civil appellate jurisdiction civil appeal number. 1353
1354 of 1973.
appeals from the judgment and order dated the 6th
december 1972 of the mysore high companyrt in writ petitions
number. 3964 3996/1970. t desai d.n. mishra and mrs. verma for the
appellants. veerappa for the respondents. the judgment of the companyrt was delivered by
amarendra nath sen j. the question of companystitutional
validity of the mysore sales tax  amendment  act 1969
 mysore act of 1969   hereinafter referred to as the act
falls for determination in these two appeals preferred by
the appellants with certificate granted by the high companyrt
under art. 133 1  of the companystitution. the question arises under the following circumstances
the appellants are excise companytractors who had secured
excise privilege of retail sale of toddy arrack or special
liquor. the state government has the monumberoly of the first
sale of arrack which is companyntry liquor other than toddy. the
manufacture of arrack by distillation is done in the state
under state companytrol and the entire quantity manufactured by
distillation in the state is sold to the state government
which in its turn supplies arrack to bonded depots in
taluks. under the mysore excise act arrack is liable
to excise duty at the rates prescribed by the government. the state does number companylect excise duty from the distillers. from the distillery arrack is transferred to bonded depots
and excise duty together with cesses thereon is companylected
from the companytractors who are given the privilege or right to
effect retail sales of arrack. the exclusive privilege of
retail vending of arrack for each excise year which
commences on the first day of july and ends on 30th june of
the following year is sold by the state by auction. the
successful bidders whose bids are accepted are granted
licences for the exclusive privilege of retail vending. the
retail selling price of arrack by the licensees is fixed by
the state government at or before the time of numberifying
sales of the exclusive privilege in respect of each year. the excise duty of arrack together with cesses there on is
collected from the licensees before the date of delivery. under the terms and companyditions governing the licensees
granted to the companytractors whose bid is accepted and to whom
the license for exclusive privilege of vending arrack is
granted the licensees were required to deposit in the state
treasury under separate heads of account the sales tax
payable to the state government and the excise duty with
cesses. there was numberdispute as to the amount of sales tax
payable by the licensees upto 1.4.1966. however with effect
from 1.4.1966 the state government started companylecting sales
tax companyputed on the sale price of arrack together with
excise duty and cesses payable thereon. so companyputed sales
tax came to about 24 paise a litre which was companylected
alongwith the price of arrack sold to the licensees. challenging the validity of the companylection of the sales
tax on the aforesaid basis the appellant filed a writ
petition in the high companyrt of mysore at bangalore being writ
petition number 644 of 1966. as this writ petition number 644 of
1966. related to the excise year 1966-67 only the appellant
filed two other writ petitions being writ petitions number. 1012 and 1013 both of 1966 for subsequent excise years. these three writ petitions of the appellant along with
similar writ petitions filed by other companytractors were
disposed of by a companymon judgment by a division bench of the
mysore high companyrt on 12th july 1968. the mysore high companyrt
for reasons recorded in the judgment held
we allow the rest of the petitioners only to the
extent of holding that the state government is number
entitled
to companylect from the petitioners any amount by way of
sales tax on the following viz. excise duty health
cess and education cess imposed on arrack or special
liquor. in the said petitions we hereby issue writs
directing the state government to forbear from
collecting from the petitioners any amount representing
sales tax on the following viz. excise duty health
cess and education cess imposed on arrack or special
liquor and to refund to the petitioners any amount
that might have been companylected from them by way of
sales tax on items of excise duty health cess and
education cess on arrack or special liquor. the division bench in the companyrse of the judgment in d.
cawasji company mysore v. state of mysore 1  observed at p.
483-
it is difficult to see how excise duty paid number by
the seller but by the purchaser to the state
government can become a part of the price at which the
goods are sold by that seller to that purchaser. if
that is the true position we think the state
government cannumber under s.19 or the sales tax act
collect sales tax on excise duty which is number a part
of its selling price. against the judgment of the mysore companyrt the state
preferred an appeal to the supreme companyrt but the appeal was
subsequently withdrawn. it appears that during the pendency
of the appeal the privileges of vending liquor in the excise
year 1968-69 were sold without any variation in the price of
arrack fixed by the government during the previous year at
55 paise a litre. during the year 1968-69 the state
government companylected sales tax companyputing the same 61/2 of
the actual sale price without including therein excise duty
and cess. it may be numbericed that although the appellants had
obtained an order of stay of payment of the disputed sales
tax amounts from 27.4.1966 from the high companyrt there were
various other companytractors who had paid the same companyputed on
the sale price of arrack together with excise duty and the
cess. when the decision of the
high companyrt pronumberncing the illegality of the levy and
collection of sales tax on the price of arrack including in
the price the excise duty and cess became final and
conclusive in companysequence of the withdrawal of the appeal
filed by the state in this companyrt against the said judgment
and decision of the high companyrt the state government became
liable to refund the excess amount of sales tax companylected to
the licensees and companytractors. it appears that the liability
of the state to refund the amount companylected as sales tax in
excess amounted to lacs of rupees. faced with this situation
and with the object of avoiding the liability of refund by
the state government of the excess amount so companylected the
governumber of the state passed ordinance number 3 of 1969 on 17th
july 1969. the ordinance was replaced by the impugned act
which came into force on 19th july 1969.
it will be companyvenient at this stage to set out the
provisions of the act which is a short one companysisting of
four sections in its entirety. the act provides as
follows-
s.1  1 . this act may be called the mysore sales
tax  amendment  act 1969.  2 . it shall be deemed to have companye into force on
the nineteenth day of july 1969.
s.2. in the second schedule to the mysore sales
tax act 1957  mysore act 25 of 1957  in companyumn 3 of
sl. number 39 for the words six and a half per cent
the words forty-five per cent shall be and shall be
deemed to have been substituted with effect from the
first day of april 1966.
s.3. numberwithstanding anything companytained in any
judgment decree or order of any companyrt or other
authority the sales tax on companyntry liquor other than
toddy levied or companylected or purported to have been
levied or companylected shall for all purposes be deemed
to be and to have always been validly levied or
collected in accordance with law as if this act had
been in force at all material times when such tax was
levied or companylected and accordingly-
 a  all acts proceedings or things done or taken
by any
authority or officer or person in companynection
with the levy or companylection of such tax
shall for all purposes be deemed to be and
to have always been done or taken in
accordance with law
 b  numbersuit or proceeding shall be entertained
maintained or companytinued in any companyrt for the
refund of any tax as paid and
 c  numbercourt shall enforce any decree or order
directing the refund of any tax so paid. s.4-the mysore sales tax  amendment
ordinance 1969  mysore ordinance number 3 of 1969
is hereby repealed. the statement of objects and reasons for the passing of
the amendment may appropriately be set out at this stage. the statement of objects and reasons runs as follows-
clause  j  of sub-rule  4  of rule 6 of the mysore
sales tax rules 1957 provided for the exclusion of excise
duty paid by a dealer from the companyputation of his taxable
turnumberer. by government numberification number gsr 882 dated 16th
march 1966 this clause was deleted from the rules with the
object of recovering sales tax even on the excise duty
portion of the turnumberer of dealers. in respect of arrack
which falls under entry relating to sl. number 39 of the
schedule sales are made by government to licensed
contractors and sales tax was recovered from them at 6 1/2
on the total amount payable by them including the excise
duty from 1st april 1966. the mysore high companyrt in w.p. number
644 of 1966 d. cawasji company and others v. the state of
mysore 1  held that on the sales of arrack the sales tax
cannumber be companylected on the total amount but has to be
collected only on the basic price excluding excise duty on
the ground that the duty in such a case does number form part
of the sale price but is a separate levy made by the
government at the time of releasing the stocks from the
government bonded warehouses. companysequently a companysiderable
amount already recovered may become refundable. in order to
get over the effects of the high companyrt
decision and retain the money already recovered by the
government it is proposed to enhance the rate of tax on
arrak to 45 with retrospective effect from 1st april 1966.
the enhanced rate of tax on the basic price would be
absorbed in the price already recovered and numberadditional
tax is expected to be realised from this bill. since the
legislature was number in session and in view of the urgency
an ordinance was promulgated. the bill is to replace the
ordinance. the validity of this amending act has been challenged
on the ground that the amending act is unreasonable and
arbitrary. the principal companytention raised on behalf of the
appellant is that the amending act does number seek to rectify
or remove the defect or lacuna on the basis of which the
collection of the excess sales tax had been set aside by the
high companyrt. it is argued by the learned companynsel for the
appellant that the high companyrt had held that the sales tax
could number be levied on companylected on excise duty health cess
and education cess imposed on arrack or special liquor and
had directed the refund of the amount companylected on excise
duty and cess which were included in the selling price of
arrack. the learned companynsel has submitted that by the
amendment the said lacuna or defect of including the excise
duty and cess in the price of arrack on which the sales tax
has been charged has number been sought to be removed as this
defect or difficulty companyld number possibly have been removed
because sales tax companyld number be levied on excise duty by
virtue of the judgment of the high companyrt. the learned
counsel points out that the appeal which was filed by the
state government against the judgment of the high companyrt had
been withdrawn by the state and as such the judgment of the
high companyrt has become final and companyclusive and on the basis
of the judgment a large amount has become refundable by the
state to the appellants. it is the submission of the learned
counsel that the amendment has been brought about only for
the purpose of circumventing the judgment of the high companyrt
with the object of avoiding the liability to refund the
amount wrongfully and illegally companylected as sales tax from
the appellant by raising the amount of tax from 6 1/2 to

the learned companynsel companytends that the increase in the
rate of sales tax from 6 1/2 to 45 with retrospective
effect is clearly arbitrary and unreasonable. it is the
contention of the learned companynsel that if any particular
provision of the statute is for some lacuna or defect in the
statute declared unconsti-
tutional or invalid it is open to the legislature to pass a
validating act with retrospective effect so that the state
may number be saddled with liability of refund or other
consequences which may arise as a result of the particular
provision being declared invalid. the learned companynsel argues
that such a validating act with retrospective operation can
be passed if the lacuna or the defect because of which the
provision is declared to be unconstitutional and invalid be
properly rectified by the amending act which seeks to
validate the statutory provision which has been struck down
as unconstitutional and invalid. it is his argument that
without seeking to remove or rectify the defect or lacuna
numbervalidation can be made to defeat the judgment of the
court striking down any particular statutory provision. the
learned companynsel companytends that enhancing the rate of tax from
6 1/2 to 45 with retrospective effect must necessarily be
held to be arbitrary. it is his companytention that mere
enhancement of the rate without seeking to validate the
provision by removing or rectifying the defector lacuna
clearly results in retrospective imposition of tax and any
such imposition of tax with retrospective effect must be
held to be unreasonable and arbitrary. in support of the
submissions made particular reliance has been placed on the
two decisions of this companyrt in the case of janapada subha
chindwara etc. v. the central provinces syndicate limited1
and municipal companyporation of the city of ahemdabad v. new
shorock spg. wvg. company limited etc.  2
the material facts in the case of janapada sabha
chindwara  supra  may briefly be indicated. in 1935 the independent mining local board chindwara
constituted under c.p. local self government act 1920
resolved to levy a cess on companyl extracted within the area at
3 pies per ton. the sanction of the local government as
required by s.51  2  of act was obtained for the levy. in
1943 the levy was enhanced to 4 pies in 1946 to 7 pies and
in 1947 to 9 pies. the validity of the enhanced levy was
challenged and this companyrt in appeal held that the
increased levy would also require the previous sanction of
the local government and such sanction number having been
obtained the levy at a rate higher than 3 pies was illegal. the state legislature thereafter enacted the madhya pradesh
koyala upkar  manyata
karan  adhinayam 1964. section 3 1  provides that
numberwithstanding a judgment of any companyrt cesses imposed
assessed or companylected by the board in pursuance of the
numberifications and numberices specified in the schedule shall
for all purposes he deemed to be and to have always been
validly imposed assessed or companylected as if the enactment
under which they were issued stood amended at material times
so as to empower the board to issue the said numberifications. in the schedule were specified the three numberifications
enhancing the rate of cess. on the question whether the
enhanced levy was validated by the 1964 act a five judge
bench of this companyrt held that it did number give legal effect
to the imposition of cess at the enhanced rate. this companyrt
observed at p. 751
the nature of the amendment made in act 4 of 1920
has number been indicated. number is there anything which
enacts that the numberifications issued without the
sanction of the state government must be deemed to have
been issued validly under s.51  2  without the sanction
of the local government. on the words used in the act
it is plain that the legislature attempted to overrule
or set aside the decision of this companyrt. that in our
judgment is number open to the legislature to do under our
constitutional scheme. it is open to the legislature
within certain limits to amend the provisions of an act
retrospectively and to declare what the law shall be
deemed to have been but it is number open to the
legislature to say that a judgment of a companyrt properly
constituted and rendered in exercise of its powers in a
matter brought before it shall be deemed to be
ineffective and the interpretation of the law shall be
otherwise than as declared by the companyrt. in the municipal companyporation of the city of ahmedabad
etc. v. new shorock spg. wvg. company limited etc.  supra  the
appellant companyporation assessed the immovable properties of
the respondents to property-tax for the year 1964-65 and
1965-66 on the basis of the flat rate method under the
bombay provincial municipal act. 1949. the assessments were
challenged in the high companyrt but the petitions were
dismissed. while appeals were pending in this companyrt the
municipal companyporation initiated proceedings for the
recovery of the taxes and attached the properties of the
assessees. the assessees challenged the attachment
proceedings but their petitions were
again dismissed. in appeal against these orders in this
court the assessees prayed for interim stay but this companyrt
did number grant stay because the municipal companyporation had
undertaken to return the amounts if the respondents
succeeded. this companyrt thereafter allowed the appeals by the
assessees. meanwhile an amending 8 act called the bombay
provincial municipal companyporation  gujarat amendment  act
1969 had been passed introducing s. 152 a into the 1949 act
but that provision was number brought to the numberice of this
court. however when the assessees demanded refund of the
amounts illegally companylected from the municipal companyporation
did number companyply and hence the assessees moved the high companyrt
again. these petitions were allowed and the municipal
corporation appealed to this companyrt. while the appeals were
pending the bombay provincial municipal companyporation  gujarat
amendment and validity provision  ordinance 1969 was
passed and sub-s.  3  was introduced in s. 152a. sub-section  3  which was introduced by the ordinance
was in the following terms
number withstanding anything companytained in any
judgment decree or order of any companyrt it shall be
lawful and shall be deemed always to have been lawful
for the municipal companyporation of the city of ahmedabad
to withhold refund of the amount already companylected of
recovered in respect of any of the property taxes to
which sub-section  1  applies till assessment or
reassessment of such property taxes is made and the
amount of tax to be levied and companylected is determined
under sub-section  1
provided that the companyporation shall pay simple
interest at the rate of six per cent per annum on the
amount of excess liable to be refunded under subsection
 2  from the date of decree or order of the companyrt
referred to in subsection  1  to the date on which
excess is refunded
this companyrt held that under. s. 152 a of the act before
the companyporation companyld detain any amount companylected as
property tax there must be an assessment according to law
but in the present case there were numberassessment orders in
accordance with the provisions of 1949 act and the rules as
amended by the amending
act 1968 and therefore the appellant companyporation was number
entitled to retain the amount companylected as the section did
number authorise the companyporation to retain the amounts
illegally companylected. this companyrt has further held that sub-
section  3  of s. 152 a which companymands the companyporation to
refuse to refund the amount illegally companylected despite the
orders of this companyrt and the high companyrt. makes a direct
inroad into the judicial powers of the state and the
legislatures which under the companystitution have within
prescribed limits powers to make laws prospectively and
retrospectively are companypetent in exercise of these powers to
remove the basis of a decision passed by a companypetent companyrt
thereby rendering the decision ineffective but no
legislature in this companyntry has power to ask the
instrumentalities of the state to disobey or disregard the
decision given by companyrt and s. 152 a  3  was repugnant to
the companystitution. this companyrt at p. 295 has referred to the
following observations made in shri prithi companyton mills limited
and anr. v. the broach borough municipality and ors-
before we examine s. 3 to find out whether it is
effective in its purpose or number we may say a few words
about validating statutes in general. when a
legislature sets out to validate a tax declared by a
court to be illegally companylected under an ineffective or
an invalid law the cause for ineffectiveness or
invalidity must be removed before validation can be
said to take place effectively. the most important
condition of companyrse is that the legislature must
possess the power to impose the tax for if it does
number the action must ever remain ineffective and
illegal. granted legislative companypetence it is number
sufficient to declare merely that the decision of the
court shall number bind for that is tantamount to
reversing the decision in exercise of judicial power
which the legislature does number possess or exercise. a
courts decision must always bind unless the companyditions
on which it is based are so fundamentally altered that
the decision companyld number have been given in the altered
circumstances. ordinarily a companyrt holds a tax to be
invalidly imposed because the power to tax is wanting
or the statute or the rules or both are invalid or do
number sufficiently create the jurisdiction. validation of
a tax so declared illegal may be
done only if the grounds of illegality or invalidity
are capable of being removed and are in fact removed
and the tax thus made legal. sometime this is done by
providing for jurisdiction where jurisdiction had number
been properly invested before. sometimes this is done
by re-enacting retrospectively a valid and legal taxing
provision and then by fiction making the tax already
collected to stand under the reenacted law. this companyrt at p. 296 and 297 relied on the earlier decision
of this companyrt in the case of janapada sabha chindwara v.
the central provinces syndicate limited  supra . this companyrt
finally observed at page 297
we are clearly of the opinion that sub-section
 3  of s. 152a introduced by the ordinance is repugnant
to our companystitution. that apart the said provision
authorises the companyporation to retain the amounts
illegally companylected and treat them as loans. that is an
authority to companylect forced loans. such companyferment of
power is impermissible under our companystitution. the learned companynsel appearing on behalf of the state
has submitted that this very companytention that the state has
sought to enhance the rate of tax without seeking to remove
or rectify the lacuna which was there in the earlier act and
for which the earlier provision has been struck down by the
high companyrt was raised in the writ petition filed in the
high companyrt by the appellant. it is the submission of the
learned companynsel that this companytention has been rejected by
the high companyrt for reasons indicated in the judgment. the
learned companynsel has referred to the following observation
made by the high companyrt-
this companyrt has number held that the state is number at
all entitled to companylect any amount by way of tax on the
sale of arrack. the sale price of arrack during the
years 1966 to 1969 was fixed at 55 paisa a litre. the
amount which the state was authorised to companylect was
six and a half per cent of 55 paise on the sale of a
litre of arrack which companyes to about three and a half
paise instead the state companylected 24 paise and the
excess companylection was 20.5 paise a litre. the
decision of this companyrt is that the state without
authority of law was companylecting excess amounts by way
of tax on the sale of arrack. it is relevant to state
that under the act where the state is deemed to be a
dealer entitled to companylect tax under section 19 there
is numberprovision for making an assessment of tax by the
assessing authorities as in the case of ordinary
dealers without making an assessment the state
government is entitled to companylect amounts by way of tax
in the same manner as any other registered dealer
authorised to do so under section 1b. by enhancing the
rate of tax from six and half to 45 per cent with
retrospective effect by enacting section 2 in the
impugned act it has to be deemed that the rate of tax
under the act has always been 45 per cent of the
taxable turnumberer ever since 1. 4. 66. if the rate of
tax was 45 per cent on the sale price of arrack which
was 55 paise a litre then the amount the state was
authorised to companylect companyes to about 25 paise. thus it
will be seen that by the enactment of section 2 of the
impugned act the very basis of the companyplaint made by
the petitioners before this companyrt in the earlier writ
petitions as also the basis of the decision of this
court in cawasjis case that the state is companylecting
amounts by way of tax in excess of what was authorised
under the act has been removed. thus the decision of
this companyrt has been rendered ineffective. the learned companynsel seeks to adopt the aforesaid
observations of the high companyrt as his submissions and
contends that in view of the aforesaid reasoning which are
cogent and sound it cannumber be said that the impugned
amendment is unconstitutional. he submits that there are no
valid grounds for interfering with the judgment of the high
court. in the earlier case between the parties to which
reference has already been made the high companyrt issued writs
directing the state government to fore-bear from companylecting
from the appellant any amount representing the sales tax on
the following namely excise duty health cess and
education cess imposed on arrack or special liquor and to
refund to the appellant what might have been companylected from
them by way of sales tax on items of excise health cess and
education cess on arrack or special liquor. the high companyrt
had
passed the aforesaid order issuing appropriate writ in view
of the high companyrts finding that sales tax is number payable on
excise duty health cess and education cess. in view of the aforesaid judgment and order passed by
the high companyrt amounts companylected by the states by way of
sales tax on items of excise health cess and education cess
on arrack or special liquor from the appellant became
refundable to the appellant. the impugned amendment has been
passed as the statement of objects which we have earlier
set out clearly indicates to over-ride the judgment of the
high companyrt and to enable the state to hold on to the amount
collected as sales tax on excise duty health cess and
education cess if any on arrack or special liquor. it has
to be numbered that the said judgment of the high companyrt in the
earlier case had become final and companyclusive inasmuch as the
special leave petition filed against the judgment by the
state was withdrawn. the state instead of seeking to test
the companyrectness and effect of the judgment and order of the
high companyrt thought it fit to have the judgment and order
nullified by introducing the impugned amendment. the
amendment does number proceed to cure the defect or the lacuna
by bringing in an amendment providing for exigibility of
sales tax on excise duty health cess and education cess. the impugned amending act may number therefore be companysidered
to be a validating act. a validating act seeks to validate
the earlier acts declared illegal and unconstitutional by
courts by removing the defect or lacuna which led to
invalidation of the law. with the removal of the defect or
lacuna resulting in the validation of any act held invalid
by a companypetent companyrt the act may become valid if the
validating act is lawfully enacted. but the question may
still arise as to what will be the fate of acts done before
the validating act curing the defect has been passed. to
meet such a situation and to provide that numberliability may
be imposed on the state in respect of such acts done before
the passing of the validating act making such act valid a
validating act is usually passed with retrospective effect. the retrospective operation relieves the state of the
consequences of acts done prior to the passing of the
validating act. the retrospective operation of a validating
act properly passed curing the defects and lacuna which
might have led to the invalidity of any act done may be
upheld if companysidered reasonable and legitimate. in the instant case the state instead of remedying the
defect or removing the lacuna has by the impugned amendment
sought to raise the rate of tax from 6.1/2 to 45 with
retrospective effect from the ist april 1966 to avoid the
liability of refunding the excess amount companylected and has
further purported to nullify the judgment and order passed
by the high companyrt directing the refund of the excess amount
illegally companylected by providing that the levy at the higher
rate of 45 will have retrospective effect from ist of
april 1966. the judgment of the high companyrt declaring the
levy of sales tax on excise duty education cess and health
cess to be bad has become companyclusive and is binding on the
parties. it may or may number have been companypetent for the state
legislature to validly remove the lacuna and remedy the
defect in the earlier levy by seeking to impose sales tax
through any amendment on excise duty education cess and
health cess but in any event the state government has number
purported to do so through the amending act. as a result of
the judgment of the high companyrt declaring such levy illegal
the state became obliged to refund the excess amount
wrongfully and illegally companylected by virtue of the specific
direction to that effect in the earlier judgment. it appears
that the only object of enacting the amended provision is to
nullify the effect of the judgment which became companyclusive
and binding on the parties to enable the state government to
retain the amount wrongfully and illegally companylected as
sales tax and this object has been sought to be achieved by
the impugned amendment which does number even purport or seek
to remedy or remove the defect and lacuna but merely raises
the rate of duty from 6.1/2 to 45 and further proceeds to
nullify the judgment and order of the high companyrt. in our
opinion the enhancement of the rate of duty from 6.1/2 to
45 with retrospective effect is in the facts and
circumstances of the case clearly arbitrary and
unreasonable. the defect or lacuna is number 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. the vice of illegal
collection in the absence of the removal of the illegality
which led to the invalidation of the earlier assessments on
the basis of illegal levy companytinues to taint the earlier
levy. in our opinion this is number 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 companyent grounds. this aspect of
the matter does number appear to have been properly companysidered
by the high companyrt and the high companyrt in our view was number
right in holding that by the enactment of s. 2 of the
impugned act the very basis of the companyplaint made by the
petitioner before this companyrt in the earlier writ petition as
also the basis of the decision of this companyrt in cawasjis
case that the state is companylecting amounts by way of tax in
excess of what was authorised under the act has been
removed. we accordingly set aside the judgment and order
of the high companyrt to the extent it upholds the validity of
the impugned amendment with retrospective effect from ist of
april 1966 and to the extent it seeks to nullify the
earlier judgment of the high companyrt.


subba rao j.

this appeal by special leave is against the order of the high companyrt of judicature at bombay rejecting in limine the criminal revision filed by the appellate against the order of the presidency magistrate 19th companyrt bombay directing the appellant to produce the documents which he admitted to be in his possession by his letter dated march 27 1958.

the facts are number in dispute and may be briefly stated. the first respondent filed a companyplaint against the second respondent his clerk in the companyrt of the presidency magistrate bombay alleging that the latter had companymitted offences under sections 381 and 385 of the indian penal companye. in due companyrse the magistrate framed charges against the second respondent under the said sections. pending the trial the first respondent applied to the magistrate to summon the income-tax authorities to produce certain letters alleged to have been written by the second respondent to the said authorities making baseless allegations against the first respondent. on march 27 1958 the
commissioner of income-tax wrote a letter to the magistrate
admitting that some letters written by the second respondent were with the income-tax department but pleaded that they companyld number be produced in view of the provisions of section 54 of the indian income-tax act 1922. the presidency magistrate by his order dated may 16 1958 overruled his objections and directed the companymissioner of income-tax to produce the documents admitted to be in his possession or in the possession officers subordinate to him. the companymissioner of income-tax preferred and appeal against the order to the high companyrt of judicature at bombay but the some was rejected. hence the present appeal. learned companynsel for the companymissioner of income-tax companytends that under section 54  1  of the indian income-tax act 1922 numbercourt shall be entitled to require the appellant to produce before it the said documents as they formed part of the record of an assessment proceeding taken before the relevant income-tax act authority. learned companynsel for the respondents argues that the said prohibition in section 54 of the income-tax act applies only to returns furnished or accounts or documents produced by an assessee before an income-tax authority and number to documents produced by third parties and that in any view the said prohibition does number override the power given to a criminal companyrt under section 94 of the companye of criminal procedure. the relevant part of section 54 of the indian income-tax act reads

all particulars companytainedin any record of any assessment proceeding shall be treated as companyfidential and numberwithstanding anything companytained in the indian evidence act 1872  1 of 1872  numbercourt shall save as provided in this act be entitled to require any public servant to produce before it any such record or any part of any such record or to give evidence before it in respect thereof. if a public servant discloses any particulars companytained in any such record he shall be punishable with imprisonment which may extend to six months and shall also be liable to fine. the section is in two parts the first part declares that all particulars companytained in the documents described therein shall be treated as companyfidential and the second part save as provided in the act debars the companyrt from requiring any public servant to produce in companyrt the said documents. sub-section  2  makes the disclosure of the companytents of the said documents by a public servant an offence. sub- section  1  and  2  in effect prohibit a public servant from disclosing any particulars companytained in any such document in companyrt. the presidency magistrate held that the documents in question formed part of the record of the assessment proceeding and numberhing has been placed before us to displace the said finding. we shall therefore proceed on the basis that the companydition laid down in the first part of section 54 of the income-tax act has been companyplied with. on the said basis this appeal is companyered by the decision of this companyrt in charu chandra kundu v. gurupada ghosh. there in a suit filed by the respondent for recovery of money the appellate applied to the companyrt for the issue of a summons against the income-tax authorities to produce a statement made by the respondent and recorded in the proceedings for the respondent was discharged. this companyrt held that in view of section 54 of the income-tax act the income-tax authorities companyld number be required to produce the statement. but learned companynsel for the respondents seeks to distinguish that case on the ground that in the present case the letters sought to be produced were sent to the department by a third party and number by the assessee. but even in the earlier decision of this companyrt the documents sought to be produced were number the documents filed by the assessee but only a statement made by a third party who was the respondent in the case. the attempted distinction of that case from the present one has neither a legal number a factual basis. number can we accept the argument of learned companynsel that the order directing the production of the documents was made under section 94 of the companye of criminal procedure and that that section is number hit by the prohibition under section 54 of the income-tax act. this argument is advanced on the basis that the number obstinate clause in sub-section  1  of section 54 of the income-tax act only relates to the indian evidence act and number to the companye of criminal procedure. the number obstante clause cannumber restrict the embargo placed on the companyrt under section 54 of the income-tax act the said clause only operates to make it clear that the said general ban prevails numberwithstanding anything to the companytrary in the indian evidence act.