In the Indian Aluminium Co. and others v. State of Kerala and others [(1996) 7 SCC 637], there is a long discussion coupled with a large number of judgments on validation acts. Cawasji‘s case was dealt with in para 52 in the following terms:
“In D. Cawasji & Co. v. State of Mysore the High Court in a writ filed by the appellant had held that the State Government was devoid of power under Section 19 of the Sales Tax Act to collect sales tax and excise duty which is not a part of the selling price. Mandamus for refund was issued. Appeal filed in this Court was withdrawn and the Sales Tax (Amendment) Act was enacted enhancing sales tax from original 6 per cent to 45 per cent with retrospective effect. Section 3 validated the previous assessments. This Court struck down the amendment so far as it related to retrospectivity pointing out that the lacuna pointed out by the court was not cured and the judgment could not be nullified by legislative amendment.”
Finally, a number of principles were laid down in para 56 as follows: –
“From a resume of the above decisions the following principles would emerge:
(1) The adjudication of the rights of the parties is the essential judicial function. Legislature has to lay down the norms of conduct or rules which will govern the parties and the transactions and require the court to give effect to them;
(2) The Constitution delineated delicate balance in the exercise of the sovereign power by the legislature, executive and judiciary;
(3) In a democracy governed by rule of law, the legislature exercises the power under Articles 245 and 246 and other companion articles read with the entries in the respective lists in the Seventh Schedule to make the law which includes power to amend the law.
(4) Courts in their concern and endeavour to preserve judicial power equally must be guarded to maintain the delicate balance devised by the Constitution between the three sovereign functionaries. In order that rule of law permeates to fulfil constitutional objectives of establishing an egalitarian social order, the respective sovereign functionaries need free play in their joints so that the march of social progress and order remains unimpeded. The smooth balance built with delicacy must always be maintained;
(5) In its anxiety to safeguard judicial power, it is unnecessary to be overzealous and conjure up incursion into the judicial preserve invalidating the valid law competently made;
(6) The court, therefore, needs to carefully scan the law to find out; (a) whether the vice pointed out by the court and invalidity suffered by previous law is cured complying with the legal and constitutional requirements; (b) whether the legislature has competence to validate the law; (c)whether such validation is consistent with the rights guaranteed in Part III of the Constitution.
(7) The court does not have the power to validate an invalid law or to legalise impost of tax illegally made and collected or to remove the norm of invalidation or provide a remedy. These are not judicial functions but the exclusive province of the legislature. Therefore, they are not encroachment on judicial power.
(8) In exercising legislative power, the legislature by mere declaration, without anything more, cannot directly overrule, revise or override a judicial decision. It can render judicial decision ineffective by enacting valid law on the topic within its legislative field fundamentally altering or changing its character retrospectively. The changed or altered conditions are such that the previous decision would not have been rendered by the court, if those conditions had existed at the time of declaring the law as invalid. It is also empowered to give effect to retrospective legislation with a deeming date or with effect from a particular date. The legislature can change the character of the tax or duty from impermissible to permissible tax but the tax or levy should answer such character and the legislature is competent to recover the invalid tax validating such a tax on removing the invalid base for recovery from the subject or render the recovery from the State ineffectual. It is competent for the legislature to enact the law with retrospective effect and authorise its agencies to levy and collect the tax on that basis, make the imposition of levy collected and recovery of the tax made valid, notwithstanding the declaration by the court or the direction given for recovery thereof.
(9) The consistent thread that runs through all the decisions of this Court is that the legislature cannot directly overrule the decision or make a direction as not binding on it but has power to make the decision ineffective by removing the base on which the decision was rendered, consistent with the law of the Constitution and the legislature must have competence to do the same.”
We are concerned in this case directly with principles 8 and 9. On facts, the judicial decision in Cardoza‘s case has been rendered ineffective by enacting a valid law on a topic within the legislative field which fundamentally alters or changes the character of legislation retrospectively. The changed or altered conditions are such that the previous decision would not have been rendered by the court if those conditions had existed at the time of declaring the law as invalid. The legislature has not directly over-ruled the decision of any court but has only rendered, as has been stated above, such decision ineffective by removing the basis on which the decision was arrived at.
Learned counsel for the respondent cited three decisions before us. Panchi Devi v. State of Rajasthan and others [(2009) 2 SCC 589], para 9 was cited before us for the proposition that a delegated legislation being ordinarily prospective in nature should not be interpreted to give a retrospective effect to take away a right or liability which was created for the first time. In the present case, we are concerned with an Act of the Legislature and not delegated legislation. No right or liability is created for the first time – the only thing done in the present case is that a firm is by fiction of law continued as such for certain purposes of assessment even after its dissolution. Equally, no question of interpretation qua retrospectivity arises. The legislature in the present case has expressly made the impugned provision retrospective. On all these counts, this judgment is distinguishable and would not apply at all here.
It was then contended based on Tata Motors Ltd. v. State of Maharashtra and others [(2004) 5 SCC 783] from para 12 thereof, that withdrawal with retrospective effect of relief properly granted by statute to an assessee which the assessee has lawfully enjoyed as a vested statutory right cannot be taken away unless there be strong and exceptional circumstances justifying the said withdrawal. On facts again, this judgment does not apply. There is no withdrawal of any right which has become a vested statutory right which deprives an assessee of anything in the present case. As has been noted above, what was taxable in the hands of a recipient assessee is now taxable in the hands of a dissolved firm post-dissolution only for certain purposes. This judgment also therefore, cannot have any application in the present factual scenario.
Lastly, the judgment in Hardev Motor Transport v. State of M. P. and others [(2006) 8 SCC 613] was cited before us. Para 31 thereof was read out in support of the proposition that by inserting an explanation in a statute, the main provision of the Act cannot be defeated or enlarged. Applying this test to the present case, it is clear that in 1997 both the main provision, that is Section 26(4), as well as explanation were added retrospectively. The main provision has been expanded to include dissolved firms and the explanation creates a legal fiction in furtherance of the main provision by deeming a dissolved firm to be in existence as an assessee for certain purposes. This being the case, this judgment would also have no application to the present factual scenario.