The Assessing Authority under the Act of 1955 assessed the liability of the appellant to pay passenger tax under the Act for the years 1984-1985 to 1986-1987 and 1987-1988 to 1990-1991 in respect of the activity of providing transport facilities to its employees and their children. The assessment orders were passed on the premise that its employees and their children were passengers under the Act and therefore, the appellant was liable to pay passenger tax for providing them with transport facilities. Further, the Assessment Orders were passed on the assumption that every bus of the appellant was plying on every day of the relevant years; a passenger travelled on every seat of every bus; and every employee travelled the whole distance shown in the logbook.
The appellant challenged the Assessment Orders by filing a Revision Application before the Commissioner, Excise and Taxation, Himachal Pradesh, which was dismissed on the ground that a revision application would not be maintainable and it would be appropriate to file an appeal.
Thereafter, the appellant filed a Writ Petition before the High Court, challenging the vires of the Act of 1955, and the assessments made in accordance with the provisions thereof. The High Court allowed the same and directed the Respondents to refund the tax collected under the provisions of the Act of 1955. A Special Leave Petition filed by the Respondents before SC, assailing the judgment of the High Court was dismissed.
In that background, the Himachal Pradesh Legislative Assembly passed the Amendment and Validation Act of 1997 with a view to removing the basis of the judgment of the High Court. Accordingly, the Authorities issued notices to the appellant for recovery of tax under the provisions of the Amendment and Validation Act of 1997, regarding the appellant’s activity of providing transport facilities to its employees and their children.
The appellant challenged the vires of the Amendment and Validation Act of 1997 and the assessments made thereunder, as well as of the Act of 1955 by filing a Civil Writ Petition before the High Court. The same was dismissed by the High Court. Aggrieved by the aforesaid judgment of the High Court, the appellant approached the apex court.
Issues Before Supreme Court
Whether, by enacting the Amendment and Validation Act of 1997, the Himachal Pradesh State Legislature had validly removed the basis of the judgment of the High Court?
Whether the activity of the appellants of providing gratis transport facilities for their employees and their children, would now be a taxable activity under Section 3(1-A) of the Amendment and Validation Act of 1997?
The division bench of the Supreme Court has observed that “the power of a legislature to legislate within its field, both prospectively and to a permissible extent, retrospectively, cannot be interfered with by Courts provided it is in accordance with the Constitution. It would be permissible for the legislature to remove a defect in an earlier legislation, as pointed out by a constitutional court in exercise of its powers by way of judicial review. This defect can be removed both prospectively and retrospectively by a legislative process and previous actions can also be validated. However, where a legislature merely seeks to validate the acts carried out under a previous legislation which has been struck down or rendered inoperative by a Court, by a subsequent legislation without curing the defects in such legislation, the subsequent legislation would also be ultra-vires. Such instances would amount to an attempt to ‘legislatively overrule’ a Court’s judgment by a legislative fiat, and would therefore be illegal and a colourable legislation.”
Further, “the legislative device of abrogation by enacting retrospective amendments to a legislation, as a means to remove the basis of a judgment and validate the legislation set aside or declared inoperative by a Court, must be employed only with a view to bring the law in line with the judicial pronouncement. Abrogation is not a device to circumvent any and all unfavourable judicial decisions. If enacted solely with the intention to defy judicial pronouncement, such an amendment Act may be declared to be ultra-vires and as a piece of ‘colourable legislation. The device of abrogation, by way of introducing retrospective amendments to remove the basis of a judgment, may be employed when a legislature is under the bonafide belief that a defect that crept into the legislation as it initially stood, may be remedied by abrogation. An act of abrogation is permissible only in the interests of justice, effectiveness and good governance, and not to serve the oblique agenda of defying a court’s order, or stripping it of its binding nature.”
The Hon’ble Supreme Court laid down the following guiding principles in light of which the power of abrogation is to be exercised, however, these principles are not exhaustive:
There is no legal impediment to enacting a law to validate a legislation that has been held by a court to be invalid, provided, such a law removes the basis of the judgment of the court, by curing the defects of the legislation as it stood before the amendment.
The validating legislation may be retrospective. It must have the effect that the judgment pointing out the defect would not have been passed if the altered position as sought to be brought in by the validating statute existed before the court at the time of rendering its judgment.
Retrospective amendment should be reasonable and not arbitrary and must not be violative of any Constitutional limitations.
Setting at naught a decision of a court without removing the defect pointed out in the said decision is opposed to the rule of law and the scheme of separation of powers under the Constitution of India.
Abrogation is not a device to circumvent an unfavorable judicial decision. If enacted solely with the intention to defy a judicial pronouncement, such an amendment may be declared as ultra-vires.
Issue No. 1
It is held by the Court that by enacting the Amendment and Validation Act of 1997, the Himachal Pradesh State Legislature has validly removed the basis of the judgment of the Division Bench of the High Court, inter-alia, by amending the definition of the term ‘business’; defining the terms ‘fare’, ‘freight’ and ‘road’; deleting the Explanation to Section 3(1); and inserting Section 3 (1A) which brought non-fare paying passengers at par with fare-paying passengers for the purpose of levying tax under the Act. Thus, the Amendment and Validation Act of 1997 is a valid piece of Legislation.
Issue No. 2
Resultantly, the activity of the appellant in providing gratis transportation to its employees, and their children, would be a taxable activity under Section 3(1-A) of the Amendment and Validation Act of 1997.
Authorities
M/s. Tirath Ram Rajendra Nath, Lucknow vs. State of Uttar Pradesh, A.I.R. 1973 SC 405
Hindustan Gum and Chemicals Ltd. vs. State of Haryana, (1985) 4 SCC 124
Shri Prithvi Cotton Mills Ltd. vs. Broach Borough Municipality, A.I.R 1970 SC 192
Indian Aluminium Company Co. vs. State of Kerala, A.I.R 1996 SC 1431
State of Tamil Nadu vs. Arooran Sugars Ltd., (1997) 1 SCC 326
Bakhtawar Trust vs. M.D. Narayan, (2003) 5 SCC 298
Cheviti Venkanna Yadav vs. State of Telangana, (2017) 1 SCC 283
Madras Bar Association vs. Union of India, (2022) 12 SCC 455
Dr. Jaya Thakur vs. Union of India, 2023 SCC OnLine SC 813
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