Solidaire India Limited, Bangalore vs State of Karnataka and Another

M.L. Pendse, C.J.-All these proceedings can be conveniently disposed of by common judgment as the issue which falls for determination in all these proceedings is identical. For the sake of convenience, the facts in W.A. Nos. 1390 and 2019 of 1991, which are cross-appeals against the order made on October 8, 1990 (Solidaire India Limited v State of Karnataka and Another, 1991(35) Kar. L.J. 303), by learned Single Judge in W.P. No. 11986 of 1989 are set out hereinafter.

Solidaire India Limited, is a company registered under the Companies Act, 1956 and manufactures black and white and colour television sets at Madras. The television sets manufactured are sold all over the country including in the State of Karnataka. In regard to the television sets sold in the State of Karnataka, the company is liable to pay sales tax. The liability to pay sales tax arises under Entry 53 of Second Schedule to the Sales Tax Act, 1957 (hereinafter referred to as ''the Act''). The Entry is T-7 and refers to televisions and television parts. The rate of duty prevalent between April 1983 and March 31, 1986 was at the rate of 10% ad valorem. The duty was 13% ad valorem for the period April 1, 1986 and ending March 31, 1995. From April 1, 1995 the tax has been reduced to 6% ad valorem.

On March 26, 1986, the Government of Karnataka issued notification in exercise of powers conferred under Section 8-A of the Act reducing the tax payable by dealer under Section 5 of the Act on television sets and television parts to 4%. On June 20, 1986 the Government of Karnataka, Finance Department, published another notification under Section 8-A of the Act reducing with immediate effect the tax payable by dealer under Section 5 of the Act on television sets and television parts manufactured at Karnataka by 2%. The notification inter alia confers benefit of reduction of sales tax in respect of televisions and television parts locally manufactured. In other words, the benefit of lesser amount of sales tax is conferred on local manufacturers. On March 28, 1987, the sales tax on televisions and television parts was increased from 4% to 6% and in respect of televisions and television parts locally manufactured, the sales tax was increased from 2% to 3%.

2-A. The company approached this Court in July 1989 by filing writ petition under Article 226 of the Constitution complaining that reduction of rate of tax to manufacturers of local television sets and television parts was violative of Articles 301, 303(1) and 304(a) of the Constitution. It was contended that the Government of Karnataka cannot determine lesser rate of sales tax in favour of local manufacturers as that would violate the inter-State commerce and business. The company claimed that a benefit and concessional rate should be made available to sales of all televisions and television parts irrespective of the fact whether such sets are locally manufactured or otherwise. The reliefs sought in the petition were.-

(a) Declaration that notification providing for lesser sales tax in respect of televisions and television components locally manufactured was unconstitutional and violative of provisions of the Constitution; and (b) Directed, the Government of Karnataka to levy sales tax on television sets sold by the company from June 20, 1986 at the same rate which was levied in respect of television sets and components sold by local manufacturers.

The respondents-State and Assistant Commissioner of Sales Tax, did not file statement of objections in answer to the petition.

The learned Single Judge by impugned order struck down the notifications as discriminatory and violative of provisions of Article 304 of the Constitution. The learned Judge relied upon the decision of the Supreme Court in Weston Electronics and Another v State of Gujarat and Another, AIR 1988 SC 2038, to hold that the notifications prescribing for lesser rate of sales tax in respect of sale of televisions and television components manufactured in the State of Karnataka were unconstitutional. The learned Judge declined to grant the relief sought by the company that the sales tax on the sale of televisions by the company should be at the same rate as was prescribed by notifications providing for lesser rate to local manufacturers. The decision of the learned Single Judge is under challenge at the behest of the State Government claiming that the notifications should not be struck down. The company has filed cross-appeal claiming that the benefit of lesser sales tax should have been made available even to the sale of televisions and television components by the company during the period of June 20, 1986 till notifications are struck down.

The learned Government Pleader appearing on behalf of the State of Karnataka submitted that the learned Judge was in error in relying upon the decision of Supreme Court in Weston Electronics case, supra. It was urged that the decision is no longer good law in view of the subsequent decision of the Supreme Court in Video Electronics Private Limited and Another v State of Punjab and Another, AIR 1990 SC 820. The contention of the learned Government Pleader is not correct. In the latter decision of the Supreme Court, the issue was in respect of notification issued under Punjab General Sales Tax Act. The notification reduced sales tax payable by electronic manufacturing units in Punjab in case of electronic goods specified in the notification. The Supreme Court found that the benefit of notification was available only to newly set up units and that also for a limited period of five years. The benefit was available provided such new units strictly complied with the terms and conditions set out in the notification. The Supreme Court examined all the previous decisions commencing from Atiabari Tea Company Limited v State of Assam, AIR 1961 SC 232 and ending with Weston Electronics case, supra. The Supreme Court in para 35 of the judgment observed that the cases in Indian Cement v State of Andhra Pradesh, AIR 1988 SC 567 and West Bengal Hosiery Association and Others v State of Bihar and Another, AIR 1988 SC 1814, were cases where there was a naked blanket preference in favour of locally manufactured goods as against the goods coming from outside the State. The Supreme Court observed that these cases dealt with conferment of exemption without any reason or concession in favour of indigenously manufactured goods which was not available in respect of the goods imported into that State. The Supreme Court distinguished those cases by holding that the exemption granted by the State of Punjab proceeded on a different basis. The Supreme Court noted that under the notification under challenge only newly set up units are eligible to claim the benefits thereunder for a limited period of five years and that also only by strictly complying with the terms and conditions set out in the notification. Reading of para 35 of the judgment and some other paragraphs to which our attention was invited, it becomes clear that the Supreme Court has not only approved the earlier decision in Weston Electronics case, supra, but on the other hand has specifically reaffirmed the ratio laid down therein.

Turning to the notification under challenge issued on June 20, 1986, it is clear that the Government of Karnataka reduced the tax payable by dealer under Section 5 of the Act on television sets and television components manufactured in Karnataka. The learned Government Pleader did not dispute that the notification impugned before the learned Judge is a blanket concession given to the local manufacturers and neither the notification states any reason for giving such blanket benefit nor the State Government filed any return before the learned Judge to explain why such blanket benefit was given. In these circumstances, in our judgment, the learned Judge was perfectly justified in striking down the notifications by relying upon the ratio of the Supreme Court in Weston Electronics case, supra. The decision of the learned Judge is not required to be disturbed and the appeal preferred by the State Government must fail.

Turning to appeal preferred by the Solidaire India Limited, it was contended by the learned Counsel that the benefit of the notifications till the date the notifications were struck down should have been given to the company. It was contended that the notifications were challenged by the company by filing writ petition in July 1987 and on July 17, 1987 while admitting the petition interim relief was granted to the company conferring the same benefit as was made available to local manufacturers. The learned Judge by impugned order dated October 8, 1989, struck down the notifications. The company enjoyed the benefit of interim order from July 17, 1987 till October 1989. The learned Counsel for the company submitted that even though the notifications are struck down, the benefit which was enjoyed by the local manufacturers from March 26, 1986 should be made available to the company. It is not possible to accede to the submission of the learned Counsel. Once the notifications are struck down, it is not open for the company to claim any benefit under those notifications. The grievance of the company that benefit was enjoyed by local manufacturers while it is denied to the company and that attracts rule of discrimination, cannot be accepted because the learned Government Pleader after taking instructions from the Sales Tax Commissioner made it clear that as notifications are struck down, the Commissioner proposes to recover the difference in duty even from the local manufacturers. Once the State of Karnataka has taken a decision not to confer any benefit on local manufacturers in pursuance of the notifications which were struck down, then it is difficult to imagine how the company can claim that the denial of benefit was discriminatory. In our judgment, the company is not entitled to any relief and appeal preferred by the company must also fail.

That takes us to W.P. Nos. 7361 and 7362 of 1991 and W.P. Nos. 4040 to 4042 of 1991. These petitions are preferred by local manufacturers. Their grievance is that the learned Judge was in error in striking down the notifications as violative of Articles 301 and 304 of the Constitution. For the reasons recorded in the appeal preferred by the State Government, this contention is required to be negatived. The learned Counsel then submitted that even if the notifications are struck down by judgment dated October 8, 1990, the benefit enjoyed by the local manufacturers prior to that date should not be disturbed and it is not open for the sales tax authorities to recover difference in duty on the ground that the impugned notifications are struck down. It was urged that when those notifications are declared as void ab initio, it should be treated as only a prospective declaration and whatever benefits have been enjoyed during the subsistence of notifications should not be denied. It is not possible to accede to the submission urged on behalf of the petitioners. Reliance was placed on the decision of the Supreme Court in West Bengal Hosiery Association''s case, supra, to urge that the Supreme Court in that case provided that though the notification was quashed on the ground that it was void ab initio, the sales tax arising from quashing of a notification should not be recovered. The Supreme Court observed that striking down of a notification might lead to undue hardship for the dealers, who might have sold locally manufactured hosiery goods without taking into consideration any amount on account of the liability to sales tax. The Supreme Court directed that arrears of sales tax during the period when the notification was in operation should not be deducted. It is contended that the same order should also be passed in these proceedings also. It is not possible to accede to the submission. The doctrine of prospective invalidation is not permissible for the High Courts while exercising powers under Article 226 of the Constitution. The Supreme Court has repeatedly, pointed out that the doctrine of prospective invalidation can be imported and the power to declare the notification as prospectively invalid can be exercised only by the Supreme Court and not by the High Courts. It is therefore not possible to grant the relief sought for. Once the notifications are found to be void ab initio, then in the eye of law the benefit given under the notifications never existed and consequently the claim that the petitioners should not be made liable to pay difference of duty during the period of subsistence of notifications cannot be accepted. In our judgment, the petitioners are not entitled to any relief and all the petitions must fail.

Accordingly W.A. No. 2019 of 1991 preferred by the State of Karnataka and W.A. No. 1290 of 1991 preferred by Solidaire India Limited are dismissed, but without any order as to costs. W.P. Nos. 4040 to 4042 of 1991 and 7361 and 7362 of 1991 are also dismissed. Rule in each of the petitions stands discharged, but without any order as to costs.

At this stage, the learned Counsel on behalf of the writ petitioners orally applies for a certificate of fitness for filing an appeal to the Supreme Court. The prayer is refused.