ORDER
1. The appellants herein are engaged in the manufacturing of various goods. Some of them are having their industrial units situated within the industrial areas as declared under section 3 of the Karnataka Industrial Areas Development Act, 1966 (hereinafter in short 'the Industrial Areas Act').
2. These appellants being aggrieved by the various actions initiated for levy and collection of tax under the provisions of the Karnataka Tax on Entry of Goods Act, 1979 (hereinafter in short 'the Act') filed individual writ petitions before this Court challenging three notifications issued by the State Government purporting to be under section 3 of the Act, providing for rate of tax on the goods brought by them as raw materials in their industrial units for consumption or use therein. These notifications are (a) FD 69 CET 92(I) dated April 30, 1992, (b) FD 69 CET 92(III) dated July 30, 1992 and (c) FD 69 CET 92 dated August 19, 1992 (hereinafter referred to as 'first', 'second' and 'third' notifications respectively).
3. The appellants had assailed the validity/enforceability of the impugned notifications on various grounds before the learned single Judge but to their dismay, none of those grounds found favour with him and thus all the writ petitions came to be dismissed by the impugned judgment. Hence, these appeals.
4. The appellants have assailed the impugned notifications on the following grounds :
(a) the impugned notifications having been issued under section 3 of the Act as amended by Karnataka Ordinance Nos. 2 of 1992 and 10 of 1992, with the expiry of the later Ordinance by efflux of time provided under article 213 of the Constitution of India that is on and after February 11, 1993, the impugned notifications also ceased to be in operation thereby disentitling the authorities under the Act to levy, assess or collect any tax under the Act :
(b) the second notification was ab initio void since though it was purported to have been issued under section 3 of the Act as an amendment to the first notification for inclusion of raw material, etc., at serial No. 81 to the same, but it failed to specify any rate of tax for these goods;
(c) the third notification being in the form of corrigendum to the second notification remained ineffective because the second notification was still-born and void an initio. Further, this notification was also bad to the extent of its retrospectivity since at the material time the State Government had no power under section 3 of the Act to specify rates with a retrospective date;
(d) the second notification is also bad for the reason that it is inconsistent with entry at serial No. 80 of the First Schedule to the Act; and,
(e) the provisions of the Act do not apply to the industrial units situated within an 'industrial area' declared under section 3 of the Industrial Areas Act since such an area has not been included within the meaning of the 'local area' as defined under section 2(A)(5) of the Act.
5. For giving due considerations to the contentions raised on behalf of the rival parties, it is essential to first set out the legislative history of the Act and the notifications issued thereunder to the extent it is relevant for the present purposes. The Act has been made by the State Legislature pursuant to its legislative field enumerated under entry 52 of List II (State List) of the Seventh Schedule to the Constitution. The legislation had no brave many rough weathers by way of challenges brought to its existence through various legal proceedings. It also suffered many changes particularly to its charging section 3 through frequent amendments and substitutions. For our purposes, it will be sufficient to start with the provisions contained in section 3 of the Act as substituted by Karnataka Act 15 of 1992 which was brought into force from May 1, 1992.
6. Sub-sections (1) and (6) of section 3 of the Act as substituted by Karnataka Act 15 of 1992 were to the following effect :
'3. Levy of tax. - (1) There shall be levied and collected a tax on entry of any goods into a local area for consumption, use or sale therein, at such rates not exceeding five percent of the value of the goods as may be specified by the State Government by notification from time to time and different rates may be specified in respect of different goods or different classes of goods or different local areas.
(2).......
(6) No tax shall be levied under this Act on any goods mentioned in the Schedule on its entry into a local area for consumption, use or sale therein.'
7. From the above noticed charging section 3 of the Act, it would appear that the tax is leviable on 'goods' which is defined under clause (4-a) of section 2(A) and the taxable event is its entry into a 'local area' which has been defined in clause (5) of the said section. Keeping in view the nature of discussion to be followed hereinafter, it will be more convenient to extract these definitions as well as those existed during the material period.
'Section 2(A)(4-a) : 'goods' means all kinds of movable property (other than newspapers, actionable claims, stocks and shares and securities) and includes livestock;
Section 2(A)(5) : 'local area' means an area within the limits of a city under the Karnataka Municipal Corporations Act, 1976 (Karnataka Act 14 of 1977), a municipality under the Karnataka Municipalities Act, 1964 (Karnataka Act 22 of 1964), a Notified Area Committee, A Town Board, a Sanitary Board or a Cantonment Board constituted or continued under any law for the time being in force and a Mandal under the Karnataka Zilla Parishads, Taluk Panchayat Samithis, Mandal Panchayats and Nyaya Panchayats Act, 1983 (Karnataka Act 20 of 1985) and panchayat area under the Karnataka Panchayat Raj Act, 1993 (Karnataka Act 14 of 1993).'
8. On May 1, 1992, the Governor of Karnataka promulgated Ordinance No. 2 of 1992 thereby effecting certain amendments to the charging section 3 and Schedule to the Act apart from inserting a new Schedule to be called 'First Schedule'. By this Ordinance, in sub-section (1) of section 3 for the words 'entry of any goods' the words 'entry of any goods specified in the First Schedule' were substituted. Further in sub-section (6) of the said section, after the words 'on any goods', the words 'specified in the Second Schedule' were inserted. As a necessary consequence to the said amendments, the Schedule to the Act was re-named as Second Schedule and a new Schedule called 'First Schedule' was inserted enumerating 103 types/classes of goods.
9. After repromulgation of the said Ordinance, the State Legislature reassembled on July 13, 1992 and though a Bill being LB No. 23 of 1992 was introduced for replacing the provisions of the Ordinance by an Act but the same could not be passed for certain reasons.
10. Therefore, the above Ordinance was repromulgated as Ordinance No. 10 of 1992 on August 20, 1992 giving it a retrospective effect from may 1, 1992 with a repealing and saving clause. Subsequently, when the State Legislature re-assembled, the aforesaid Bill was passed on January 5, 1993 and was sent for President's assent on February 18, 1993. Curiously, the President accorded his assent to the said Bill only on September 6, 1994 and subsequently, it was published in the Karnataka Gazette on March 23, 1995 as Karnataka Act No. 3 of 1995 bringing the provisions thereof into force with effect from May 1, 1992. But in the meantime, by operation of article 213(2)(a) of the Constitution, the second Ordinance No. 10 of 1992 expired on February 11, 1993 by efflux of time.
11. It is under the said backdrop of legislative developments that the counsel appearing for the appellants have formulated the grounds (a) to (d) for assailing the impugned notifications.
12. By the first notification, the State Government, pursuant to the powers delegated under section 3 of the Act, specified rate of tax in respect of entry of some of the goods specified in the First Schedule to the Act. These goods were 80 in number picked out from the goods specified in the First Schedule to the Act as inserted by the Ordinances 2 of 1992 and 10 of 1992 referred to above. This notification reads as under :
'I. Notification No. FD 69 CET 92(I), Bangalore, dated the 30th April, 1992.
In exercise of the powers conferred by sub-section (1) of section 3 of the Karnataka Tax on Entry of Goods Act, 1979 (Karnataka Act 27 of 1979), the Government of Karnataka in supersession of all notifications issued under section 3 of the said Act hereby specifies that with effect from 1st May, 1992 tax shall be levied and collected under the said Act on the entry of goods specified in column (2) of the table below into every local area for consumption, use or sale therein at the rates specified in the corresponding entries in column (3), thereof.
TABLE-----------------------------------------------------------------Sl. Description of the Scheduled First Schedule RateNo. goods Item No. of tax-----------------------------------------------------------------1 Air conditioning plants, (1) 3%air-coolers and air-conditionersand parts thereof2 ..................80 X-ray apparatus (102) 2%-----------------------------------------------------------------
13. By the second notification, which was also purported to be issued under section 3 of the Act after serial No. 80 of the first notification, a new serial No. 81 was inserted but no rate of tax was specified for the goods included in serial No. 81. The relevant extract of this notification is being reproduced herein :
'II. Notification No. FD 69 CET 92(III), Bangalore dated the 30th July, 1992
S.O. 2282, Karnataka Gazette dated 31st July, 1992
In exercise of the powers conferred by sub-section (1) of section 3 of the Karnataka Tax on Entry of Goods Act, 1979 (Karnataka Act 27 of 1979) read with section 21 of the Karnataka General Clauses Act, 1899 (Karnataka Act III of 1899), the Government of Karnataka hereby amends with effect from 1st August, 1992, Notification No. FD 69 CET 92(I), dated 30th April, 1992 as follows :
In the said notification, -
(i) after the entries relating to serial number 80 of the table to the said notification, the following shall be inserted, namely : -
'81. Raw materials, component parts and inputs (other than those specified in the Second Schedule) which are used in the manufacture of an intermediate or finished product.' (ii)..............
Explanation I. - ..........
Explanation II. - ..........'
14. Subsequently, under the third notification published as a corrigendum, various amendments were sought to be made in the first and second notifications but for the present purposes the insertion sought to be made in the second notification is only relevant which is being reproduced hereunder :
'III. Corrigendum - Notification No. FD 69 CET 92, Bangalore dated the 19th August, 1992.
S.O. 2725, Karnataka Gazette, dated 19th August 1992.
1. (i)...........
2. ..............
3. (i)...........
(ii) For the entry at Sl. No. 81 inserted as a new entry in Notification III No. FD 69 CET 92, dated 30th July, 1992, the rate of tax '1 per cent' shall be and shall be deemed always to have been inserted :
(iii).............'
Ground (a) :
15. So far as this ground of challenge is concerned, the amendment history of the charging section 3 of the Act seems to have played the prime role in providing the present ground to the appellants. The amendments brought out to the section reflect some striking features. As noticed above by Karnataka Act 15 of 1992, section 3 of the Act was substituted en bloc with effect from May 1, 1992. Simultaneously, that is on May 1, 1992, itself, Ordinance No. 2 of 1992 was promulgated bringing about amendments as noticed above to the charging section which was repromulgated as Ordinance No. 10 of 1992 making it retroactive again from May 1, 1992.
16. The second important feature of the amending history is that both before the promulgation of the Ordinances as also thereafter during their lifetime the State Government was empowered to specify rate of entry tax on the value of the goods but the only difference which the Ordinances made was that, but for the amendments made by the Ordinances, before its promulgation, the State Government had an absolute discretion to provide entry tax in respect of any goods covered by the definition of the word under section 2(A)(4-a) of the Act but after the said amendment, ostensibly the discretion of the Government became limited to the goods specified in the First Schedule only. Curiously, the entry at serial No. 103 of the First Schedule as inserted by the impugned Ordinances reads as 'goods other than those specified in any of the entries in this Schedule, but excluding those specified in the Second Schedule'. If this entry is read with the amended section 3(1), it becomes difficult to understand as to what change really the Ordinances were sought to bring about. We are opining so because even subsequent to amendment, by incorporating a residuary entry like at serial No. 103 to the First Schedule, the discretion of the Government to specify rate of tax in respect of goods, subject to restrictions contained in sub-section (6), remained as wide as it was under the unamended section.
17. Despite the said position, on behalf of the appellants, it has been urged that after the lapsing of the second Ordinance on February 11, 1993 the impugned notifications became inoperative. The basis of this argument, as advanced, is that after lapsing of the Ordinance, and before coming into force of Act 15 of 1992, the words 'entry of any goods' as appearing in sub-section (1) and the words 'on any goods' appearing in sub-section (6) of the charging section did not revive, thereby creating vacuums or gaps in the said sub-section making the same unintelligible, unworkable and therefore unenforceable.
18. The basis built up for the said argument is that the Ordinance had sought to substitute the words 'entry of any goods' as appearing in sub-section (1) of section 3 by the words 'entry of any goods specified in the First Schedule'. Their submission is that, as held in various judgments of the Supreme Court, the word 'substitution' comprises of two steps, namely, repeal and re-enactment. As per the submissions after the lapsing of the Ordinance, the act or repealing the words 'entry of any goods' remained effective but the re-enactment part disappeared with the lapsing of the Ordinance, thus resulting in creating vacuum or gap in the impugned sub-section (1). To appreciate the said submissions, it will be necessary to consider the law laid down by the Supreme Court in various cases in this regard.
19. In the said context, it has been brought to our notice that in the case of Firm A. T. B. Mehtab Majid and Company v. State of Madras : AIR1963SC928 , it has been held that 'once the old rule has been substituted by the new rule, it ceases to exist and it does not automatically get revived when the new rule is held to be invalid'.
20. Following the said decision, in the case of Koteswar Vittal Kamath v. K. Rangappa Baliga and Co. : [1969]3SCR40 , the Supreme Court has held that :
'The process of substitution consists of two steps. First the old rule is made to cease to exist and, next, the new rule is brought into existence in its place. Even if the new rule be invalid, the first step of the old rule ceasing to exist comes into effect and it was for this reason that the court held that, on declaration of the new rule as invalid, the old rule could not be held to be revived.'
21. The above concept was again examined and explained by the apex Court in the case of State of Maharashtra v. Central Provinces Manganese Ore Co. Ltd. : [1977]1SCR1002 , wherein it was held that (paragraph 17) :
'We do not think that the word 'substitution' necessarily or always connotes two severable steps, that is to say, one of repeal and another of a fresh enactment even if it implies two steps. Indeed, the natural meaning of the word 'substitution' is to indicate that the process cannot be split up into two pieces like this. If the process described as 'substitution' fails, it is totally ineffective so as to leave intact what was sought to be displaced. That seems to us to be the ordinary and natural meaning of the words 'shall be substituted. This part could not become effective without the assent of the Governor-General. The State Governor's assent was insufficient. It could not be inferred that, what was intended was that, in case the substitution failed or proved ineffective, some repeal, not mentioned at all, was brought about and remained effective so as to create what may be described as a vacuum in the statutory law on the subject-matter. Primarily, the question is one of gathering the intent from the use of words in the enacting provisions seen in the light of the procedure gone through. Here, no intention to repeal, without a substitution, is deducible. In other words, there could be no repeal if substitution failed. The two were a part and parcel of a single indivisible process and not bits of a disjointed operation.'
22. Following the said law laid down by the Supreme Court in the case of State of Maharashtra v. Central Provinces Manganese Ore Co. Ltd. : [1977]1SCR1002 , by a three Judge Bench, we feel fortified to hold that after lapsing of the impugned Ordinance by efflux of time, whatever steps it had taken by resorting to substitution in the charging section 3(1) of the Act, either it is construed as two steps or a single integrated step, cease to remain in operation. If it is construed as of two steps then as the legislative intent discloses, in our opinion, the two steps were inextricably interwoven and were to sail in the same boat either to survive or to die with no traces left except in respect of the closed transactions.
23. Even otherwise an Ordinance promulgated under article 213 of the Constitution is nothing but a temporary statute which expires with the efflux of time provided under article 213(2)(a) of the Constitution which provides as follows :
'Article 213(2) : An Ordinance promulgated under this article shall have the same force and effect as an Act of the Legislature of the State assented to by the Governor, but every such Ordinance -
(a) shall be laid before the Legislative Assembly of the State, or where there is a Legislative Council in the State, before both the Houses, and shall cease to operate at the expiration of six weeks from the reassembly of the Legislature, or if before the expiration of that period a resolution disapproving it is passed by the Legislative Assembly and agreed to by the Legislative Council, if any, upon the passing of the resolution or, as the case may be, on the resolution being agreed to by the Council; and
(b)............'
24. In the case of D. C. Wadhwa v. State of Bihar : [1987]1SCR798 , it has been held by the Supreme Court that (paragraph 7) :
'..... every Ordinance promulgated by the Governor must be placed before the Legislature and it would cease to operate at the expiration of six weeks from the reassembly of the Legislature or if before the expiration of that period a resolution disapproving it is passed by the Legislative Assembly and agreed to by the Legislative Council, if any. The object of this provision is that since the power conferred on the Governor to issue Ordinances is an emergent power exercisable when the Legislature is not in session, an Ordinance promulgated by the Governor to deal with a situation which requires immediate action and which cannot wait until the Legislature reassembles must necessarily have a limited life. Since article 174 enjoins that the Legislature shall meet at least twice in a year but six months shall not intervene between its last sitting in one session and the date appointed for its first sitting in the next session and an Ordinance made by the Governor must cease to operate at the expiration of six weeks from the reassembly of the Legislature, it is obvious that the maximum life of an Ordinance cannot exceed seven and a half months unless it is replaced by an Act of the Legislature or disapproved by the resolution of the Legislature before the expiry of that period.....'
25. In the present case, admittedly, the second Ordinance, namely, Ordinance No. 10 of 1992 had ceased to be operative on February 11, 1993 because of the expiration of the period prescribed under article 213(2)(a) of the Constitution. In the case of State of Orissa v. Bhupendra Kumar Bose : AIR1962SC945 , it has been held that 'the provisions of section 6 of the General Clauses Act in relation to the effect of repeal do not apply to a temporary Act'. It has been further held that though a provision like section 6 can be incorporated in a temporary statute enacted by the competent Legislature, but with respect to Ordinances made by an executive head under our Constitution, it has further been observed that :
'Incidentally, we ought to add that, it may not be open to the Ordinance making authority to adopt such a course because of the obvious limitation imposed on the said authority by article 213(2)(a).'
26. So far as the effect of expiry of a temporary statute like an Ordinance is concerned, the Constitution Bench has further held in the said case of State of Orissa : AIR1962SC945 that :
'Therefore, in considering the effect of the expiration of a temporary statute, it would be unsafe to lay down any inflexible rule. If the right created by the statute is of an enduring character and has vested in the person, that right cannot be taken away because the statute by which it was created has expired. If a penalty had been incurred under the statute and had been imposed upon a person, the imposition of the penalty would survive the expiration of the statute. That appears to be the true legal position in the matter.'
27. From the above enunciation of the law by the Supreme Court, it is clear that except for the rights and obligations flowing from the provisions of an Ordinance promulgated under article 213(1) of the Constitution in the sense indicated by the apex Court the statutory provisions contained in such an Ordinance has to be treated not est on and from the date it has suffered constitutional death under article 213(2)(a). In the case of Gooderham and Works Ltd. v. Canadian Broadcasting Corporation AIR 1949 PC 90 while dealing bout the survival of the amendments affected by temporary legislations upon their expiry, it has been held by the Privy Council that :
'The repeal effected by the temporary legislation was only a temporary repeal. When by the fiat of Parliament the temporary repeal expired the original legislation automatically resumed its full force. No re-enactment of it was required.'
28. In the context of Ordinances issued under article 213(1) of the Constitution, there is another aspect of importance which justifies the taking of the view expressed by the Privy Council in the above case (Gooderham & Worts and Ltd. v. Canadian Broadcasting Corporation AIR 1949 PC 90.) If, notwithstanding the fact that even if an Ordinance made under article 213(1) expires by efflux of time but nonetheless the amendments sought to be effected by it to an Act of the Legislature are allowed to attain a permanent character, then virtually this will amount to giving plenary power of permanent legislation to the executive thus providing a convenient machinery to bypass the Legislature, which alone under our Constitution has been enshrined with such a power. Such a concept has not only been deprecated but has been expressly countered by the Supreme Court in the case of D. C. Wadhwa v. State of Bihar : [1987]1SCR798 wherein it has been held that :
'It is contrary to all democratic norms that the executive should have the power to make a law, but in order to meet an emergent situation, this power is conferred on the Governor and an Ordinance issued by the Governor in exercise of this power must, therefore, of necessity be limited in point of time. That is why it is provided that the Ordinance shall cease to operate on the expiration of six weeks from the date of assembling of the Legislature. The Constitution makers expected that if the provisions of the Ordinance are to be continued in force, this time should be sufficient for the Legislature to pass the necessary Act. But if within this time the Legislature does not pass such an Act, the Ordinance must come to an end. The executive cannot continue the provisions of the Ordinance in force without going to the Legislature. The law-making function is entrusted by the Constitution to the Legislature consisting of the representatives of the people and if the executive were permitted to continue the provisions of an Ordinance in force by adopting the methodology of re-promulgation without submitting to the voice of the Legislature, it would be nothing short of usurpation by the executive of the law-making function of the Legislature. The executive cannot by taking resort to an emergency power exercisable by it only when the Legislature is not in session, take over the law-making function of the Legislature. That would be clearly subverting the democratic process which lies at the core of our constitutional scheme, for then the people would be governed not by the laws made by the Legislature as provided in the Constitution but by laws made by the executive.'
29. There is yet another important facet to be taken into account for considering the validity of the first notification in the context of expiry of the impugned Ordinances. Admittedly, the State Legislature have taken effective steps for replacing the provisions of the Ordinance by introducing legislative Bill No. 23 of 1992 on July 9, 1992, that is during the lifetime of the very first Ordinance namely, Ordinance No. 2 of 1992 and subsequently passed the same on May 1, 1993. It was then sent for the President's assent. But for one or the other reason, the President gave his assent to the Bill only on September 6, 1994 and thereafter, it was published in the Karnataka Gazette on March 23, 1995 making the same retroactive from May 1, 1992, that is the date from which the two Ordinances intended to amend the Act. Therefore, after the commencement of the Karnataka Act No. 3 of 1995, it has to be presumed by all concerned as also a court of law that the amendments sought to be carried out by the Act of the Legislature had in fact taken effect on May 1, 1992. In the case of Mohd. Iqbal v. State of Maharashtra : [1996]1SCR183 , it has been held that 'Legislature can introduce a statutory fiction and the courts have to proceed on the assumption that such state of affairs exists on the relevant date, because when one is bidden to treat an imaginary state of affairs as real, he also has to imagine as real the consequences which shall flow from it unless prohibited by some other statutory provision'.
30. Sri Kantraju, learned Additional Government Advocate, has brought to our notice a judgment of the Division Bench of this Court : ILR1988KAR2675 wherein, under somewhat similar circumstances as appearing in the present case, it has been held that :
'The retrospectivity legalizes the situation by recognising the assumption made as valid. It is one of the functions of retrospective legislation to fill up a lacuna in the law and cover a field which was earlier thought as covered but in reality it was not covered.'
31. Keeping in view the said discussions and the state of statutory provisions which has to be presumed to exist pursuant to Karnataka Tax on Entry of Goods (Amendment) Act, 1992 (Karnataka Act No. 3 of 1995), we hold a considered opinion that the first notification issued by the State Government was within its competence and did not cease to operate on the expiry of the second Ordinance.
Grounds (b) and (c) :
32. These two grounds relates to the validity of the second and their notifications. The preamble of the second notification spells out that it was issued by the State Government in exercise of the powers conferred on it under sub-section (1) of section 3 of the Act in order to incorporate a new entry at serial No. 81 for the purpose of specifying the rate in respect of the goods covered therein. The entry reads as under :
'Sl. No. 81 : Raw materials, component parts and inputs (other than those specified in the Second Schedule) which are used in the manufacture of an intermediate or finished product.'
33. But in the said notification, the rate of tax for the goods covered by the newly incorporated entry was not specified. Therefore the notification became ineffective. Accordingly, on realisation of the said mistake, the third notification being the corrigendum notification was issued, inter alia, specifying the rate of tax at 1 per cent of the value of the goods covered by Sl. No. 81 making it effective from the date of the second notification that is July 30, 1992 by declaring that the said rate 'shall be and shall be deemed always to have been inserted'.
34. The validity of the said notifications has been assailed on three premises, namely, -
(i) the second notification, in absence of specification of rate or tax, was ultra vires and thus non est in law;
(ii) the third notification issued as a corrigendum did not refer to any statutory provision under which it was sought to be issued;
(iii) even if a power of issuing a notification like the impugned corrigendum is traceable to section 3(1) of the Act it can have its effect only prospectively from the date of its publication that is August 19, 1992 and cannot have retrospective operation from July 30, 1992, and;
(iv) the said notifications have not been laid before the State Legislature as required under section 31 of the Act.
35. For substantiating the said contentions, the counsel appearing for the appellants/petitioners have placed reliance on various judgments. The first in the series is a judgment of the Supreme Court in the case of Govind Saran Ganga Saran v. Commissioner of Sales Tax : [1985]155ITR144(SC) . In paragraph 6 of the Report (page 4 of STC), it has been held that :
'The components which enter into the concept of a tax are well known. The first is the character of the imposition known by its nature which prescribes the taxable even attracting the levy, the second is a clear indication of the person on whom the levy is imposed and who is obliged to pay the tax, the third is the rate at which the tax is imposed, and the fourth is the measure or value to which the rate will be applied for computing the tax liability. If those components are not clearly and definitely ascertainable, it is difficult to say that the levy exists in point of law. Any uncertainty or vagueness in the legislative scheme defining any of those components of the levy will be fatal to its validity.'
36. Again, in the case of Shama Rao v. Union Territory of Pondicherry [1967] 20 STC 215 at page 227 the apex Court has held that :
'The core of a taxing statute is in the charging section and the provisions levying such a tax and defining persons who are liable to pay such tax. If that core disappears, the remaining provisions have no efficacy.'
37. By relying on the said two decisions, Shri Prasad, learned counsel for the appellant, submitted that since in the second notification the State Government had failed to specify a rate of tax for the goods covered by Sl. No. 81 therefore the notification was void and still-born. In our opinion, this argument suffers from an inherent fallacy. The impugned notification cannot be equated with a charging section of a taxing statute. The notification was issued by a delegate who had failed to carry out the delegated obligation with due caution and care at the first instance. Therefore, what at best be inferred from the second notification taken in isolation is that only on issuance thereof the charging section 3(1) cannot be made operative in respect of the goods covered by Sl. No. 81. As such the exercise of the State Government can at best be held to be futile at the inception of the notification and nothing more. But immediately on realisation of the mistake the same was sought to be corrected by issuance of the impugned corrigendum notification.
38. So far as the corrigendum notification is concerned, no doubt, it has not referred to section 3(1) of the Act as the source of authority for issuing the same, but it is immaterial since such a power exists in the State Government (see Muni Corpn. v. Ben, : [1983]2SCR676 ). A combined reading of the second and third notifications makes the exercise of the State Government complete and effective as specifying the rate of tax for raw materials, etc., covered by Sl. No. 81. Any reasonable approach to the events clearly indicates that the State Government surely intended to specify the rate of entry tax in respect of raw materials, etc., by issuing a second notification but because of some accidental slip the rate did not appear in the notification and therefore the mistake was rectified through the corrigendum. It is well-settled that once the court is able to gather the true intention of the law-maker then it becomes its duty to give 'force and life' to the statutory instrument instead of trying to destroy the same by accepting technical pleas. But while undertaking such an exercise, the court has to be careful that it is not involving in any process of legislation by supplying casus omissus.
39. So far as the challenge on the ground of retrospectivity of the third notification is concerned, in our opinion, that has to be upheld. Even the learned single Judge, has held that 'by this corrigendum notification, an ineffective notification has been made effective'. We agree with the learned single Judge to this extent. But it has to be borne in mind that the charging section 3(1) of the Act becomes operative only on specification of the rate of entry tax in respect of the goods covered by Sl. No. 81 that is raw materials, etc., and the rate of tax was specified by the corrigendum notification which was published in the Karnataka Gazette on August 19, 1992. Though, as noticed above, the said rate of tax was sought to be read in the second notification with effect from the date of its Gazette publication, that is, July 30, 1992 but as a delegate the State Government was not competent to act retrospectively at the material time. The power to issue notifications retrospectively under section 3(1) of the Act was conferred on the State Government by Karnataka Act 8 of 1993 only on and from September 30, 1992.
40. It is well-settled that an authority cannot make rules or issue notifications adversely affecting assessee's rights with retrospective effect unless statute either expressly or by necessary intendment empowers the authority to do so [See Commissioner of Income-tax v. Bazbur Co-operative Sugar Factory Ltd. : [1988]172ITR321(SC) ; Income-tax Officer v. M. C. Ponnoose : [1970]75ITR174(SC) ; National Company Ltd. v. Deputy Director of Tax Credit (Exports), Calcutta : [1977]107ITR916(SC) ]. Despite this well-settled principle of delegated legislation, Sri Kantaraj, the learned Additional Government Advocate, has tried to persuade us to take the view that if a notification is issued by giving it the status of a corrigendum, then its retrospectivity has to be held as justifiable. We cannot agree with such a bald proposition. His placing of reliance on the judgment of Supreme Court in the case of Dharangadhra Chemicals Works v. Dharangadhra Municipality : AIR1985SC1729 , in our opinion, does not substantiate the plea sought to be raised by him.
41. The last question pertaining to the present grounds is whether the requirement of laying the notification before the State Legislature as envisaged under section 31 of the Act is mandatory. To substantiate the proposition, the counsel for the appellants placed reliance on a judgment of the Division Bench of this Court in the case of Lipton India Ltd. v. State of Karnataka : ILR1994KAR1848 . At page 242 of STC (page 1870 of ILR), it has been held that if the statutory procedure of gazetting the notifications and laying them before both the Houses of the Legislature is not followed, then the notifications or orders can still be treated to be issued in exercise of statutory power conferred by section 8A of the Karnataka Sales Tax Act, 1957. It may be noticed here that the laying clause contained under the Act is in pari materia with section 39 of the State Sales Tax Act. In our opinion, the said observation of the Division Bench in the case of Lipton India : ILR1994KAR1848 , cannot be taken as a binding precedent for two reasons, namely;
(i) on appeal the said decision has been set aside by the Supreme Court (Lipton India Ltd. v. State of Karnataka : AIR1997SC1911 ) and has been remanded to this Court for re-consideration; and
(ii) the Supreme Court has consistently held that the laying clauses of the nature contained in the State legislation are not mandatory [see Atlas Cycle Industries Ltd. v. State of Haryana : 1992(3)SCALE477 ; I.T.C. Bhadrachalam Paperboards v. Mandal Revenue Officer : (1996)6SCC634 ].
42. Therefore it has to be held that no entry tax was leviable on goods covered by Sl. No. 81 percent to the impugned notifications till August 18, 1992.
Ground (d) :
43. This ground has been raised in the context of the facts appearing in W.A. No. 3020 of 1997. The appellant in the said appeal is a publisher of a newspaper 'Samyukta Karnataka'. For the purpose of publishing the said newspaper, the appellant causes entry of newsprints in the local are which are used as an input for publishing the newspaper. The assessing officer has issued a notice to the appellant for paying tax on the entry of the said newsprints. This has been done keeping in view the entry at Sl. No. 81 as inserted by the second notification and the rate of tax therefor by the third notification.
44. 'Newspaper' finds place in Sl. No. 18 of the Second Schedule to the Act, Therefore, as provided under sub-section (6) of section 3, on tax can be levied under the Act on newspapers. Further, so far as the raw materials are concerned, the State Government can specify rate of tax subject to the limitation contained in the entry at Sl. No. 80 of the First Schedule which reads as under :
'Sl. No. 80 : Raw materials, component parts and inputs which are used in the manufacture of an intermediate or finished product other the those specified in the Second Schedule.'
45. A reading of the said entry at Sl. No. 80 of the First Schedule clearly manifests the intention of the Legislature that the State Government cannot specify a rate of tax for raw materials, component parts and inputs which are to be used in the manufacture of the goods which have been specified in the Second Schedule being the exempted goods. But contrary to the said legislative intent, the State Government has incorporating the impugned entry by the second notification prescribing the rate of tax on raw materials, component parts and inputs which are used in the manufacture of any intermediate or finished product except such raw materials, component parts and inputs which find place in the Second Schedule to the Act. Therefore, according to the State Government, for being exempt from levy of entry tax under the Act, the raw materials, etc., should itself find place in the Second Schedule to the Act. The learned single Judge has accepted the contention of the State Government by holding that the words 'other than those specified in the Second Schedule as appearing in Sl. No. 80 of the First Schedule should be read as referable to raw materials, component parts and inputs' and not in relation to 'intermediate or finished products'. In our opinion, even if the interpretation given by the learned single Judge can be held as reasonable and probable, still it cannot be seriously disputed that the entry is capable of equally two plausible interpretations. In this view of the aspect and the established rule of interpretation that in the case of two plausible views regarding interpretation of a charging section in a taxing statute one that favours the tax payer should be adopted, it is declared that no tax on the entry of raw materials, component parts and inputs which are used in the manufacture of an intermediate or finished product specified in the Second Schedule can be levied by the State Government and the entry at Sl. No. 81 of the impugned first notification as inserted by the second and third notifications is held to be ultra vires the powers of the State Government to this extent as well.
Ground (e) :
46. Admittedly, the present Act has been made by the State Legislature pursuant to entry 52 of the State List (List II of the Seventh Schedule to the Constitution). The said entry 52 read 'tax on entry of goods into a local area for consumption, use or sale therein'. In the case of Diamond Sugar Mills Ltd. v. State of Uttar Pradesh : [1961]3SCR242 , it has been held by the Supreme Court that 'the proper meaning to be attached to the words 'local area' in entry 52 of the Constitution (when the area is a part of State imposing the law), is an area administered by a local body like a municipality, a district board, a local board, a union board, a panchayat or the like'.
47. Keeping in view the aforesaid meaning subscribed to the word 'local area' for the purpose of levy tax on the entry of goods in such an area, it has been submitted on behalf of the appellants that the 'industrial area' in which they are carrying on their manufacturing business having not been included in the definition of 'local area' under clause (5) of section 2(A) of the Act, no tax on entry of their raw materials in their area can be levied.
48. I have already extracted the definition of 'local area' as set out in the Act in the foregoing paragraph 7. The definition is exhaustive and takes within its fold only the Municipal Corporations, Municipalities, Notified Area Committees, Town Boards, Sanitary Boards, Cantonment Boards, Mandals as constituted under the respective Acts. It does not include an 'industrial area' as defined under clause (6) of section 2 and declared under section 3 of the Industrial Areas Act.
49. In the context of the ground raised, the first question to be determined is whether an industrial area is at all a local area in the sense that it is administered by a local body having attributes of a local self-Government. In the case of Housing Board of Haryana v. Haryana Housing Board Employees' Union : (1996)ILLJ833SC , it has been held that :
'The Municipal Committees, the District Boards, Gram Panchayats and Panchayat Samities, etc., represent the units of local self-Government where people of a local area govern themselves through their elected representatives in respect of a large number of matters including construction of buildings, roads, parks, lighting of streets sewerage, conservancy and water works, etc. These local self-Governments, namely, the Municipal Boards and the District Board, etc., are constituted under statutory provisions which elaborately provide for the election, through adult franchise, of persons who, on being elected, become members of the Municipal Boards or the District Board. These Boards are basically independent bodies with very little or minimal of Government control and that too in limited field. They formulate their own policies and implement those policies through the machinery provided under law. They have power to levy panchayat, municipal or other local taxes and have also the power to realise those taxes through coercive processes, if they are not paid immediately on demand. They have also the right to realise, built up and manage their 'local funds'.'
50. In the case of Union of India v. R. C. Jain : (1981)ILLJ402SC , the Supreme Court has laid down the distinctive attributes and characteristics which a body should acquire and hold for being recognised as a local authority. It has been held that (para 2) -
'Let us, therefore concentrate and confine our attention and enquiry to the definition of 'Local Authority' in section 3(31) of the General Clauses Act. A proper and careful scrutiny of the language of section 3(31) suggests that an authority, in order to be a local authority, must be of like nature and character as a Municipal Committee, District Board or Body of Port Commissioners, possessing, therefore, many, if not all, of the distinctive attributes and characteristics of a Municipal Committee, District Board, or Body of Port Commissioners, but, possessing one essential feature, namely, that it is legally entitled to or entrusted by the Government with, the control and management of a municipal or local fund. What then are the distinctive attributes and characteristics, all or many of which a Municipal Committee, District Board or Body of Port Commissioners shares with any other local authorities First, the authorities must have separate legal existence as corporate bodies. They must not be mere Government agencies but must be legally independent entities. Next, they must function in a defined area and must ordinarily, wholly or partly, directly or indirectly, be elected by the inhabitants of the area. Next, they must enjoy a certain degree of autonomy, with freedom to decide for themselves questions of policy affecting the area administered by them. The autonomy may not be complete and the degree of the dependence may vary considerably but, an appreciable measure of autonomy there must be. Next, they must be entrusted by statute with such governmental functions and duties as are usually entrusted to municipal bodies, such as those connected with providing amenities to the inhabitants of the locality, like health and education services, water and sewerage, town planning and development, roads, markets, transportation, social welfare services, etc., etc. Broadly we may say that they may be entrusted with the performance of civic duties and functions which would otherwise be governmental duties and functions. Finally, they must have the power to raise funds for the furtherance of their activities and the fulfilment of their projects by levying taxes, rates, charges, or fees. This may be in addition to moneys provided by Government or obtained by borrowing or otherwise. What is essential is that control or management of the fund must vest in the authority.'
51. Keeping in view the aforesaid test as laid down by the Supreme Court, we would like to examine the provisions of the Industrial Areas Act to ascertain as to whether the Industrial Area Development Board which is constituted under section 6 thereof fulfills the essential characteristics of a local authority.
52. The preamble of the Industrial Areas Act shows that it has been enacted to make special provisions for securing the establishment of industrial areas in the State of Karnataka and generally, to promote the establishment and orderly development of industries therein and for that purpose, to establish the Board and for the purposes connected with the said matter. Section 3 provides for declaration of an industrial area by the State Government for the purposes of this Act. As per section 5(2) of this Act, the Board is a body corporate with perpetual succession and be sued in its own name and subject to the provisions of the Act and the rules made thereunder is competent to acquire, hold and dispose of property, and to contract and to all things necessary for the purposes of the said Act.
53. Section 6 provides for the constitution of the Board. It is to the following effect :
'Section 6 : Constitution. - The Board shall consist of the following members, namely :
(a) the secretary to the Government of Karnataka, Commerce and Industries Department who shall ex-officio be the Chairman of the Board;
(b) the Secretary to the Government of Karnataka, Finance Department;
(c) the Secretary to Government, Housing and Urban Development Department;
(ca) the Commissioner for Industrial Development and Director of Industries and Commerce;
(cb) the Chairman and Managing Director, Karnataka State Industrial Investment and Development Corporation Limited;
(cc) the Chairman, Karnataka State Pollution Control Board;
(cd) the Director of Town Planning;
(ce) the Managing Director, Karnataka State Small Industries Development Corporation Limited;
(d) the Executive Member of the Board; and.
(e) two nominees of the Industrial Development Bank of India.'
54. Section 13 of the Industrial Areas Act defines the functions of the Board and section 14 delineates its general powers. These sections read thus;
'Section 13 : Functions. - The functions of the Board shall be -
(i) generally to promote and assist in the rapid and orderly establishment, growth and development of industries in industrial areas, and
(ii) in particular, and without prejudice to the generality of clause (i), to -
(a) develop industrial area declared by the State Government and make them available for undertakings to establish themselves;
(b) establish, maintain, develop and manage industrial estates within industrial area;
(c) undertake such schemes or programmes of works, either jointly with other corporate bodies or institutions, or with the Government or local or statutory authorities, or on an agency basis, as it considers necessary or desirable, for the furtherance of the purposes for which the Board is established and for all purposes connected therewith.'
Section 14 : General powers of the Board. - Subject to the provisions of the Act, the Board shall have power -
(a) to acquire and hold such property, both movable and immovable as the Board may deem necessary for the performance of any of its activities and to lease, sell, exchange or otherwise transfer any property held by it on such conditions as may be deemed proper by the Board;
(b) to purchase by agreement or take on lease or under any form of tenancy any land, to erect such buildings and to execute such other work's as may be necessary for the purpose of carrying out its duties and functions;
(c) to provide or cause to be provided amenities and common facilities in industrial areas and construct and maintain or cause to be maintained works and buildings therefor;
(d) to make available buildings on lease or sale or lease-cum-sale to industrialists or persons intending to start industrial undertaking;
(e) to construct buildings for the housing of the employees of industries;
(f)(i) to allot to suitable persons factory sheds or such buildings or part of buildings including residential tenements in the industrial area established or developed by the Board;
(ii) to modify or rescind such allotments, including the right and power to evict the allottees concerned on breach of any of the terms and conditions of their allotment;
(g) to delegate any of its powers generally or specifically to the Executive Member;
(h) to enter into and perform all such contracts as it may consider necessary or expedient for carrying out any of its functions; and,
(i) to do such other things and perform such acts as it may think necessary or expedient for the proper conduct of its functions, and the carrying into effect the purposes of this Act.'
55. The clause (c) of the above section 13 talks of providing amenities in the industrial areas. But 'amenities' has been defined under section 2(1) of the said Act which includes road, supply of water or electricity, street lighting, drainage, sewerage, conservancy, and such other convenience, as the State Government may, by notification specify to be an amenity for the purposes of this Act. Section 17 of the Act empowers the State Government to issue direction to the Board as it may think necessary or expedient for the purpose of carrying out the purposes of this Act and the Board is bound to follow and act upon such directions, Section 19 provides for Board funds. It is to the following effect :
'Section 19 : Board's fund. - The Board shall have and maintain its own fund, to which shall be credited -
(a) all moneys received by the Board from the State Government by way grants, loans, advances or otherwise;
(b) all fees, costs, deposits and charges received by the Board under this Act;
(c) all moneys received by the Board from the disposal of lands, buildings and other properties movable and immovable and from other transactions;
(d) all moneys received by the Board by way of rents or in any other manner or from any other source.'
56. Section 22 makes it mandatory on part of the Board to submit its annual financial statement and programme of work for every financial year for the approval of the State Government. As per section 24, the accounts of the board is required to be audited by an auditor appointed by the State Government.
57. From, the provisions of the Industrial Areas Act, as noticed above, it is abundantly clear that the Board lacks certain essential characteristics of a local authority. The Act does not provide for the constitution of the Board by representatives elected by the inhabitants. The Board is to be constituted by the employees of the Government or its instrumentalities. The amenities to be provided are to be decided and notified by the Government. Therefore, the Board will have no say in the matter. The Board is bound to obey the directions of the Government. The Board has no power to levy any tax or even the fees as a specie of tax. Its annual financial statement and programme of work needs to be approved by the Government. Its accounts are to be subject to the audit and control of the State Government. Keeping in view these aspects, as per the law laid down in R. C. Jain's case : (1981)ILLJ402SC , the Board cannot be held to be a local authority.
58. Under somewhat similar statutory provisions contained in the Haryana Housing Board Act, 1971, the Supreme Court in the case of Housing Board of Haryana : (1996)ILLJ833SC has held that the Housing Board constituted therein is not a local authority. Similarly, in another case, namely, Calcutta State Transport Corporation v. Commissioner of Income-tax : [1996]219ITR515(SC) , it has been held that the Corporation constituted under the Road Transport Corporation Act, 1960 is not a 'local authority'. In para 7, it has been held that :
'The assessee is a Road Transport Corporation constituted to render road transport services in the State. Sections 18 and 19 of the Road Transport Corporation Act which set out the general duty and powers of the Corporation establish clearly that the Corporation is meant mainly and only for the purpose of providing an efficient, adequate, economical and properly coordinated system of road transport services in the State or part of it, as the case may be. It has no element of popular representation in its constitution. Its powers and functions bear no relation to the powers and functions of a Municipal Committee, District Board or Body of Port Commissioners.'
59. Therefore, it is held that 'industrial area' declared under the Industrial Areas Act is not a 'local area' and therefore, its non-inclusion in the definition of 'local area' under clause (5) of section 2(A) of the Act is of no consequence. It is further held that the appellants are liable to be taxed on entry of goods in the local areas as defined under the said clause.
60. To sum up, it is held that -
(i) the impugned three notifications did not cease to be operative because of the expiry of the Karnataka Ordinance No. 10 of 1992 by efflux of time postulated under article 213(2)(a) of the Constitution of India;
(ii) the second notification cannot be held to be ab initio void or still-born for having failed to specify the rate of tax;
(iii) the issuance of the third notification being corrigendum to the second notification is justifiable under the delegation conferred on the State Government under section 3 of the Act but only prospectively that is with effect from August 19, 1992;
(iv) no tax can be levied on the entry of raw materials in a local area which are meant for use in the manufacture of an intermediate or finished product which is specified in the Second Schedule to the Act;
(v) the laying clause contained in section 31 of the Act is directory in nature and its non-compliance does not touch upon the enforceability of the impugned notifications;
(vi) an 'industrial area' declared under section 3 of the Karnataka Industrial Areas Development Act, 1966 is not a 'local are' for the purpose of entry 52 of List II (State List) of the Seventh Schedule to the Constitution of India.
61. In the result, the appeals are allowed in part to the extent indicated above. The authorities under the Act are directed to act in accordance with the law laid down herein. The appellants are permitted to file their objections to the proposition notices, if any, issued against them within two weeks from today. In case the assessment has been completed, they can prefer appeal within the said period of two weeks with an application for condonation of delay which the appellate authority will dispose of by keeping in view the pendency of the writ petition and appeal filed before this Court. However, there will be no order as to costs.
62. Appeals partly allowed.