w w w . L a w y e r S e r v i c e s . i n



Seshasayee Paper & Boards Limited v/s State of Kerala & Others

    WA.Nos. 178 of 2003, 185 of 2003, 220 of 2003 etc

    Decided On, 14 July 2003

    At, High Court of Kerala

    By, THE HONOURABLE CHIEF JUSTICE MR. JAWAHAR LAL GUPTA & THE HONOURABLE MR. JUSTICE A.K. BASHEER

    For the Appellant: A.L.Somayaji (SR), Mohan Parasaran, Thanu Pillai, Advocates. For the Respondents : Raju Joseph, Government Pleader.



Judgment Text

Jawaharlal Gupta, C.J.


1) Is Section 3(c) of the Kerala General Sales Tax (Amendment) Act, 2002, by which the rate of tax on the sale of paper has been raised from 4% to 8% with effect from December 31,2001 unconstitutional? This is the short question that arises for consideration in this bunch of ten appeals and one Writ Petition. The learned single Judge having dismissed the petitions, the writ petitioners have filed these appeals. The writ petition Viz. O.P.No. 7973 of 2003 has been posted along with the appeals under an order passed by the leaned single judge.


2) Learned counsel for the parties have referred to the facts in W.A.No. 178 of 2003. These may be briefly noticed.


3) The appellant is a Public Limited Company. It is engaged in the manufacture of paper and paperboards. It has its registered office at Pallipalayam, P.O. Erode, in the state of Tamil Nadu. It is registered as a Dealer under the Kerala General Sales Tax Act, 1963.


4) On December 31, 2001, the Kerala General Sales Tax (Amendment) Ordinance 2001 (Ordinance No.37 of 2001) was published in the Government Gazette. It was declared that during the period of operation of the Ordinance, the Act shall have effect subject to the amendments specified in Sections 3 and 4. The relevant provision is contained in Section 3(c) by which the rate of tax on the sale of paper was raised from 4% to 8%. It was followed by Ordinance No. 4 of 2002, viz., 'The Kerala General Sales Tax Act (Second Amendment) Ordinance, 2002.' It was published in the Gazette on April 11, 2002. In the preamble it was inter-alia mentioned that a Bill to replace Ordinance No. 37 of 2001 by an "Act of the State Legislature could not be introduced in, and passed by the Legislative Assembly of the State of Kerala, during its session which commenced on the 1st day of March 2002 and ended on the 15th day of March 2002." Thus, the second ordinance was promulgated. On July 9,2002, Act No.4 of 2002 was published in the Gazette. It was to be "deemed to have come into force on the 31st day of December 2001." Copies of the Ordinances and the Act have been produced as Exts.P1 to P3.


5) The appellant had filed the "monthly and annual returns taking the rate of sales tax on paper at 4% only." Copies have been collectively field as Ext.P4. The appellant alleges that "several representations were made to the State by the Association and individual dealers about the unreasonableness" of the action in retrospectively raising the rate of sales tax from 4% to 8%. It was a 'colorable exercise' of power by the State. Regardless, it was given a notice dated August 17, 2002 for the payment of tax at the enhanced rate in terms of the Amending Act for the period from April 2002 to July 2002. It had also received another notice dated August 27,2002. Copies of these notices have been produced as Exts.P6 and P7. The reply submitted by the appellant to the fourth respondent on September 16, 2002 has been produced as Ext.P5. Thereafter an order of provisional assessment for the period from April 2002 to July 2002 along with a notice of demand was served on the appellant. A copy has been produced as Ext.P8. It was also served with a notice dated September 11, 2002 calling upon it to deposit differential tax for the month of August 2002 along with interest failing which the amount was to be recovered as arrears of land revenue. Copy of this notice has been produced as Ext.P9. The appellant filed an appeal against the orders of provisional assessment and the notices of demand for the period form April to July 2002. Despite that, two notices dated November 5, 2002 and November 8, 2002 were served on the appellant. Copies have been collectively produced as Ext.P10.



6) The appellant alleges that it was not aware of the increase in the rate of tax as imposed by the issue of the two Ordinances. In fact, "even the assessing officers" were ignorant about it. The Budget session of the Kerala Legislative Assembly was convened on March 1, 2002. The Assembly was prorogued on March 15,2002. According to the well-settled Legislative practice, the amendments to various Finance Acts are placed before the Assembly in the Budget session. The Ordinance was not placed before the legislature. The omission clearly indicates that "even the law makers were not aware of the existence of the First Ordinance." There were no circumstances to justify the promulgation of an Ordinance. Thus, the levy is “ex facie arbitrary, unreasonable, unfair and consequently unconstitutional.” On these premises, it prays that the provisions of Section3(c) by which the rate of tax on the sale of 'Paper' has been raised from 4% to 8% with retrospective effect form December 31, 2001 be declared unconstitutional and that the notices produced as Exts, P7, P8 and P9 be quashed.


7) The Writ Petition had been filed on November 12, 2002. It was heard on November 13, 2002. At that stage, no counter affidavit was filed. The Writ Petition was decided vide Judgment dated December 24, 2002. Thereafter Writ petitioner had filed this appeal on January 29, 2003. It was listed for hearing on January 31, 2003. Notice was issued for February 14, 2003. At the stage of appeal, a counter affidavit was filed on behalf of respondent Nos.2 to 4.


8) The issue of the two Ordinances was admitted. Though "the Legislative Assembly was convened after the promulgation of the Ordinance," it "could not be placed before the Assembly. Therefore, the said Ordinance was re-promulgated as Ordinance No.4 of 2002." In the second Ordinance, it was clearly mentioned that the provisions of the Ordinance will take effect from 31.12.2001, i.e., the date of promulgation of the original Ordinance. The second Ordinance was duly placed before the Legislative Assembly and it was approved. Thus, the Act was promulgated. The publication of the Ordinance is a notice to the public. On this basis, the contentions as raised by the appellant have been controverted. The respondents maintain that the assessees have no cause to complain and that they are not entitled to any relief.


9) On behalf of the appellants, Mr.A.L.Somayaji made a two-fold submission. It was contended that even though Ordinance Nos. 37 of 2001 and 4 of 2002 were published in the Government gazette, the change in the rate of tax was never made known to the dealers or the public. Even the authorities in the department were not aware of issue of the Ordinances. The State having failed to publicise the change in the rate of tax, the dealers had not collected it. The levy of tax at the higher rate and the notices for recovery are, thus arbitrary and violative of Article 14. The counsel further submitted that the Budget session of the Assembly was held form March 1 to March 15, 2002. The respondents had the opportunity to place the matter before the Assembly. They had not done so. In the counter affidavit, no reason for the failure to place the matter before the Assembly has been disclosed. Thus, there was no valid reason to re-promulgate the Ordinance. He also contended that the declared reason for the enhancement of the tax was the recommendation of the sub committee on the Value added Tax. Factually, the Subject Committee had recommended tax at the rate of 4% only. Thus, the reason as given by the respondents for the enhancement of the rate of tax was wholly non-existent.


10) Mr.Mohan Parasaran also appeared for some of the dealers. He contended that by Act 4 of 2002 the Ordinance had been repealed. The tax was levied with retrospective effect. A retrospective levy can be only justified as a curative measure. Since Act 4 of 2002 is not a validating statute, the levy of tax at the enhanced rate with retrospective effect is unreasonable. Thus it infringes Articles 14 and 19(1)(g).


11) Thanu Pillai contended that the Ordinances were given no publicity. Even the subscribers had not got a copy of the gazettee notification in which the Ordinance was published. Thus, the action of the respondents in enforcing the liability is untenable.


12) On the other hand, Mr.Raju Joseph, learned counsel for the respondents submitted that the Ordinances were duly published. Thus, the demand of tax at a higher rate is legal and valid. He pointed out that Ordinance No.37 of 2001 could not be placed before the Assembly, as it had to be prematurely prorogued. The counsel maintained that the first Ordinance having been promulgated on December 31, 2002, the provisions of the Act are really not retrospective. On these premises, the counsel contended that the claim as made by the appellants cannot be sustained.



13) Learned counsel for both sides also referred to various decisions in support of their respective submissions. These shall be noticed at the appropriate stage.


14) After hearing learned counsel for the parties, we find that the short question that arises for consideration in these cases is - Do the Ordinances and the Act conform to the Constitutional mandate?


15) Article 213 empowers the Governor to issue and Ordinance. It is legislative power. However, under our system, the Governor has to exercise the power on the aid and advice of the Council of Ministers. An Ordinance can be issued regarding any matter falling within the legislative competence of the State Legislature. But the power can be invoked only when the Legislature is not in session. The Ordinance, in terms of the provision, should be laid before the Legislative Assembly of the State when it re-assembles. It automatically ceases to have any effect at the expiration of six weeks from the date on which the Assembly meets after the date of its promugation. During the period of its operation, the Ordinance is as effective as an Act of the Legislature. An Act can be varied or amended by the issue of an Ordinance. However, as in the case of an Act, even an Ordinance would be invalid if it contravenes a Constitutional provision. Otherwise, an ordinance is 'law' for all purposes.


16) Like an Act of Legislature, the Ordinance is promulgated when it is published. It has to be formally announced and made known to the people. It has to be brought before the public. An Act of Legislature can sometimes become known by virtue of the reports that might appear in the media about


the debates in the Legislative Assembly. However, an Ordinance becomes public only when it is duly published. The known method of promulgation is by publication in the official Gazette.


17) In the present case, it is the admitted position that Ordinance No. 37 of 2001 was published in the Kerala Gazette on December 31, 2001. Thereafter, Ordinance No.4 of 2002 was published in the Gazette on April 11, 2002. Finally, the Act was published on July 9, 2002.


18) Mr. Somayaji submitted that the law was not made known. Even the Departmental Officers as well as the lawmakers did not know about it. Thus, the appellants had not even collected that tax. Resultantly, the counsel contended that it would be unfair to enforce the levy.


19) The old maxim is that ignorance of law excuses no man. It does not mean that every man knows the law. In fact, no body can claim that he knows all the laws. It only implies that if the excuse was accepted, everyone would make it and the other side would not know the way to refute it. It is on account of this basic principle that the law provides for publication in the Official Gazette. In the very nature of things, publication in the Gazette is taken as a notice to the public. Thereafter, it has to be assumed that everyone has been made aware of it.


20) In our country, a large majority of the people is not even literate. It may also be fair to say that the Gazette notification does not always reach every nook and corner of the country. But if this reason were to be accepted as a defence, it would become impossible for the State to enforce its laws. Thus, publication in the Government Gazette has to be presumed as enough for the promulgation of the law. The General Clauses Act provides that. Since the Ordinances and the Act were duly published, it will have to be assumed that everyone was made aware of the change in the rate of tax.


21) The counsel referred to the decision of their Lordships of the Supreme Court in Harla v. The State of Rajasthan (AIR 1951 SC 467). This was a case where the Ruler of Jaipur, who had legislative powers, had died. His successor was a minor. A Council of Ministers was appointed to look after the governance of the State. On December 11, 1923 the Council passed a resolution enacting the Jaipur Opium Act. It was not published in the Gazette or made known to the public by any other means. Almost 25 years later, Harla was alleged to have violated the provision and committed the offence on October 8, 1948. He was convicted under Section 7 of the Act. While dealing with the validity of the statute, it was observed that 'in the absence of any special law or custom. It would be against the principles of natural justice to permit the subjects of the State to be punished or penalized by laws of which they had no knowledge and of which, they could not, even with the exercise of reasonable diligence, have acquired any knowledge." It was further observed, "natural justice requires that before a law can become operative, it must be promulgated or published. It must be broadcast in some recognizable way."


22) Thus, the rule enunciated by the Supreme Court was that there should be a method of making the people aware of the provisions of law. A person should be able to acquire knowledge about the law by exercise of due and reasonable diligence.


23) Sec.3 of the General Clauses Act as amended by Kerala Act 3 of 1957, clearly provides for publication in the Gazette. It is a good 'channel' of communication. The citizen has to be vigilant. With the exercise of reasonable diligence, he can acquire the requisite knowledge.


24) The counsel then referred to the decision of their Lordships of the Supreme Court in Motilal Padampat Sugar Mills Co.Ltd. v. The State of Uttar Pradesh (44 STC 42). He placed reliance on the following observations:


"Moreover, it must be remembered that there is no presumption that every person knows the law. It is often said that every one is presumed to know the law, but that is not a correct statement; there is no such maxim known to the law. Over a hundred and thirty years ago, Maule, J., pointed out in Martindakle v. Falkner (1846) 2 CB 706): "There is no presumption in this country that every person knows the law: it would be contrary to common sense and reason if it were so." Scrutton, L.J., also once said: "It is impossible to know all the statutory law, and not very possible to know all the common law." But it was Lord Atkin who, as in so many other spheres, put the point in its proper context when he said in Evans v. Bartlam (1937) AC 473): "The fact is that there is not and never has been a presumption that every one knows the law. There is the rule that ignorance of the law does not excuse, a maxim of very different scope and application." It is, therefore, not possible to presume, in the absence of any material placed before the court, that the appellant had full knowledge of its right to exemption so as to warrant an inference that the appellant waived such right by addressing the latter dated 25th June, 1970. We accordingly reject the plea of waiver raised on behalf of the State Government."


The above observations were made in the context of the plea of waiver of the right to claim exemption. Their Lordships were considering the case in the context of the plea of promissory estoppel. These observations cannot be read to mean that despite publication in the Official Gazette, each citizen has to be individually informed about the change in law. That would be an uphill task. Such has never been the state of law.


25) It may be added here that Mr.Raju Joseph had referred to the decision of their Lordship of the Supreme Court in Union of India v. Ganesh Das Bhojraj (AIR 2000 SC 1102) to contend that the law becomes effective as soon as it is published. In this case, it was clearly observed by their Lordships that the citizen is entitled to claim exemption on the publication of he notification similar is the position in the present case.


26) It is the admitted position that the Ordinances as well as the Act were published in the Government Gazette. Thus, the change in law had been duly promulgated. Consequently, it was applicable and the dealers were bound by it.


27) Mr. Somayaji contended that the first Ordinance had been promulgated on December 31, 2001. Thereafter the Legislative Assembly had met for the Budget Session on March 1, 2002. The session had continued till March 15, 2002. The Ordinance was not placed before the Legislature. In the counter affidavit filed in the appeal, no reason for failure to place it before the Assembly has been given. Thus, the re-promulgation of the Ordinance was a 'fraud on the power'. Learned counsel placed firm reliance on the decision of their Lordship of the Supreme Court in D.C. Wadhwa v. State of Bihar (AIR 1987 SC 579).


28) It is, undoubtedly, true that in the counter affidavit filed on behalf of respondents 2 to 4, no reason for the failure to place the matter before the Legislative Assembly has been disclosed. However, Mr.Raju Joseph, the Senior Government Pleader, stated before the Bench that the Assembly was prematurely prorogued. Learned counsel had even pointed out that it has become difficult for the Assembly to transact any business. Thus, the Ordinance had to be re-Promulgated on April 11, 2002.


29) The explanation given by the learned counsel for the respondents does not appear to be unreasonable.


30) Mr. Somayaji referred to the decision in D.P. Wadhwa's case (Supra). This was a case wherein the Governor of Bihar had promulgated 256 Ordinances between 1967 and 1981. Out of these, 69 were "re-promulgated several times and kept alive with the prior permission of the President of India. As many as 11 Ordinances had operated for a period of more than ten years." In this situation, their Lordships were pleased to observe that promulgating Ordinances form time to time was deliberate. It had become "?a settled practice." The re-promulgation was "On a massive scale in a routine manner without even caring to get the Ordinances replaced by Acts of the Legislature or considering whether the circumstances existed, which rendered it necessary for the Governor to take immediate action by way of re-promulgation of the Ordinances." Such is not the position in the present case. Still further, it was also observed that the life on an Ordinance "cannot exceed seven-and-half months unless it is replaced by an Act of Legislature or disapproved by the resolution of the Legislature before the expiry of that period." In the present case, the Ordinance was replaced by an Act of Legislature within the period of seven-and-half months. Act 4 of 2002 had been promulgated on July 9, 2002. Factually, the tow cases stand on a totally different footing.


31) It is true that in Wadhwa's case it was observed by their Lordships that “the Government cannot by-pass the Legislature there may be a situation where it may not be possible for the Government to introduce and push through in the Legislature a Bill containing the same provisions as in the Ordinance, because the Legislature may have too much legislative business in a particular Session or the time at the disposal of the Legislature in a particular Session may be short. Otherwise, it may be "a colourable exercise of power on the part of the Executive to continue an Ordinance with substantially the same provisions beyond the period limited by the Constitution, by adopting a methodology of re-promulgation." Thus, failure to place the Ordinance before the Legislature can be overlooked if there is good reason. Otherwise, the action may attract the court's intervention. However, in the present case, we cannot say that the government had adopted 'a methodology.' The delay was not a device. The action was not a colourable exercise of power. Actually, the Ordinance was made into an Act on July 9,2002. Thus, it does not fall within the mischief of the rule as enunciated in Wadhwa's case (supra).


32) Counsel then referred to the decision in Sri Chand Kasera v. State of Bihar (1998) 8 SCC 725). The contention was that if the Ordinance lapses, the consequential action must also fall. However, in the present case, the Ordinance had not lapsed. Thus, it cannot be said that the levy would be rendered invalid. Still further, in T.Venkata Reddy v. State of A.P. (1985) 3 SCC 198, a contrary view had been clearly expressed. It is no doubt true that the correctness of the view in T.Venkata Reddy's case (supra) has been doubted. However, as would be noticed form the order in Krishna Kumar Singh v. State of Bihar (1998) 5 SCC 643, there was a difference of opinion between the judges. Thus, the matter was referred to a Larger Bench. The Honourable Supreme Court has not finally pronounced upon the issue or reversed the earlier decision. In this situation, it cannot be said that the view in P.Venkata Reddy's case (supra) is not the law as laid down by their Lordships or that it is not binding on this Court. In any case, the issue is really of no consequence so far as the present controversy is concerned. In the present case, the Ordinances and the Act had been duly published in the Government Gazette. The Ordinance had not lapsed. Thus, the notices under the Act or the Ordinance are not vitiated.


33) The counsel faintly contended that there was no emergency. There was no need for the promulgation of the Ordinance. Thus, the whole action is illegal.


34) The contention cannot be accepted. Article 213 empowers the Governor to promulgate an Ordinance. It is a legislative measure. An Ordinance is promulgated on the advice of the Council of Ministers. In the present case, the Governor had accepted the advice. He had issued the Ordinance. This Court cannot go into the issue of the Governor's satisfaction. It has to be assumed that he was satisfied about the need to issue the Ordinance. In any case, nothing was pointed out from the record to show that there was no justification for the enactment.


35) MR. Somayaji lastly contended that the Ordinance was promulgated on the recommendation of the subject Committee constituted for the purpose of amending the law relating to levy of tax on the sale or purchase of goods. The counsel submitted that the Committee had recommended the levy at 4% only. Thus, the reason for the enhancement of the rate of levy is non-existent.


36) The contention cannot be accepted. A tax is a compulsory exaction of money. The rate has to be fixed by the Legislature. This court cannot go into the rate of tax as actually imposed. The legislature is the best Judge of the needs of the people. It has to decide the matter in the light of the fact as it faces. This Court cannot go into the validity of the reason on account of which the state revises the rate of tax.


37) Mr. Mohan Parasaran submitted that the Act was passed in July, 2002. The Ordinances were repealed. The levy was imposed retrospectively with effect form December 31, 2001. A retrospective levy can be justified only as a ‘curative’ measure. The impugned Act is not a validating statute. Thus, the action in imposing the levy with retrospective effect is unreasonable. He referred to the decision of their Lordship of the Supreme Court in Premier Enterprises v. Commercial Tax Officer (2001) 9 SCC 753.


38) It was a case where retrospective effect was given to the Andhra Pradesh General Sales Tax (Amendment) Act, 1988. It was held by the High Court that the levy with effect from July 8, 1983 was reasonable. It was also noticed that in view of the legislative history, the action was 'remedial' in nature. The view taken by the High Court was sustained by their Lordships of the Supreme Court.


39) In the present case, it is obvious that the rate of tax had been revised through the Ordinance published on December 31, 2001. Thereupon, the appellants were entitled to charge tax at the higher rate. Equally, they were also liable to pay the tax at the revised rate. The Act had merely replaced the Ordinance and maintained the continuity. It was really not retrospective in its operation. It was not a curative or a remedial measure. In fact, there was nothing to be cured or remedied. Still further, notwithstanding the repeal of the two Ordinances, the Legislature had really substituted the Act for the Ordinance. It had also saved the action as actually taken or deemed to have been taken. Thus the contention that the statute is unreasonable is untenable. It does not violate Articles 14 and 19(1)(g).


40) The counsel also contended that the assesses had not collected the tax. Relying upon the observations in Kanthi Enterprises v. State of Karnataka - (2002) 7 SCC 283, the counsel submitted that the notices of demand should be quashed.


41) A perusal of the decision in Kanthi's case shows that a retrospective levy was sustained by their Lordships. In the present case, it is clear that the Ordinances had been duly promulgated. If the appellants did not collect tax despite the requirement of law, they have to thank them selves. They cannot blame the respondents. In any case, consideration of hardship or injustice is really not relevant when a taxing statute validly imposes a tax. Equity and tax are not twins.


42) Mr. Thanu Pillay, learned counsel for the appellant in W.A.No.353 of 2003, contended that the subscribers had not got a copy of the Gazette notification. Thus, the demand is vitiated.


43) This is question of fact, which cannot be gone into in this Writ Appeal. The Ordinances and the Act were duly published. The documents placed on record with the counter affidavit show that copies had been sent even to the Taxation Department. Thus, it cannot be said that merely because some subscriber may not have

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got a copy by post, the Act was not in force. 44) No other point was raised. 45) In view of the above, it is held that: - 1. Article 213 empowers the Governor to issue an Ordinance. It is a legislative power. However, under our system, the power has to be exercised on the aid and advice of the Council of Ministers. An Ordinance can be issued regarding any matter regarding which the State Legislature is competent to legislate. But the power to issue an Ordinance can be invoke only when the Legislature is not in session. 2. The Ordinance should be laid before the Legislative Assembly of the State when it re-assembles. It automatically ceases to have any effect at the expiration of six weeks from the date on which the Assembly meets after the date of its promugation. During the period of its operation, the Ordinance is as effective as an Act of the legislature. 3. Like an Act of Legislature, the ordinance is promulgated when it is published. The known method of promulgation is by publication in the official Gazette. In the present case, it is the admitted position that Ordinance No.37 of 2001 was published in the Kerala Gazette on December 31, 2001. Thereafter, Ordinance No.4 of 2002 was published in the Gazette of April 11, 2002. Finally, the Act was published on July 9, 2002. Thus, the Ordinances and the Act were duly promulgated. 4. An Ordinance must be placed before the legislature. However, the failure to do so can be overlooked if there is a good reason. Otherwise, it may be "a colourable exercise of power on the part of the Executive to continue an Ordinance with substantially the same provisions beyond the period limited by the Constitution, by adopting a methodology of re-promulgation." 5. In the present case, we cannot say that the government had adopted 'a methodology.' The delay was not a device. The action was not a colourable exercise of power. Actually, the Ordinance was made into an Act on July 9, 2002. Thus it does not fall within the mischief of the rule as enunciated in Wadhwa's case (supra). 6. A tax is a compulsory exaction of money. The rate has to be fixed by the Legislature. It is the best Judge of the needs of the people. It has to decide the matter in the light of the facts as it faces. This Court cannot go into the validity of the reason on account of which the state revises the rate of tax. 7. The fact that the appellants did not collect tax despite the requirement of law, is of no consequence. They have only to thank themselves. In any case, consideration of hardship or injustice is really not relevant in the taxing statues. Equity and tax are not twins. Thus, we find no merit in any of the eleven cases. Resultantly, the writ Appeals as well as the writ petition are dismissed. However the parties are left to bear their own costs.
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