1997 JTR(SC) 1243
1998 AIR(SC) 2399 ; 1998 AIR(SCW) 2348 ; 1998 4 AllMR(SC) 76 ; 1998 ILR(Kar) 923 ; 1997 8 JT 119 ; 1997 6 Scale 137 ; 1997 8 SCC 31 ; 1997 107 STC 553 ; 1997 KHC 1080 ; 1997 2 KLT(Online) 1182 ; 1997 8 Supreme 283
1997(8) Supreme 283
SUPREME COURT OF INDIA
(From Karnataka High Court)
S.P. Bharucha & M. Jagannadha Rao, JJ.
Central Arecanut & Cocoa Marketing & Processing Co-operative Ltd. -Appellant
versus
State of Karnataka & Ors. -Respondents
Civil Appeal No. 4228 of 1991
Decided on 16-9-1997
Counsel for the Parties :
For the Appellant : Joseph Vellapally, Sr. Advocate, Mukul Mudgal, Advocate.
For the Respondents : M. Veerappa, Advocate.
Act
Referred
:CENTRAL SALES TAX ACT : S.8(5)
CONSTITUTION OF INDIA : Art.14, Art.226
(A) The interplay between the Central Sales Tax Act, 1956 (specifically Section 8(5)) and the Constitution of India (Article 14 and Article 226) is central to this appeal. Section 8(5) of the Central Sales Tax Act empowers State Governments to exempt inter-State sales from tax, and the notification issued under this provision directly regulates the appellant society's ability to collect tax on inter-State arecanut sales. Article 14 of the Constitution, which guarantees equality before the law and prohibits class-based discrimination, was invoked to challenge the notification on the grounds that it discriminated between different classes of dealers. Furthermore, Article 226 provides the High Court with the power to issue writs for the enforcement of fundamental rights, forming the jurisdictional basis for the writ petition initially filed in the Karnataka High Court. The interaction between the State's power to grant tax exemptions under the Central Sales Tax Act and the constitutional mandate of equality under Article 14 is the primary legal framework governing this dispute.
(B) Key legal principles include the doctrine of equality under Article 14, which prohibits arbitrary classification, and the principle that administrative or statutory exemptions granted by the State cannot be arbitrarily withdrawn or applied in a discriminatory manner. The case also highlights the principle of procedural fairness, including the right to be heard, and the equitable doctrine that courts should avoid causing prejudice to a party due to its own delay or the State's own actions. The notification issued under Section 8(5) is subject to constitutional scrutiny to ensure it does not violate the guarantee of equality.
Facts of the case:
The appellant society, a registered dealer under the Karnataka Sales Tax Act, 1957, engaged in inter-State sales of arecanut. It claimed to purchase arecanut from local registered dealers, pay Sales tax on the first sale within Karnataka, and then sell the same outside the State, making such inter-State sales liable for tax under the Central Sales Tax Act, 1956. A notification issued by the State of Karnataka under Section 8(5) of the Central Sales Tax Act, 1956, on 14/17.9.1977, exempted the inter-State sales of tax-suffered arecanut effected by the appellant society. The respondent writ petitioners, who were also registered dealers in arecanut, challenged this notification, arguing that it impeded their inter-State sales and was violative of Article 14 of the Constitution because it discriminated against them. Before the High Court, the appellant contended that it was a distinct class consisting of growers from Karnataka and Kerala, and therefore Article 14 did not apply to it. The High Court ultimately quashed the September 1977 notification without considering the consequences for the appellant, even though a subsequent notification dated 31.3.1984 had extended the benefit of the exemption to all traders, including the writ petitioners. The High Court proceeded to decide the merits of the case nine years after it was filed, leading to the appellant becoming liable to pay tax for the period during which the exemption was in force.
Findings of Court:
The High Court was found to have erred in proceeding to decide the merits of the case after the matter had become academic, particularly when the benefit of the impugned notification had been extended to all traders by a subsequent notification. The Court was also found to have overlooked the highly inequitable consequences of its interference, as the appellant was statutorily prohibited from collecting tax during the period the exemption was valid and would now be liable to recover tax for that period. The Court should have issued directions to save the appellant from such adverse consequences.
Issues:
Whether the notification issued under Section 8(5) of the Central Sales Tax Act, 1956, was discriminatory and violative of Article 14 of the Constitution.
Whether the High Court had the jurisdiction to decide the merits of the case after the issue had become academic due to a subsequent notification extending the exemption to all traders.
Whether the High Court should have considered the inequitable consequences of its order on the appellant society, which was statutorily prohibited from collecting tax while the exemption was in force.
Ratio Decidendi:
The High Court should not have gone into the merits of the case once it was clear that the matter had become academic, and if it did decide to intervene, it should have directed that the appellant be saved from any adverse consequences, such as liability for tax recovery for the period during which the exemption was valid. The Court's interference caused significant prejudice to the appellant, which could have been avoided with proper judicial restraint and equitable considerations.
Result:
The appeal is allowed. The Judgment of the High Court is set aside. Any demand for recovery of tax consequent upon the Judgment of the High Court will be withdrawn.
(A) The interplay between the Central Sales Tax Act, 1956 (specifically Section 8(5)) and the Constitution of India (Article 14 and Article 226) is central to this appeal. Section 8(5) of the Central Sales Tax Act empowers State Governments to exempt inter-State sales from tax, and the notification issued under this provision directly regulates the appellant society's ability to collect tax on inter-State arecanut sales. Article 14 of the Constitution, which guarantees equality before the law and prohibits class-based discrimination, was invoked to challenge the notification on the grounds that it discriminated between different classes of dealers. Furthermore, Article 226 provides the High Court with the power to issue writs for the enforcement of fundamental rights, forming the jurisdictional basis for the writ petition initially filed in the Karnataka High Court. The interaction between the State's power to grant tax exemptions under the Central Sales Tax Act and the constitutional mandate of equality under Article 14 is the primary legal framework governing this dispute.
(B) Key legal principles include the doctrine of equality under Article 14, which prohibits arbitrary classification, and the principle that administrative or statutory exemptions granted by the State cannot be arbitrarily withdrawn or applied in a discriminatory manner. The case also highlights the principle of procedural fairness, including the right to be heard, and the equitable doctrine that courts should avoid causing prejudice to a party due to its own delay or the State's own actions. The notification issued under Section 8(5) is subject to constitutional scrutiny to ensure it does not violate the guarantee of equality.
Facts of the case:
The appellant society, a registered dealer under the Karnataka Sales Tax Act, 1957, engaged in inter-State sales of arecanut. It claimed to purchase arecanut from local registered dealers, pay Sales tax on the first sale within Karnataka, and then sell the same outside the State, making such inter-State sales liable for tax under the Central Sales Tax Act, 1956. A notification issued by the State of Karnataka under Section 8(5) of the Central Sales Tax Act, 1956, on 14/17.9.1977, exempted the inter-State sales of tax-suffered arecanut effected by the appellant society. The respondent writ petitioners, who were also registered dealers in arecanut, challenged this notification, arguing that it impeded their inter-State sales and was violative of Article 14 of the Constitution because it discriminated against them. Before the High Court, the appellant contended that it was a distinct class consisting of growers from Karnataka and Kerala, and therefore Article 14 did not apply to it. The High Court ultimately quashed the September 1977 notification without considering the consequences for the appellant, even though a subsequent notification dated 31.3.1984 had extended the benefit of the exemption to all traders, including the writ petitioners. The High Court proceeded to decide the merits of the case nine years after it was filed, leading to the appellant becoming liable to pay tax for the period during which the exemption was in force.
Findings of Court:
The High Court was found to have erred in proceeding to decide the merits of the case after the matter had become academic, particularly when the benefit of the impugned notification had been extended to all traders by a subsequent notification. The Court was also found to have overlooked the highly inequitable consequences of its interference, as the appellant was statutorily prohibited from collecting tax during the period the exemption was valid and would now be liable to recover tax for that period. The Court should have issued directions to save the appellant from such adverse consequences.
Issues:
Whether the notification issued under Section 8(5) of the Central Sales Tax Act, 1956, was discriminatory and violative of Article 14 of the Constitution.
Whether the High Court had the jurisdiction to decide the merits of the case after the issue had become academic due to a subsequent notification extending the exemption to all traders.
Whether the High Court should have considered the inequitable consequences of its order on the appellant society, which was statutorily prohibited from collecting tax while the exemption was in force.
Ratio Decidendi:
The High Court should not have gone into the merits of the case once it was clear that the matter had become academic, and if it did decide to intervene, it should have directed that the appellant be saved from any adverse consequences, such as liability for tax recovery for the period during which the exemption was valid. The Court's interference caused significant prejudice to the appellant, which could have been avoided with proper judicial restraint and equitable considerations.
Result:
The appeal is allowed. The Judgment of the High Court is set aside. Any demand for recovery of tax consequent upon the Judgment of the High Court will be withdrawn.
JUDGMENT
M. Jagannadha Rao, J.-The appellant before us is the Central Arecanut Marketing and Processing Co-operative Ltd., Mangalore. It was impleaded as the second respondent in Writ Petition No. 15495 of 1981 filed by the respondents 2 to 19 in the Karnataka High Court. The Writ Petition filed in 1981 was allowed after nine years by the High Court by Judgment dated 27.8.1990.
2. The relevant facts of the case are as follows. The Writ Petitioners were all registered dealers under the Karnataka Sales Tax Act, 1957 and claimed to be purchasers of arecanut from local registered dealers by paying Sales tax on the first sale in the State and contended that thereafter they sold the same outside the State of Karnataka and that their sales in the course of inter-State trade and commerce were subject to tax under the Central Sales Tax Act, 1956. While so, a notification was issued on 14/17.9.1997(Sic 14/17.9.1977) under Section 8(5) of the Central Sales Tax Act, 1956 by the State of Karnataka exempting the inter-State sales of tax-suffered arecanut effected by the appellant - Society. The respondent - Writ Petitioners contended before the High Court that the above notification not only impeded inter-State sales effected by them but was also violative of Article 14 of the Constitution of India in as much as it discriminated against the Writ Petitioners, who were also registered dealers in arecanut.
3. Before the High Court, the appellant filed a statement of objections contending that the appellant society was sponsored by the Government of Karnataka and Kerala and its membership consisted of growers from both the States, that therefore it was a class by itself as compared to the writ petitioners and hence Article 14 did not apply. When the writ petition came up for hearing after 9 years in 1990, counsel for the appellant pointed out that there was no evidence that any of the writ petitioners had entered into transactions of inter-State sales, that the exemption notification dated 14/17.9.1977 had since been superseded by a notification dated 31.3.1984 issued under Section 8(5) of the Central Sales Tax Act, by the State of Karnataka and the benefit of the exemption stood extended from March 1984 to all other traders. In other words, it was pointed out that the issue itself had become academic.
4. The High Court, even though it noticed that the benefit of the exemption notification of September 1977 in favour of all traders as issued by March 1984, proceeded to go into the merits of the case and quashed the exemption notification of September, 1977, without considering the peculiar consequences of such quashing as against the appellant in 1990. It is against the said Judgment of the High Court that this appeal has been preferred.
5. In this appeal, the respondent - writ petitioners have not chosen to appear. The learned counsel for the State has supported the case of the appellant. It was contended by the learned senior counsel appearing for the appellants that before the High Court the writ petitioners did not adduce any proof of the extent of their inter-State sales, that the notification of September, 1977 was not hit by Article 14 because the appellant was a class by itself as it consisted of growers from Karnataka and Kerala. Learned counsel also submitted that in view of the subsequent notification of March 1984 extending the benefit of the exemption to all traders including the writ petitioners, the High Court - while dealing with the case in 1991 - ought not to have gone into the merits and ought not to have struck down the September 1977 notification in as much as the issue had become purely academic. Because of the exemption, and the consequent statutory prohibition against collection of tax, the appellant was precluded from collecting any tax so as to meet any liability that might arise in case the notification was struck down. These factors were not borne in mind by the High Court.
6. In our view, the submission of the learned counsel for the appellant are liable to be accepted. The High Court had noticed that the matter had become academic and in fact, observed at the end of the Judgment as follows :
"Mr. Dattu, learned Government Pleader, pointed out that 1977 notification had since been superseded by 1984 notification which extended to the benefit to all and therefore, striking down 1977 notification would be academic. It may appear be so".
But the High Court went on to observe that it was nonetheless deciding the issue, so that in future when power is exercised by the State, the State could benefit by what was stated in the Judgment.
7. In our view, the High Court ought not to have gone into the question merely for the purpose of the future and, at any rate, ought to have noticed the highly inequitable consequences of its interference so far as the appellant Society was concerned. The appellant was given the exemption by the State, it was challenged by the respondents, the High Court did not suspend the notification pending the writ petition, the appellant was statutorily prohibited from collecting the sales-tax which was exempt and when the writ petition was allowed in 1991 quashing the exemption of September 1977, the appellant became liable to pay the tax for the period for September 1977 to March 1984. Learned counsel for the appellant informed us that now the Department has indeed taken some steps to recover the tax relatable to the above period. It is also significant that none appears for the respondent - writ petitioners and that the State of Karnataka is supporting the appellant.
8. In that view of the matter, we hold that the High Court ought not to have gone into the issue on merits and even if it did, it could and should have issued appropriate directions saving the appellant from the adverse consequences of striking down an exemption in its favour and - an exemption which while it was in force, precluded the appellant from collecting the tax from its buyers.
9. For the aforesaid reasons, the appeal is allowed and the Judgment of the High Court is set aside. Any demand for recovery of tax consequent upon the Judgment of the High Court will accordingly be withdrawn.
Appeal allowed.
**********