Holding

The Kerala Electricity Surcharge (Levy and Collection) Act, 1989 is a valid tax under Entry 53 of the State List and Section 11's retrospective validation does not encroach upon judicial power.

Summary

The petitioners challenged the Kerala Electricity Surcharge (Levy and Collection) Act, 1989, alleging that it imposed a tax on the supply of electricity beyond the State's legislative competence and that Section 11, which retrospectively validated earlier surcharges, infringed judicial power. The Court examined whether the word "supply" in Section 3 of the Act could be given a liberal meaning to include sale or consumption of electricity under Entry 53 of the State List. It held that the levy is a compulsory exaction for the public exchequer, thus a tax within Entry 53, and that the Act was validly enacted under Article 246(3). The Court further ruled that Section 11 merely removed the defect identified in the earlier Chakolas case and did not overstep legislative authority, making the validation lawful. Consequently, the 1989 Act and its retrospective validation were upheld and the appeals were dismissed.

Issues considered

The constitutionality of the Kerala Electricity Surcharge (Levy and Collection) Act, 1989 as a tax under Entry 53 of the State List
Whether the term "supply" in Section 3 includes sale or consumption of electricity
The validity of Section 11's retrospective validation of past surcharges and its impact on judicial power
Whether the 1989 Act eclipses the earlier Kerala Electricity Duty Act, 1963

Legislation cited

Subjects

taxationelectricity dutysupply of electricityretrospective validationjudicial reviewEntry 53 State Listlegislative competenceconstitutional validity

Judgment

...........
INDIAN ALUMINIUM CO. ETC. ETC. A
v.
STATE OF KERALA AND ORS.

FEBRUARY 2, 1996

[K. RAMASWAMY AND G.B. PATTANAIK, JJ.] B

Kera/a Electricity Surcharge (Levy and Collection) Act (22 of
1989)-Duty on supply of electricity-Nature of-Word 'supply' in Section
3-Should receive liberal interpretation to include sale or consumption of
electlicity as envisaged in Entry 53 of State list. c
Section I I-Validation-Constitutionality of-Levy and collection of
surcharg~Section 11 validating levy with retrospective effect--Wl1ether
provision is an anti-judicial powe1~Held, No-It is not an incursion on
judicial power of Cowt-Section 11 is a valid piece of legislation as pmt of
the Act. D

Section 3-1984 Act does not get eclipsed with passing of 1989 Act-
Both the Acts operate harmoniously.

Constitution of India-Anicle 246, Sch. 7 List II, Entry 53-Taxes on
E
consumption or sale of electricity-Wliether Kerala Electricity surcharge (Levy
and Collection) Act (22 of 1989) is one under Ently 53 of State List--Held,
yes.

The Central Excises and Salt Act, 1944 was amended to impose
Central Excise duty on electricity being supplied by State Electricity F
Boards. Consequently, to recoup that loss, the Government of Kerala
issued an order by which surcharge at the rate of 2.5 paise per unit of
electricity energy was levied on all supplies of electrical energy made by
the Kerala State Electricity Board (KSEB) either directly or through
licencees of Extra High Tension and High Tension consumers. Sub-
sequently when the Government of India withdrew the levy of excise duty G

-
on electricity, the Government of Kerala in supersession of its order dated
6.4.1979 notified the State Electricity Supply (Kerala State Electricity
Board and Licencees Area) Surcharge Order, 1984 effective from 1.0.1984.
Under that order all supplies of electrical energy made by KSEB were
liable to surcharge though excise duty was discontinued. The consumers H
23
24 SUPREME COURT REPORTS [1996] 2 S.C.R.

A filed writ petitions challenging the validity of the 1984 O_i;der. Pending writ
petition, on 1.8.1988, the State Government discontinued the levy of sur-
charge by issuing an Ordinance called the Kerala Electricity Duty (Amend-
ment) Ordinance, 1988 which later on became an enactment. The rate of
electricity duty was 30% of the price of energy which was revised to 10 paise
per unit for HT consumers and 6.5 paise per unit for EHT consumers.
B Subsequently the surcharge on the electricity duty of 10 paise per unit was
discontinued. On 27.9.1988, a Division Bench of the High Court in
Chakolas Spinning & Weaving Mills Ltd. v. K.S.E. Board, (1988) 2 KLT 680
issued a writ of mandamus directing refund of surcharge collected from
those writ petitioners before the High Court while holding that the levy of
C surcharge is in substance a compulsory exaction intended to enrich the
State and in effect partakes the character of a tax on electricity and that
the Government, acting as a delegate under the Kerala Essential Articles
Control Act, 1986, is not competent to impose any tax. The Kerala State
Electricity Supply (Kerala State Electricity Board and Licencees Area)
D Surcharge Order, 1984 was declared ultra vires the power of the State
Government. This judgment was confirmed by this Court dismissing the
Special Leave Petition in limine.
I

The Governor of Kerala, exercising power under Article 213 of the
Constitution issued Ordinance called the Kerala Electricity Surcharge
E (Levy and Collection) Ordinance, 1989 which later on became Act 22 of
1989. Under the Act, the appellants were liable to pay 2.5 paise per unit of
electrical energy supplied. Writ petition filed by the appellants challenging
the same were dismissed. The High Court upheld the validity of the Act
and the Order. Hence these appeals by Special Leave. The appellants
F contended that the Act of 1989 levying tax on supply of electrical energy
cannot be construed to be one made under Entry 53 of the State List and
tliat the word 'sale' and 'consumption' of electricity bear different connota-
tions; that the State legislature having enacted the Electricity Duty Act,
1963, imposing duty on electricity and discontinuing the levy of excise duty
G and the duty not having been passed on to the public exchequer, the Act
of 1989 was made only as a colourable device to avoid refund of excise duty
wrongly collected from the consumers; that the Act is not an amendment
to the Excise Act and if Excise Duty is construed to be a tax under Entry
53, the Electricity Duty Act, 1963 being earlier to the Act and both occupy-
ing the same field, as a special component of the tax on electricity, the later
H Act prevails over the earlier, therefore, the imposition is not a tax but duty
INDIAN ALUMINIUM CO. v. STATE 25

- on supply of electricity and that the Act was not intended to be one made A
under Entry 53 bul one under Entry 27; that the legislature is devoid of
one power to enact Section 11 of the Act validating the levy with retrospec-
tive effect which is blatant encroachment upon judicial power of the
Courts, directly overruling the Judgment which was upheld by this Court.

The respondents submitted that the language employed and the title B
to the Act are not conclusive as it is law on sale or consumption of
electricity and though the words 'sale or consumption' of electricity have
not expressly been used in the Act, being in the nature of a tax impost and
being a compulsory exaction for benefits to the State, it is a tax, the
legislature, therefore, enacted law under Entry 53 of List II of the 7th C
Schedule; that the legislature having competence to enact prospectively
and retrospectively, the Act is not a direct encroachment on the power of
judicial review but is one of legislative arrangement exercising its
sovereign power to amend the law and validate all past transactions and
-therefore, Section 11 is not ultra vires the Constitution; that there is no
invalidity in the impost as electricity duty, and the Electricity Duty Act and D
the Act operate harmoniously in the respectives fields without colliding in
their operation.

Dismissing the appeals, this Court
E
HELD : 1.1. The word 'sale or consumption' used in Entry 53 of the
State List and the Act made in exercise of the power under Article 246 (3)
of the Constitution, would receive wide interpretation so as to sustain the
constitutionality of the Act unless it is affirmatively established that the
Act is unconstitutional. As soon as the electrical energy is supplied to the
Consumers and is transmitted through the meter, consumption takes F
place simultaneously with the supply. There is no hiatus in its operation.
Simultaneously sale also takes place. Charge will be quantified at a later
date as per the recorded meter reading or escaped metering, as the case
may be. The word 'supply' used in the charging section 3 of the Kerala
Electricity Surcharge (Levy and Collection) Act, 1989 should, therefore, G
receive liberal interpretation to include sale or consumption of electricity
as envisaged in Entry 53 of the State List. [33-G-H]

1.2. Levy of duty goes into the public revenue. It is an impost, a
compulsory exaction for the benefit to the coffers of the public exchequer
and, therefore, it is a tax. The Act in pith and substance is a tax on sale H
26 SUPREME COURT REPORTS [1996] 2 S.C.R.

A or consumption of electrical energy. Therefore, the Act falls in Entry 53
and does not fall in Entry 27 of the State List of the Seventh Schedule to
the Constitution. The State legislature, therefore, validly enacted the Act
under Article 246(3) of the Constitution. (41-B]

B Bisra Stone Lime Company Ltd. & Anr. Etc. v. 01issa State Electlicity
Board & Anr., (1976) 2 SCR 307; CIT v. K Slinivasan, (1972) 4 SCC 5261;
C. Rajagopalachariar v. State of Madras, AIR (1960) Mad 543; Sarojini Tea
Co. Pvt. Ltd. v. Collector of DiblUgarh, (1992) 2 SCC 156 and A.B. Abdul
Kadir & Ors. Etc. v. State of Kerala, (1976) 2 SCR 690, referred to.

C 2.1. The adjudication of the rights of the parties is the essential
judicial function. Legislature has to lay down the norms of conduct or
rules which will govern the parties and the transactions and require the
court to give effect to them. The Constitution delineated delicate balance
in the exercise of the sovereign power by the Legislature, Executive and
D Judiciary. In a democracy governed by rule of law, the Legislature exercises
the power under Article 245 and 246 ·and other companion Articles read
with the entries in the respective Lists in the Seventh Schedule to make
the law which includes power to amend the law. Courts in their concern
and endeavour to preserve judicial power equally must be guarded to
maintain the delicate balance devised by the Constitution between the
E three sovereign functionaries. In order that rule of law permeates to fulfil
constitutional objectives of establishing an egalitarian social order, the
respective sovereign functionaries need free-play in their joints so that the
march of social progress and order remain unimpeded. The smooth
balance built with delicacy must always be maintained. In its anxiety to
F safeguard judicial power, it is unnecessary to be overjealous and conjure
up incursion into the judicial preserve invalidating the valid law com-
petently made. The Court, therefore, nee~s to carefully scan the law to find
out: (a) whether the vice pointed out by the Court and invalidity suffered
by previous law is cured complying with the legal and constitutional
requirements; (b) whether the Legislature has competent to validate the
G law; (c) whether such validation is consistent with the rights guaranteed
in Part III of the Constitution. The Court does not have the power to
validate an invalid law or to legalise impost of tax illegally made and
collected or to remove 'the norm of invalidation or provide a remedy. These
are not judicial functions but the exclusive province of the Legislature.
H Therefore, they are not the encroachment on Judicial power. In exercising
/
INDIAN ALUMINIUM CO. v. STATE 27

legislative power, the Legislature by mere declaration, without anything A
more, cannot directly overrule, revise or override a judicial decision. It can
render judicial decision ineffective by enacting valid law on the topic within
its legislative field fundamentally altering or changing its character
retrospectively. The changed or altered conditions are such that the pre-
vious decision would not have been rendered by the Court, if those condi-
tions had existed at the time of declaring the law as invalid. It is also
B
emppwered to give effect to retrospective legislation with a deeming date
or with effect from a particular, date. The Legislature can change the
character of the tax or duty from impermissible to permissible tax but the
tax or levy should answer such character and the Legislature is competent
to recover the invalid tax validating such a tax on removing the invalid C
base for recovery from the subject or remfer the recovery from the State
Ineffectual. It is competent for the legislature to enact the law with
retrospective effect and authorise its agencies to levy and collect the tax
on that basis, make the imposition of levy collected and recovery of the tax
made valid, notwithstanding the declaration by the Court or the direction D
given for recovery thereof. The legislature cannot directly overrule the
decision or make a direction as not binding on it but has power to make
the decision ineffective by removing the base on which the decision was
rendered, consistent with the law of the Constitution and the legislature
must have competence to do the same. [55-C-F, 56-A-D]
E
Shri Prithvi Cotton Mills Ltd. & Anr. v. Broach Borough Municipality
& Ors., (1970] 1 SCR 388; Patel Gordhandas Hargovindas v. Municipal
Commissioner, Ahmedabad, [1964] 2 SCR 608; State of Orissa v. Oriental
Paper Mills Ltd., AIR (1961) SC 1438; State of Bombay v. United Motors
India Ltd., [1953] SCR 1063; Mis Mis1i Lal Jain v. State of Orissa & Anr., F
[1977] 3 SCC 212; Mis Tirath Ram Rajindra Nath, Lucknow v. State of U.P.
&Anr., [1973] 3 SCC 585; 17ie Govt. of A.P. & Anr. v. Hindustan Machine
Tools Ltd., AIR (1975) SC 2037; l.N. Saksena v. The State of M.P., [1976]
3 SCR237; Hmi Singh & Ors. v. The Military Estate Officer andAnr., [1973]
1 SCR 515; A.B. Abdul Kadir & Ors. Etc. v. State of Kera/a, (1976] 2 SCC
690; A.B. Abdulkadir & Ors. v. 17ie State of Kera/a & Anr., [1962] Supp. 2 G
SCR 741; Central Coal Fields Ltd. v. Bhubaneswar Singh, [1984] 4 SCC 429;
Bhuvneswar Singh & Ors. v. Union of India, [1994] 6 SCC 77; Udai Ram
-Shanna v. Union of India, [1968] 3 SCR 41; Krishna Chandra Ganjopad-
hayaya v. Union of India, [1975] Supp. SCR 151; Hindustan Gum and
Chemical Ltd. v. State of Haryana, [1985] Supp. 2 SCR 630; Utkal Contrac- H
\
28 . SUPREME COURT REPORTS [1996) 2 S.C.R.

A tors and Joine1y Pvt. Ltd. v. State of 01issa, [1988) 1 SCR 314; State of Olissa
& Anr. v. Gopal Chandra Rath & Ors., [1995) 6 SCC 242; Janapada Subha,
Clzlzindwara Etc. v. The Central Provinces Syndicate Ltd. & Anr. Etc., (1970)
3SCR145;Amalgamated Coalfields Ltd. v. Thelanapada Sabha Chindwara,
[1963) Supp. 1 SCR 172; The Municipal Corporation of the City of
Ahmedabad & Anr. v. The new Shrock Spg. & Wvg., Co. Ltd. Etc. Etc., [1970)
B
2 SCC 280; New Manek Chowk Spinning & Weaving Mills Co., Ltd. & Ors.·
v. Municipal C01poration of the City of Ahmedabad & Ors., [1967) 2 SCR
678; State of Tamil Nadu & Anr. v. M. Rayappa Counder, AIR (1971) SC
231; Madan Mohan Pathak v. Union of India & Ors. Etc., [1978) 3 SCR
334; The Life Insurance C01poration of India v.D.J. Bahadur& Ors., [1981)
C 2SCR1083;A.V. Nachane &Anr. v. Union of India &Anr., [1982) 2 SCR
246; D. Cawasji & Co. Mysore v. State of Mysore & Anr., [1984) Supp. SCC
490; State of Ha1yana & Ors. v. Kamal Co-op. Fanners Society Ltd. & Ors.,
[1993) 2 SCC 363; In Re Cauve1y Water Disputes T1ibunal, [1993) Supp. 1
SCC 96 and S.R. Bhagwat & Ors. v. State of Mysore, [1995) 4 SCC 16,
D referred to.

2.2. In the instant case, the duty was collected under an order made
in exercise of Section 3 of the Essential articles Act and it was held to be
not a tax but a duty for the benefit of KSEB. That duty being a compulsory
exaction for the benefit ~f public exchequer is a tax. Duty on supply of
E electricity was declared to be additional burden and a levy within Entries
26 and 27 of List II, subject to Entry 33 of List III (Concurrent List). Duty
is an additional burden and partakes the character of a tax. Entry 53 of
List II (State List) empowers the State Legislature to impose tax on
consumption or sale of electricity. It is, therefore, a compulsory exaction
F for the benefit of the Revenue. Therefore, it is an additional tax in the form
of a duty under the Act. The vice pointed out in Chakolas case has been
removed under the Act. Consequently, Section 11 validated the invalidity
pointed out in Chakolas case removing the base. In the altered situation,
the High Court would not have rendered Chakolas case under the Act. It
has made the writ issued in Chakolas case ineffective. Instead of refunding
G the duty illegally collected under invalid law, Section 11 validated the
illegal collections and directed the liability of the past transaction as valid
under the Act and also fastened liability on the consumers. In other words,
the effect of Section 11 is that the illegal collection made under invalid law
is to be retained and the same shall now stand validated under the Act.
H Thus considered, Section 11 is not an incursion on judicial power of the
.,.(

INDIAN ALUMINIUM CO. v. STATE 29

Court and in a valid piece of legislation as part of the Act. [56-H, 57-A-CJ A

2.3. Under the Electricity Act which admittedly has been enacted
under Entry 53 of the State List, the rate of duty, as amended, is 10 percent.
Under the Act duty is an additional impost in the nature of compulsory
exaction for the benefit of public exchequer. Levy and collection of addi- B
tional duty is not discontinued. The Act is a complete code in itself and
operates retrospectively. Therefore, both the Acts operate harmoniously
and do not collide in their operation since 1963 Act is the principal Act
and the Act is in addition to, but not in substitution of the principal Act.
Therefore, 1963 Act does not get eclipsed with the passing of the Act of
1989. [57-G-H] C

3. When the vires of an enactment is challenged, it is very difficult to
ascertain the limits of the legislative power. Therefore, the controversy must
be resolved as far as possible, in favour of the legislative body putting the
most liberal construction upon the relevant legislative entry so that it may D
have the widest amplitude. The Court is required to look at the substance of
the legislation. It is equally settled law that in order to determine whether a
tax statute is within the competence of the legislature, it is necessary to
determine the nature of the tax and whether the legislature had power to
enact such a law. The primary guidance for this purpose is to be gathered
from the charging section. It is the substance of the impost and not the form E
that determines the nature ofihe tax. In all cases, therefore, the name given
by the legislature in the impugned enactment is not conclusive on the
question of its competence to make it. It is the pith and substance of the
legislation which decides the matter which needs to be decided with refer-
ence to the provisions of the statute itself. [37-C-D, HJ F

Navinchandra Mafatlal v. The Commissioner of Income Tax, Bombay,
[1995) 1 SCR 829; Banarsi Das Etc. v. The Wealth Tax Officer; Spl. Circle,
Meerut, AIR (1965) SC 1387 Baldeo Singh v. Commissioner of Income Tax
Delhi and Ajmer, AIR (1966) AC 736; M/s. Bumiah Construction Co. v. The
State of 01issa & Ors., AIR (1962) SC 1320; The Madurai District Central G
Co-operative Bank Ltd. v. The Third Income Tax Officer, Madurai , AIR
(1975) SC 2016; Hoechst Phamiacecuticals Ltd. & Anr. Etc. v. State of Bihar
& Ors., [1983) 3 SCR 130; District Board, Delira Dun v. Damodar Dutt, ILR
(1944) All. 611; Pandit Ram Narain v. State of U.P. & Ors., (1956) SCR 664;
. Chaturbhai M. Patel v. Union of India & Or.r.;-AIR (1960) SC 425; Northern H
-\
30 SUPREME COURT REPORTS [1996] 2 S.C.R.

A India Caterers (India) Ltd. v. Lt. Govemor of Delhi, [1979) 1 SCR 557 and
Mis Gannon Dunkerley & Co. & Ors. v. State of Rajasthan & Ors., [1993) 1
sec 364, referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2770 of
1996 Etc. Etc.
B
From the Judgment and Order dated 22.11.94 of the Kerala High
Court in O.P. No. 5957 of 1889.

K.K. Venugopal, M. Pathros Matthai, R.F. Nariman, K. Sukumaran ·
T.L. Iyer and G. Viswanath Iyer, K.R. Nambiar, K.V. Vishwanathan, Shaju
C Francis, C.N. Sreekumar, M. L. Lahoty, Prem Sunder Jha, Pawan Sharma
Ms. Sangeeta Pandey, R.B. Hathikhanawala, G. Prakash, M.T. George,
T.G.N, Nair, for the appearing parties.

The Judgment of the Court was delivered by
D RAMASWAMY, J. Leave granted in all the special leave petitions.

This batch of appeals by special leave arises from common judgment
dated November 22, 1994 of the Kerala High Court made in O.P. No. 5957
of 1987 and batch.
E By Section 36 of Finance Act 1978, the Central excise and Salt act,
1944 [for short the "Excise Act) was amended to impose central excise duty
on electricity under Item 11-E in the 1st Schedule to the Excise Act and
fixed 2 paise per kilo watt of electricity .unit. Consequently, the Ker ala State
Electricity Board (KSEB) was liable to pay excise duty on electricity
F generated and produced by it. To recoup that loss, the Government of
Kerala, exercising its power under Section 3 of the Kerala Essential Ar-
ticles Control (Temporary Powers) Act 1961, issued an order. By clause
(4) of the said order, surcharge at the rate of 2.5 paise per unit of electrical
energy was levied on all supplies of electrical energy made by the KSEB
either directly or through licensees of Extra High Tension (EHT) and
G High Tension (HT) consumers. Thereunder, the licensees were allowed to
retain 1% of the Amount collected as collection charges. On October 1,
1984, the Government of India had withdrawn the levy of excise duty on
electricity. The Government of Kerala in supersession of its Order dated
April 6, 1979 had notified the State Electricity Supply (Kerala State
H Electricity Board and Licensees Area) Surcharge Order, 1984 ·effective
I
INDIAN ALUMINIUM CO. v. STATE [K. RAMASWAMY,J.) 31

from October 1, 1984. Under clause (4) of the said Order all supplies of A
electrical energy made by KSEB either directly or through licensees, were
liable to surcharge at the rate fixed at 2.5 paise per unit. In the explanatory
note it was stated that though excise duty was discontinued, the State
Government desired to continue the levy of surcharge. The EHT and HT
consumers had filed writ petitions challenging the validity of the 1984
B
Order. Pending writ petitions, on August 1, 1988, the State Government
discontinued the levy of surcharge with effect from that date by issuing an
Ordinance called the Kerala Electricity Duty (Amendment) Ordinance,
1988 which later on became an enactment. The rate of electricity duty was
30% of the price of energy. Later, it was revised to 10 paise per unit of
HT consumers and 6.5 paise per unit for EHT consumers. After a repre- c
sentation was made through the Association of the HT and EHT con-
sumers, the Government of Kerala decided to discontinue the surcharge
on the electricity duty of 10 paise per unit.. On September 27, 1988, a
Division Bench of the High Court in Chakolas Spinning & Weaving Mills
Ltd. v. KS.E. Board, (1988) 2 KLT 680 held that the levy of surcharge is D
in substance a compulsory exaction intended to enrich the coffers of the
State and in effect partakes the character of a tax on electricity. The
Government, acting as a delegate under the Kerala Essential Articles
Control Act, 1986 (Act 16 of 1986), is not competent to impose any tax. A
writ of mandamus was issued directing refund of surcharge collected from
those writ petitioners before the High Court. The Kerala State Electricity E
supply (Kerala State Electricity Board and Licensees Area) Surcharge
Order, 1984 was declared ultra vires the power of the State Government.
The said judgment was confirmed by this Court dismissing the Special
Leave Petition in limine.
F
At this stage, it may be necessary to mention that the Essential
Articles (Control) Act, 1963 was amended and act 13 of 1988 was enacted.
It is also relevant to note that exercising the power under Entry 53 of list
11 of the seventh schedule, the Kerala State legislature had enacted Kerala
Electricity Duty Act, 1963 and Rules were made to levy electricity duty at
varying rates. Orders were passed by this Court on April 13, 1989 dismiss- G
ing the SLP (C) Nos. 4256-66 of 1989. The Governor of Kerala, exercising
power under Article 213 of the Constitution issued Ordinance called the
Kerala Electricity Surcharge (Levy and Collection) Ordinance, 1989 which
later on became enactment, viz., Act 22 of 1989 (for short, "the Act").
Under the Act, the appellants are liable to pay 2.5 paise per unit of H
\
,k
32 SUPREME COURT REPORTS [1996) 2 S.C.R.

A electrical energy supplied. The appellants challenged the same by filing the
writ petitions. The High Court upheld the validity of the Act and the Order.
Thus these appeals by special leave.
--
Shri K.K. Venugopal learned senior counsel for the first appellant
B contended that the Act levii;:s tax on supply of electrical energy. It is not a
tax either on sale or consumption of electrical energy. Entries 26 and 27
of List II (State List) of the Seventh Schedule to the Constitution empower
the State legislature, subject to Entry 33 of List III (ConcurrenJ List) to
enact law empowering levy of surcharge on supply and distribution of
goods and trade and commerce therein. Entry 53 of the State List em-
C powers the State legislature to enact the law on sale or consumption of
electricity. Having made the law under Entry 26 or 27, using the ap-
propriate language for levy and collection of excise duty on supply of
electricity, the Act cannot be construed to be one made under Entry 53 of
the State List. He further contended that the word 'supRly' has its own
D connotation. Equally, 'sale' and 'consumption' of electricity bear different
connotations. The State legislature having enacted the Electricity Duty Act,
1963, imposes duty on electricity @ 30% and reduced it to 10% by later
amendment and discontinued the levy of excise duty from August 1, 1988,
and the so-called duty not having been passed on to the public exchequer,
the Act was made only as a colourable device to avoid refund of excise.
E duty to the tune of Rs. 15 crores wrongly collected from the consumers. 1
The Act admittedly is not an amendment to the Excise Act. The excise
duty is levied on supply of electricity. If excise duty is construed to be a
tax under Entry 53, the Electricity Duty Act, 1963 being earlier to the Act
and both occupying the same filed, as a special component of the tax on
p electricity, the later act prevails over the earlier. Therefore, the State
legisl~ture did not intend to have the earlier enactment, viz., Electricity
Duty Act, superseded by the Act which imposes levy of only 2.5 paise per
unit of electrical energy. Therefore, the imposition is not a tax but a duty
on supply of electricity. This deduction could be drawn from the language
employed in the Act itself. Otherwise, nothing prevented the legislature to
G use such a language as impost on sale and consumption of electricity. The
express language employed shows that they intended to levy duty on supply
of electricity. The Act was not intended to be one made under Entry 53
but one under Entry 27. He sought support from previous judgments of
this Court upholding the power of the legislature under Entries 21 and 26
H imposing duty on supply of electric energy in 1968 Order From the State
INDIAN ALUMINIUM CO. v. STATE [K. RAMASWAMY, J.] 33

of Kerala and under similar provisions in other States. A

Shri R.F. Nariman, learned counsel for some other appellants con-
tended that the legislature is devoid of power to enact Section 11 of the
Act validating the levy with retrospective effect which is blatant encroach-
ment upon judicial power of the Courts. Judicial review being basic struc-
ture of the Constitution, Section 11 is ultra vires the Constitution. Even B
assuming that it could enact a law after Chakolas' case (supra), it could do
so only prospectively but it could not nullify the writ of mandamus issued
by the High Court. The law is anti judgment validation directly overruling
the judgment which was upheld by this Court. Therefore, Section 11 is
unconstitutional. He contended that after M.M. Pathak's case (infra), the C
legislature has no power to amend the law.

Shri K.V. Vishwanathan, learned counsel for some other appellants
contended that the effect of Section 11 would be that any judgment to be
rendered by the Court in future would be nullified and in effect would
tantamount to legislative declaration prohibiting judicial review, a basic D
•' feature of the Constitution. In other words, the legislature adjudicates upon
the disputes and given a legislative declaration of the law which is imper-
missible under the scheme of the distribution of the sovereign powers
between the legislature, the executive and the judiciary.

Shri T.L. Vishwanatha Iyer, learned senior counsel for the State
E
contended that the language employed and the title of the Act are not
conclusive. Legislature derives power from Entry 53 to make the Act. It is
law on sale or consumption of electricity. In Chakolas case (supra) the
Division Bench of the High Court declared that impost is compulsory
exaction for the benefits tO the State and had declared that the executive F
was not competent to issue the predecessor Order under the Essential
Articles (Control) Act. Section 3 thereof had not given express power to
the Government to levy and collect excise duty. Consequently, the levy was
declared ultra vires. The legislature acted thereon and enacted the Act.
• Though the words "sale or consumption" of electricity have not expressly
been used in the Act and repeated as excise duty on supply of electricity
G

duty, being in the nature of a tax impost and being a compulsory exaction
for benefits to the State, it is a tax. The legislature, therefore, enacted law
under Entry 53 of List II of the 7th Schedule.

There is no hiatus between supply and consumption of electricity. As H
\
)<

34 SUPREME COURT REPORTS [1996] 2 S.C.R.

A soon as the electrical energy passes of from the meter of the consumer,
electricity is consumed. From the moment of consumption it becomes sale.
It is, therefore, in substance a tax on consumption and sale electricity. He
further contended that the legislature having competence to enact the law,
equally has power to enact prospectively and retrospectively. The founda-
B tion that it is a duty levied under the Order, as held in Chakolas case, had
been removed making it a tax, the base of invalidity pointed out by the
Court had been removed by enacting the Act and having removed the vice
the Act has given retrospective effect to it. It is not a direct encroachment
on the power of judicial review but is one of legislative arrangement
exercising its sovereign power to amend the law and validate all past
C transactions. Therefore, Section 11 is not ultra vires the Constitution.

The legislature did not put any express embargo on the power of
judicial review nor a declaration to that effect finds place in any of the
provisions of the Act. Though it is open to the judiciary to declare the law,
D the effect thereof could suitably be removed. Resultantly, there is no
invalidity in .the impost as electricity duty. The Electricity Duty .Act and
the Act operate in the same field. The former as principal Act; the Act is
in the nature of an enactment imposing tax on duty. Both operate har-
moniously in the respective fields without colliding in their operation.

E Shri G. Vishwanatha Iyer for the Board contended that the KSEB
had been receiving substantial financial assistance from the Government
and the impost and the collection of the tax went to the credit of the public
exchequer except 1% in the form of collection charges which goes to the
account of KSEB. Instead of granting refund to the appellants .the State
F retrospectively enacted the law. The validation Act merely intended to
retain the collection already made not only from the appellants but also
from every other consumer. Retrospective validation was .made to avoid
cumbersome process of refund and recollection. There is no embargo on
the exercise of the power of judicial review either by this Court or the
High Court.
G
The primary question, therefore, is: whether the impugned Act
enacted by the State legislature is one under Entry 53 of the State List, viz.,
"Taxes on the consumption or sale of electricity". Indisputably, the title of
the Act as well as the charging Section 3 employ the words "duty on supply
H of electricity. Under Article 246(3) of the Constitution, every State legisla-
I .-'-

INDIAN ALUMINIUM CO. v. STATE [K. RAMASWAMY, J.] 35

ture has explicit power to make law for that State with respect to the A
matters enumerated in List II (State List) of the Seventh Schedule to the
Constitution. The State's power to impose tax is derived from the Constitu-
tion. The Entries in the three Lists of the Seventh Schedule are not power
of legislation but merely fields of legislation. The power is derived under
Article 246 and other related Articles. If the Constitution. The legislative
B
fields are of enabling character designed to define and delimit the respec-
tive areas of legislative competence of the respective legislatures. There is
neither implied restriction imposed on the legislature nor is any duly
prescribed to exercise that legislative power in a particular manner. But
the legislature must be subject to the limitations prescribed under the
Constitution. c
In Navinchandra Mafatlal v. The Commissioner of Income-Tax, Bom-
bay, [1955] 1 SCR 829 at 836-37, the controversy was whether the expres-
sion "capital gain" used in the income-tax Act, inserted by Section 12B of
Income-tax Act, 1922 and Government of India Act, 1935, includes "in- D
come" under Entry 54 of List I (Union List). A Constitution Bench of this
Court had held that the cardinal rule of interpretation is that the words
should be read in their ordinary, natural and grammatical meaning subject
to this rider that in construing the words in a constitutional enactment
conferring legislative power, the most liberal construction should be put
upon the words so that the same may have effect in their widest amplitude. E
It was accordingly held that the "capital gain" is an income under that Act.

In Banarasi Das Etc. v. The Wealth Tax Officer, Spl. Circle, Meernt,
AIR (1965) SC 1387 at 1389, another Constitution Bench, interpreting the
word 'individuals' as used in Entry 86 of List I and the Wealth Tax Act, F
while dealing with the question whether Hindu family would include an
individual, this Court reiterated that the words used in the Entries of the
Seventh Schedule must receive their widest interpretation. It was further
held that it would be unreasonable to approach the task of interpretation
in a narrow or restrictive manner.
G
In Baldeo Singh v. Commissioner of Income-tax Delhi & Ajmer, AIR
(1966) SC 736 at 742 interpreting the provisions of Income-tax Act, 1922
this Court had held that payment of dividend is a form of income. The Act
was made to prevent avoidance of super-tax. Therefore, the entries in that
Act and the words used thereunder must be construed liberally to prevent H
36 SUPREME COURT REPORTS [1996] 2 S.C.R.

A avoidance of the tax.

In Mis Bunnah Constmction Co. v. The State of Orissa & Ors. AIR
(1962) SC 1320, after this Court had decided in State of Olissa v. Oriental
Paper Mills Ltd., AIR (1961) SC 1438, the Orissa Sales Tax Act, 1947 was
ainended and Section 14 restricting grant of refund of tax inappropriately
B and illegally collected, was challenged. This Court had held that "if the
power to legislate in respect of tax comprehends the power to legislate "in
respect of refund of tax improperly or illegally collected", imposition of
restrictions on the exercise of the right to claim refund will not be beyond
the COltlpetence of the Legislature. Granting refund of tax improperly or
C illegally collected and the restriction on the exercise of that right are both
ancillary or subsidiary mattes relating to the primary heard of tax on sale
of goods". The provisions of Section 14 of the Act were, therefore, not held
ultra vires the State Legislature.

D In The Madurai District Central Co-operative Bank Ltd. v. The T7iird
Income Tax Officer, Madurai, AIR (1975) SC 2016, when the annuity
scheme was enacted in the Finance Act, competence of the Parliament in
that regard was questioned. This Court had that Income-tax Act is a
permanent statute. Finance Act passed every year prescribes the rates at
which the tax is to be charged under the income-tax Act. The annuity is
E only one of the benefits for deduction of the income-tax in calculation of
the income chargeable to tax. While so interpreting, this Court had given
wide interpretation and upheld the power of the Parliament under Article
246(1) read with Entry 82 of List I.

F In Hoechst Phannaceuticals Ltd. & Anr. v. State of Bihar & Ors.,
[1983] 3 SCR 130 relied on by Shri Venugopal, the question arose whether
levy of surcharge on sales-tax and prohibition from passing on the liability
thereof to purchasers was void in terms of the opening words of Article
246 (3) of the Constitution for being in conflict with the Drugs (Price
Control) Order made under Section 3 of the essential Commodities Act.
G In interpreting the respective legislative fields of the Parliament and the
State legislature (Concurrent List), with a view to subserve the power of
the respective legislatures to enact law, restrictive interpretation was
adopted by a three-Judge Bench of this Court. It, therefore, cannot be
understood that in respect of taxing statute, restrictive interpretation wduld
H be put up.
INDIAN ALUMINIUM CO. v. STAIB [K RAMASWAMY, J.] 37

In view of the legal position referred to hereinbefore, it must be held A
that the words 'sale or consumption' used in entry 53 of the State list and
the Act made in exercise of the power under Article 246(3) of the Con-
stitution, would receive wide interpretation so as to sustain the con-
stitutionality of the Act unless it is affirmatively established that the act is
unconstitutional.
B
When the vires of an enactment is challenged, it is very difficult to
ascertain the limits of the legislative power. Therefore, the controversy
must be resolved as far as possible, in favour of the legislative body putting
the most liberal construction upon the relevant legislative entry so that it
may have the widest amplitude. The Court is required to look at the C
substance of the legislation. It is equally settled law that in order to
determine whether a tax statute is within the competence of the legislature,
it is necessary to determine the nature of the tax and whether the legisla-
ture had power to enact such a law. The primary guidance for this purpose
is to be gathered from the charging section. It is the substance of the impost D
and not the form that determines the nature of the tax.

In District Board, Delira Dun v. Damodar Dutt, ILR (1944) All. 611,
the Allahabad High Court, while considering the constitutionality of
Professions Tax Limitation Act, 1941 and Section 2 thereof, had held that
the name given to a tax did not matter. What had to be considered was the E
pith and substance of it. The High Court had held that in pith and
substance the impugned tax was one which attracted the provisions of
Section 2 of that Act. That ratio was upheld by this Court in Pandit Ram
Narain v. State of U.P. & Ors., [1956] SCR 664 at 673 and it was held that
the title of the Act and the words used therein were not conclusive but the p
pith and substance of the statute needed to be looked into.

--
\
The doctrine of pith and substance, though applied in determining
the true character of the statutes under List III (Concurrent List) of the
respective legislative topics of the State legislature and Parliament, it was G
extended for consideration of the true character of the legislation even
under the same legislative list. In all cases, therefore, the name given by
the legislature in the impugned enactment is not conclusive on the question
of its competence to make it. It is the pith and substance of the legislation
which decides the matter which needs to be decided with reference to the
provisions of the statute itself. H
',

38 SUPREME COURT REPORTS [1996) 2 S.C.R.

A In Chaturbhai M. Patel v. Union of India & Ors., AIR 1960 SC 425,
another Constitution Bench had held that in every case where the legisla-
tive competence of the legislature in regard to a particular enactment was
challenged with reference to the entries in the various lists, it was necessary
to examine the pith and substance of the Act and if the matter came
substantially within an item in the Central List, it could not be deemed to
B come within an entry in the provincial list.

The question, therefore, is : whether in pith and substance the Act
is one imposing tax on the sale or consumption of electrical energy supplied
to the consumer? It is true that in Northem India Caterers (India Ltd. v. Lt.
C Govemor of Delhi, [1979) 1 SCR 557 and Mis. Gannon Dunkerley & Co. &
Ors. v. State of Rajasthan & Ors., (1993) 1SCC364 this Court had held that
the expression "Tax on the sale or purchase of goods" in Entry 54 of the
State List included a tax on the transfer of property in goods, whether as
goods or in some other form) involved in supplying food in a restaurant or
D in the execution of a works contract and power to impose tax leviable
thereon would be under entry 54 of the State List. It was held that it was
not liable to tax since there was no transfer of property in goods. The
Parliament amended the Constitution and enacted clause (29-A) of Article
366 so as to bring it in conformity with Entry 33 of List III of the Seventh
Schedule, intrnducing a legal fiction of tax on sale or purchase of goods
E including the transfer of property in goods, whether as goods or in some
other form, involved [ii execution of the works contract or otherwise than
in pursuance of the contract of property in goods for cash, deferred
payment or other valuable consideration.

F It is common knowledge that for HT and EHT industries a sub-
station at the place of manufacturer or establishment or at its convenient
place is set up and electricity is supplied to the sub-station and a minimum
guarantee of payment is ensured therefore under the contract. But the
question is whether the word 'supply' used in Section 3 of the Act would
be construed to mean 'consumption' or 'sale' of electricity. From the
G sub-station, electricity is connected to the industrial until through the meter
put up in the factory. Continuity of supply and consumption starts from the
moment the electrical energy passes through the meters and sale simul-
taneously takes place as soon as meter reading is recorded. All the three
steps or phases take place without any hiatus. It the true that from the
H place of generating electricity, the electricity is supplied to the sub-station
INDIAN ALUMINIUM CO. v. STATE [K. RAMASWAMY, J.] 39

installed at the units of the consumers through electrical high-tension A
transformers and from there electricity is supplied to the meter. But the
moment electricity is supplied through the meter, consumption and sale
simultaneously take place. It is true that in the definitions given in the New
Encyclopaedia Britanica, Vol. 4, P. 842 cited before us, distinction between
supply and consumption is stated but adopting a pragmatic and realistic B
approach, we are of the considered view that as soon as the electrical
energy is supplied to the consumers and is transmitted through the meter,
consumption takes place simultaneously with the supply. There is no hiatus
in its operation. Simultaneously sale also takes place. Charge will be
quantified .at a later dated as per the recorded meter reading or escaped
metering, as the case may be. The word 'supply' used in the charging C
Section 3 should. therefore, receive liberal interpretation to include sale or
consumption of electricity as envisaged in Entry 53 of the State List.

It is true that when water supplied by the municipality to the con-
sumers through their water mains, flows from the mains through the water D
meter and into the pipes fitting into the house and from there water is
supplied from tap fitted to the pipes. Thus there is hiatus between supply
and consumption. When water is actually used there would be consumption
through water supplied gets recorded when water passes through the meter
from the water mains. But the analogy thereof to the supply, consumption
and sale of electric energy is inappropriate as it cannot be separately stored E
after the supply but before consumption or sale thereof. However, water
can, incidentally be stored or remain in pipe for use and after tap is opened
it is consumed. Even if it percolates it may be a loss to the consumer. This
operation thereof is inapt. Its analogy to electricity is, therefore, inapt and
inappropriate. p

The question then is: whether The Electricity Duty Act gets eclipsed
with the passing of the Act occupying the same field as the Act? in Bisra
Stone Lime Company Ltd. & Anr. Etc. v. Orissa State Electricity Board &
Anr., [1976] 2 SCR 307 it was held that surcharge on electricity is an G
additional tax. "The word 'surcharge' is not defined in the Act, but
etymologically, inter alia, surcharge stands for an additional or extra charge
or payment, surcharge is thus a super-added charge, a charge over and
above the usual or current dues'. The term 'surcharge' in substance is an
addition to the stipulated rate of tariff. The nomenclature, therefore, does
not alter the position. H
40 SUPREME COURT REPORTS [1996] 2 S.C.R.

A In CIT v. K Srinivasan, [1972] 4 SCC 526, the question arose whether
the term "income-tax" as defined in Section 2 of the Finance After Act,
1964 would include surcharge and additional charge, wherever provided.
This Court had held that the word surcharge includes additional tax. The
whole proceeds of any such charge were to form part of the revenue of the
State. In C. V. Rajagopalachaiar v. State of Madras, AIR (1960) Mad 543,
B in the context of the Madras Land Revenue Surcharge Act, 1954 and the
Madras Land Revenue (Additional Surcharge) Act, 1955, interpretation of
the word 'surcharge' came up for consideration. The ratio of the said case
is that surcharge' includes an excess or additional burden or amount of
money charged in excess of the land revenue and, therefore, it was held to
C be an additional land revenue. That ratio was approved by this Court in
Sarojini Tea Co. (P) Ltd. v. Collector of Dibrugarh, [1992] 2 SCC 156.
Considering, in extenso, this Court had held in paragraph 16 that "the
expression 'surcharge' in the context of taxation means an additional
imposition which results in enhancement of the tax and the nature of the
D additional imposition is the same as the tax on which it is imposed as
surcharge. The nature of such imposition is the same viz., land revenue on
which it is a surcharge". It would thus be settled law that .surcharge is
additional duty or tax imposed in addition to the original levy, on the same
topic.

E In A.B. Abdul Kadir & Ors. Etc. v. State of Kera/a, [1976] 2 SCR 690,
the Finance Act, 1950 had extended the Central Excise and Salt Act, 1944
to Part-B State of Travancore Cochin and repealed the Cochin Tobacco
Act, 1909 and the Tobacco Act (1 of 1087). Thereafter, a system of
licensing was introduced by which the licensees were required to pay a
F specified fee in respect of tobacco imported into the State. The appellants
thereafter had challenged in the High Coiirt the collection of the licence
fee for the period. The Act was declared ultra vires and a refund was
·ordered to be made of the fees so collected. When the appellants thereafter
filed a writ petition claiming refund pending writ petition Kerala Luxury
Tax on Tobacco (Validation) Act, 1964 was enacted by the State legislature
G to pr~vi.de for the ievy of luxury tax on tobacco and validated the levy and
collection of the fees for licences within the specified period which had
received the asset of the President. When the validity thereof was chal-
lenged on the anvil of Article 304 (b) of the Constitution, this Court had
held that the levy was sought to be made · as a luxury tax as a different
H character on the production and manufacture of the tobacco was justified
INDIAN ALUMINIUM CO. v. STATE [K. RAMASWAMY, J.) 41

and that, therefore, it was within the legislative competence to enact the A
law refusing refund of the collections illegally collected.

Levy of duty goes into the public revenue. It is an impost, a compul-
sory exaction for the benefit to the coffers of the public exchequer and,
therefore, it is a tax. The Act in pith and substance is a tax on sale or
consumption of electrical energy. Therefore, the Act falls in Entry 53 and B
does not fall in Entry 27 of the State List of the Seventh Schedule to the
Constitution. The State legislature, therefore, validly enacted the Act under
Article 246(3) of the Constitution.

The next question is: whether the validation provision contained in C
Section 11 is constitutional? Section 11 of the Act reads thus :

"11. Validation - (1) Notwithstanding anything to the contrary
contained in any judgment, decree or order of any court, the levy
and collection of surcharge by the Board or other licensees on or
after the 1st day of October, 1984 and before the 1st day of August, D
1988 under the Kerala State Electricity Supply (Kerala State
Electricity Board and Licensees, Areas) Surcharge Order, 1984,
shall be deemed to be and deemed always to have been validity
levied and collected as if the said Order was a notified order under
Section 3 of this Ordinance; and accordingly -
E
(a) all acts, proceedings, or things done by the Board or other
licensees in connection with such levy, collection and remittance
of surcharge shall, for all purposes be deemed to be, and deemed
always to have been, done or taken in accordance with this Or-
dinance; ·
F
(b) no suit or other proceeding shall be maintained or continued
in any court for the refund of any such surcharge; and

(c) no court shall enforce a decree or order directing the refund
of any such surcharge. G
(2) For the removal of doubts, it is hereby declared that nothing
in sub-section (1) shall be considered as preventing any person
from claiming refund of any surcharge already paid in excess of
the amount due from him under the order referred to in sub-sec-
tion (l)." H
42 SUPREME COURT REPORTS [1996] 2 S.C.R.

A A reading thereof clearly indicates that not withstanding anything ~o ·
the contrary contained in any judgment, decree or order of any court, the ,.-
levy and collection of surcharge by the Board or other licensees on or after
the 1st day of October, 1984 and before the 1st day of August 1988 under
the Kerala State Electricity Supply (Kerala State Electricity Board and
Licensees Area) Surcharge Order, 1984, shall be deemed to be, and
B deemed always to have been validly levied and collected as if the said
Order was a notified order under Station 3 of the (Act 22 of 1989).
Accordingly all acts, proceedings or things done by the Board or other
-
licensees in connection with such levy, collection and remittance of sur-
charge shall, for all purposes be deemed to be, and deemed alw~ys to have
C been, done or taken in accordance with the Act. Sub-section (2) removes
the doubts declaring that nothing in sub-section (1) shall be considered as
preventing any person from claiming refund of any surcharge already paid
in excess of the amount due from him tinder the order referred to in
sub-section (1).

D It is seen that the Act does not limit to the period covered under
Section 11 of the Validation Act. Section 3, with a non obstante clause
provides that notwithstanding anything to the contrary contained in any
agreement entered into with any consumer or the conditions of service
agreed by a Board, the Government may be notified order provide for the
levy and collection of surcharge on all HT and EHT supplies of energy
E made by the Board whether directly or through licensees at such rates not
exceeding 3. paise per unit, as may be specified therein etc. It is an Act to
remain operational in future. Admittedly, the Act is a permanent statute
operating prospectively and retrospective validating past transactions as if
they have been made, entered into or transacted under the Act.
F \
While making the Validation Act, as ..seen, Section 6 provides for
recoveries and Section 7 provides for penalties. Section 8 prescribes offen-
ces by companies and Section 9 gives rule making power to effectuate the
'purpose or the Act by making rules enumerated thereunder to give effect
G to the provisions of the Act. Section 10 provides protection of actions taken
by the officers in good faith. Section 4 deals with books of accounts to be
maintained by the licensees and Section 5 authorises officer for inspection
of the books of accounts maintained by the licensees. It would thus be clear
that the Act is a complete and self-contained code in itself.

H ·The question, therefore, is whether Section 11 is an anti-judicial
(
INDIAN ALUMINIUM CO. v. STATE (K RAMASWAMY, J.] 43

power interfering with or encroaching into judicial review entrusted to the . A
Courts, a basic feature of the constitution and whether it directly overrules
the judgment of the High Court? In view of specific stand and vehement
contention that the legislature can, under no circumstance, nullify man-
damus or direction issued by a court, w:e have to survey the decided cases

-- in which relevant principles were laid by this Court. This primary question B
is whether the legislature has trespassed and trenched into the preserve of
the basic feature of judicial review. The principle of power of validation
vested in the legislature is no longer res intregra. A Constitution Bench of
this Court in Shri Prithvi Cotton Mills Ltd. & Anr. v. Broach Borough
Municipality & Ors., (1970] 1 SCR 388 which is an erudite leading judgment
on this topic, laid by an unanimous Constitution bench of five Judges that C
Section 17 of the Bombay Municipal Boroughs Act, 1925 empowers the
municipality to levy rate on building or lands or both situate within the
municipality'. The Rules made under the Act applied the rates on the
percentage basis on the capital value of lands and buildings. In Patel
Gordhandas Hargovindas v. Municipal Commissioner, Ahmedabad, [1964] D
2 SCR 608 this Court had held that the term 'rate' must be given the special
meaning it had acquired in English law and must be confined to an impost
on the basis of the annual letting value; it could not be validly levied on
the basis of capital value though capital value could be used for the purpose
of working out the annual letting value. Thereafter, Gujarat legislature E
amended the Act and enacted Gujarat Imposition of Tax by Municipalities
(Validation) Act, 1963. Section 3 thereof which validated past assessments
and collections on rate, on lands and buildings, on the basis of capital value
or a percentage of capital value, was declared valid, despite any judgment
of a Court or tribunal to the Contrary. Future assessment and collection
on the basis of capital value for the period from and after the Validation F.
Act, was authorised. Section 99 was enacted in the Gujarat Municipalities
Act to provide for the levy of a tax on lands and buildings "to be based on
the annual letting value or the capital value or a percentage of capital value
of the buildings or lands or both". The same was questioned and the High
Court dismissed the writ petition. On appeal, when the constitutionality G

-- thereof was challenged, this Court observed as under :

"..... When a legislature sets out to validate a tax declared by a
Court to be illegally collected under an ineffective or an invalid
law, the cause for ineffectiveness or invalidity must be removed H
44 SUPREME COURT REPORTS [1996] 2 S.C.R.

A 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
B exercise of judicial power which the legislature does not possess
or exercise. A court's decision must always bind unless the condi-
tions 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
c 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
D
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. Sometimes
the legislature gives its own meaning and interpretation of the law
under which the tax was collected and by legislative fiat makes the
E new meaning binding upon courts. The legislature may follow any
one method or all of them and while it does so it may neutralise
the effect of the earlier decision of the Court which becomes
ineffective after the change of the law. Whichever method is
adopted it must be within the competence of the legislature and
F legal and adequate to attain the object of validation. If the legis-
lature has the power over the subject-matter and competence to
make a valid law, it can at any time make such a valid law and
make it retrospectively so as to bind even past transactions. The
validity of a Validating law, therefore, depends upon whether the
legislature possesses the competence which it claims over the
G subject-matter and whether in making the validation it removes the
defect which the courts had found in the existing law and makes
adequate provisions in the Validating law for a valid imposition of
the tax".

H This Court upheld that constitutionality of the impugned enactment.
I
INDIAN ALUMINIUM CO. v. STATE [K. RAMASWAMY, J.] 45

The validity of the validating Act is to be judged by the following A
test: (i) whether the legislature enacting the validating Act has competence
over the subject matter; (ii) whether by validation, the legislature has
removed the defect which the court had found in the previous law; (iii)
whether the validating law is consistent with the provisions of Chapter III
of the Constitution. If these tests are satisfied, the Act can confer jurisdic- B
tion upon the Court with retrospective effect and validate the past trans-
actions which were declared to be unconstitutional. The legislature cannot
assume power of adjudicating a case by virtue of its enactment of the law
without leaving it to the judiciary to decide it with reference to the law in
force. The legislature also is incompetent to overrule and decision of a
Court without properly removing the base on which the judgment is C
founded,

In State of Orissa v. Oriental Paper Mills Ltd., AIR (1961) SC 1438,
the Oriental Paper Mills assessee had successfully challenged the asses-
sability of the sales tax. After the judgment was delivered by this Court in D
State of Bombay v. United Motors India Ltd., [1953] SCR 1063, the State
legislatl.lre enacted Section 14A and incorporated by way of an amendment
Act 25 of 1958 to the Orissa Sales Tax Act. When the constitutionality
thereof was challenged on refusal to grant refund of the tax paid under the
invalid law, contending that Section 14A deprived the assessee of the
common law right to claim refund of the amount paid as tax under the E
invalid law, this Court had held that the legislature was competent to
exercise the power in respect of the subsidiary or ancillary matters of
granting refund of tax inappropriately or illegally collected. Therefore,
Section 14A validating the illegal collection and refusal of the refund was
upheld as valid. It was also held that it was riot in violation of Article 19(1) F
(t) of the Constitution.

In Mis. Misrilal Jain v. State of Orissa & Anr., [1977] 3 SCC 212, a
larger Bench of seven Judges was required to construe the provisions of
Orissa Taxation (on Goods carried by Roads or Inland Waterways) Act, 8 G
of 1968. By a Judgment dated August 10, 1967 this Court had declared the
Orissa Taxation (on Goods Carried by Roads or inland Waterways) Act,
1962 as invalid since it did not not cure the defect from which the Orissa
Taxation (on Goods Carried by Roads or Inland Waterways) Act, 7of1959
had suffered. It was further held that the State was not entitled to recover
any tax. Under the Validation Act 8 of 1968 the imposition of the same H
\
~

46 SUPREME COURT REPORTS [1996] 2 S.C.R.

A levy which the State had unsuccessfully attempted to levy earlier was
validated. After the enactment of the Bill, previous assent of the President
was obtained removing the defect pointed out earlier. In para 6, it was
unanimously held by the Bench that the legislature cured the constitutional
vice from which the Act of 1959 suffered, by obtaining the requisite
B sanction of the President and thus armed, it imposed as new tax though
with retrospective effect. The imposition of the taxes or validation of the
action under void law is not the fonction of the judiciary and, therefore, by
taking these steps, the legislature cannot be accused of trespassing on the
preserve of the judiciary. Courts have to be vigilant to ensure that non-
compliance of power so thoughtfully conceived by our Constitution is not
C allowed to be upset but the concern for safeguarding the judicial power
does not justify conjuring up trespassers for invalidating laws. If the vice
from which an enactment suffered is cured by due compliance with the
legal or constitutional requireme11ts, the legislature has the competence to
validate the enactment and such validation does not constitute an
D encroachment on the function of the Judiciary. It was held at page 218 that .
the legislature can pass laws with retrospective effect nullifying the man-
damus issued by the Court.

In M/s. Tirath Ram Rajindra Nath, Lucknow v. State of U.P. & Anr.,
[1973] 3 SCC 585, Section 3 of the u.r.. States Tax Act, 1948 imposes
E multi-point sales tax on the sale of certain goods. Section 3-A empowered
the Government to levy sales tax on some of the goods "at such single-point
in the series of sales by successive dealers" as may be prescribed by the
State Government. Rules had been made whereunder State got power to
impose sales tax on the total turnover of the sale of bricks at the point of
F sale by the manufacture. The U.P. Sales Tax Act (Amendment and valida-
tion) Ordinance, 1970 was amended substituting such single point of sales
as the State Government may specify. In Gumamal v. State of U.P., 26 STC
270, the Allahabad High Court had held that before attracting Section 3-A,
the goods must have been the subject matter of multiple sales. The notifica-
G tion did not fall within the purview of Section 3-A as bricks was sold
directly to the consumers by the manufacturers. Section 3-A(l) was
amended with retrospective effect by U.P. Sales Tax (Amendment and
Validation) Act, 1970. The validity thereof was questioned. The High Court
had held that Section 3-A(l), as amended was unconstitutional as it
delegated essential legislative functions to the State Government. Allowing
----
H the appeal and upholding the validity, this Court has held that "this Court
INDIAN ALUMINIUM CO. v. STATE [K. RAMASWAMY, J.] 47

has pointed out in several cases the distinction between encroachment on A
the judicial power and nullification of the effect of a judicial decision by
changing the law retrospectively. The former is outside the competence of
the legislature but the latter is within its permissible limits." The legislature
had not purported either directly or by necessary implication to overrule
the decision of the Allahabad High Court. On the other hand it had
B

-
accepted the decision as correct but had removed the basis of the decision
by retrospectively changing the law.

In The Govt. of A.P. Anr. v. Hindustan Machine Tools Ltd., AIR
(1975) SC 2037, the respondent had constructed its factory and other
buildings within the limits of Gram Panchayat 'K', without its permission. C
Gram Panchayat passed a resolution to collect permission fee from the
respondent on the capital value of the factory building at a specified rate.
They also imposed house tax and demanded payment for the period 1966
to 1969. The writ petition was filed challenging the power to levy house tax
and other fees. the AP. High Court issued a mandamus prohibiting the D
Gram Panchayat from collecting the amounts. The High Court had held
that as per the definition of the house under the Act, the factory and other
building was not a house. Against the judgment an appeal was filed in this
Court. Pending appeal, the legislature amended the definition of "house"
with retrospective effect so as to eliminate the impediment on which the
High Court rested its judgment. It also made validation of the actions by E
Section 4 of the Validation Act with retrospective effect. On that basis
when it was contended in this Court for the respondent that the legislature
had overruled or set aside the judgment of the High Court and it was
constitutionally impermissible, a Bench of three Judges had held that the
State legislature had not overruled or set aside the judgment of the High . F
Court. It had amended the definition of the house. by substituting a new
section in the place of an old one, providing a new definition which had
retrospective effect, notwithstanding anything contained in any judgment,
decree or order of the court or other authority. In other words, this Court
had held that the legislature removed the basis of the decision rendered by
the High Court so that the decision could not have been given in the altered G
circumstances.

In l.N. Saksena v. The State of M.P., [1976] 3 SCR 237, the State
Government amended its memorandum to compulsory retire a government
servant on attaining the superannuation of 58 years. However, it em- H
\
~
48 SUPREME COURT REPORTS (1996] 2 S.C.R.

A powered the Government to retire a government servant on his attaining
the age of 55 years. Subsequently, statutory rules under provision to Art.
309 of the Constitution were framed. However, the clause to retire a
government servant on attaining the age of 55 years was not incorporated,
though the superannuation was retained at 58 years. The appellant, judicial
pfficer was compulsorily retired on his completion of 55 years. He success-
B fully challenged the order of retirement which was upheld by this Court.
A constitution Bench of this Court had held that the distinction between
legislative act and judicial act is well-known. The adjudication of the rights
of the parties is a judicial function. The legislature has to lay down the law
prescribing the norms or conduct which will govern the parties and trans-
C actions to require the Court to give effect to that law. Validating legislation
which removes the norms of invalidity of action or providing remedy is not
an encroachment on judicial power. Statutory rule made under the proviso
to Article 309 was upheld. The legislature cannot by a bare declaration
without anything more, directly overrule. reverse or override a judicial
D decision at any time in exercise of the plenary power confer on the
. legislature by Arts. 245 and 246 of the Constitution. It can render a judicial
decision ineffective by enacting a valid law on a topic within its legislative
field, fundamentally altering or changing with retrospective, curative or
nullifying effect, the conditions on which such a decision in based. In Hari
Singh & Ors. v. The Military Estate Officer andAnr., [1973] 1SCR515, prior
E to 1958 two alternative modes of eviction under Public Premises Act were
available. When the eviction was sought of an unauthorised occupant by
summary procedure the constitutionality thereof was challenged and
upheld. The Act was subsequently amended in 1958 with retrospective
operation from September 16, 1958. Thereunder only one procedure for
-
F eviction was available. It was contended to be a legislative en<,Toacbment
of judicial power. A Bench of three Judges held that the legislature
possessed competence over the subject matter and the Validation Act
coUld remove the defect which the court had found in .the previous case.
It was not the. Legislative encroachment of judicial power but one of
removing the defect which the Court had pointed out with a deeming date.
G
In A.B. Abdul Kadir & Ors. Etc. v. State of Kerala, [1976] 2 SCR 690
in the previous decision rendered inA.B. Abdulkadir & Ors. v. The State of
Kerala & Anr., (1962] Supp. 2 SCR 741, the Cochin Tobacco Act and the
Rules made. thereunder and the similar Act were in substance correspond-
H ing to the Central Excise and Salt. Act, 1944. The Cochin Tobacco Act
I INDIAN ALUMINIUM CO. v. STATE [K. RAMASWAMY, J.] 49

stood repealed on April 1, 1950. Consequently there was no law operating A
to pay licence fee. The Rules made in the 1950 and 1951 and the repealed
Act were held void ab-initio. Thereafter, Kerala State Legislature enacted
Kerala Luxury Tax on Tobacco (Validation) Act, 1964. Section 5 thereof
validated the levy and demand changing the character of the levy from fee
to the tax. When the constitutionality of the Validation Act was challenged,
B
a three-Judge Bench had held that the· State Legislature had competence
to enact luxury tax on tobacco and to recover the tax in the shape of licence
fee for vend and stocking of tobacco. The legislature, therefore, has com-
petence to convert the character of collection "from impermissible excise
duty into permissible luxury tax" which would not render the Act uncon-
stitutional. Only conditions are that the levy should be of a nature which C
can "answer to the description of luxury tax" and the State legislature
should be competent to enact the law for recovery of luxury tax. It was held
that both the conditions were satisfied. Accordingly the impugned enact-
ment was upheld as valid. Validation Act can also be provided for
retrospective operation of the said provision validating the law which had D
been found to be invalid.

In Central Coal Fields Ltd. v. Bhubaneswar Singh, [1984J 4 SCC 429
this Court had declared that the sale price of the stock of extracted coal
lying at the commencement of the appointed date had to be taken into
account to determine the profit and loss during the period of management E
of the mines by the Central Government taken over under Section 3 of the
Coking Coal Mines (Nationalisation) Act, 1972. Thereafter, Coal Mines
Nationalisation Laws (Amendment) Act, 1986 was enacted. In Section 10,
sub-section (2) of the principal Act, amount payable as compensation was
to be deemed to include and deemed always to have included the amount F
required to be paid to the owner in respect of coal in stock on the date
immediately before the appointed date. It was contended that the deeming
provision was encroachment ~n the judicial power and was, therefore,
unconstitutional. Repelling the contention in Bhuvaneswar Singh & Ors. v.
Union of India, [1994] 6 SCC 77, a three-Judge Bench of this Court had
held that when the validating legislation removed cause of the validity it G
could not be considered to be an encroachment on judicial power. Any

-- action in exercise of the power under the enactment which has been
declared to be invalid by that Court cannot be made valid by validating Act
by merely saying so unless the defect which has been pointed out by the
Court is removed with retrospective effect. Unless the invalidity or lack of H
50 SUPREME COURT REPORTS. [1996) 2 S.C.R.

A validity pointed out by the Court is removed by subsequent enactment with
retrospective effect, the binding nature of the judgment of the Court cannot
be ignored.

Same is the view taken in Udai Ram Shmma v. Union of India , [1968)
3 SCR 41, J(Jishan Chandra Gangopadhayaya v. Union of India, [1975)
B Supp. SCR 151, Hindustan Gum and Chemical Ltd. v. State of Haryana,
· [1985) Supp. 2 SCR 630, Utkal Contractors and Joinery (P) Ltd. v. State of
Olissa, [1988) 1 SCR 314 and approved by this Court in Bhubaneshwar
Singh's case (supra).

C In State of Orissa & Anr. v. Gopal Chandra Rath & Ors., [1995) 6 SCC
242 in the context of service law, validating statute with retrospective effect
was affirmed by this Court.

In Janapada Sabha, Chhindwara Etc. v. The Central Provinces Syndi-
cate .Ltd. & Anr. Etc., [1970) 3 SCR 745, this Court in its earlier decision in
D The Amalgamated Coalfields Ltd. v. T71e Janapada Sabha, Clthindwara,
[1963] Sup. 1 SCR 172 had held that the expression "first imposition"
occurred in Section 51 (2) of the C.P. and Berar Local Government Act,
4 of '1.920. The imposition of levy at the rate of 9 paise per tonne was
declared illegal. Direction was issued restraining the Government to
E recover the same. The Madhya Pradesh Act, 1964 was made and Section
3 thereof validated the invalid imposition assessment and collection of cess.
A Constitution Bench had held that Act 18 of 1964 is a piece of clumsy
drafting. By a fiction, it deemed that Act of 1920 and the Rules framed
thereunder to have been amended without disclosing the text or even the
·nature of the amendment nor was there any indication that the invalid
F notification must be deemed to have been issued validly under Section
51(2) of the 1920 Act without the sanction of the local Government. It was,
therefore, held that "it is plain that the legislature attempted to overrule or
set aside the decision of this Court. It was open to the legislature under
the Constitutional scheme within certain limits, to amend the provisions of
G the Act retrospectively and to declare what the law shall be deemed to
have been. But it was not open to the legislature to say that the judgment
of the Court properly constituted and rendered, shall· be deemed to be
_ineffective and "the interpretation of the law shall be otherwise than as
declared by the Court".

H In T71e Municipal Corporation of the City of Ahmedabad & Anr. v. 17ie
INDIAN ALUMINIUM CO. v. STATE [K RAMASWAMY, J.] 51

New Shrock Spg. & Wvg. Co. Ltd. Etc. Etc. , [1970] 2 SCC 280, in a previous A·
proceeding like the respondent therein, this Court in New Manek Chowk
J Spinning & Weaving Mills Co. Ltd & Ors. v. Municipal C01poration of the
City of Ahmedabad & Ors., [1967] 2 SCR 678 struck down the rules framed
under the Bombay Provincial Municipality and Corporation Act, 1948
permitting the Corporation to value the land and building on flat rate B
method. Writ of mandamus issued directing the municipality to treat the
relevant entries as assessment books for the relevant years, was ·held to be
invalid and cancelled. Section 152-A was amended by Gujarat Amendment
Act, 1968. When it was challenged, this Court had pointed out that the
Corporation was not entitled to withhold the amounts illegally collected
and writ of mandamus was issued directing the refund. Again, sub-section
c
(3) of Section 152-A was introduced validating the collections by Gujarat
Amendment and Validation Ordinance, 1969 authorising the Corporation
and its officers to refuse to refund the amount of tax illegally collected;
despite the orders of this Court as well as of the Gujarat High Court, this
Court had held that the legislature had no power to disobey or disregard n·
the decision given by the courts. Section 152-A(3) was declared unconstitu-
tional.

In State of Tamil Nadu & Anr. v. M. Rayappa Counder, AIR (1971)
SC 231 in a writ, the Madras High court had held that the State had no E
power to reassess the escaped turnover under the Entertainment Tax Act,
1939. In 1966, Amendment Act containing a validating provision was
introduced by Section 7 thereof. This Court had held that the said section
did not change the law retrospectively. It attempted to validate invalid
assessments and to overrule the decision of the High Court. Section 7 was,
F
therefore, held invalid.

In Madan Mohan Pathak v. Union of India & Ors. Etc., [1978) 3 SCR
334, on the basis of a settlement, bonus became payable by the LIC to its
Class III and Class IV employees. In a writ, a single Judge of the Calcutta
High Court issued mandamus directing payment of bonus as provided in G
the settlement. During the pendency of Letter Patent Appeal, LIC
(Modification of Settlement) Act, 1976 was enacted denying bonus payable
~ to the employees. The appeal was withdrawn. The validity of 1976 was
challenged in this Court under Article 32 of the Constitution. A Bench of
seven Judges had held that the Parliament was not aware of the mandamus H
\
52 SUPREME COl,JRT REPORTS [1996] 2 S.C.R.
>.
A issued by the Court and it was declared that the 1976 Act was void and
writ of mandamus was issued to obey the mandamus by implementing or
enforcing the provisions of that Act and directed payment of bonus in
terms of the settlement. It was pointed out that there was no reference to
the judgment of the High Court in the statement of objects and reasons,
B nor any non obstante clause referring to the judgment of the Court was
made in Section 3 of the Act. Attention of the Parliament was not drawn
to the mandamus issued by the High Court. When the mandamus issued
by the High Court, became final, the 1976 Act was held invalid. Shri RF.
Nariman laid special emphasis on the observations of learned Chief Justice
C Beg who in a separate judgment had pointed out that the basis of· the
mandamus issued by the Court could not be taken away by indirect fashion
as observed at page 743, C to F. From the observations made by Bhagawat~
J. per majority, it is clear that this did not int¢nd to lay down that
Parliament, under no circumstance, has power to amend the law removing
the vice pointed out by the Court. Equally, the observation of Chief Justice
D Beg is to be understood in the context that as long as the effect of
mandamus issued by the Court is not legally and· constitutionally made
ineffective, it State is bound to obey the directions. Thus understood, the
is unexceptional. But it does not mean that the learned Chief Justice/
intended to lay down the law that mandamus issued by court cannot at all
E be made ineffective by a valid law made by the legislature, removing the
defect pointed out by the Court.

Subsequently, notice was issued on March 3, 1978 by the LIC to the
workmen under Section 19(2) of the Industrial Disputes Act declaring its
F intention to terminate' the settlement on the expiry of the period of two
month from that date. Another notice was issued under Section 9A of that
Act intending to effect a change from June 1, 1978 in the conditions of
service of the workmen. The Central Government on May 26, 1978 issued
a notification under Section 49 of the LIC Act substituting a new Regula-
tion for the existing Regulation. Simultaneously, an Amendment on the
G similar lines was made in 1957 Order dated a new clause in sub-section (2)
of Section 11 of the LIC Act. All of them came to be challenged by filling
a writ petition under Article 226 of the Constitution which was allowed by
the High Court. Per majority, this Court had held in The Life Insurance
Corporation of India v. D.J. Bahadur & Ors., [1981] 2 SCR 1083 that the
H entire attempt was to avoid compliance of the mandamus issued by the
INDIAN ALUMINIUM CO. v. STATE [K. RAMASWAMY, J.] 53

Calcutta High Court and, therefore, it was declared invalid. It directed the A
LIC to give effect to the terms of the settlement of 1974 relating to bonus
until superseded by a fresh settlement and industrial away or relevant
legislation.

Thereafter, the LIC (Amendment) Act, 1981 was enacted. Sub-
section (2) of Section 48, (2A), (2B) and (2C) were added providing B
regulation by the other provisions in respect of terms and conditions of
service of the employee w.e.f. January 31, 1981. Sub-section (2B) em-
powered the LIC to make rules under clause (cc) of sub-section (2) to
include power to give retrospective effect to such rules and to amend by
way of addition, variation or repeal, the regulations of the other provisions C
contained in sub-section (2A) with retrospective effect but not from June
20, 1979. Sub-section (2C) provided validating clause with usual language.
The same was challenged under Article 32 of the Constitution and this
Court understood in that perspective it in A. V. Nachane & Anr. v. Union
of India & Anr., [1982] 2 SCR 246 while upholding the validation with effect D
from the date the Amendment had come into force, declared the
retrospective legislation as unconstitutional holding that the rules sought
to abrogate the terms of 1974 settlement relating to bonus which would be
complied with pursuance to the mandamus issued by the High Court. Rule
3 sought to supersede the terms of 1974 settlement which could not make E
the writ petition issued by the Court nugatory in view of the decision in
M.M. Pathak's case (supra) and the Amendment did not have the effect of
nullifying the writ of mandamus issued by the Calcutta High Court and in
D.J. Bahadur's case. The directions in Bahadur's case did not stand
neutralised.
F
In D. Cawasji & Co., Mysore v. State of Mysore & Anr., [1984] Supp.
SCC 490 the High Court in a writ filed by the appellant had held that the
State Government was devoid of power under Section 19 of the Sales Tax
Act to collect sales tax and excise duty which is not a part of the selling
price. Mandamus for refund was issued. Appeal filed in this Court was G
withdrawn and the Sales Tax (Amendment) Act was enacted enhancing
sales tax from original 6% per cent to 45 per cent with retrospective effect.
Section 3 validated the previous assessments. This court struck down the
Amendment so far as it related to retrospectivity pointing out that the
lacuna pointed out by the Court was not cured and that judgment could H
54 SUPREME COURT REPORTS [1996) 2 S.C.R.

A not be nullified by legislative amendment.

In State of Haryana & 01:~. v. Kamal Co-op. Fanners' Society Ltd. & .
Ors., [1993) 2 SCC 363, Punjab village Common Lands (Regulation) Act,
1961, the pre-existing law was invalidated under 1961 Act. Shamilat deh
land was not defined to achieve certain objects which did not find place in
B
the repealed acts and 1961 (Amendment) Act declared that the definition
shall be deemed to have applied to all lands which are shamilat deh as
defined in 1961 Act with a non obstante clause. The validity thereof was
challenged. This Court held that the Amendment Act was unconstitutional
abrogating the civil court's orders in respect of the lands covered by the
C definition of shamilat deh.

In Re : Cauvery Water Disputes T1ibw1al, [1993) Supp. 1 SCC 96 the
Inter-State Water Disputes Tribunal constituted under Inter-State Water
Disputes Act, 1956 under Article 262 directed the Karnataka State by an
D interim order to release water to Tamil Nadu. The Governor passed
Karnataka Cauvery Basin Irrigation protection Ordinance, 1991 nullifying
the Tribunal's order. On a reference, a Constitution Bench had held that
by Article 262 of the Constitution, the power of this Court under Article
131 and all other powers had been taken away and vested in the Tribunal.
E The Tribunal's order was binding on the disputant States. The Ordinance
interfered with the obligatory process of the Tribunal. Therefore, it
amounted to interference with the Judicial power of the State vested in the
Tribunal. It ran counter to the binding decision of the Court regarding the
Tribunal's power to grant interim relief. Accordingly, it was declared
unconstitutional. It may be pointed out at this stage that this decision is on
F the anvil of constitutional operation of the special Tribunal constituted
pursuant to the directions issued under the Inter-State Water Disputes Act
which itself was made under the Constitution, conferring exclusive power
on the Tribunal to adjudicate inter-State water disputes.

G In S.R. Bltagwat & Ors. v. State of Mysore, [1995) 4 SCC 16 the
controversy related to Karnataka State Civil Service (Regulation of Promo-
tion, Pay and Pension) Act, 1973. A Division Bench of the High Court
allowed the petitions and directed collection of the pay, posts, seniority and
promotion with all consequential benefits on par with their juniors. The
H Act was made denying financial benefits as directed by the Division Bench
{._
INDIAN ALUMINIUM CO. v. STATE [K. RAMASWAMY, J.] 55

which became final. They were challenged under Article 32 and this Court A

- held that a Writ of mandamus or directions which had become final could
not be nullified empowering the State to review such judgments and orders.
Therefore, all the provisions of the impugned Act were held ultra vires the
powers of the State legislature.
B
From a resume of the above decisions the following principles would
emerges;

(1) The adjudication of the rights of the parties is the essential
judicial function. Legislature has to lay down the norms of conduct or rules
which will govern the parties and the transactions and require the court to c
give effect to them;

(2) The Constitution delineated delicate balance in the exercise of
the sovereign power by the Legislature, Executive and Judiciary;

(3) In a democracy governed by rule of law, the Legislature exercises
D
the power under Articles 245 and 346 and other companion Articles read
with the entries in the respective Lists in the Seventh Schedule to make the
law which includes power to amend the law.

(4) Courts in their concern and endeavour to preserve judicial power E
equally must be guarded to maintain the delicate balance devised by the
Constitution between the three sovereign functionaries. In order that rule
of law permeates to fulfil constitutional objectives of establishing an
egalitarian social order, the respective sovereign functionaries need free-
play in their joints so that the march of social progress and order remain F ~·
unimpeded. The smooth balance built with delicacy must always main-
tained:

(5) In its anxiety to safeguard judicial power, it is unnecessary to be
overjealous and conjure up incursion into the judicial preserve invalidating
the valid law competently made : G

~ (6) The Court, therefore, need to carefully scan the law to find out:
(a) whether the vice pointed out by the Court and invalidity suffered by
previous law is cured complying with the legal and constitutional require-
ments; (b) whether the Legislature has competence to validate the law; ( c) H
56 SUPREME COURT REPORTS (1996] 2 S.C.R.

A whether such validation is consistent with the rights guaranteed in Part III
of the Constitution.

(7) The Court does not have the power to validate an invalid law or
to legalise impost of tax illegally made and collected or to remove the norm
B of invalidation or provide a remedy. These are not judicial functions but
the exclusive province of the Legislature. Therefore, they are not the
encroachment on Judicial power. -
(8) In exercising Legislative power, the Legislature by mere.declara-
tion, without anything more, cannot directly overrule, revise or override a
C judicial decision. It can render judicial decision ineffective by enacting valid
law on the topic within its legislative field fundamentally altering or chang-
ing its character retrospectively. The changed or altered conditions are
such that the previous decision would not have been rendered by the Court,
if those conditions had existed at the time of declaring the law as invalid.
D It is also empowered to give effect to retrospective legislation with a
deeming date or with effect from a particular date. The Legislature can
change the character of the tax or duty from impermissible to permissible
tax but the tax or levy should answer such character and the Legislature is
competent to recover the invalid tax validating such a tax on removing the
E invalid base for recovery from the subject or render the recovery from the
State ineffectuaI. It is competent for the legislature to enact the law with
retrospective effect and authorise its agencies to levy and collect the tax on
that basis, make the imposition of levy collected and recovery of the tax
made valid, notwithstanding the declaration by the Court or the direction
given for recovery thereof. ' ~
F
(9) The consistent thread that runs through all the decisions of this
Court is that the legislature cannot directly overrule the decision or make
-
a direction as not binding on it but has power to make the decision
ineffective by removing the base on which the decision was rendered,
G consistent with the law of the Constitution and the legislature must have

-
competence to do the same.

Considered from these perspectives, the question is : whether Section
11 can answer the tests laid down hereinbefore. It is seen that the duty was
H collected under an order made in exercise of Section 3 of the Essential
INDIAN ALUMINIUM CO. v. STATE [K. RAMASWAMY,J.] 57

Articles Act and it was held to be not a tax but a duty for the benefit of A
KSEB. That duty being a compulsory exaction for the benefit of public
exchequer is a tax. Duty on supply of electricity was declared to be
additional burden and a levy within Entries 26 and 27 of List II, subject to
.
, Entry 33 of List III (Concurrent List). Duty, is an additional burden and
partakes the character of a tax. Entry 53 of List II (State List) empowers B
the State Legislature to impose tax on consumption or sale of electricity.
It is, therefore, a compulsory exaction for the benefit of the Revenue.
Therefore, it is an additional tax in the form of a duty under the Act. The
vice pointed out in Chakolas case has been removed under the Act.
Consequently, Section 11 validated the invalidity pointed out in Chakolas
case removing the base. In the altered situation, the High Court would not
c
have rendered Chakolas case under the Act. It has made the writ issued
in Chakolas case ineffective. Instead of refunding the duty illegally col-
lected under invalid law, Section 11 validated the illegal collections and .
directed the liability of the past transactions as valid under the Act and
also fastened liability on the consumers. In other words, the effect of D
Section 11 is that the illegal collection made under invalid law is to be
retained and the same shall now stand validated under the Act. Thus
considered, we held that Section 11 is not an incursion on judicial power
of the Court and is a valid piece of legislation as part of the Act.
E
As already seen, the specific case of the State and the Board is that
the State has been expending its public money for the effective functioning
for the KSEB and the duty under the Act is flowing into the public
exchequer and, therefore, it is not a duty for the benefit of KSEB coming
under Essential Articles Act. Equally, it is not either a threat to the power F

- of judicial review or form of restraint to exercise the power of judicial
review over legislative action. It is true that under the Electricity Act which
admittedly has been enacted under Entry 53 of the State List, the rate of
duty, as amended, is 10 per cerit. As stated above, under the Act duty is
an additional impost in the nature of compulsory exaction for the benefit
of public exchequer. When we look into the provisions of the Act it is clear G
that levy and collection of additional duty is not discontinued as contended
by Shri Venugopal. As held above, the Act is a complete code in itself and
operates retrospectively. Therefore, both the Acts operate harmoniously
and do not collide in their operation since 1963 Act is the principal Act
and the Act is in addition to, but not in substitution of the principal Act. H
58 SUPREME COURT REPORTS [1996] 2 S.C.R.

A Therefore, 1963 Act does not get eclipsed with the passing of the Act.

Under these circumstances, we hold that the Act is valid. The
direction with regard to the refund of duty for the period which the Act
did not seek to cover, has already been given by the High Court and no
appeal has rightly been filed by the State. Therefore, to that extent that ' .
B order has become fmal. We need not dwell upon it.

The appeals are accordingly dismissed, but in the circumstances
without costs.

RA Appeals dismissed.

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