming into force of the Rice (Andhra Pradesh) Price Control (Third Amendment) Order, 1964, and the property in the goods having passed to the Government of Andhra Pradesh on the dates the supplies were made, the appellants had to be paid only at the controlled price obtaining on the dates the sales were effected and not at the increased price which came into operation subsequently.16. In a recent judgment reported as Himachal Road Transport Corporation & Anr. v. Himachal Road Transport Corporation Retired Employees Union (2021) 4 SCC 502,  in the case of payment of increased quantum of death-cum-retirement gratuity, it was held that the cutoff date cannot be said to be arbitrary which was fixed keeping in view financial constraints. This Court held as under:18. Though there are long line of cases, where validity of fixation of cut-off date is considered by this Court, we confine and refer to the case law which is relevant to the facts of the case on hand. In State of Punjab v. Amar Nath Goyal [State of Punjab v. Amar Nath Goyal, (2005) 6 SCC 754  : 2005 SCC (L&S) 910] , while examining the validity of cut-off date fixed for grant of benefit of increased quantum of death-cum-retirement gratuity, this Court has held that the financial constraint pleaded by the Government, was a valid ground for fixation of cut-off date and such fixation was not arbitrary, irrational or violative of Article 14 of the Constitution…….17. In view of the above, we find that the date of commencement fixed by the Executive in exercise of power delegated by the Amending Act cannot be treated to be retrospective as the benefit of higher gratuity is one-time available to the employees only after the commencement of the Amending Act. The benefit paid to the appellants under the office memorandum is not entitled to exemption in view of specific language of Section 10(10)(ii) of the Income Tax Act.