Judgment:
Raghuvir, J.
1. In the State of Andhra Pradesh as in any other State in India, cinema theatres can be classified in numerous ways. They can be classified like - air-conditioned, air-cooled, or ordinary. They can be classified like permanent, semi-permanent, touring or temporary. Theatres can be classified from the standpoint of population of towns-whether they are in a town of 10,000, 15,000, or 25,000 of population or more. Theatres can be identified from the standpoint of local authorities-whether they are in Municipal Corporations, Selection Grade Municipalities, Special Grade Municipalities, First Grade Municipalities, Second Grade Municipalities, Third Grade Municipalities, etc.
2. Theatres in the recent past are classified from the number of seats or shows they exhibit. One classification or other is resorted to by the State for optimizing the collection of entertainment taxes. Which classification is to be adopted depends on what basis is adopted by the Government. Some classifications adopted by the State in the calendar years 1984 and 1985 are assailed in the above group of cases.
3. To state the facts : The State Government at first revised on December 29, 1983, the entry fee in theatres in the or der in G. O. 615. The rates were increased to Rs. 7 (sic) and Rs. 0.60 from the existing rates. On the same day, Ordinance No. 31 of 1983 was promulgated. The existing structure of levy of entertainment tax with reference to population of towns was abandoned. While replacing the Ordinance by Act 24 of 1984, the Legislature introduced the concept of 'gross collection capacity' for levy of the tax as explained in section 4 of the Act. What is introduced cumulatively, for short, is stated to be tax on shows exhibited. The structure that was abandoned is referred to as tax on sale of tickets. We adopt the two expressions wherever it is necessary to refer in the course of this order.
4. There occurred a change of Government in the middle of August, 1984, for six weeks. That Government repealed the gross collection system and reintroduced the tax on tickets sold by Ordinance 26 of 1984. The Ordinance, however, did not culminate in an Act. The succeeding Government after six weeks was the same Government that held the reins sex weeks earlier. That Government repealed Ordinance 26 of 1984 by Ordinance 31 of 1984. Due to exigencies, it reissued the Ordinance as 10 of 1985. The two Ordinance were replaced by Act 16 of 1985.
5. In this group of cases, changes brought in by Ordinance 26 of 1984 arejto the point. That Ordinance was enforced from September 7, 1984, and remained on statute book till October 24, 1984. The life span of statute was precisely seven weeks. In our discussion when we say 'seven weeks', we refer to the period between the above two dates when provisions of the Ordinance were on the statute book. We see that in Act 16 of 1985, sub-clause(2) of section 1 recites that the Act is enforced with retrospective effect to cover the seven weeks and prospectively. The two statutes, Ordinance 26 of 1984 and Act 16 of 1985, thus overlap for seven weeks. Therefore, Act 16 of 1985 is assailed-whether the retroactivity in section 1 is constitutionally valid We have in the statement of facts avoided the political history. With this brief background of the event, we now turn to the respective contentions of the parties.
6. The writ petitioners are the operators of cinema theatres all over the State. They contend that the enforcement of Act 16 of 1985 with retrospective effect for seven weeks is violative of their rights under Chapter III of the Constitution. The retrospective operation of section 1 for seven weeks, according to them, is void. Since the question is raised from the perspective of constitutional provisions, the issue turns on the vires of Act 16 of 1985. The proprirtors, however, make no grievance (palpably cannot make grievance) of the prospective operation of the Act.
7. The State Government resists the writ petitions. The Government contends that the Legislature has the power under the Constitution to impose taxes prospectively or with retrospective effect. Section 1 to the extent it directs retrospective operation is not void for the Legislature has exercised the power and declared so in the statute. Section 1 of the Act 16 of 1985 does no violate any principle of Constitutional law or any principle of fundamental rights. The state contends that section 1 is valid. The retroactivity of section 1 is not bad and the sub-clauses of the section are not ultra vires the Constitution.
8. We have earlier narrated the quick succession of events in the calendar years 1984 and 1985. Whether there should have been swift changes or not in the statute book is not the point. Each Government has the undoubted right to implement what it considers to be its goals. In taxation, Government have power to adopt any basis to tax entertainment. Each Government adopts the methods it considers necessary to optimize tax collections or achieve its aims or economic goals. The wisdoms of the Government or the course of action is not in question. The Government in its plenary power can exempt one type of theatre and tax another type of theatre. In this regard, we are tempted to recount what Willis has said in his Constitutional Law, at page 587. The illustrations author said : 'A State does not have to tax everything in order to tax something. It is allowed to pick and choose districts, objects, persons, methods and even rates for taxation if it does so reasonably.' Such is the width of the power.
9. The question, however, remains whether in choosing a principle, any limitations are imposed by the Constitution. We say this because some limitations exist which are peculiar to our Constitution. There are no limitations found in U. K., in America or in the Commonwealth countries except perhaps now in Canada where as a result of the recent incorporation of the Bill of Rights in the Constitution in 1981, some such limitations are working in that country.
10. Now we may note the provisions of statutes in greater detail. To start with, in the erstwhile Madras Presidency, Madras Local Authorities Entertainment Tax Act, 1926 (Madras Act V of 1927), was in force tilljJune 20, 1939. On that day, the Madras Entertainments Tax Act of 1939 ('the Act'), was enforced. That Act imposed tax on tickets sold by the proprietors. That method remained till January 1, 1984, in the State of Andhra Pradesh. In our Constitution, a tax cannot be levied by the Executive first. Article 265 of the Constitution of India directs ('No tax shall be levied or collected except by authority of law') Taxes are to be levied through statute or statutory provisions. This is entrenched in the Constitution for historical reasons so that a citizen may plan his course of business to avoid adverse legal consequences. It is in these perspectives that prospective operation of Acts generally do not give rise to constitutional issues in courts. Retroactivity of a taxing statute, however, raises constitutional issues. That is how retroactive legislation is 'suspected', not the power of the Legislature is decided onubted. Besides, it is often said in this regard that a strong common law tradition exists (which Indian Legislatures follow) only to declare law for the future. The discerning commentators, therefore, suggest consideration, whenever validity of retrospective provision is considered, whether such provisions defeat reasonable 'expectations' of those who are affected by the statute. In an article 73 Harvard Law Review, 692 at 704, what we referred to as traditions in common law and reasonable expectations are both highlighted. The Supreme Court of India referred to the article in more than one opinion and approved the approach indicated in the article. In that article, two aspects are suggested.
11. The first relates to statutes which ratify what is termed as 'executive conduct'. The leading case in this area is United States v. Heinszen & Co. [1907] 206 US 307. The second is when Government feel by their earlier action that they have not achieved what was intended to be achieved because of a faux pas. This the Americans call Curative Statue. That expression is explained in Graham Fasher v. Goodcell [1931] 282 US 409.'Where the asserted vested right not being linked to any substantial equity arises from the mistake of officers purporting to administer the law in the name of the Government, the legislature is not prevented from curing the defect in administration simply because the effect may be to destroy causes of action which would otherwise exist.' Lawyers in the United Kingdom and those who follow Anglo-Saxon phraseology call such acts 'Validating Acts'. Another expression current in America is 'small repairs' in this regard used by Holmes J. in 1901 in the case of Danforth v. Groton Water Co. (178 Mass 472). Small repairs in our jurisprudence widened the field covered by the expression in America. The distinction in the two expressions requires to finetune the subject. In these cases for deciding the issue, that aspect is not called for.
12. The history in India as to retroactive legislation is entrenched in certain broad tests. The first case we may cite is Union of India v. Madan Gopal : [1954]25ITR58(SC) . In that case, power to levy income-tax was held to include the power to levy income-tax with retrospective effect. What is of some importance in this case is that it was decided in the context of constitutional principles. See para. 13 (p. 68 of ITR) : 'The power of legislation conferred by the Constitution upon Parliament could not extent so as to charge retrospectively the income accruing prior to the commencement of the Constitution. This is a fallacy.' The validating Acts are tested in many cases. We choose three or four cases to illustrate the point. The U. P. Sales Tax (Validation) Act, 1958, was held intra vires : J. K. Jute Mills Co. Ltd. v. State of UP : [1962]2SCR1 . In Jaora Sugar Mills (P.) Ltd. v. State of MP, : [1966]1SCR523 , the Sugarcane Cess (Validation) Act, 1961, was held not a colourable legislation. In Chhotabhai Jetahbhai Patel and Co. v. Union of India, : AIR1962SC1006 , a statute was considered from thejstandpoint of discrimination. The tests adumbrated in these cases was whether a statute is discriminatory, colourable, reasonable, confiscatory or extortionate. These were the tests applied in enforcing the statute. One more test is set out in a recent case, to which we will turn later.
13. In considering the validity of retrospective legislation, a recent view point came to the forefront as the 'modern view' in India. As at present the modern view is restricted only to taxing statutes. The modern view is borrowed from two judges of the American Supreme Court-Holmes J. and Frankfurter J. The Indian Supreme Court engrafted the views of the two judges and applied it with all its rigour in Bearer Bonds'in case in para 8 in (R. K. Garg v. Union of India), : [1982]133ITR239(SC) . The opinion attributed to Holmes J. is restricted to economic matters (p. 255 of ITR) : 'The Legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or strait-jacket formula and this is particularly true in the case of legislation dealing with economic matters.' Frankfurter J. is attributed with reference to what was said in Morey v. Doud [1957] 354 US 457) (p. 255 of ITR) : 'In the utilities, tax and economic regulations cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The Legislature after all has the affirmative responsibility. The courts have only the power to destroy, not to reconstruct.' The idea was elaborated : 'The court is to remember that legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry, that exact wisdom and nice adaption remedy are not always possible and that 'judgment is largely a prophecy based on meagre and uninterpreted experience.' - The ratio in Secy. of Agriculture v. Central Reig Refining Co. [1950] 94 LED 381 'not to convert courts for relief from such economic crudities and inequities' was reiterated and further explained (p. 256 of 133 ITR) : 'howsoever great may be the care bestowed on its framing, it is difficult to conceive of a legislation which is not capable of being abused by perverted human ingenuity. The court must, therefore, adjudge the constitutionality of such legislation by the generality of its provisions and not by its crudities or inequities or by the possibilities of abuse of any of its provisions. If any crudities, inequities or possibilities of abuse come to light, the Legislature can always step in and enact suitable amendatory legislations.' The two view are now adopted by our Supreme Court.
14. Earlier, the modern view was expounded in one of our cases in the following passage in Danthuluri Ramaraju v. State of AP, : [1972]2SCR900 (para 21) : 'The modern trend in all progressive countries is towards establishments of a welfare state, and with this end in view, the State has to prepare plans and devise beneficent schemes for the good of the common people. The implementation of those plans and schemes entails colossal expenditure. The State has consequently to tap various sources for augmenting its income and raising the revenue. Taxes are levied for this purpose, and the State is given a wide range of choice for the purpose of taxation. It is axiomatic that different situations call for different fiscal measures. The State is presumed to know the requirements of the situation and act accordingly. No rigidity being possible, it is difficult to apply any set formula. Much greater latitude and discretion has, therefore, to be allowed to the State...'
15. We have adverted to the modern trends for an understanding of thejtests that are applied. We now turn to the issue raised by the proprietors of cinema theatres.
16. We see from the Objects and Reasons of the Andhra Pradesh Entertainments Tax (Amending) Act (Act No. 24 of 1984) that the Government intended to make 'structural alterations' to simplify the procedure. The 'existing tax' and 'the additional tax' in entertainment declared, was to be merged. The theatre owners were provided with option between gross collection capacity or payment to tax under an agreement. The local area was to be retained but reference to population was to be abandoned. Appropriate provisions were introduced relating to appeals and revisions. The Government was empowered to prescribe rules with retrospective effect. All these measures were introduced in the A. P. Entertainments Tax (Amendment) Act 24 of 1984.
17. The methods introduced were not received well by the proprietors of the theatres. A large number of writ petitions were filed in this court. The Act 24 of 1984 was seriously assailed. A Division Bench of this Court dismissed W. P. No. 6404 of 1984 and batch on July 19, 1984, and upheld the Act. We have earlier stated about the change in the Government for six weeks commencing from the third week of August, 1984. That Government thought fit to revert to the anterior basis taxation. That Government issued Ordinance 26 of 1984 on September 5, 1984. The Ordinance was enforced from September 7, 1984, the day on which the period of seven weeks commenced. With the fall of that Government the successor Government, which came to power in turn, repealed Ordinance 26 of 1984 and in the Act 16 of 1985 reiterated what was contained in the Act 24 of 1984 as the basis for collection of taxes.
18. The proprietors in the instant batch of writ petitions do not question the prospective operation of Act 16 of 1985, as it has been already covered by the decisions of this court. The proprietors contend that gross collection method imposes onerous burdens on them. They complain that proprietors of cinemas cannot run business with any prospect of profit under gross collection taxation. They plead that the basis in the Entertainment Tax Act, 1939, was proper and appropriate. The basis in that Act should not have been altered by the State Government.
19. Some of the proprietors offered facts in the following table to show how the instant changes effected them adversely :
-----------------------------------------------------------------------Tax paidW. P No. of Gross on actual Tax u/s Tax u/sNo. shows collections sale of 4 5 Differencetickets-----------------------------------------------------------------------1. 2562/85 182 38,159 22,082 67,675 42,804 20,4222. 15640/84 156 10,191 4,482 71,482 52,115 47,6633. 15943/84 151 66,225 31,813 53,600 43,428 11,6154. 2105/85 147 39,867 18,552 55,831 46,256 27,7035. 2107/85 147 60,225 25,625 62,837 48,020 22,3956. 2117/85 146 37,732 16,673 41,865 -(u/s 4)25,192------------------------------------------------------------------------
20. The contents of table, of course, require close scrutiny. Many aspectsjin the table are not self-explanatory. In law, it is not for a Legislature to see that proprietors of theatres make profit in their day to day business. No taxing statute suffers invalidity if such safeguards are not entrenched. In view of this principle, we think no useful purpose is served in further analysing the table or its contents.
21. The writ petitioner in W. P. No. 15299 of 1984, however, highlighted what is said to be his dilemma. The theatre in that case is Kamal Talkies in the City of Hyderabad. On the enforcement of the Act 24 of 1984, the proprietor stated that he stopped business because of the adverse effects of the gross collection basis of tax. There are one hundred theatres in the twin cities of Hyderabad and Secunderabad. Some theatres in despair, true it is, are now converted as marriage halls. Kamal theatre proprietor states that he stopped the cinema business and converted his theatre into a marriage hall. The theatre revived its business when Ordinance 26 of 1984 was enforced because under that, tax on sale of tickets basis was enforced for seven weeks. The proprietor was running the theatre for seven weeks and when again Ordinance 26 of 1984 was repealed, he stopped business for obvious reasons. The closure of the theatre or running of the theatre for seven weeks in pursuit of profit cannot be a test for invalidating a statute.
22. The proprietors contend that the Act 16 of 1985 is not an instance of 'small repairs', nor is it a 'Validating Act'. It is a statute which is enforced with retrospective effect simpliciter without any apparent reason or without any valid ground. The retroactivity contained in section 1 is confiscatory and, therefore, is assailed as extortionate, unreasonable and arbitrary under article 19 of the Constitution.
23. The State, on the other hand, relied on the oft-quoted passage of Rowlatt J. in U. K. and in India. Rowlatt J. in Cape Brandy Syndicate v. Inland Revenue Commissioner [1921] 1 KB 64, observed (at page 71) :
'In taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to implied. On can only look fairly at the language used.'
24. The state contends there is no equity about tax. The state Government have the power to impose taxes prospectively or retrospectively. Therefore, section 1 does not suffer any constitutional vice whatever. It is valid in law. It is not invalid under any constitutional principal. The Government is a master of policy that it adumbrates. They have decided to implement their policy. They have the power to on do so and, therefore, enforcement of the Act with retrospective effect is not invalid. It is for the Government to decide, so it is argued, when to impose taxes with retrospective effect and not for the courts to dictate.
25. It is not necessary that in this case any principle has to be evolved. We consider that in this case the principles evolved always needs to be applied.
26. In the case in Cawasji & Co. v. State of Mysore [1969] 1 Mys LJ 461, the facts shows the Karnataka Government in 1966 was collecting 24 paise as sales tax from the vendees of liquor including sales tax on excise duty, education cess, wealth cess paid by the vendee. The Mysore High Court disapproved of the levy of sales tax to that part relatable to what was shown as paid by the vendee.'It is difficult tojsee how excise duty paid, not by the seller but by the purchaser... can become a part of the price...'. The collection of sales tax was thus declared void. To avoid refund of amounts collected already, the Karnataka Government promulgated Ordinance 3 of 1969 and replaced it by the Mysore Sale Tax Amendment Act 26 of 1969. When the 1969 Act was challenged, the High Court held that the Act was valid. On appeal, the Supreme court reversed the decision. The Supreme Court held that the lacuna shown in the case of Cawasji & Co. v. State of Mysore [1969] 1 Mys LJ 461 was not removed. The Act of 1969 was not valid : Cawasji & Co. v. State of Mysore [1985] 58 STC 1 (SC)). The Supreme Court held that since the lacuna shown in Cawasji & Co. v. State of Mysore [1969] 1 Mys LJ 461 was not removed, the Act, therefore, was unreasonable or was arbitrary or both. What is said in that context is instructive (at page 12) : 'It appears that the only object of enacting the amended provisions is to nullify the effect of the judgment which became conclusive and binding on the parties to enable the State Government to retain the amount wrongfully and illegally collected as sales tax and this object has been sought to be achieved by the impugned amendment which does not even purport or seek to remedy or remove the defect and lacuna but merely raises the rate of duty from 6 1/2 per cent. to 45 per cent. with retrospective effect is, in the facts and circumstances of the case, clearly arbitrary and unreasonable. The defect or lacuna is not even sought to be remedied and the only justification for the steep rise in the rate of duty by the amended provision is to nullify the effect of the binding judgment.' Therefore, the court added : 'In our opinion, this is not a proper ground for imposing the levy at the higher rate with retrospective effect. It may be open to the legislature to impose the levy at the higher rate with prospective operation, but levy of taxation at higher rate which really amounts to imposition of tax with retrospective operation has to be justified on proper and cogent grounds.' Thus section 2 of the Amending Act to the extent that it imposes higher levy of 45 per cent. with retrospective effect from the first of April, 1966, and also section 3 of the Amending Act which nullified the judgment at the High Court in Cawasji & Co. v. State of Mysore [1969] 1 Mys LJ 461, was held invalid. The other general and broad principles as to unreasonableness, relevant to statutes with retrospective effect, was evolved in the case of Kunnathat Thathunni Moopil Nair v. State of Kerala, : [1961]3SCR77 , where the Travancore-Cochin Land Tax Act 15 of 1985 was considered. The tests were improved in Assistant Commissioner of Urban Land Tax v. Buckingham and Carnatic Co. Ltd., : [1970]75ITR603(SC) . The further tests whether the statute is confiscatory or extortionate were stated and reiterated in most of the cases.
27. We see on facts that for seven weeks the proprietors paid entertainment tax as was levied under Ordinance 26 of 1984. What was levied was paid by the proprietors. The proprietors, therefore, ask a question why for the said seven weeks they should be taxed at a higher rate. We are sure that in the principles entrenched as to 'reasonableness', the State is obliged to offer an explanation. No explanation is offered. No proper or cogent reasons are suggested. It is, in these circumstances, we hold that the retroactivity of Act 16 of 1985 cannot be sustained. The retrospectivity is penal in character. The bland argument that there is no equity about tax or argument that the Government have the power to impose tax with retrospective effect, cannot be sustained. Whether a tax is to be collected as in Act 24 of 1984 or under the principles set out in Ordinance 26 of 1984, we hold that the two methods in the two statutes, in law, are available to the state. The principles in the former were held valid by this court. (We have cited in the unreported case earlier). The principles in the latter statute were injforce from 1939 till 1984. The earlier discussion showed that the Act 16 of 1985 is not a measure which can be called small repair or a validating Act. The answer offered by the Government that they have power to enact is not sufficient answer, for it does not satisfy the constitutional requirement as to reasonableness. Therefore, we hold the State Government does not explain with proper and cogent reasons why for seven weeks the Act 16 of 1985 is enforced with retrospective effect; therefore, section 1, to the extent it directs retroactivity between September 7, 1984, and October 24, 1984, is arbitrary, unreasonable and ultra vires the Constitution.
28. The writ petitions, therefore, are allowed. No costs. Advocate's fee Rs. 150 in each. The learned Government Pleader seeks oral leave to appeal to the Supreme Court. Since we have applied the ratio in Cawasji & Co. v. State of Mysore [1985] 58 STC 1 (SC), we see no substantial question of law which is required to be decided by the Supreme Court of India. Oral leave refused.