A stipulation in an agreement to sell requiring refund of earnest money if the sale deed is not executed does not, by itself, confer upon the defaulting vendor an option to avoid performance or bar the remedy of specific performance. Under Section 23 of the Specific Relief Act, the Court must ascertain whether payment of money was intended as a substitute for contractual performance; absent such intention, the purchaser remains entitled to specific performance. Further, the High Court, while exercising jurisdiction under Section 100 CPC, cannot reappreciate evidence or disturb concurrent findings of fact regarding execution of the agreement, readiness and willingness, and rejection of the defence of fraud, unless such findings are shown to be perverse or unsupported by evidence.

 

2026 INSC 700

Jaspal Singh v. Ashwani Kumar

HEAD NOTES 

A. Specific Relief Act, 1963 — Section 23 — Agreement to Sell — Earnest money clause — Specific performance.

Held, a clause providing that the vendor shall refund the earnest money if the sale deed could not be executed does not by itself confer upon the vendor an option to avoid the contract. Unless the agreement clearly provides that payment of money is intended to be a substitute for performance, the purchaser remains entitled to seek specific performance.

---

B. Contract — Construction of agreement — Refund clause.

Held, the true test is whether the contract gives the defaulting party an election either to perform the contract or merely to pay money in lieu of performance. A clause requiring refund of earnest money merely secures performance and does not extinguish the remedy of specific performance.

---

C. Code of Civil Procedure, 1908 — Section 100 — Scope of Second Appeal.

Held, the High Court cannot reappreciate evidence or interfere with concurrent findings of fact unless such findings are shown to be perverse, based on no evidence, or arrived at by ignoring material evidence. The First Appellate Court remains the final court on facts.

---

D. Specific Performance — Readiness and willingness — Concurrent findings.

Held, where the Trial Court and the First Appellate Court concurrently hold that execution of the agreement and the purchaser's readiness and willingness stand proved, the High Court cannot reopen such findings in second appeal without recording perversity.

---

E. Fraud — Burden of proof.

Held, a plea that signatures were obtained on blank papers and subsequently converted into an agreement to sell must be strictly proved. Mere allegations or suspicion, unsupported by handwriting evidence or other convincing material, cannot displace a duly proved written agreement.

---

F. Agreement to Sell — Undivided share of co-owner.

Held, an undivided share of a co-owner in immovable property is a valid subject matter of transfer. Joint ownership of the property or non-joinder of the co-owner in the agreement does not render the transaction suspicious or unenforceable.

---

G. Extension of time — Effect.

Held, consensual extension of time for execution of the sale deed is consistent with the parties' continuing intention to complete the transaction and cannot, by itself, be treated as evidence that the agreement is sham or fictitious.

---

H. Specific Relief — Equitable relief.

Held, once a valid agreement, readiness and willingness of the purchaser, and absence of any legal bar are established, specific performance ought not to be refused on conjectures or circumstances inconsistent with concurrent findings of fact.

---

Analysis of Facts

The appellant entered into an Agreement to Sell dated 22 June 2003 with the respondent for purchase of the respondent's half share in immovable property for a consideration of ₹12.50 lakh and paid ₹9 lakh as earnest money.

The parties twice extended the time for execution of the sale deed. The appellant appeared before the Sub-Registrar on the stipulated dates, but the respondent failed to execute the sale deed.

The appellant instituted a suit for specific performance.

The respondent denied execution of the agreement and alleged that his signatures had been obtained on blank papers as security for a proposed travel arrangement and were subsequently converted into an Agreement to Sell.

The Trial Court accepted execution of the agreement but declined specific performance, holding that the agreement merely entitled the purchaser to refund of earnest money.

The First Appellate Court reversed the decree and granted specific performance.

The High Court, in second appeal, restored the Trial Court's decree by holding that the agreement did not contemplate specific performance and by drawing adverse inferences from surrounding circumstances.

The Supreme Court allowed the appeal, restored the decree for specific performance and held that the High Court had exceeded its jurisdiction under Section 100 CPC by reappreciating concurrent findings of fact without recording perversity.

---

Analysis of Law

The Supreme Court laid down the following principles:

1. Section 23 of the Specific Relief Act permits specific performance notwithstanding a clause providing for payment or refund of money upon breach.

2. The decisive test is whether the contract confers an option to substitute payment for performance.

3. A clause providing refund of earnest money ordinarily secures performance and does not create an option to rescind the contract.

4. The First Appellate Court is the final court on facts.

5. In a second appeal under Section 100 CPC, the High Court may interfere with concurrent findings only upon demonstrating perversity or substantial legal error.

6. Allegations of fraud must be proved by cogent evidence and cannot rest upon suspicion or conjecture.

7. Transfer of an undivided share by a co-owner is legally recognised and does not affect the validity of an agreement to sell.

8. Mutually agreed extensions of time ordinarily reinforce the parties' intention to complete the sale rather than undermine the genuineness of the transaction.

9. Once execution of the agreement, readiness and willingness, and absence of any legal impediment are established, specific performance should ordinarily follow.

---

Ratio Decidendi

A stipulation in an agreement to sell requiring refund of earnest money if the sale deed is not executed does not, by itself, confer upon the defaulting vendor an option to avoid performance or bar the remedy of specific performance. Under Section 23 of the Specific Relief Act, the Court must ascertain whether payment of money was intended as a substitute for contractual performance; absent such intention, the purchaser remains entitled to specific performance. Further, the High Court, while exercising jurisdiction under Section 100 CPC, cannot reappreciate evidence or disturb concurrent findings of fact regarding execution of the agreement, readiness and willingness, and rejection of the defence of fraud, unless such findings are shown to be perverse or unsupported by evidence.

Section 47 of the Persons with Disabilities Act, 1995 imposes a mandatory obligation upon every Government employer to continue in service an employee who acquires disability during service by providing an alternative post or, where necessary, a supernumerary post. This statutory protection is independent of whether the disability is attributable to service and cannot be defeated either by the employee's ignorance of the law or by a subsequent exemption notification operating prospectively. Where reinstatement has become impracticable owing to superannuation, the Court may substitute the relief with appropriate lump-sum monetary compensation to secure complete justice.

 

2026 INSC 689

Union of India & Ors. v. Bali Ram

HEAD NOTES 

A. Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 — Section 47 — Employee acquiring disability during service — Mandatory protection.

Held, Section 47 is mandatory. An employee who acquires disability during service cannot be removed or medically invalidated merely because he becomes unfit for the duties of his existing post. The employer is under a statutory obligation to accommodate him by providing an alternative post carrying the same pay and service benefits or, if necessary, by creating a supernumerary post until superannuation.

---

B. Writ Jurisdiction — Relief beyond pleadings — Exceptional circumstances.

Held, although ordinarily relief cannot be granted beyond pleadings and prayers, the High Court, in exercise of its equitable jurisdiction under Article 226, may mould appropriate relief where the record clearly establishes a statutory entitlement and denial of such relief would perpetuate injustice merely because of deficient pleadings or poor legal assistance.

---

C. Waiver — Statutory right — Essential ingredients.

Held, waiver is an intentional relinquishment of a known right. Mere silence, ignorance of law or acceptance of benefits does not constitute waiver. Waiver of rights created under a beneficial welfare legislation is not readily inferred and must be strictly proved.

---

D. Disability Act — Exemption Notification dated 10.09.2002 — Prospective operation.

Held, the notification exempting combatant personnel of Central Para Military Forces from Section 47 operates prospectively. It cannot retrospectively validate an order of medical invalidation passed before its issuance. Rights already accrued under Section 47 remain unaffected.

---

E. Beneficial Legislation — Liberal construction.

Held, the Persons with Disabilities Act is a beneficial social welfare legislation. Section 47 must receive a liberal interpretation advancing the object of protecting employees acquiring disability during service. Exemption notifications withdrawing statutory protection must be strictly construed.

---

F. Disability — Attributability to service — Irrelevant.

Held, Section 47 does not require that the disability should be attributable to or aggravated by service. The only relevant consideration is whether the employee acquired the disability during the course of service.

---

G. Government as Model Employer — Statutory obligation.

Held, a Government employer must proactively identify and provide suitable alternative employment to an employee acquiring disability during service. It cannot wait for the employee to seek accommodation or plead ignorance of statutory rights.

---

H. Relief — Reinstatement impracticable after superannuation — Monetary compensation.

Held, where reinstatement has become impossible because the employee has already attained the age of superannuation, the Court may mould the relief by awarding appropriate lump-sum compensation in lieu of reinstatement, back wages and consequential benefits so as to do complete justice.

---

Analysis of Facts

The respondent joined the Central Reserve Police Force (CRPF) as a Constable (Driver) in 1985 after being declared medically fit.

In 1996, he developed a serious ophthalmic disorder resulting in complete blindness in one eye and partial loss of vision in the other. The Medical Board declared him permanently incapacitated for further service in the CRPF, and he was medically invalidated from service on 11 March 1998.

His representations seeking disability benefits were rejected on the ground that the disability was neither attributable to nor aggravated by service.

The respondent approached the High Court seeking disability pension. Although he had not specifically invoked Section 47 of the Persons with Disabilities Act, the Single Judge held that his medical invalidation violated the statutory protection under Section 47 and directed reinstatement with consequential benefits. The Division Bench affirmed that decision.

The Union of India appealed before the Supreme Court contending, inter alia, that Section 47 was inapplicable, the respondent had waived his rights, and the subsequent exemption notification protecting CRPF from Section 47 defeated his claim.

The Supreme Court rejected all these contentions, upheld the respondent's statutory protection and, considering that he had already attained the age of superannuation, modified the relief by awarding lump-sum compensation of ₹1.25 crore in place of reinstatement.

---

Analysis of Law

The Supreme Court laid down the following principles:

1. Section 47 creates a mandatory statutory obligation to retain an employee who acquires disability during service.

2. If the employee becomes unsuitable for the existing post, the employer must offer an alternative post with identical pay and service benefits.

3. If no suitable post is immediately available, a supernumerary post must be created until superannuation.

4. The protection under Section 47 applies irrespective of whether the disability is attributable to service.

5. Beneficial legislation protecting disabled employees must receive liberal construction.

6. Waiver requires conscious abandonment of a known right; ignorance of statutory protection negatives waiver.

7. High Courts exercising jurisdiction under Article 226 may, in exceptional circumstances, grant relief beyond the pleadings where the record unmistakably establishes legal entitlement and no prejudice is caused.

8. The exemption notification issued under the proviso to Section 47 is prospective and cannot retrospectively validate an earlier illegal medical invalidation.

9. Where reinstatement becomes impossible because of superannuation, courts may award appropriate monetary compensation in substitution of reinstatement and consequential benefits to achieve complete justice.

---

Ratio Decidendi

Section 47 of the Persons with Disabilities Act, 1995 imposes a mandatory obligation upon every Government employer to continue in service an employee who acquires disability during service by providing an alternative post or, where necessary, a supernumerary post. This statutory protection is independent of whether the disability is attributable to service and cannot be defeated either by the employee's ignorance of the law or by a subsequent exemption notification operating prospectively. Where reinstatement has become impracticable owing to superannuation, the Court may substitute the relief with appropriate lump-sum monetary compensation to secure complete justice.

Although Section 9 of the Foreigners Act, 1946 places the burden upon the proceedee to establish Indian citizenship, the Foreigners Tribunal remains under a mandatory obligation to conduct a fair, reasoned and independent adjudication. An ex parte declaration of foreigner status cannot rest merely on the absence of the proceedee but must be founded upon proper service of notice, disclosure of the grounds of reference, consideration of the State's evidence, application of mind and compliance with the constitutional requirements of fairness under Articles 14 and 21. Where these safeguards are absent, the proceedings are liable to be set aside and remitted for fresh adjudication.

 

2026 INSC 694

Sabitri Dey @ Swasthi Dey & Ors. v. Union of India & Ors.

HEAD NOTES 

A. Foreigners Act, 1946 — Section 9 — Burden of Proof — Scope.

Held, although Section 9 places the burden upon the proceedee to establish that he or she is not a foreigner, such burden operates only within a lawful and fair adjudicatory process. The Tribunal cannot mechanically declare a person to be a foreigner merely because the proceedee failed to appear.

---

B. Foreigners (Tribunals) Order, 1964 — Paragraph 3 — Ex parte Proceedings — Duty of Tribunal.

Held, even in ex parte proceedings, the Foreigners Tribunal remains under a duty to verify proper service of notice, examine the "main grounds" of the reference, consider the evidence produced by the State, apply its independent mind and render a reasoned opinion. Absence of the proceedee does not dispense with adjudication.

---

C. Natural Justice — Audi Alteram Partem — Proceedings before Foreigners Tribunal.

Held, proceedings declaring a person to be a foreigner entail grave civil consequences including detention, deportation and possible statelessness. Therefore, meaningful notice, disclosure of the grounds of reference and effective opportunity of hearing are indispensable requirements of fair procedure.

---

D. Constitution of India — Articles 14 & 21 — Protection available to foreigners.

Held, Articles 14 and 21 extend to "every person" and not merely citizens. Even a person whose citizenship is under inquiry is entitled to fair, just and reasonable procedure before being declared a foreigner.

---

E. High Court — Writ Jurisdiction — Appreciation of Evidence.

Held, where the Foreigners Tribunal has failed to conduct proper adjudication, the High Court should not ordinarily become the first forum to appreciate factual evidence. The statutory inquiry must be undertaken by the Tribunal itself.

---

F. Ex parte Orders — Categories of Cases — Remand.

Held, irrespective of whether (i) the proceedee never appeared, (ii) the High Court independently examined documents, or (iii) the proceedee initially appeared but later defaulted, fresh adjudication by the Tribunal is warranted where the earlier determination lacked meaningful adjudication. Such remand, however, is only a one-time opportunity subject to strict compliance by the proceedee.

---

G. Foreigners Tribunal — Quasi-Judicial Authority.

Held, the Tribunal is not a mere forwarding authority. It performs a quasi-judicial function requiring independent assessment of the State's evidence, the material produced by the proceedee, and recording of a concise statement of facts with reasons supporting its conclusion.

---

H. Citizenship Determination — Fair Procedure.

Held, while the State has a legitimate interest in identifying illegal migrants, determination of foreigner status must always conform to constitutional fairness, statutory safeguards and principles of natural justice. The statutory burden under Section 9 is not diluted, but its enforcement must occur through a fair adjudicatory process.

---

Analysis of Facts

A batch of appeals arose from orders of various Foreigners Tribunals and erstwhile Illegal Migrants (Determination) Tribunals in Assam declaring the appellants to be foreigners. In most cases, the opinions were rendered ex parte or had effectively become ex parte after the appellants failed to continue participating in the proceedings.

The Gauhati High Court affirmed those opinions. The principal grievance before the Supreme Court was that the declarations had been made without meaningful notice, adequate opportunity of hearing, or proper adjudication by the Tribunals.

The Supreme Court classified the cases into three groups:

1. Cases where the proceedee never appeared despite service of notice.

2. Cases where the High Court itself appreciated documentary evidence while affirming the Tribunal's order.

3. Cases where the proceedee initially appeared but later defaulted, resulting in effectively ex parte proceedings.

Considering the serious consequences of a declaration of foreigner status, the Court set aside all the impugned opinions and remitted the matters to the respective Foreigners Tribunals for fresh adjudication under strict timelines and conditions.

---

Analysis of Law

The Supreme Court laid down the following principles:

1. Section 9 of the Foreigners Act places the burden upon the proceedee but does not eliminate the Tribunal's obligation to conduct an independent adjudication.

2. Paragraph 3 of the Foreigners (Tribunals) Order, 1964 mandates:

   • proper service of notice,

   • disclosure of the main grounds,

   • reasonable opportunity to respond,

   • consideration of State evidence,

   • reasoned determination.

3. Even in ex parte proceedings, the Tribunal must examine whether the State has produced sufficient material supporting the reference.

4. The expressions "any person" in Article 14 and "no person" in Article 21 extend constitutional procedural protection even to persons whose citizenship is disputed.

5. Natural justice remains applicable notwithstanding the statutory burden under Section 9.

6. The High Court should not ordinarily undertake primary appreciation of evidence which the statute requires the Tribunal to evaluate.

7. Remand was justified because the earlier proceedings lacked complete, meaningful and lawful adjudication.

8. The remand does not dilute the statutory burden upon the proceedee and is granted only as a final opportunity subject to strict cooperation with the Tribunal.

---

Ratio Decidendi

Although Section 9 of the Foreigners Act, 1946 places the burden upon the proceedee to establish Indian citizenship, the Foreigners Tribunal remains under a mandatory obligation to conduct a fair, reasoned and independent adjudication. An ex parte declaration of foreigner status cannot rest merely on the absence of the proceedee but must be founded upon proper service of notice, disclosure of the grounds of reference, consideration of the State's evidence, application of mind and compliance with the constitutional requirements of fairness under Articles 14 and 21. Where these safeguards are absent, the proceedings are liable to be set aside and remitted for fresh adjudication.

Section 5A of the Land Acquisition Act embodies a mandatory procedural safeguard requiring the Collector to afford an opportunity of hearing and fairly consider the objections of affected landowners before recommending acquisition. However, where the acquiring authority substantially complies with the statutory procedure and the landowners themselves fail to diligently pursue their objections despite adequate opportunity, the acquisition cannot be invalidated on the ground of denial of hearing. Acquisition for a metro rail depot constitutes a valid public purpose, and courts will not interfere with the executive's choice of land in the absence of mala fides, arbitrariness or substantial procedural illegality.

 

2026 INSC 682

Alok Kotahwala & Ors. v. Jaipur Metro Rail Corporation Ltd. & Ors.

HEAD NOTES 

A. Land Acquisition Act, 1894 — Section 5A — Right of objection and hearing — Valuable statutory safeguard.

(Paras 38–40)

Held, Section 5A embodies a valuable statutory right flowing from the principles of natural justice. A landowner has a right to file objections, receive an opportunity of personal hearing, and obtain fair consideration of such objections before issuance of a declaration under Section 6.

---

B. Section 5A — Hearing — Duty of Collector.

(Paras 38, 40)

Held, once objections under Section 5A(1) are filed, it is the statutory duty of the Collector to afford an opportunity of hearing. The landowner need not specifically demand such hearing. To the extent contrary observations were made in Sam Hiring Co., they were not accepted.

---

C. Land Acquisition — Opportunity of hearing — Conduct of objector.

(Paras 42–50)

Held, where the objectors repeatedly participated in the proceedings, were aware of the dates fixed, failed to appear on the scheduled date, neither sought adjournment nor pursued the objections thereafter, the acquisition cannot be invalidated on the ground of denial of hearing. A party cannot take advantage of its own lack of diligence.

---

D. Collector under Section 5A — Nature of function.

(Paras 38, 51)

Held, the Collector acts as an administrative authority and not as a judicial or quasi-judicial authority. He is required to consider every objection, assign brief reasons and forward recommendations to the Government; elaborate adjudicatory orders are not contemplated.

---

E. Land Acquisition — Public purpose — Judicial review.

(Paras 39, 68 onwards)

Held, selection of a particular parcel of land for a public project ordinarily falls within the executive domain. Courts do not substitute their opinion regarding suitability of alternative lands unless mala fides, colourable exercise of power or absence of public purpose is established.

---

F. Acquisition proceedings — Metro Rail Project — Public purpose.

(Paras 63 onwards)

Held, acquisition of land for construction of a Metro Rail depot is unquestionably for a public purpose. Allegations regarding availability of alternative sites or future commercial utilisation do not invalidate the acquisition in the absence of arbitrariness or mala fides.

---

G. Property Rights — Article 300A — Procedural safeguards.

(Paras 31–40)

Held, compulsory acquisition of private property must conform to fair procedure. The statutory safeguards under Section 5A constitute an essential component of the constitutional protection available under Article 300A.

---

H. Judicial Review — Acquisition proceedings.

(Paras 45–51)

Held, courts interfere with acquisition proceedings only where there is flagrant violation of mandatory statutory safeguards. Mere technical or insubstantial procedural deviations, without prejudice, do not vitiate the acquisition.

---

Analysis of Facts

The appellants owned approximately 27 hectares of agricultural land proposed to be acquired for construction of the Jaipur Metro Rail Depot under Phase-II of the Jaipur Metro Project.

After issuance of the notification under Section 4 of the Land Acquisition Act, the landowners filed objections under Section 5A. The Land Acquisition Officer repeatedly fixed dates, received replies from the Jaipur Metro Rail Corporation and granted opportunity to the appellants to file rejoinders. However, the appellants neither appeared nor filed rejoinders on the last scheduled date and thereafter remained inactive until the Land Acquisition Officer forwarded his report recommending acquisition.

The Single Judge quashed the acquisition proceedings holding that an effective hearing under Section 5A had not been granted.

The Division Bench reversed that decision and upheld the acquisition.

The Supreme Court affirmed the Division Bench, holding that although Section 5A confers a valuable statutory right, the appellants themselves failed to diligently pursue their objections. There was substantial compliance with the statutory procedure and no prejudice warranting invalidation of the acquisition.

---

Analysis of Law

The Supreme Court laid down the following principles:

1. Section 5A confers a substantive statutory right of objection and hearing before compulsory acquisition.

2. The Collector is duty-bound to afford an opportunity of hearing once objections are filed; the landowner need not specifically request one.

3. The Collector functions administratively and is required only to record brief reasons with recommendations, not a detailed adjudicatory judgment.

4. A landowner's right under Section 5A is subject to corresponding diligence in prosecuting the objections.

5. Failure of the objector to appear despite knowledge of the proceedings cannot later be converted into a plea of denial of natural justice.

6. Courts interfere only where there is substantial or flagrant violation of Section 5A resulting in prejudice.

7. Acquisition for metro rail infrastructure constitutes acquisition for a valid public purpose.

8. Selection of the project site and rejection of alternative locations ordinarily fall within executive discretion and are not matters for judicial substitution.

---

Ratio Decidendi

Section 5A of the Land Acquisition Act embodies a mandatory procedural safeguard requiring the Collector to afford an opportunity of hearing and fairly consider the objections of affected landowners before recommending acquisition. However, where the acquiring authority substantially complies with the statutory procedure and the landowners themselves fail to diligently pursue their objections despite adequate opportunity, the acquisition cannot be invalidated on the ground of denial of hearing. Acquisition for a metro rail depot constitutes a valid public purpose, and courts will not interfere with the executive's choice of land in the absence of mala fides, arbitrariness or substantial procedural illegality.

Prior to Karnataka Act No. 5 of 2001, the exemption granted to "Sugar" under the Karnataka Sales Tax Act extended to imported sugar as well. Although the Legislature was competent to retrospectively restrict the exemption by confining it to sugar produced or manufactured in India, such retrospective withdrawal of exemption can justify only recovery of the principal tax liability. Dealers who had acted bona fide under the earlier exemption and had not collected tax from purchasers cannot be visited with penalty, and interest can be levied only from the date of lawful reassessment demand.

 

2026 INSC 693

Asia Sugar & Chemical Co., Devangere v. State of Karnataka & Ors.

HEAD NOTES 

A. Karnataka Sales Tax Act, 1957 — Fifth Schedule — Entry relating to Sugar — Imported sugar — Exemption prior to 2001.

(Paras 53–63)

Held, prior to Karnataka Act No. 5 of 2001, the exemption entry referring to "Sugar" covered imported sugar also. The reference to the Additional Duties of Excise (Goods of Special Importance) Act, 1957 was only for identification of the commodity and not for importing any territorial restriction limiting exemption to sugar produced or manufactured in India.

---

B. Fiscal Statute — Exemption Entry — Interpretation.

(Paras 42–44, 53–63)

Held, while construing an exemption entry, the Court cannot read into the statute words which the Legislature has consciously omitted. A commodity described simply as "Sugar" cannot be judicially restricted to "Sugar produced or manufactured in India" when such words were inserted only by a subsequent amendment.

---

C. Karnataka Act No. 5 of 2001 — Retrospective amendment — Validity.

(Paras 64–71)

Held, the retrospective insertion of the words "produced or manufactured in India" is a substantive amendment restricting an existing exemption and not merely clarificatory. Nevertheless, the amendment is within the legislative competence of the State and is constitutionally valid.

---

D. Retrospective Taxation — Fairness — Penalty and Interest.

(Paras 72–84)

Held, although the Legislature may retrospectively withdraw an exemption, dealers who acted bona fide under the earlier exemption and did not collect tax from purchasers cannot be subjected to penal consequences. Principal tax liability alone may be recovered, while penalty is impermissible and interest can run only from the date of lawful demand pursuant to reassessment.

---

E. Sales Tax — Reassessment — Consequences of retrospective amendment.

(Paras 74–84)

Held, reassessment pursuant to a valid retrospective amendment is permissible for determining principal tax liability. However, retrospective operation should not assume a punitive character by imposing penalty or pre-demand interest upon dealers who had acted in accordance with the law prevailing at the relevant time.

---

F. Central Sales Tax Act, 1956 — Section 8(2) — Reassessment.

(Paras 85–87)

Held, while recomputing liability on inter-State sales, the assessing authority must strictly apply the provisions of the Central Sales Tax Act, including Section 8(2), and cannot ignore the statutory rate applicable under the Central legislation.

---

G. Validation Laws — Legislative competence.

(Paras 45–51, 64–71)

Held, the Legislature possesses power to retrospectively amend fiscal statutes and withdraw exemptions, provided it acts within its legislative competence. However, constitutional fairness requires that retrospective amendments should not impose oppressive penal consequences on completed transactions.

---

Analysis of Facts

The assessees were dealers engaged in the import and sale of sugar in the State of Karnataka during the assessment years 1994–96.

At the relevant time, "Sugar" was included in the Fifth Schedule to the Karnataka Sales Tax Act as an exempt commodity. Proceeding on the basis that imported sugar also enjoyed exemption, the assessees neither collected sales tax from purchasers nor paid tax to the State. The assessing authorities also completed the original assessments granting exemption.

Subsequently, Karnataka Act No. 5 of 2001 retrospectively amended the exemption entry by inserting the words "produced or manufactured in India", thereby restricting the exemption only to indigenous sugar.

On the strength of the retrospective amendment, reassessment proceedings were initiated demanding tax, penalty and interest for the earlier assessment years.

The Single Judge struck down the retrospective operation of the amendment. The Division Bench reversed that decision.

The Supreme Court held that imported sugar was indeed exempt under the unamended law and that the 2001 amendment substantially withdrew the exemption retrospectively. While upholding the constitutional validity of the amendment, the Court held that only the principal tax liability could be recovered. Penalty was disallowed and interest was directed to run only from the date of lawful reassessment demand.

---

Analysis of Law

The Supreme Court laid down the following principles:

1. Prior to Karnataka Act No. 5 of 2001, the exemption for "Sugar" included imported sugar.

2. Reference to the Additional Duties of Excise Act merely identified the commodity and did not import territorial restrictions.

3. Courts cannot add words to fiscal statutes which the Legislature itself had not employed.

4. Karnataka Act No. 5 of 2001 constitutes a substantive withdrawal of exemption and not a merely clarificatory amendment.

5. The Legislature is competent to enact retrospective fiscal legislation and withdraw exemptions retrospectively.

6. Retrospective withdrawal of exemption permits reassessment for determination of principal tax liability.

7. Dealers who acted under the existing exemption and did not collect tax from purchasers cannot fairly be subjected to penalty.

8. Interest on tax arising solely due to retrospective legislation should accrue only from the date of lawful reassessment demand.

9. Liability relating to inter-State sales must be recomputed strictly in accordance with the Central Sales Tax Act, particularly Section 8(2).

---

Ratio Decidendi

Prior to Karnataka Act No. 5 of 2001, the exemption granted to "Sugar" under the Karnataka Sales Tax Act extended to imported sugar as well. Although the Legislature was competent to retrospectively restrict the exemption by confining it to sugar produced or manufactured in India, such retrospective withdrawal of exemption can justify only recovery of the principal tax liability. Dealers who had acted bona fide under the earlier exemption and had not collected tax from purchasers cannot be visited with penalty, and interest can be levied only from the date of lawful reassessment demand.