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State Of Uttar Pradesh And Others v. Mahindra And Mahindra Limited .
Factual and Procedural Background
The case concerns the applicability of a sales-tax exemption granted by the State of Uttar Pradesh to tractors “with power take-off horsepower (Ptohp) not exceeding 25”. The chronology is as follows:
- 16-4-1985 & 17-7-1985 – The Government of India issued two Central Excise notifications limiting exemption first to “drawbar horsepower not exceeding 25” and then to “power take-off horsepower not exceeding 25”.
- 12-9-1986 – The Uttar Pradesh Government, invoking Section 4 of the U.P. Sales Tax Act, 1948, adopted the same 25-Ptohp ceiling for state tax purposes, with the additional condition that the tractors must also be exempt from Central excise duty.
- A survey by the Sales Tax Department revealed that the respondent’s tractors were described as 30 horsepower. A show-cause notice was issued and, after the respondent’s reply, an assessment order dated 21-3-1992 denied the exemption.
- The respondent did not challenge the assessment order but instead filed a writ petition in the Allahabad High Court asking that the State notification be “modified” so that the criterion became cubic-capacity (not exceeding 1800 cc) in line with a Central notification dated 28-2-1987.
- The High Court allowed the writ and directed that “25 Ptohp” be read as “1800 cc”, thereby extending the sales-tax exemption to the respondent.
- The State appealed to the Supreme Court. Meanwhile, a first appeal and a second appeal before the Sales-tax Tribunal were decided in the respondent’s favour because they followed the High Court ruling.
Legal Issues Presented
- Whether a High Court, in exercise of its writ jurisdiction, can compel the executive to alter or re-word a subordinate legislative instrument (a tax-exemption notification).
- Whether the phrase “tractors with power take-off horsepower not exceeding 25” in the 12-9-1986 Uttar Pradesh notification can be judicially read as “tractors with engine capacity not exceeding 1800 cc”.
Arguments of the Parties
Appellant’s Arguments
- The High Court lacked jurisdiction to direct the executive to amend or reframe subordinate legislation; such a direction violates the separation of powers.
- Courts cannot mandate a legislative or rule-making body to enact or alter a law (Narinder Chand Hem Raj; Supreme Court Employees' Welfare Assn.; Bal Ram Bali; Municipal Committee Patiala).
- Exemption clauses in fiscal statutes require strict interpretation; therefore the wording “25 Ptohp” cannot be expanded to “1800 cc” (Bhai Jaspal Singh; Hari Chand Shri Gopal; Novopan India).
Respondent’s Position
- The respondent sought parity with the Central excise regime that uses “1800 cc” as the exemption threshold and asserted that its tractors fall below the 25-Ptohp limit.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Supreme Court Employees' Welfare Assn. v. Union of India (1989) 4 SCC 187 | Court cannot compel enactment of legislation or subordinate legislation. | Used to show that the High Court exceeded its authority by rewriting the notification. |
| Bal Ram Bali v. Union of India (2007) 6 SCC 805 | Reinforces limits on judicial directions to the legislative/executive branches. | Cited to invalidate the High Court’s mandate. |
| Municipal Committee, Patiala v. Model Town Residents Assn. (2007) 8 SCC 669 | Separation of powers and limits on judicial law-making. | Supports the view that the High Court’s order constituted impermissible judicial legislation. |
| Narinder Chand Hem Raj v. UT, H.P. (1971) 2 SCC 747 | No court can direct a legislature or subordinate rule-making body to enact or refrain from enacting a tax law. | Quoted at length to underscore lack of judicial power to alter tax notifications. |
| Bhai Jaspal Singh v. CCT (2011) 1 SCC 39 | Strict interpretation of tax-exemption clauses. | Emphasised that wording of exemption must be followed literally. |
| CCE v. Hari Chand Shri Gopal (2011) 1 SCC 236 | Strict construction of exemption notifications. | Bolstered the conclusion that “25 Ptohp” cannot be judicially replaced. |
| Novopan India Ltd. v. CCE & Customs 1994 Supp (3) SCC 606 | Exemption must be interpreted solely on the language employed. | Cited to reject any “intendment” beyond the notification’s plain words. |
Court's Reasoning and Analysis
The Supreme Court anchored its analysis on the constitutional doctrine of separation of powers. It noted that:
- The power to levy or exempt taxes is a legislative function. Even when delegated, it remains legislative in character.
- Judicial review permits courts to invalidate subordinate legislation that is ultra vires, but not to rewrite it. Directing the executive to “substitute” or “add” words amounts to judicial legislation.
- The High Court’s directive effectively re-crafted the 12-9-1986 Uttar Pradesh notification, an act outside judicial competence.
- Exemption notifications in tax statutes must receive a strict, literal interpretation. The words “25 Ptohp” are clear and cannot be judicially converted into an “1800 cc” standard on considerations of equity or parity.
- Because the Sales-tax Tribunal’s later order merely followed the now-reversed High Court judgment, its decision also falls.
- The appropriate course is to restore the statutory framework as it existed and remand the factual dispute—whether the respondent’s tractors actually fall within the 25-Ptohp cap—to the competent appellate authority.
Holding and Implications
APPEAL ALLOWED; High Court judgment, Tribunal order, and first-appellate order set aside. Matter remitted to the first appellate authority for fresh decision on the existing 12-9-1986 notification.
Implications: The decision reaffirms that courts cannot legislate or compel the executive to amend subordinate legislation, particularly in fiscal matters requiring strict construction. The parties may lead additional evidence before the appellate authority to establish factual eligibility for exemption, but no new legal standard has been created.
Order
1. Leave granted. We have heard the learned counsel appearing for the parties in this appeal, which is filed challenging the legality of the judgment and order passed by the Allahabad High Court in a writ petition filed by the respondent, praying for issuance of a writ of mandamus to read in the exemption notification, the words “Tractor engine specifying cubic capacity (cc) of the tractor engine not exceeding 1800 cc”.
2. The Government of India had issued Notification on 16-4-1985, making an amendment in the notification of the Government of India in respect of the Table annexed to the notification, inserting by way of substitution the words “Tractors of drawbar horsepower not exceeding 25”. Another Notification was subsequently issued by the Government of India on 17-7-1985, substituting the words “drawbar” with the words “power take-off horsepower”. Be it stated here that all such notifications relate to the payment of excise duty.
3. The Government of Uttar Pradesh, however, for the purpose of levy of sales tax issued a Notification on 12-9-1986, in which it was stated that under Section 4 of the Uttar Pradesh Sales Tax Act, 1948, tractors with power take-off horsepower not exceeding 25 would stand exempted from payment of tax under the Sales Tax Act, subject, however, to the condition that the said tractors are exempted from payment of Central excise duty.
4. A show-cause notice was issued to the respondent from the Office of the Assistant Commissioner (Assessment) I, Sales Tax, Lucknow, stating therein that at the time of survey made, and as per the literature made available it was found that the horsepower of the tractors of the respondent had been disclosed as 30 hp. In the aforesaid show-cause notice it was stated that in view of the facts mentioned in the said notice, the respondent may submit a reply as to why the return filed by the respondent should not be rejected and a provisional assessment order for the period in question may not be completed under Rule 41(5) of the Rules.
5. Pursuant to the aforesaid show-cause notice issued, a detailed reply was filed by the respondent. The assessment officer considered the entire records and, thereafter, by his order dated 21-3-1992, passed an assessment order on the basis of the contents of the Notification dated 12-9-1986, denying exemption from payment of sales tax to the tractors of the respondent.
6. After the aforesaid assessment order was passed, the respondent filed a writ petition before the Allahabad High Court with the following reliefs:
“1. A writ of certiorari or any other suitable writ, order or direction be issued to modify or amend, the notification so as to bring in conformity with the Central Government and conformity in respect of measuring strength of engine by all manufacturers as contained in Annexure 1 to this writ petition.
2. A writ of mandamus directing Opposite Party 2 to clearly state in the said notification the basis of exemption being cubic capacity of the tractor engine not exceeding 1800 cc for exemption for sales tax in place of 25 Ptohp, and directing Opposite Party 2 to exempt the petitioners' tractor engine and specify the cc (cubic capacity) of the tractor engine not exceeding 1800 cc. And bring it on a par with Circular No. 89/87.CE dated 1-3-1987 issued by the Central Government to clear the anomaly and ambiguity in both the circulars, which creates discrimination among manufacturers of fuel-efficient engines and rest ones, and refrain Opposite Party 2 to desist from recovering disputed sales tax of Rs 2,34,00,965.400 from April 1991 to February 1992 created by Annexure II dated 21-3-1991, and stay operation thereof.”
7. Interestingly, in the said writ petition there was no challenge to the assessment order passed. Be that as it may, the Division Bench of the Allahabad High Court proceeded to hear the aforesaid writ petition and by a detailed order passed held that since the Central Government has by Notification dated 28-2-1987, replaced the word “25 Ptohp” by the word “1800 cc” and thereby exempted the tractor having capacity not exceeding 1800 cc from excise duty, the same wordings, namely, “Tractors with power take-off horsepower not exceeding 25” should also be read as “Tractors not exceeding 1800 cc”, which would stand exempted from levy of sales tax. The aforesaid findings recorded by the High Court are under challenge in this appeal.
8. The first contention of the counsel appearing for the appellant is that there is no power vested in the High Court to issue such a direction to the executive to reframe the subordinate legislation, and that therefore the High Court exceeded its jurisdiction by issuing such directions in a field where the High Court cannot and should not tread. In support of the said contention, the counsel has relied upon the decisions of this Court in Supreme Court Employees' Welfare Assn. v. Union of India (1989) 4 SCC 187, Bal Ram Bali v. Union of India (2007) 6 SCC 805 and Municipal Committee, Patiala v. Model Town Residents Assn. (2007) 8 SCC 669 as also the decision in Narinder Chand Hem Raj v. UT, H.P (1971) 2 SCC 747 wherein this Hon'ble Court held as follows: (Narinder Chand case (1971) 2 SCC 747)
“7. … The power to impose tax is undoubtedly a legislative power. That power can be exercised by the legislature directly or subject to certain conditions the legislature may delegate that power to some other authority. But the exercise of that power, whether by the legislature or by its delegate is an exercise of a legislative power. The fact that the power was delegated to the executive does not convert that power into an executive or administrative power. No court can issue a mandate to a legislature to enact a particular law. Similarly no court can direct a subordinate legislative body to enact or not to enact a law which it may be competent to enact. … Article 265 of the Constitution lays down that no tax can be levied and collected except by authority of law. Hence the levy of a tax can only be done by the authority of law and not by any executive order. Unless the executive is specifically empowered by law to give any exemption, it cannot say that it will not enforce the law as against a particular person. No court can give a direction to a Government to refrain from enforcing a provision of law.”
9. In Supreme Court Employees' Welfare Assn. v. Union of India (1989) 4 SCC 187, this Court stated as follows:
“51. There can be no doubt that no court can direct a legislature to enact a particular law. Similarly, when an executive authority exercises a legislative power by way of subordinate legislation pursuant to the delegated authority of a legislature, such executive authority cannot be asked to enact a law which he has been empowered to do under the delegated legislative authority.”
10. Within our Constitution, we have specifically demarcated the ambit of power and the boundaries of the three organs of the society by laying down the principles of separation of powers, which is being adhered to for carrying out democratic functioning of the country. So far as the legislation is concerned, the exclusive domain is with the legislature. Subordinate legislations are framed by the executive by exercising the delegated power conferred by the statute, which is the rule-making power. The judiciary has been vested with the power to interpret the aforesaid legislations and to give effect to them since the parameters of the jurisdiction of both the organs are earmarked. Therefore, it is always appropriate for each of the organs to function within its domain. It is inappropriate for the courts to issue a mandate to legislate an Act and also to make a subordinate legislation in a particular manner. In this particular case, the High Court has directed the subordinate legislation to substitute wordings in a particular manner, thereby assuming to itself the role of a supervisory authority, which according to us, is not a power vested in the High Court.
11. It is also by now settled law that so far as exemption clauses are concerned, there should be strict interpretation of the same as has been held by this Court repeatedly. Suffice will be to refer to very recent decisions of this Court in Bhai Jaspal Singh v. CCT (2011) 1 SCC 39 and CCE v. Hari Chand Shri Gopal (2011) 1 SCC 236. We would also extract a passage from the decision of the Supreme Court in Novopan India Ltd. v. CCE and Customs 1994 Supp (3) SCC 606 wherein this Court has held that:
“16. … such a notification has to be interpreted in the light of the words employed by it and not on any other basis. This was so held in the context of the principle that in a taxing statute, there is no room for any intendment, that regard must be had to the clear meaning of the words and that the matter should be governed wholly by the language of the notification i.e by the plain terms of the exemption.”
12. During the course of the arguments, it was also brought to our notice that subsequent to the order of assessment, an appeal was filed, which came to be dismissed, subsequent to which a second appeal was filed before the Tribunal, which allowed the appeal giving effect to the orders of the High Court. Since, in our considered opinion, the High Court exceeded its jurisdiction in passing the aforesaid orders and in issuing the directions for inserting certain additional words into the notification of exemption issued by the Uttar Pradesh Government, we set aside the impugned judgment and order passed by the High Court and also the order passed by the Tribunal. As the Tribunal had given effect to the order of the High Court, the order of the Tribunal is hereby set aside. Even otherwise courts can always take notice of the subsequent events and developments that had taken place subsequent to the filing of the writ petition or filing of the special leave petition and it is also within the jurisdiction of this Court to pass consequential orders to give effect to the remedies available to the parties.
13. Considering these facts and circumstances from the aforesaid angle, we, after setting aside the order passed by the High Court and also by the Tribunal as also by the first appellate court, remit the matter to the first appellate court to consider the matter de novo taking into consideration the notification as existing and which was issued on 12-9-1986, and decide the matter without making any addition/alteration thereto.
14. However, the counsel appearing for the respondent has submitted before us that it would be possible for the respondent to prove and establish that the tractor manufactured by the respondent is below 25 Ptohp. If certain exemption is available on the factual aspect, such benefit must be provided to an assessee but that is possible only when the respondent is able to prove and establish with cogent and reliable materials that he is entitled to the benefit of the exemption notification. Therefore, we allow the parties to lead additional evidence before the appellate authority, which shall be allowed to be filed within four weeks from their date of appearance and, thereafter, the appellate authority shall proceed to decide the matter de novo in the light of the records available and also in the light of the exemption notification.
15. This appeal stands allowed to the aforesaid extent as indicated and leave the parties to bear their own costs. The parties shall appear before the appellate authority on 2-5-2011, for obtaining further dates in the appeal. We also request the appellate authority to take up the matter and dispose of the same as expeditiously as possible, preferably within a period of three months from the date of receipt of the additional evidence, if produced by the parties.
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