Union of India & Ors Vs. Maharaja
Krishnagarh Mills Ltd. [1961] INSC 16 (18 January 1961)
SINHA, BHUVNESHWAR P.(CJ) SINHA, BHUVNESHWAR
P.(CJ) DAS, S.K.
SARKAR, A.K.
AYYANGAR, N. RAJAGOPALA MUDHOLKAR, J.R.
CITATION: 1961 AIR 683 1961 SCR (3) 524
CITATOR INFO :
R 1964 SC 207 (10)
ACT:
Cotton Excise Duty-Agreement between
President and Raj Pramukh of Part B State-Right of Union to collect arrears of
such duty Payable to the State-Constitution of India, Arts. 277, 278.
HEADNOTE:
The question for determination in the appeal
was whether the Union of India was entitled to levy and recover arrears of
excise duty on cotton cloth for the period April 1, 1949, to March 31, 1950,
payable by the respondent, a cloth mill in the State of Rajasthan, under the
Rajasthan Excise Duties Ordinance, 1949. After the coming into force of the
Indian Constitution and the extension of the Central Excise and Salt Act, 1944,
and the rules framed there under to the State of Rajasthan by s. II of the
Finance Act of 1950, the duty in respect of cloth manufactured on and from
April 1, 1950, became payable under that Act. The appellant Union, however,
claimed that as a result of the agreement entered into on February 25, 1950, by
the President of India with the Rajpramukh of Rajasthan under Art. 278 and Art.
295 of the Constitution, the Union of India became entitled as from April 1,
1950, to claim and recover all arrears of excise duties which the State of
Rajasthan was entitled to recover from the respondent before the Central Excise
and Salt Act, 1944, was extended to Rajasthan. Notice having been accordingly
served on the respondent demanding payment of the outstanding amount of Rs.
1,36,551-12 as payable by it, it moved the High Court under Art. 226 of the
Constitution.
On a reference by the Division Bench which
heard the matter in the first instance, the Full Bench finding in favour of the
respondent held that Art. 277 was a complete refutation of the said claim by
the Union and Art. 278 and the said agreement were overridden by it.
Held, that the provisions of Arts. 277 and
278 of the Constitution, properly construed, leave no manner of doubt that Art.
277 was in the nature of a saving provision, subject in terms to the provisions
of Art. 278, permitting the States to levy a tax or duty which, after the
Constitution could be levied only by the centre. But Art. 277 had to yield
place to any agreement in respect of such taxes and duties made between the
Union Government and the Government of a Part B State under Art. 278.
Since there could not be the least doubt in
the instant case that the agreement between the President and the Rajpramukh of
Rajasthan conceded to the Union the right to levy and collect the arrears of
the cotton excise duty in Rajasthan, the High Court was wrong in taking a
contrary view of the matter.
525
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 252 of 1956.
Appeal from the judgment and decree dated
September 29, 1953, of the Rajasthan High Court (Jaipur Bench) in Civil Writ
Application No. 28 of 1951.
Gopal Singh and T. M. Sen, for the
appellants.
S. N. Andley, J. B. Dadachanji and P. L.
Vohra,for the respondent.
1961. January 19. The Judgment of the Court
was delivered by SINHA, C. J.-This appeal on a certificate granted by the
Jaipur Bench of the High Court of Judicature for Rajasthan that " the case
involves a substantial question of law as to the interpretation of Arts. 277,
278, 294 and 295 of the Constitution of India and the case is a fit one for
appeal to the Supreme Court under Art. 132(1) and also under Art.
133(1)(c) of the Constitution of India"
is directed against the judgment dated September 29, 1953, of the High Court of
Judicature for Rajasthan at Jaipur to the effect that the appellant, the Union
of India, was not entitled to levy and recover arrears of excise duty on cotton
cloth for the period April 1, 1949, to March 31, 1950, from the respondent, the
Maharaja Krishnagarh Mills Ltd.
The facts of this case, which have not been
in dispute at any stage of the proceedings, may shortly be stated as follows.
The respondent is a cloth mill located in Krishnagarh in District Jaipur in the
State of Rajasthan.
It had a stock of manufactured cloth on April
1, 1949, and also manufactured cloth during the period, April 1, 1949, and March
31,1950. In respect of such cloth an excise duty became payable under the
Rajasthan Excise Duties Ordinance, 1949 (XXV of 1949), at rates set forth in
the schedule to the Ordinance. The sum of Rs. 1,56,291 odd became payable on
that account out of which only a sum of Rs. 19,739 odd was paid to the
Government of Rajasthan, thus leaving the sum of Rs. 1,36,551 odd outstanding
against the respondent.
After the Indian Constitution came into
effect the Central Excise and 526 Salt Act, 1944, and the rules framed there
under were extended to the State of Rajasthan by s. 11 of the Finance Act of
1950. Hence, the duty became payable in respect of the cloth manufactured on
and from April 1, 1950, under the provisions of that Act. The appellant claimed
that as a result of the agreement between the Government of India and the State
of Rajasthan, to be noticed hereinafter in detail, and of the Constitution, the
Union of India became entitled to realise the arrears of the excise duty in
respect of the cloth manufactured by the respondent before April 1, 1950.
In enforcement of that claim the
Superintendent of Central Excise, Jaipur, served a notice dated February 16,
1951, on the respondent demanding payment of the outstanding amount of Rs.
1,36,551 odd. The respondent thereupon filed a writ petition in the High Court
of Rajasthan, Jaipur, under Art.
226 of the Constitution against (1) the Union
of India, (2) the Central Board of Revenue, Delhi, (3) the Collector of Central
Excise for Rajasthan, Delhi, and (4) the Superintendent of Central Excise,
Jaipur, who are the appellants before us, praying for a writ of prohibition
against them prohibiting them from imposing, levying or collecting any tax or
duty by way of excise as also for any appropriate direction, order or writ. The
writ petition was founded on the contentions that the notice of demand served
upon the respondent as aforesaid was illegal and unauthorised on the ground (1)
that the Central Government had no jurisdiction to levy any tax before January
26, 1950, (2) that the Central Excise and 'Salt Act was not in force in
Rajasthan before April 1, 1950, and (3) that without the application of the
rules framed by the Central Government under s. 37 of the Central Excise and
Salt Act, 1944, to Rajasthan no duty could be imposed, levied or collected and
those rules were made applicable to Rajasthan only on December 16, 1950.
On behalf of the appellants, who were the
respondents in the High Court, it was contended that it was got correct to say
that the rules framed under s, 37 527 of the Central Excise and Salt Act, 1944,
were made applicable to the State of Rajasthan by virtue of the notification
dated December 16, 1950, and it was asserted that those rules became applicable
to the State of Rajasthan with effect from April 1, 1950, as a result of s. 11
of the Finance Act, 1950. It was also contended that by virtue of s. 3 of
Rajasthan Excise Duties Ordinance (XXV of 1949) promulgated by His Highness the
Rajpramukh of Rajasthan on September 5, 1949, excise duty was levied on cloth
and other articles produced and manufactured in Rajasthan on and after April 1,
1949, at the rates set forth in the first schedule of the said Ordinance. It
was also contended that in pursuance of Arts. 278 and 295 of the Constitution
the President of India had entered into an agreement with the Rajpramukh of
Rajasthan on February 25, 1950, whereby the parties agreed to accept the
recommendations of the Indian States Finance Enquiry Committee, 1948-49,
contained in part I of its report, read with chapters 1, 11 and III of part II
of its report, in so far as they applied to the State of Rajasthan together
with the recommendations contained in Chapter VIII of part 11 of the said
report. By virtue of the said agreement the Union of India became entitled to
claim and recover all excise duties, whether assessed or unassessed, which the
State of Rajasthan was entitled to recover from the respondent as from April 1,
1949, before the Central Excise and Salt Act, 1944, was extended to the State
of Rajasthan, as aforesaid.
The matter was first heard by a Bench
consisting of Ranawat and Sharma, JJ., which, in view of the importance of the
points involved in the case, referred the following two points for decision by
a larger Bench by its judgment dated November 5, 1951:
" 1. Whether by virtue of Articles 278,
279 and 295 of the Constitution of India and the agreement entered into between
the President of India and the Rajpramukh of Rajasthan on the 25th of February,
1950, the Union of India is entitled to levy and recover arrears of excise duty
on cloth held in stock or manufactured before the 1st of April, 1950, 68 528 in
case excise duty thereon was payable to the State of Rajasthan under the
provisions of the Rajasthan Excise Duties Ordinance No. 25 of 1949 ?
2. Whether the publication of the Government
notification by which the Jaipur Excise Rules were adopted under the provisions
of the Rajasthan Excise Ordinance was sufficient publication within the meaning
of s. 28 of the Rajasthan Excise Duties Ordinance No. 25 of 1949, and whether
the publication of the aforesaid notification should be deemed to have been
properly authenticated by authentication of the publication of the Ordinance.
If not, whether want of authentication would have the effect of invalidating
the said Excise Rules ? " The case was then heard by a Full Bench
consisting of Wanchoo, C.J., Ranawat and Dave, JJ. The judgment of the Court
was delivered by the learned Chief Justice on November 24, 1952, in substance
upholding the contentions raised on behalf of the petitioner before the High
Court, now respondent. The High Court came to the conclusion that Art.
277 of the Constitution was a complete answer
to the claim of the Government of India to collect the dues in question for any
period anterior to April 1, 1950. This conclusion was based on the reasoning
that the agreement aforesaid between the Government of India and the Government
of Rajasthan was in effect overridden by Art. 277 and that the agreement
contemplated by Art. 278 was in respect of a duty which was leviable by the
Government of India. By virtue of Art. 277 of the Constitution cotton excise
duty was actually leviable by the State of Rajasthan up to March 31, 1950,
because Parliament made the contrary provision only from April 1, 1950.
Therefore, it was further observed by the High Court that the effect of Art.
277 on Art 278 of the Constitution was that cotton excise duty could not be
said to be leviable by the Government of India so far as the State of Rajasthan
was concerned up to March 31, 1950. In view of that conclusion it was further
held that the right to collect the arrears of excise duty in question could not
be held to have been transferred to the Union of India 529 by virtue of the
agreement aforesaid of February 25, 1950.
The first question referred to the Full Bench
was thus answered in favour of the petitioner in the High Court. The second
question relating to the publication and authentication of the Excise Rules was
also answered in favour of the petitioner, now respondent. The High Court held
that the Hindi Gazette relied upon on behalf of the Government did not contain
any authentication of the Rules and did not show by whose authority they had
been published.
This conclusion was based on the ground that
the contention raised on behalf of the Government that the publication in the
Gazette and the authentication therein did not only apply to the Ordinance but
covered the Rules also, was not correct. The answers given by the Full Bench to
the questions referred to it by the Division Bench were returned to the Bench
concerned and the Bench, in pursuance of the opinion of the Full Bench, ordered
by its judgment dated September 29, 1953, that "a direction be issued
against the opposite party not to recover from the petitioner the amount of Rs.
1,36,551-12 as per their notice of demand of the 16th of February, 1950. The
petitioner shall get costs of this petition from the respondents." The
Union of India applied for and obtained the necessary certificate, as quoted
above, from the High Court of Rajasthan. That is how the matter is before this
Court.
It is manifest that if the opinion of the
Full Bench on the second question referred to as to the publication and
authentication of the Rules is correct, then no other question will arise for
determination by this Court. It' the Rules under the Rajasthan Excise Duties
Ordinance, XXV of 1949, had not been properly promulgated and authenticated,
then the Ordinance by itself could not be sufficient for the levy and
collection of the tax sought to be imposed. It is, therefore, necessary for us
first to determine that controversy. At the outset, it may be mentioned that
the writ petition filed by the respondent in the High Court under Art. 226 of
the Constitution did not allege any facts bearing on this part of the
controversy.
530 Thus, there was no foundation laid in the
pleadings for a contention that the Rules aforesaid had not been promulgated on
a proper authentication. As already indicated, the petition was founded only on
the lack of power in the Union Government to levy and collect the excise duty
with reference to the provisions of the Central Excise and Salt Act of 1944 and
the Rules framed thereunder. There is no reference to the provisions of
Ordinance XXV of 1949 promulgated by the Rajasthan Government. It was only in
the reply to the writ petition made by the respondent in the High Court that
reliance was placed upon the said Ordinance and the Rules framed there under.
We do not find any pleadings, or any petition by way of amendment of the
pleadings, in the record of this case raising the contention that the Rules
framed under the Ordinance aforesaid had not been promulgated on a proper
authentication. The High Court, therefore, on the face of the pleadings, was
not justified in permitting the petitioner before it to raise this contention,
but our decision need not be rested on the lack of pleadings only. We have
examined the Rajasthan Gazette, the Hindi version of which is entitled
Rajasthan Raj Patra published by authority of the Rajasthan Government dated
Margashirsa Krishna 7, Saturday, Samvat 2006, containing the notification dated
Jaipur, September 15, 1949, the preamble of which states that Shriman
Rajpramukh had made and promulgated the following Ordinance which was being
published for the information of the public and it purports to have been
authenticated by the Law Secretary, Sanyukta Rajasthan Sarkar. Under that
authentication follows the Ordinance, XXV of 1949, dated September 5, 1949.
The Ordinance goes to the end of page 169 and
from the next page 170 ending with page 172 appear the Rules. They begin with
the declaration which may be translated as follows:
" In exercise of the powers conferred
under ss. 5 and 26 of the Rajasthan Excise Duties Ordinance of 1949 the
Rajasthan Government orders that till new Rules are framed under the said
Ordinance, the Rules framed under the Jaipur Excise Duties Act 531 of 1945
known as the Jaipur Excise Duty Rules of 1945 will be in force throughout the
whole of Rajasthan with necessary modifications and for this purpose will be
treated as made under the Rajasthan Ordinance." It would thus appear that
the authentication by the Law Secretary appearing on the first page of the
Gazette as aforesaid was intended to govern not only the Ordinance in question
but also the Rules which had been promulgated there under. Apparently, s. 28 of
the Ordinance which ran" All rules made and notifications issued under
this Ordinance shall be made and issued by publication in the Rajasthan Gazette.
All such rules and notifications shall thereupon have effect as if enacted in
this Ordinance "was understood to authorise such a mode of promulgation
and authentication. The authority that promulgated the rule having intended the
signature of the Law Secretary appearing at the beginning of the publication as
an authentication of the rules, we are of opinion that the formal requirements
of s. 8 (2) of the Ordinance V of 1949 were satisfied. Whether the
authentication appears in the beginning of the notification or at the end of it
is not material so long as it is clear on a reference to the publication in the
Gazette that the matter is substantially covered by the authentication, whether
appearing at the beginning or the end of the notification. The High Court,
therefore, was in error in coming to the conclusion that the authentication
covered the Ordinance proper without the Rules framed there under. The correct
conclusion from the record as it stands is that the authentication covers the
entire notification including both the Ordinance proper and the Rules framed there
under which became parts of the Statute.
In view of this conclusion it becomes
necessary now to examine the ratio of the decision of the High Court on the
first question referred to it, namely, the authority of the Union of India to
realise the arrears of the duty in question. It is clear in view of our
conclusion 532 that the Ordinance and the Rules framed there under have been
properly promulgated in the Official Gazette, that the Government of Rajasthan
was entitled to levy and collect the duty of excise in respect of. cotton cloth
from the respondent. As a matter of fact, the respondent appears to have paid
about Rs. 19,739 odd out of the duty payable by it to that Government. The remaining
amount for which the notice of demand had been issued by the official of the
Government of India was certainly payable to the Government of Rajasthan. We
have, therefore, to consider whether the Government of India by any process of
law stepped into the shoes of the Rajasthan Government in respect of the
arrears aforesaid. In this connection reliance was placed on the agreement
between the President of India and the Rajpramukh of Rajasthan dated February
25, 1950. The relevant provisions of the agreement are these:
" Whereas provision is made by Articles
278, 291, 295 and 306 of the Constitution of India for certain matters to be
governed by agreements between the Government of India and the Government of a
State specified in Part B of the First Schedule to the Constitution............
Now, therefore, the President of India and
the Rajpramukh of Rajasthan have entered into the following agreement, namely:
The recommendations of the Indian States Finance Enquiry Committee, 1948-49
(hereafter referred to as the Committee) contained in Part I of its Report read
with Chapters 1, 11 and III of Part 11 of its Report in so far as they apply to
the State of Rajasthan (hereafter referred to as the State) together with the
recommendations contained in Chapter VIII of Part 11 of the Report, are
accepted by the Parties hereto, subject to the following modifications,
namely............
The modifications are not material to this
case. The agreement thus incorporates as terms of the agreement the report of
the Committee, the relevant portion of which is in these terms:533 " With
effect from the prescribed date, the Centre will take over all 'federal'
sources of Revenue and all 'federal' items of expenditure in State together
with the administration of the Departments concerned. The Centre must also take
over all current out standings (including pending assessments, refunds, and
arrears), liabilities, claims, etc., and all productive and unproductive
capital assets connected with these Departments. " It is common ground
that "federal sources of revenue" include the duty of excise in
question. It is also clear that all outstanding dues from assessees including
pending assessments and arrears have been by the terms of the agreement made
over to the Centre. This agreement, as the preamble itself indicates, has been
made in accordance with the provisions of Arts. 278 and 295 of the
Constitution.
The relevant portions of Art. 278 are as
under:" 278. (1) Notwithstanding anything in this Constitution, the
Government of India may, subject to the provisions of clause (2), enter into an
agreement with the Government of a State specified in Part B of the First
Schedule with respect to(a) the levy and collection of any tax or duty leviable
by the Government of India in such State and for the distribution of the
proceeds thereof otherwise than in accordance with the provisions of this
Chapter;......
and, when an agreement is so entered into,
the provisions of this Chapter shall in relation to such State have effect
subject to the terms of such agreement." It is noteworthy that the
provisions of Art. 278 override pro tanto other provisions of the Constitution
including Art. 277 and the terms of the agreement override the provisions of
the Chapter, namely, Chapter I of Part XII.
In this Chapter are contained Arts. 264 to
291. Thus, on a construction of the pro. visions of Arts. 277 and 278, it is
clear that in the absence of any agreement between the Government of India and
the Government of a State specified in Part B, duties of customs which
immediately before 534 the commencement of the Constitution were being lawfully
levied by the Government of such a State continue to be levied by that State
until provision to the contrary is made by Parliament by law, notwithstanding
that such a duty is mentioned in the Union List. Article 277, therefore, is in
the nature of a saving provision permitting the States to levy a tax or a duty
which, after the Constitution, could be levied only by the Centre. But Art. 277
must yield to any agreement made between the Government of India and the
Government of a State in Part B in respect of such taxes or duties, etc. The
pro. vision to the contrary contemplated by Art. 277 was made by the Finance
Act, XXV of 1950, s. 11, which extended the Central Excise and Salt Act, 1944,
along with other Acts to the whole of India except the State of Jammu and
Kashmir. But that section has effect only from April 1, 1950, and therefore
does not apply to the arrears of duty of excise now in controversy. The
agreement envisaged by Art. 278 was entered into as aforesaid on February 25,
1950. That agreement conceded to the Centre the right to levy and collect the
arrears of the duty in question. The reasons given by the High Court for the
conclusion that in spite of Art. 278 read with the agreement aforesaid, the
Union Government was not entitled to realise the arrears are-(1) that the
agreement does not contain any specific provision about levy and collection of
cotton excise duty in Rajasthan, (2) that the mere approval in the agreement of
the principles set out in the report is not enough in view of Art. 277 which
made a distinctly different provision from that contemplated in the report and
(3) that the agreement could be only with respect to a duty which was leviable
by the Government of India. In our opinion, none of these reasons aforesaid can
stand in the way of the Union of India. Though the agreement does not in terms
refer to levy and collection of cotton excise duty in Rajasthan, it is clear
that the agreement has to be read with the relevant portions of the report
quoted above. So read, there cannot be the least doubt that cotton excise duty
in Rajasthan, as a " federal 535 source of revenue," is also covered
by the agreement. Nor is it correct to say that the agreement read with the
report is not enough to override the provisions of Art. 277. The agreement read
with Art. 278, as already indicated, in terms, overrides the provisions of Art.
277. The only other reason which weighed with the High Court in getting over
the terms of Art. 278 cannot also hold good. That a duty of the kind now in
controversy on the date of the agreement after coming into force of the
Constitution is leviable only by the Government of India even in respect of the
State of Rajasthan is clear beyond all doubt. The Union List only, namely,
entry 84 in the Seventh Schedule, authorises the levy and collection of the
duty in question. Neither the State List, List II, nor the Concurrent List,
List III, contains any such authorisation. It is true that Art. 277 has saved,
for the time being, until Parliament made a provision to the contrary, the
power of the State of Rajasthan to levy such a duty, but that is only a saving
provision, in terms subject to the provisions of Art. 278.
Thus, the combined operation of Arts. 277 and
278 read with the agreement vests the power of levy and collection of the duty
in the Union of India. It is only in the absence of an agreement like the one
we have in this case that the Rajasthan Government could continue to levy and
collect the duty in question. The agreement between the two Governments
completely displaced the operation of Art. 277 in regard inter alia to the levy
of this duty so far as the State of Rajasthan is concerned. It is clear,
therefore, that the High Court was in error in holding that Art,. 277 was any
answer to the claim of the Government of India and should override the
provisions of Art. 278 read with the agreement.
On a proper construction of these provisions,
in our opinion, the result is just to the contrary. In this view of the matter,
it is not necessary to consider the other arguments advanced on behalf of the
appellants, whether Art.
295 should prevail over Art. 277.
For the reasons aforesaid, this appeal is
allowed and the decision of the High Court set aside. The result 69 536 is that
the writ petition filed by the respondent in the High Court stands dismissed
with costs here and in the High Court.
Appeal allowed.
Back