# 'STATE OF TAMIL NADU v. THIRUMAGAL MILLS LTD. ETC

- **Citation:** [1972] 2 S.C.R. 395
- **Court:** Supreme Court of India
- **Decided:** 1971-11-17
- **Bench:** K. S. Hegde, A. N. Grover, H. R. Khanna
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/state-of-tamil-nadu-v-thirumagal-mills-ltd-etc-5662
- **Pages:** 5

## Headnote

Madras General Sales Tax Act, 1959, s. 2(d) as amended by Madras
General Sales Tax (Second Amendment) Act, 1964-1/ retrospective--
Effect of s. 9.
The assessee. was a spinning mill. It opened a fair price shop to provide an amenity to its workmen so that commodities may be made available to them at fair prices.
For the assessment year 1960-61 the assessing authority under the Madras General Sales Tax Act, 1959, included in
the assessee's turnover the sale value of groceries sold in the fair
price
shop.
The Tribunal held in favour of the assessee ano the High Court,
on reference, found that the asscssee was not carrying on 'business' within
the meaning of the Act in the fair price shop and confirmed the orders.
In appeal to this Court it was contended that tho Second Amendment
Act. 1964, substituted a new definition of 'business' in the Act. which, read
with s. 9 of the Act. had retrospective effect.
Di~n1issing_ the appeal,
HELD : Validation of tax which has been decl~red to be illegal may
be done only if the ground of illegality or invalidity arc capable of being
removed and arc in fact removed. The Legislature can give its own meaning and interpretation of law under which the tax was: collected and by
legislative fiat make the new meaning binding upon the courts. [399 C-DI
But in the present case. none of the methods for ,·alidating a tax bas
been adopted.
Although the definition of '•business' was amended it was
not macle retrospective by the usual words that it shouid be deemed to have
been alirays substituted nor was any other language employed to show that
the substantive provision was being
amended
retrospectively.
On the
contrary. the definition of the word 'business' was atnendcd onfy prospectively.
In' the absence of retrospective effect being given to the definition.
s. 9 was of no avail to the Revenue. (399 E·G]
Stale of Tamil Nadu v. M. Rayappa Gounder, A.LR. 1971 S.C. 231,
Shri Pri1hri Collon Mills v. Broach Borough M1micip11llly, [1970] I S .C.R.
388; 79 I. T. R. 136. followed.

## Text

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395
'STATE OF TAMIL NADU
v.
THIRUMAGAL MILLS LTD. ETC.
November 17, 1971
[K. S. HEGDE, A. N. GROVER AND H. R. KHANNA, JJ.]
Madras General Sales Tax Act, 1959, s. 2(d) as amended by Madras
General Sales Tax (Second Amendment) Act, 1964-1/ retrospective--
Effect of s. 9.
The assessee. was a spinning mill. It opened a fair price shop to provide an amenity to its workmen so that commodities may be made available to them at fair prices.
For the assessment year 1960-61 the assessing authority under the Madras General Sales Tax Act, 1959, included in
the assessee's turnover the sale value of groceries sold in the fair
price
shop.
The Tribunal held in favour of the assessee ano the High Court,
on reference, found that the asscssee was not carrying on 'business' within
the meaning of the Act in the fair price shop and confirmed the orders.
In appeal to this Court it was contended that tho Second Amendment
Act. 1964, substituted a new definition of 'business' in the Act. which, read
with s. 9 of the Act. had retrospective effect.
Di~n1issing_ the appeal,
HELD : Validation of tax which has been decl~red to be illegal may
be done only if the ground of illegality or invalidity arc capable of being
removed and arc in fact removed. The Legislature can give its own meaning and interpretation of law under which the tax was: collected and by
legislative fiat make the new meaning binding upon the courts. [399 C-DI
But in the present case. none of the methods for ,·alidating a tax bas
been adopted.
Although the definition of '•business' was amended it was
not macle retrospective by the usual words that it shouid be deemed to have
been alirays substituted nor was any other language employed to show that
the substantive provision was being
amended
retrospectively.
On the
contrary. the definition of the word 'business' was atnendcd onfy prospectively.
In' the absence of retrospective effect being given to the definition.
s. 9 was of no avail to the Revenue. (399 E·G]
Stale of Tamil Nadu v. M. Rayappa Gounder, A.LR. 1971 S.C. 231,
Shri Pri1hri Collon Mills v. Broach Borough M1micip11llly, [1970] I S .C.R.
388; 79 I. T. R. 136. followed.
CIVIL APPELLATE JURISDICTION
of 1969 and 148 of 1971.
Civil Appeals Nos. 1454
Appeals by special leave from the judgments and
order~
dated April 6. 1967 and January 22, 1969 of the Madras High
Court in Tax Cases Nos. 152 of 1964, and 300 of 1968 respectively.
S. T. Desai and A. V. Rangam, for the appellant (in both the
appeals).
12-LSOOSup.Cl;72
396
SUPREME COURT REPORTS
[1972] 2 S.C.R.
K. Parasaran, T. Vadivel, R. Shanmughan and K. Jayaram,
.for l]Je r.::spondent (in C.A. No. 1454169).
T. A. Ramachandran, for the respondent
(in C.A. No.
148171).
A
B. Sen, S. P. Mitra and G. S. Chatterjee, for intervener On
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C.A. No. 1454 of 1969).
The Judgment of the Court was delivered by
Grove1-, J. These appeals by special leave frum a judgment of
the Madras High Court involve a conunon question.
The facts in the fir§t of these appeals may be stated.
The
assessce, who is the respondent herein, is a spinning mill manufacturing cotton yarn. It was assessed to sales tax under the Madras
General Sales Tax Act, 1959, hereinafter called the 'Act'. For
the assessment year 1960-61 the assessing authority included in
the taxable turnover certain amounts representing the sale value of
foodgrains and groceries sold in the fair price shop run by the mills
and the amount realised by sale of articles of food in the canteen
which was run for its employees.
The assessee filed an appeal
questioning its liability to pay tax on these items· The appellate
authority dismissed that appeal.
The assessee thereupon filed a
further appeal to the Sales tax Appellate Tribunal which allowed
the appeal and directed that the turnover in question be deleted.
The Revenue went up in revision to the High Court of Madras.
A division bench of that court dismissed the revision.
The.Appellate Tribunal had found that the fair price shop and
the canteen were run exclusively for the benefit of the employees
and there was no profit motive in running the same.
The High
Court referred to the relevant statutory provisions and expressed
the view that the primary requisite of 'business' as defined by the
Act should be a trade or commerce or adventure in the nature of
trade or conunerce. Presence or absence of profit was not material
but the activity must be of a commercial character in .the course
of trade or commerce. It was found that the assessee had not been
carrying on business in the fair price shop. The High Court looked
into the articles of association of the assessee and found no article
empowering it to carry on business in fair price shop. The assessee
had opened that shop only to provide an amenity to its workmen
so that commodities may be made available to them at fair .prices.
According to the Hip;h Court if as a matter of fact, some profit
accrued that would be wholly immaterial because the assessee
never intended to run the fair price shop as a business having an
element of commercial activity.
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TAMIL NADU v. TH!RUMAGAL MILLS LTD. (Grover, J.) 397
Section 2 of the Act gives the uefinitions. The Jefinitions of
"business" given in cl. (d), of "dealer" as given in cl. (g) and of "sale"
as given in cl. (n) are reproduced below :
(d) "business" includes any trade. co=erce or
manufacture or any adventure or concern in the nature
of trade, commerce or manufacture whether or not any
profit accrues from such trade, commerce, manufacture,
adventure or concern."
(g) "dealer" means any person who carries on the
business of buying, selling,
supplying or distributing
goods, directly or otherwise,. whether for cash or for deferred payment or for commission,
remuneration or
other valuable consideration and includes-
( i) ............... .
(ii) .............. ..
(iii) a commission agent, a broker or a del credere
agcl\t, or an auctioneer or any other mercantile agent,
by whatever name called, who carries on the business
of buying, selling, supplying or distributing goods on
behalf of any principal.
(iv) ................ "
(n) "sale" with all its grammatical variations and
cognate expressions means every transfer of the property
in goods by one person to another in the course of business for cash or for deferred payment or other valuable
consideration, and includes
a transfer of property in
goods involved in the execution of a works contract, but
does not include a mortgage, hypothecation, charge or
pledge''.
By the Madras General Sales Tax (Second Amendment) Act, 1964,
clause (d) of s. 2 was substituted ·by the following clause :
"business" includes-
(i) any trade,
commerce or ;uanufacture or any
adventure or concern in the nature of trade, commerce
or manufacture whether or not such trade, co=erce,
manufacture, adventure or concern is carried on with a
motive to make gain or profit and whether or not any
profit accrues from such trade, commerce, manufacture,
adventure or concern and
(ii) any transaction in connection with or incidental
or ancillary to, such trade, co=erce, manufacture, adventure or conci:m".
398
SUPREME COURT REPORTS
( 1972] 2 S.C.R.
Section 9 validated the levy and collection of certain taxes in the
following terms :
S. 9. "Notwithstanding anything contained in any
judgment, decree or order of any Court, no levy or collection of any tax under the provisions of the principal
A
Act and of rules made thereunder in respect of sales in
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the course of business, whether or not it is· carried on
with a motive to make gain or profit shall be deemed
to be invalid or ever to have been invalid on the ground
only that such levy or collection was not in accordance
with law and such tax levied or collected or purporting
to have been levied or collected shall, for all purposes,
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be deemed to be and always to have been validly levied
or collected and accordingly-
(a) all acts, proceedings or things done or taken by
the State Government or by any officer of the State Government or by any other authority in connection with
the levy or collection of such tax shall, for all purposes,
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be deemed to be, and to have always been, done or taken
in accordance wi~h law;
(b) no suit or other proceedings shall be maintained
or continued in any Court against the State Government
or any person or authority whatsoever for the refund of
any tax so paid; and
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(c) no Court shall enforce any decree or order directing the refund of any tax so paid;
(d) any such tax levied under the principal Act,
before the commencement of this Act but n<)t collected
before such commencement or any such tax leviable
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under the Principal Act but not levied before such commencement may be collected (after levy of the tax wherever necessary) ii! the manner provided in the principal
Act)".
It has not been contended before us on behalf of the Revenue
that the turnover of the sales by the fair price shop and the canteen
r.
could be included in the taxable turnover according to the definition of "business" as it stood in the original Act. The contention
raised is that s. 2 of the Second Amendment Act 1964 substituted
. the new definition of "business" with retrospective effect. This result flows, it is said, from the language of s. 9 although in s. 2
of that Act no such language has been used as can give retrosH
pective operation to the amendment made.
We are unable to
·agree th~t s. 9. by itself would i:nake the definition of :'business"
as: substituted m s. 2 retrospecl!ve.
In State of Tamil Nadu &
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TAMIL NADU V, THIRUMAGAL MILLS LTD. (Grover, J.) 399
Another v. M. Rayappa Gounder etc.(') s. 7 of the Madras Entertainment Tax (Amendment) Aot 1966 which was similar to s. 9
mentioned above came up for consideration.
The question was
whether the assessments were validly protected by that section.
Relianee was place on certain decisions of this Court which laid
down that it is open to the legislatlire within certain limits to amend
the provisions of the Act retrospectively and to declare what the
law shall be deemed to have bee!! but it: was not open to the legislature to say that a judgment of a court properly constituted and
rendered shall be deemed to be ineffective. Hence it was held that
the impugned assessment in that case could riot be sustained. The
principle which has been laid down clearly is that validation of
tax which ha; been declared to be illegal may be done only if the
grounds of illegality or invalidity are capable of being removed
and are in fact removed. Sometimes this is done by providing for
jurisdiction where jurisdiction had not been properly invested
before: Sometimes this is achieved 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. The legislature can give its own meaning artd interpretation of the law under
which the tax was collected and by legislative fiat make the ·new
meaning binding upon the courts.
None of these methods has
been adopted in the present case.
[see Shri Prithvi Cotton Mills
Ltd. v. Broach Borough Municipality & Ors. (2 ) ].
Although the definition of "business' was substituted by the
Second Amendment Act of 1964 it was not made retrospective
by the usual words that it should be deemed to have been always
substituted nor was any other language employed to show that the
substantive provision, namely, the definition of "business" was being
amended retrospectively. Section 9, therefore, can be of no avail
to the Revenue. It has been pointed out that in the other decision rendered by this Court in which similar validation provision
appeared the substantive section had not been amended at all.
That, in our judgment will not make any difference because the
essence of the matter is that the definition of the word "business"
which was material was amended only prospectively and not with
retrospective effect. It is common ground and has not been dis"
puted that if retrospective operation is not given to s. 2{d) of the
Second Amendment Act 1964 the Revenue must fail in these appeals· We may add that we have not considered the question of
the liability of the assessee to be a~sessed subsequent to the amendment made by the Second Amendment Act of 1964.
In the result the appeals are dismissed with costs.
V.P.S.
Appeals dismissed.
(1) A.l.R. 1971 S.C. 231.
(2) [1970] I S.C.R. 388; 79 l.T.R. 136.