Jullundur Rubber Goods Manufacturers'
Association Vs. Union of India & ANR  INSC 203 (25 August 1969)
25/08/1969 GROVER, A.N.
CITATION: 1970 AIR 1589 1970 SCR (2) 68 1970
SCC (2) 644
CITATOR INFO :
R 1984 SC 420 (47) RF 1986 SC 649 (28)
Rubber Act (24 of 1947), s. 12 and Rules 33,
33A and 33D- Duty leviable from users of rubber-If violative of Art. 14 and
Entry 84 of List I of VII Schedule of the Constitution.
The appellants, an 'association of rubber
chappal manufacturers who were using rubber in their manufacturing process,
filed a petition in the High Court challenging the levy and collection from the
manufacturers of chappals, of a duty under s. 12 of the Rubber Act, 1947 aS
amended by Rubber Amendment Act, 1960. The grounds of challenge were:
(1) that the imposition on the appellants was
outside the ambit of Entry 84 of List I of VII Schedule of the Constitution,
which deals with the duties which can be levied on goods manufactured or
produced in India; (2) Section 12(2) which provides the machinery for levy and
collection has given uncontrolled and unbridled discretion to the Rubber Board
and no guiding principle or policy was laid down in the Act to enable the Board
to choose between the owners of estates of rubber or the users of the rubber;
and (3) the rules framed under the section do
not indicate with sufficient clarity and precision on whom the levy was to be
made. The High Court dismissed the petition.
In appeal to this Court,
HELD: (1) (a) The excise duty could be
imposed at the stage which was found to be most convenient and lucrative as
that is a matter relating to the machinery of collection and did not affect the
essential nature of the tax. Therefore, merely because the incidence of tax is
shifted to the users of rubber under s. 12(2) which provides for the method of
collection, the tax would not cease to be one falling within Entry 84.[73
B--C;F G] R.C. fall v. Union of India,  Supp. 3 S.C.R. 436, followed.
Re: the Central Provinces and Berar Act, 14
of 1938,  F.C.R. 18, applied.
(b) If the duty is not excise duty because it
is imposed on the user Parliament would even then have legislative competence
to provide for its collection from users, whatever be its nature, under Entry
97 of List I read with Art. 248 of the Constitution. [73 H; 74 A B] (2) The
task of subordinate legislation necessary for implementing the purpose and
objects of an enactment can be delegated, so long as the law has provided the
method by which the. delegate can be controlled, there is a guidance for fixing
rates of tax and there is a provision to see that reasonable rates are fixed.
[74 D--F] Municipal Corporation of Delhi v. Birla Cotton, Spinning and Weaving
Mills,  3 S.C.R. 251, followed.
In the present case, the Act was enacted for
the purpose of development of rubber industry under the control of the Union
Parliament has 69 enacted that the Rubber Board can levy and collect the duty
either from the owner of the rubber estate or the user of the rubber. But the
Board is enjoined to do so in accordance with the Rules made by Central
Government under s. 25(1) (a) of the Act and which are placed before each House
of Parliament for approval. The Board itself is a high powered body and all
interests are represented among its members 'and all its acts are subject to
the control of the Central Government under s. 22. [74 H; 75 Ii; 78 C] Further.
the Board is vitally interested in the collection of the duty and it has to see
that such duty is collected without undue delay and proper expedition. The
objects and reasons of the Amending Act (which can be taken into consideration
for the purpose of seeing if there is any alleged infringement of Art. 14) show
that the Board was finding it difficult to levy and collect the duty from the
owners and it was considered that it would be much more easy to collect it from
the users, in accordance with the rules.
Thus it is necessary that it should be left
to the rule making authority to indicate the cases and the circumstances in
which the duty was to be collected from the owner or user. [75 C; 77 H; 78 A B]
Since the policy of the Act has been enunciated with sufficient clarity, and guidance
has been furnished as to how the Board should exercise its powers in the matter
of levy, there is no discrimination and Art. 14 is not violated.
Ipoh v.C.I.T. Madras,  1 S.C.R. 65 and
Raghubar Dayal Jai Prakash v. Union of India,  3 S.C.R. 547, referred to.
(3) A combined reading of rr. 33, 33A and 33D
indicates that a definite provision is made with regard to the category of
persons on whom the collection of the duty is to be made, namely, the users of
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 1220 of 1966.
Appeal by special leave from the judgment and
order dated April 6, 1965 of the Punjab High Court, Circuit Bench at Delhi in
Letters Patent Appeal No.. 58-D of 1966.
M.C. Chagla, B. Datta and J.B. Dadachanji,
for the appellant.
Niren De, Attorney-General, V. A. Seyid
Muhammad, R.H. Dhebar and S.P. Nayar, for respondent No. 1.
Niren De, Attorney-General, V.A. Seyid
Muhammad, R.H. Dhebar, S.P. Nayar and Joy Joseph, for respondent No. 2.
S.J. Sorabji, A.J. Rana K.L. Hathi and K.N.
Bhat, for the interveners.
The Judgment of the Court was delivered by
Grover, J. This is an appeal by special leave from a judgment of the Punjab
High Court (Circuit Bench) Delhi in which the validity and legality of the levy
of cess by way of excise duty on the rubber used by manufacturers of chappals
under the provisions of the Rubber Act 1947, (Act XXIV of 1947) as amended,
hereinafter called the Act, have been assailed.
70 M/s. Jullundur Rubber Goods Manufacturers'
Association is an association of rubber chappal manufacturers at Jullundur in
the State of Punjab. Its members, who manufacture chappals, are stated to use.
about 15 to 20% of rubber in the process of their manufacture while the rest
'of the material used by them consists of various other articles. A petition
was filed under Arts. 226 & 227 on behalf of the aforesaid Association, the
second petitioner being its Secretary, challenging the levy and collection from
the manufacturers of chappals under the provisions of the Act, the Rules framed
and the relevant notification issued thereunder of a duty as a result of the
amendment made in s. 12 of the Act by the Rubber Amendment Act of 1960. A
learned Single Judge dismissed the writ petition and his judgment was affirmed
by a division bench of the High Court.
The contentions which have been raised are:
(1 ) the duty sought to be imposed under s. 12 as amended being outside the
ambit of Entry 84 of List I in the Seventh Schedule to the Constitution is
beyond the legislative competence of the Parliament; (2) Section 12(2) suffers
from the vice of excessive delegation. It confers uncontrolled and unrestricted
discretion upon the Rubber Board to levy upon and collect duty of excise from
either the owners of the rubber producing estates or the users so called
manufacturers (of rubber) without specifying the circumstances under which it
should be imposed upon the one or the other nor has any guiding policy or
principle been laid down in the Act for making a choice. (3) In any case, the
Rules which have been framed do not satisfy the provisions of s. 12(2) of the
Act and do not indicate with sufficient clarity and precision on whom the levy
is to be made and from whom the duty is to be collected as between the owners
of the estates and the manufacturers.
The relevant statutory provisions may first
In 1947 the Central legislature enacted The
Rubber (Production and Marketing) Act, 1947. Its name was changed to Rubber Act
1947 by the Rubber (Production and Marketing) Amendment Act, 1954. The Act was
enacted to provide for the development under the control of the Union of the
rubber industry. Under s. 4 the Rubber Board was to be constituted. The
functions of the Board were enumerated in s. 8. It was to be its duty to
promote by such measure as it thought fit development of the rubber industry.
Under s. 10 it was obligatory on every person owning land planted with rubber
plants to get himself registered as an owner by applying to the Board. Section
12 provided for the imposition of rubber cess. Under s. 14 no person could sell
or otherwise dispose of or buy or otherwise acquire rubber 71 except in
accordance with the terms of general or special license issued by the Board.
The Central Government was given the over-all control over the acts of the
Board by s. 22. Section 25 empowered the Central Government to make Rules.
Prior to the amendment made by the Rubber Amendment Act of 1960 (Act XXI of
1960) the duty of excise was payable under s.12(2) by the owners of the estates
on which rubber was produced and it was to be paid by' them to the Board within
one month from the date on which they received a notice of demand. By Act XXI
of 1960 an important change was made which affected the manufacturers and the
duty could be collected by the Board either from the owners of the estates or
from the manufacturers by whom the rubber is used.
At this stage the relevant provisions of the
Act with which we are concerned may be reproduced :-- S. B(e)
"manufacturer" means any person engaged in the manufacture of any
article in the making of which rubber is used;" (h) "rubber"
means-- (i) (ii) (iii) latex, (dry rubber content) in any state of
concentration, and includes scrap rubber, sheet rubber, rubber in powder and
all forms and varieties of crepe rubber, but does not include. rubber contained
in any manufactured article;" S. 4(3 ) "The Board shall consist of-
(a) a Chairman to be appointed by the Central Government;
(b) two members to represent the State of
Madras, one of whom shall be a person representing rubber producing interests;
(c) eight members to represent the State of
Kerala, six of whom shall be persons representing the rubber producing
interests, three of such six being persons representing the small growers;
(d) ten members to be nominated by the
Central Government of whom two. shall represent the manufacturers and four
and (e) three members of Parliament of whom
two shall be elected by the House of the People and one by the Council of
States; and 72 (f) the Rubber Production Commissioner, ex-Officio." S.
12(4)"For the purpose of enabling the Board to assess the amount of duty
of excise levied under the section-- (a) the Board shall, by notification in the
Official Gazette, fix a period in respect of which assessments shall be made;
and (b) without prejudice to the provisions of section 20, every manufacturer
shall furnish to the Board a return not later than fifteen days after the
expiry of the period to. which the return relates, stating- (i) in the case of
an owner, the total quantity of rubber produced on the estate in each such
period; Provided that in respect of an estate situated only partly in India,
the owner shall in the said return show separately the quantity of rubber
produced within and outside India;
(ii) in the case of a manufacturer, the total
quantity of rubber used by him in such period out of the rubber produced in
India." The contention raised on behalf of the appellant- association is
that under Entry 84 of List I in the Seventh Schedule to the Constitution the
duties can be levied on goods manufactured or produced in India. Excise duty,
it is pointed out, can be levied only on the actual producers and manufacturers
of rubber but in the very nature of such duty it could not be imposed on users
o.r consumers of that commodity. It is suggested that sub-s. (1 ) of s. 12 is
the charging section and sub-s. (2) provides for the machinery for levy and
collection of tax. But sub-section (2) cannot alter the substantive provision
in the charging sub-section (1) and since the Parliament has employed the words
':duty of excise" which have a well understood meaning the incidence of
tax would fall only on the actual producers.
Once the incidence of tax was shifted to the
users the tax would cease to be one which would fall within Entry 84. In re the
Central Provinces and Berar Act No.. XIV of 1938(1) Gwyer C.J. described
"excise duty" thus:
"But its primary and fundamental meaning
in English is still that of a tax on articles produced or (1)  F.C.R. 18,
73 manufactured in the taxing country and
intended for home consumption".
The learned Chief Justice, however, proceeded
to add that there could be no reason in theory why such duty should not be imposed
even on the retail sale of an article if the taxing .Act so provided. It could
obviously be imposed at the stage which was found to be most convenient and
lucrative as that was a matter of the machinery of collection and did not
affect the essential nature of the tax. Referring to this decision of the
Federal Court and several other cases it was observed in R.C. Jail v. Union of
India(1) at page 451:
"Excise duty is primarily a duty on the
production or manufacture of goods produced or manufactured within the country.
It is an indirect duty which the manufacturer or producer passes on to the
ultimate consumer, that is, its ultimate incidence will always be on the
consumer. Therefore, subject always to the legislative competence of the taxing
authority, the said tax can be levied at a convenient stage so long as the
character of the impost, that is, it is a duty on the manufacture or
production, is not lost. The method of collection does not affect the essence
of the duty, but only relates to-the machinery of collection for administrative
convenience. Whether in a particular case the tax ceases to be in essence an
excise duty, and the rational connection between the duty and the person on
whom it is imposed ceased to exist, is to be decided on a fair construction of
the provisions of a particular Act".
The above statement of law in no way supports
the argument that the excise duty cannot be collected from persons who are
neither producers nor manufacturers. Its incidence certainly falls directly on
the production or manufacture of goods but the method of collecting will not
affect the essence of the duty. In our opinion sub-s. (2) of s. 12 provides for
the method of collection as the excise duty can be collected either from the
producers or from the manufacturers as defined by the Act which would include
members of the appellant association who use rubber in the manufacture of
It seems to us that if the provisions of
Entry 97 in List I in the Seventh Schedule as also the provisions of Art. 248 of
the Constitution are kept in view the Parliament would have legislative
competence even with regard to the imposition of a tax which does not fall
within Entry 84. It will be a kind of non-descripts tax which has been given
the nomenclature of a duty of excise.
(1)  Supp. 3 S.C.R. 436.
Sup. CI/70--6 74 Counsel for the
appellant-association quite properly has not challenged this position but has
merely sought to lay emphasis on sub-s.-( 1 ) being the charging section. We
find it difficult to endorse the reading of sub-s. (1 ) and sub-s. (2) of s. 12
in isolation. Not only the statute but also, the section have to be read as a
whole and together, and in our judgment whatever be the nature of duty,
Parliament would undoubtedly have legislative competence under Entry 97 of List
I in the Seventh Schedule read with Art. 248 of the Constitution.
We may next deal with the question whether s.
12(2) suffers from the vice of excessive delegation and whether there has been
violation of Art. 14 as uncontrolled and unbridled discretion has been
conferred on the Board to levy and collect the tax from either the producer or
the manufacturer (the user of rubber). It is pointed out that there is no
guiding principle or policy laid down in the Act to enable the Board to make a
choice between the two categories. The principles governing such questions have
been laid down in several decisions of this Court. It is well established that
essential legislative functions consist of the determination of the legislative
policy and its formulation as a binding rule of conduct and cannot be delegated
by the legislature. What can be delegated is the task of subordinate
legislation necessary for implementing the purpose and objects of an enactment.
Where legislative policy is enunciated with sufficient clearness or a standard
is laid down the 'courts will not interfere. It will depend on consideration of
the provisions of a particular Act including its preamble as to the guidance
which has been given and the legislative policy which has been laid down in the
matter. In a taxing statute the guidance may take the form subjecting the rate
to be fixed by the local body to the approval of the Government which acts as a
watch-dog on the actions of the local body in this matter on behalf of the
legislature. The reasonableness of the rates may be ensured by providing
Safeguards laying down the procedure for consulting the wishes of the local
inhabitants. So long as the law has provided the method by which the local body
can be controlled and there is a provisions to see that reasonable rates are
fixed it can be said that there is guidance in the matter of fixing the rates
for local taxation; vide Wanchoo, C.J. in Municipal Corporation of Delhi v.
Birla Cotton, Spinning and Weaving Mills, Delhi & Anr.(1) In s. 12(2) the
Parliament has made it quite clear that the Board can levy and collect the duty
of excise either from the owner of a rubber estate on which the rubber is
produced or from the manufacturer by whom such rubber is used. The Board has
(1)  3 S.C.R. 251 at pp. 269-270.
75 further been enjoined to do so in
accordance with Rules made in this behalf. The Board, as constituted under s.
4, has to be a high powered body and among its members those representing the
rubber producing interests, the small growers, the manufacturers and the labour
are included. It can, therefore, keep in view the interests of all concerned.
According to the preamble of the Act it was
meant for the development of the rubber industry under the control of the
Union. That is the main purpose for which the Board has to function. All
amounts paid to the Board by the Central Government under s. 12(7) of the Act
have to go to the general fund of the Board under s. 9A. Section 12(7) provides
that the proceeds of the duty of excise collected has first to be credited to
the Consolidated Fund of India reduced by the cost of collection and then it
has to be paid over by the Central Government to the Board. The Board is thus
vitally interested in the collection of the duty and it has to see that such
duty is collected without undue delay and proper expedition. It has also to
look to the best possible method of realization. In the light of this scheme as
embodied in the Act it is difficult to sustain the challenge on the ground of
excessive delegation. The policy of the Act has been enunciated with sufficient
clarity and the guidance has been furnished by the provisions to which
reference has been made as to how the Board should exercise its powers in the
matter of levy and collection of tax.
There is also another important safeguard
which is contained in s. 22 of the Act. All acts of the Board by virtue of that
section shall be subject to the control of the Central Government which may
cancel, suspend or modify any action taken by the Board.
The provision in s. 12(2) that the Board
shall levy and collect the duty, in accordance with the Rules is another
important safeguard against the Board acting arbitrarily in the matter of
collection of duty from the owners of the rubber estates or the manufacturers.
These Rules are to be framed by the Central Government under s. 25(1)(xxa)
which is to the following effect:
"the cases and circumstances in which
the duty of excise under section 12 shall be payable by the owner and the manufacturers
respectively, the manner in which the duty may be assessed, paid or collected,
the regulation of the production, manufacture, transport or sale of rubber in
so far as such regulation is necessary for the proper levy, payment or
collection of duty;" Section 25(3) makes it obligatory on the Central
Government to place every rule before each House of Parliament for a specified
period of 30 days and those Rules can be subject to criticism and can be
modified or even be abrogated. Thus it is not possible 76 to hold that the
Parliament has abdicated its functions in enacting s. 12(2) of the Act.
Learned Attorney General has relied on
certain decisions of this Court according to which it can be left to the
authority which has to levy and collect the tax to decide whether to collect
from one category of persons or the other category where persons in both
categories can be subjected to tax. In M.M. Ipoh & Ors. Income-tax
Madras(1) the validity of s. 3 the Income-tax Act, 1922 was challenged on the
ground that it was violative of Art. 14 of the Constitution. That section
invested the taxing authority with an option to assess to tax the income
collectively of the association of persons. The argument raised was that that
Act set no principles and disclosed no guidance to the Income-tax Officer in
exercising the option. The scheme of the Income-tax Act was considered and it
was observed that the duty of the Income-tax Officer was to administer its.
provisions in the interest of public revenue and to prevent evasion of tax and
his function was mainly quasi- judicial. The decision of bringing to tax either
the income of the association collectively or the shares of the members of the
association separately was not final and was subject to appeal. It was held
that the very nature of the authority exercised by the Income-tax Officer and
his duty to prevent evasion or escapement of liability constituted adequate
enunciation of principles and policy for his guidance. In Raghubar Dayal Jai
Prakash v. The Union of India(2) the validity of certain provisions of the
Forward Contracts (Regulation) Act, 1952 was assailed. In regard to s. 15 of
that Act the argument was that it conferred unguided and arbitrary power upon
the Central Government to choose any commodity it liked and bring the Act into
operation in respect of the commodity which the Government chose at any time it
pleased. In this manner the interest of the traders could be vitally affected
by rendering illegal a contract which was. perfectly legal when it was entered
into. This Court referred to the Report of the Expert Committee on the Bill
which became an Act, dealing with the economic implications of forward trading
and for the necessity of regulating such- contracts in particular goods. It was
observed that the suitability of a commodity for forward trading depended on
factors which were far from static and which were subject to variations over a
period of, time. A continuous assessment was required of all elements which
would necessitate regulation. All this could not. be specified in a statute. It
was for that reason that a Forward Markets Commission had been constituted on
whom the duty had been cast of advising the Government on the situation as it
existed from time to time. The following observations are pertinent and may be
(1)  1 S.C.R. 65. (2)  3 S.CR.
77 "In our opinion, the selection of the
commodity the regulation of forward trading in it or of prohibition such
trading can only be left to the Government and the purpose for which the power
is to be used and the machinery created for the investigation furnish
sufficient guidance as to preclude any challenge on the ground a violation of
14." In the statement of objects and
reasons appended to Bill No. 32 of 1960 when amendments were made in s. 12 of
the Act by the Rubber Amendment Act, 1960, it was stated inter alia:
"This method of collection of the cess
provided under the Act has led to considerable evasion of cess by the owners of
the estates, either by evasion of registration or by failure to submit correct
returns or any returns at all. There are about 26,000 estates under production
in the country and most of them are small holdings. Many of them do not render
returns of production to the Rubber Board and thus evade payment of duty.
From October, 1947 to December 1954, it was
found that 20,608 tons of rubber escaped assessment and the Board suffered
during the period a loss Rs. 2,30,805. The Rubber Board estimates that under
the present system there is no likelihood of more than 65 per cent of the
potential revenue being realised each year.
With a view to improving the efficiency of
collection, it is proposed to amend section 12 of the Act so as to enable the
cess to be collected either from the owners or the manufacturer who ultimately
consumes the rubber produced in the estates.
There are at present 347 registered rubber
manufacturers in the country. It is felt that it would be far more easy to
collect the cess from a small number of manufacturers than from about 26,000
producers whose number will increase year by year. The proposed amendment of
section 12 in the amending Bill is an enabling measure for the administrative
change in the method of collection being contemplated." Although it may
not be permissible to take the statement of objects and reasons into
consideration for construing the provisions of an Act the facts contained in
such a statement can certainly be looked at for the purpose of seeing any
alleged infringement of Art. 14. It is quite clear from the data given that the
Rubber Board was finding it difficult to levy and collect 78 the duty from the
owners of rubber estates and it was considered that it would be much easier to
collect the same from the manufacturers. The Board was, therefore, to collect
the duty in accordance with the rules made in this behalf by the Central
Government. Thus it was necessary, in view of the entire facts and
circumstances stated before, that it should be left to the rule-making
authority to indicate the cases and the circumstances in which the duty of
excise was to be collected from the owner or the manufacturer respectively. It
was open to the rule making authority to vary the rules according to the
changing circumstances and conditions. The Board which was a high powered body
was mainly responsible for collection of the duty and the rules would naturally
be made in consultation with it from time to time. We are unable to see how the
challenge on the ground of discrimination under Art. 14 can be sustained in
view of all these reasons. It does not appear that the Board can 'discriminate
in an arbitrary manner between owners of rubber estates and the manufacturers
or between persons inter se of the same category.
The Central Government has framed rules
pursuant to the power conferred by s. 25 of the Act. Unfortunately the rules
relating to furnishing of returns and collection of duties are not properly
worded and suffer from lack of clarity. Under Rule 33 the Board can call for
information and documents from owners of rubber estates or any licensed dealer
or manufacturer relating to the stock of rubber held and sale of rubber etc.
Under el. (e) all manufacturers have to submit half yearly returns in form M
showing the total quantity of all rubber purchased or otherwise acquired and
consumed or used in the process of manufacture. Rule 33A provides for
production of accounts by an owner if he fails to furnish in time the return
referred to in sub-s. (4) of s. 12 or if he furnishes a defective return. The
Board can, after checking the amounts and after, making such further enquiry as
it may deem fit assess the amount payable under sub-s.(2) of s. 12. Similar
provision is made with regard to manufacturers by Rule 33B. Rule 33D, however,
is material and may be reproduced:
(1 ) "Every manufacturer shall by demand
notice sent through registered post or in such other manner as the Board may
direct be intimated of the amount assessed on the quantity of rubber acquired
during the periods specified in rule 33(e). On receipt of such notice, the
manufacturer shall pay to the Board the amount specified therein either in cash
at the Board's office at Kottayam or by money order or by 79 bank draft or
.cheque duly crossed and payable at Kottayam to the Secretary of the Board
within 30 days of the receipt of the said notice.
(2) On such demand being made, if a
manufacturer fails to pay the amount within the due date, the Board may take
steps to report the fact to the Central Government or the State Government
concerned for recovery of the outstanding amount as an after of land
revenue." Now the above rule seems to contemplate the filing of return
both by the owners of rubber estates and manufacturers. But under Rule 33D the
demand notice can be sent only to a manufacturer on receipt of which he must
make payment to the Board of the amounts specified therein. On his failure to
make such payment the Board can take steps for recovery of the amounts due as
arrears of land revenue by reporting to the Central Government or the State
Government as the case may be There is no such procedure prescribed with regard
to owners of estates. It would follow that under the rules the demand notice is
to be sent only to the manufacturers and the amounts of duty are to be realised
from them alone. The substantive provisions of sub-ss.
(4), (5) and (6) of s. 12 also contemplate
assessment being made with regard to the returns to be furnished by owners and
manufacturers. Any person aggrieved by an assessment has been given the right
of appeal to the District Judge. But as pointed out before, there is no
provision either in the statute or in the rules for a demand to be made and a
coercive process to be employed in the event of failure to make the payment.
That is done by Rule 33D alone from which it would be reasonable to conclude
that under the rules it is only the manufacturers who are liable to pay the
amount of duty. The rules can, therefore, be said to make a definite provision
with regard to the category of persons from whom the collection of the duty is
to be made, namely, the manufacturers.
For all the reasons given above the appeal
fails and it is dismissed with costs.
Y.P. Appeal dismissed.