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S.S. Navalgi Vs. Commercial Tax Officer, Jamkhandi - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtKarnataka High Court
Decided On
Case NumberWrit Petition Nos. 5658 to 5660 of 1969
Judge
Reported in(1971)2MysLJ653; [1971]28STC580(Kar)
ActsMysore Sales Tax Act, 1957 - Sections 15; Partnership Act - Sections 42; Mysore Sales Tax (Amendment) Act - Sections 24; Madras Entertainments Tax Act, 1939; Madras Entertainments Tax (Amendment) Act, 1966 - Sections 7
AppellantS.S. Navalgi
RespondentCommercial Tax Officer, Jamkhandi
Appellant AdvocateK. Srinivasan, Adv.
Respondent AdvocateH.K. Vasudeva Reddy, Government Pleader
Excerpt:
.....dismissing the suit. - like assessment orders were also passed on the same date for the years ending 31st march, 1961, and 31st march, 1962. the validity of these assessment orders was challenged by the petitioner in this court in writ petitions nos. 5. the contention of the learned counsel, in our opinion, is well founded. it is well established that the legislature can make retrospective law validating invalid assessments, but not without removing the basis of its invalidity. when a legislature sets out to validate a tax declared by a court to be illegally collected under ineffective or an invalid law, the cause for ineffectiveness or invalidity must be removed before validation can be said to take place effectively. the state of gujarat was not well advised in introducing this..........of any court. it is well established that the legislature can make retrospective law validating invalid assessments, but not without removing the basis of its invalidity. the question, therefore, is whether the basis of the illegality of the assessments in question are removed by any provision of law. section 15 of the act, as it originally stood, did not authorise the making of assessments on a dissolved firm. that section was, however, amended by act 9 of 1964, providing for assessment on a dissolved firm. the amendment came into force with effect from 1st april, 1964, but was not given retrospective effect. the assessments in question having been made on 30th november, 1962, are not authorised by this amending act of 1964. 8. the contention of the learned government pleader is that.....
Judgment:
ORDER

Jagannatha Shetty, J.

1. The petitioner in these writ petitions is common. He was a partner of a firm Messrs S. B. Navalgi which was an assessee under the Mysore Sales Tax Act, 1957 (hereinafter termed as the 'Act'). That partnership was constituted under a deed dated 16th November, 1960, in which there was no provision made either for the duration or for the determination of the partnership, and that was, therefore, a 'partnership at will'. On 28th July, 1961, one of the partners, S. B. Navalgi passed away. There was no contract express or implied to continue the partnership after the death of a partner. So, the firm stood dissolved under Section 42(c) of the Partnership Act, with effect from 29th July, 1961.

2. For the year ending 31st March, 1960, the respondent passed assessment order dated 30th November, 1962, in the name of the dissolved firm. Like assessment orders were also passed on the same date for the years ending 31st March, 1961, and 31st March, 1962. The validity of these assessment orders was challenged by the petitioner in this court in Writ Petitions Nos. 246 to 248 of 1966, on the ground that the respondent had no power to assess a dissolved firm. This court, perhaps, for want of requisite evidence, while allowing those petitions, issued the following directions :

'(1) The officer will call for and examine the deed of partnership on the basis of which three persons were trading as partners during the three relevant years according to the case of the petitioner, and on the basis thereof and on such further enquiry as he may find it necessary to conduct, decide whether the three persons, S. B. Navalgi and his two sons R. S. Navalgi and S. S. Navalgi, were trading as partners during the three years ending 31st March, 1960, 1961 and 1962. The petitioner is directed to produce the partnership deed before the officer when called upon to do so;

(2) If the officer finds that there was no such partnership but that the trade was throughout being conducted by the individual S. B. Navalgi, then the assessment orders dated 30th November, 1962, impugned in these writ petitions shall stand declared inoperative, with liberty to the officer to take such fresh steps as may be open to him under the law to subject the turnover of these years to sales tax by proceeding against such legal representatives as may be liable to meet the tax liability;

(3) If the officer finds that there was a firm of three persons mentioned above and the partnership deed does not contain any clause which prevents dissolution thereof under section 42(c) of the Partnership Act, then the assessment orders dated 30th November, 1962, impugned in these writ petitions will stand declared inoperative and ineffective;

(4) If the officer finds that there was a partnership deed between three persons mentioned above and the deed of partnership contains a clause preventing dissolution under section 42(c) of the Partnership Act, he will issue fresh notices to the present partners R. S. Navalgi and S. S. Navalgi and redo the assessment after hearing and examining such submissions as they may have for the completion of the assessment. In such an event, the partners undertake that for purposes of completing the assessment or redoing the assessment as aforesaid, they waive their right, if any, to raise objection on the ground of limitation or expiry of time.'

3. Pursuant to the directions of this court, the petitioner produced before the respondent, the deed of partnership dated 16th February, 1960, and another deed dated 13th October, 1961, by which the dissolved firm was reconstituted. There was admittedly no clause in the deed dated 16th February, 1960, for the continuation of the firm despite the death of any partner. But the respondent, by misconstruing the clause about the duration of the partnership being at will, came to the conclusion that that clause would prevent the dissolution under section 42(c) of the Partnership Act. Having erroneously arrived at the conclusion that the deed of partnership contained a clause preventing dissolution under section 42(c), the respondent purported to proceed in accordance with the direction contained in para. 4 of the directions issued by this court and passed fresh orders of assessment dated 23rd January, 1969, in the name of the firm for the periods above-mentioned which are challenged in the above writ petitions.

4. Mr. Srinivasan, the learned counsel for the petitioner, submitted that this court in the previous writ petitions having declared that the assessment orders dated 30th November, 1962, made on the firm M/s. N. B. Navalgi, as inoperative and ineffective, if the deed of partnership did not contain any clause preventing the dissolution under section 42(c) of the Partnership Act, since admittedly, there is no such clause, the reassessment orders dated 23rd January, 1969, made by the respondent are ex facie without jurisdiction and are liable to be set aside.

5. The contention of the learned counsel, in our opinion, is well founded. The learned High Court Government Pleader appearing for the respondent did not rightly support the conclusion of the respondent that the partnership deed contains a clause preventing dissolution under section 42(c). When there is no such clause, para. 3 of the order of this court becomes operative and consequently, the assessment orders dated 30th November, 1962, stand declared inoperative and ineffective. When para. 3 of the order becomes operative, the respondent had no jurisdiction to proceed under para. 4. The learned High Court Government Pleader however contended that the original orders of assessments dated 30th November, 1962, despite the declaration of this court as being inoperative, must be held to have been validated by the provisions of Section 24 of the Mysore Sales Tax (Amendment) Act (9 of 1970) hereinafter called the 'amending Act.' It is, therefore, necessary for us to consider the effect of the provisions of section 24 of the amending Act. Section 24 is extracted hereunder :

'24. Validation of assessment of sales tax in certain cases. - Notwithstanding anything contained in any judgment, decree or order of any court, Tribunal or any other authority no sales tax levied, assessed or collected or purported to have been levied, or assessed under the principal Act or under any rules made thereunder at any time before the commencement of this Act, on any firm after its dissolution or on an undivided Hindu family or Aliyasanthana family after its partition shall be deemed to be invalid or ever to have become invalid merely on the ground that the assessment of the sales tax on a dissolved firm or a divided Hindu family or Aliyasanthana family and the collection of the sales tax jointly and severally from the persons who at the time of dissolution of the firm were partners, or who at the time of partition of the family were members of such family was not authorised by law, and the sales tax so levied, assessed and collected shall be deemed to have been validly levied, assessed and collected in accordance with law, and accordingly, -

(a) all acts, proceedings, or things done or taken by any authority, officer or person in connection with the levy, assessment or collection of such sales tax shall, for all purposes, be deemed to be, and to have always been, done or taken in accordance with law;

(b) no suit or other proceedings shall be maintained or continued in any court for the refund of any tax so paid; and

(c) no court shall enforce any decree or order directing the refund of any tax paid.'

6. On a perusal of the section, it is seen that it opens with the non obstante clause overriding anything contained in any judgment, decree or order of any court or tribunal or any other authority. What this part in effect says is that the tax levied, assessed or collected or purported to have been levied or assessed under the principal Act or under any rules made thereunder before the commencement of the amending Act, on any firm after its dissolution shall not be deemed to be invalid or ever to have become invalid merely on the ground that the assessment of the sales tax on a dissolved firm was not authorised by law. The latter part of the section positively says that the sales tax so levied, assessed or collected shall be deemed to have been validly levied, assessed and collected in accordance with law. Certain consequences follow from these savings which are to be found in clauses (a) to (c). Clause (a) again a deeming clause, directs that all acts, proceedings or things done or taken by any authority, officer or person in connection with the levy, assessment or collection of such sales tax shall, for all purposes, be deemed to be and to have always been, done or taken in accordance with law. Clause (b) bars any suit or other proceeding for refund of tax so paid, and clause (c) says that no court shall enforce any decree or order directing the refund of any tax so paid.

7. The object of the above section is the validation of the assessments made on dissolved firms and other entities about which we are not concerned, notwithstanding anything contained in any judgment, decree or order of any court. It is well established that the Legislature can make retrospective law validating invalid assessments, but not without removing the basis of its invalidity. The question, therefore, is whether the basis of the illegality of the assessments in question are removed by any provision of law. Section 15 of the Act, as it originally stood, did not authorise the making of assessments on a dissolved firm. That section was, however, amended by Act 9 of 1964, providing for assessment on a dissolved firm. The amendment came into force with effect from 1st April, 1964, but was not given retrospective effect. The assessments in question having been made on 30th November, 1962, are not authorised by this amending Act of 1964.

8. The contention of the learned Government Pleader is that section 24 of the amending Act 9 of 1970 itself validates all the assessments made prior to 1st April, 1964, on dissolved firms. In our opinion, the provisions of this section do not lend support to that contention. This court in the previous writ petitions found that, before the amending Act 9 of 1964 came into force, there was no provision in the Act whereby a dissolved firm could be validly assessed. It is not disputed that the firm of which the petitioner was a partner stood dissolved when the assessment orders were made on 30th November, 1962. Therefore, as per the decision of this court, all these three assessment orders dated 30th November, 1962, were null and void. But what section 24 of the Act says is, notwithstanding the judgment, decree or order of any court, those assessment orders which were declared invalid, must be held to be valid. The effect of the section, in other words, is only to override the decision of this court and not to change the law retrospectively. The Legislature has no power to enact such a provision. The limits of the power of the Legislatures in enacting validation provisions have been considered by several decisions of the Supreme Court.

9. In Shri Prithvi Cotton Mills Ltd., etc. v. Broach Borough Municipality and Others : [1971]79ITR136(SC) , Hidayatullah, C.J., observed :

'Before we examine section 3 to find out whether it is effective in its purpose or not we may say a few words about validating statutes in general. When a Legislature sets out to validate a tax declared by a court to be illegally collected under ineffective or an invalid law, the cause for ineffectiveness or invalidity must be removed before validation can be said to take place effectively. The most important condition, of course, is that the Legislature must possess the power to impose the tax, for, if it does not, the action must ever remain ineffective and illegal. Granted legislative competence, it is not sufficient to declare merely that the decision of the court shall not bind for that is tantamount to reversing the decision in exercise of judicial power which the Legislature does not possess or exercise. A court's decision must always bind unless the conditions on which it is based are so fundamentally altered that the decision could not have been given in the altered circumstances. Ordinarily, a court holds a tax to be invalidly imposed because the power to tax is wanting or the statute or the rules or both are invalid or do not sufficiently create the jurisdiction. Validation of a tax so declared illegal may be done only if the grounds of illegality or invalidity are capable of being removed and are in fact removed and the tax thus made legal. Sometimes, this is done by providing for jurisdiction where jurisdiction had not been properly invested before. Sometimes, this is done 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.' (pages 194 and 195).

10. A question similar to the one before us came up for consideration before the Supreme Court in The Municipal Corporation of the City of Ahmedabad and Another v. The New Shorock Spg. and Wvg. Co., Ltd. etc. : [1971]1SCR288 In dealing with that question, this is what Hegde, J., speaking for the court, observed :

'This is a strange provision. Prima facie that provision appears to command the Corporation to refuse to refund the amount illegally collected despite the orders of this court and the High Court. The State of Gujarat was not well advised in introducing this provision. That provision attempts to make a direct inroad into the judicial powers of the State. The Legislatures under our Constitution have within the prescribed limits, powers to make laws prospectively as well as retrospectively. By exercise of those powers, the Legislature can remove the basis of a decision rendered by a competent court thereby rendering that decision ineffective. But no Legislature in this country has power to ask the instrumentalities of the State to disobey or disregard the decisions given by courts.' (page 1296).

11. The above view was again reiterated in a recent judgment of the Supreme Court in State of Tamil Nadu and Another v. M. Rayappa Gounder and Another etc. (Civil Appeals Nos. 2462 and 2463 of 1969). The facts of this case are almost similar to the one before us. The High Court of Madras in Writ Petition No. 513 of 1963 while dealing with the provisions of the Madras Entertainments Tax Act, 1939, held that there was no power of reassessment of what had escaped assessment under that Act. The State Legislature enacted the Madras Entertainments Tax (Amendment) Act, 1966, the object of which was to make provision in the Entertainments Tax Act to reassess what had escaped assessment and also to validate the reassessment made before the amendment came into force. Section 7B was introduced providing power to reassess and section 7 which is similar to section 24 of the Mysore Amending Act, was introduced to validate those reassessments made without any authority. Those provisions were challenged before the High Court of Madras contending that the power to reassess under section 7B was incomplete and not exercisable in the absence of prescription as to limitation contemplated by the section, and that, in view of this, section 7 fails to validate the reassessments. Upholding those contentions, the High Court allowed the writ petition and quashed the assessments. In the appeal preferred by the State of Tamil Nadu, the Supreme Court affirmed the decision of the High Court of Madras, observing that section 7 of the Madras Entertainments Tax (Amendment) Act, 1966, was invalid in so far as it attempts to validate invalid assessment without removing the basis of its invalidity.

12. The case before us falls, in our opinion, within the rule laid down in the above decisions. This court in the previous writ petitions declared the assessment orders made on the dissolved firm as invalid and ineffective, as the Act contained no provision authorising such assessments. The State Legislature by enacting section 24 of the amending Act, has declared that those assessment orders, notwithstanding the declaration of any court, must be held to be valid. The Legislature has not removed the cause of its ineffectiveness or supplied power to assess the dissolved firm at the time when the said assessment orders were made. A court's decision must always bind the parties unless the basis of the decision is removed by the Legislature. No such thing has been done by the amending Act. Therefore, we hold that section 24 of the Mysore Sales Tax (Amendment) Act (9 of 1970) in so far as it purports to validate the invalid assessments made on dissolved firms prior to 1st April, 1964, is ineffective.

13. In the result, these writ petitions are allowed. The impugned assessment orders dated 23rd January, 1969, are quashed.

14. The petitioner will get the costs of these writ petitions. Advocate's fee Rs. 100 (one set).

15. Petitions allowed.


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