Orient Weaving Mills (P) Ltd Vs. The
Union of India [1962] INSC 75 (28 February 1962)
28/02/1962 SINHA, BHUVNESHWAR P.(CJ) SINHA,
BHUVNESHWAR P.(CJ) KAPUR, J.L.
HIDAYATULLAH, M.
SHAH, J.C.
MUDHOLKAR, J.R.
CITATION: 1963 AIR 98 1962 SCR Supl. (3) 481
CITATOR INFO:
R 1963 SC 104 (12) RF 1963 SC1237 (8) R 1986
SC1541 (10) RF 1989 SC 644 (17)
ACT:
Central Excise--Power of Central Government
to grant exemption--Rule--Notification granting exemption to cooperative
society---Constitutional validity--Central Excises and Salt Act, 1944 (1 of
1944), ss. 37(2), cl. (xvii)--Central Excise Rules, 1944 r. 8(1)--Constitution
of India, Arts. 14, 19(1)(f) and (g),43.
HEADNOTE:
By r. 8 (1) of the Central Excise Rules,
1944, framed by the Central Government in exercise of its Power under s. 37(2)
cl. xvii of the Central Excises and Salt Act, 1944, "the Central
Government may from time to time, by notification .in the Official Gazette,
exempt subject to such conditions as may be specified in the notification any
excisable goods for the whole or any part of the duty leviable on such
goods." By two notifications issued under the said rule the Central
Government exempted cotton fabrics produced on power looms owned by
co-operative societies from the duty leviable thereon subject to certain
conditions.
Under s 38 of the Act the said rule and
notifications on publication in the Official Gazette had effect as if enacted
in the Act. The petitioners, apprehending loss of business in competition with
the fifth respondent, a co-operative society, challenged the-rule and the
notifications on the grounds (1 ) that the power of 'exemption conferred on the
Union Government violated Arts. 14, 19(1)(f) and (g) of the Constitution and
(2) that assuming that it dic not do so, the exemption granted by the
notifications was in excess of the power granted by r. 8(1).
Held, that the contentions were without
substance and must fail.
Rule 8 of the Rules was as much a part of
the. Act as s.37(2) cl. (xvii) and it was always open to the State to tax
certain classes of goods and not to tax others. It was the function of the
State to determine what and of taxes should be levied and in what manner.
Regard being bad to the directive principles contained in Art. 43 of the
Constitution, there was no doubt that the State in differentiating between
goods produced in big establishments and similar goods produced by small
power-loom weavers in a cooperative society, had made a classification that was
constitutionally valid. There could, therefore, be no excessive delegation of
the power to grant exemption.
It was fallacious to contend that exemption,
if at all, had to be granted in respect of any particular specified variety of
'cotton fabrics', and not with reference to persons producing them. The tax was
on the production of the goods but was payable by persons producing them. The
exemption granted was , therefore, within the terms of the notifications.
ORIGINAL JURISDICTION : Petition No. 110 of
1961.
Petition under Art. 32 of the Constitution of
India for enforcement of Fundamental Rights.
A. V. Viswanatha Sastri and R.
Gopalakrishnan, for the Petitioners.
K. N. Rajagopal Sastri, P. K. Chatterjee and
P. D. Menon, for the respondents.
1962. February 28. The Judgment of the Court
was delivered by SINHA, C. J. By this petition, under Art. 32 of the
Constitution, the petitioners challenge the constitutionality of certain
provisions of the Central Excises and Salt Act (1 of 1944) which will be
referred in the course of this judgment as the Act, read with r.8 of the
Central Excise Rules, 1944 (1960) and the notifications there under, to be
herein after set out. The first petitioner is the Orient 483 Weaving Mills
Private Ltd. (which will be termed hereinafter as the Company), and the second
petitioner is a director of the Company. The respondents to the petition are
(1) Union of India, through the Secretary to Government of India, Ministry of
Finance (Department of Revenue), New Delhi, (2) Secretary, Central Board of
Revenue, New Delhi, (3) Superintendent, Central Excise' Cuttack, (4) Collector,
Central Excise, Calcutta, (5) Board of Directors, Madhunagar Powerloom Weavers'
Cooperative Society Ltd., through its President (to be hereinafter referred to
as the Society).
The petition is founded on the following
allegations. The Company is incorporated under the Indian Companies Act, 1913
with its head office at Nayabazar. Cuttack. The second petitioner is the
director of the Company, which runs a weaving mill at Nayabazar in Cuttack.
There are 160 looms operating in the mill, and nearly 300 employees are
employed in the factory, which produces, on the average, about 45 lakh yards of
cloth (4 1/2 million yards). The paid-up capital of the Company is Rs,
7,10,6-00, divided into 7,100 shares of the value of Rs. 100 each. It has 8
directors, including a representative of the Government of Orissa. The Company
commenced production on October 1, 1955, and has been sustaining losses
eversince it started functioning "due to adverse circumstances in the
State of Orissa and due to the heavy taxation and duties". Eversince the
Company started production, it, has been paying excise duty-Rs. 2,16.,670 for
the year 195859, Rs. 1,82,529 for the year.
1959-60 and Rs. 2,15,500 for the year
1960-61. "Cotton fabrics" is one of the items in the first schedule
of the Act, which sets out the description of goods and the rate of duty
leviable under s. 3 of the Act. The petitioners chief grievance is that the respondent
No. 5, the Society, is being granted exemption 484 from the excise duty,
though, it is contended, it has installed 100 looms in the same premises and
100 workmen are employed therein. The authorised capital of the aforesaid
Society is Rs.2,40,000, divided into shares of the value of Rs. 100 each. It is
said to be a profit earning concern, whose profit is disposed of in accordance
with its bye-_law.
35. The Society.it is further contended, is
for all practical purposes Similarly situated alongwith the petitioner Company
in the matter of production, distribution and marketing of their produce. It is
further stated that the weavers of the Society stand on the same or similar
footing as the shareholders of the Company. The exemption was granted to the
Society in virtue of the Central Government Notification No. 74 of 1959, dated
July 31, 1959, and Notification No. 70 of 1960, dated April 30, 1960, issued by
the Ministry of Finance, Government of India, (Department of Revenue). The
notifications are in these terms "Government of India, Ministry of Finance
(Department of Revenue) New Delhi. The 31st July, 1959.rule 8 of the Central
Excise Rules 1944 as in force in India and as applied to the State of
Pondicherry, the Central Govt.
hereby exempt cotton fabrics produced by any
co-operative society formed of owners of cotton powerlooms, which is registered
or which may be registered on or before the 31st March, 1961 under any law
relating to cooperative societies, from the whole of the duty leviable thereon,
subject to the following conditions :(a) that every member of the co-operative
societies had been exempt from excise duty for three years immediately
preceding the date of his joining such society;
485 (b) that the total number of cotton power
looms owned by the co-operative society is not more than four times the number
of members forming such society;
(c) that a certificate is produced by each
member of the co-operative society from the State Govt. concerned or such
Officer as may be nominated by the State the number of cotton powerloons
in'-his ownership and actually operated by him does not exceed four and did not
exceed four at any time during the three years immediately preceding the date
of his joining the society, and that he would have been exempt from excise duty
even if he had not joined the co-operative society; and (d) that the exemption
shall be. available...
(i) for a period ending on the 31st July,
1962 in respect of registered co-operative societies which have commenced
production prior to the date of this notification; and (ii) for a period of
three years from the date of commencement of production in resPect of
cooperative societies which have been registered but have not commenced
production or which may be registered on or before the 31st March, 1961.
(No. 74/59) Sd/-Illegible S.K. Bhattacbarjee,
Deputy-Secretary to Govt. of India.
F. N. 74,/59/F. No. 13/59-CXrll".
"Government of India, I Ministry of
Finance (Department of Revenue) New, Delhi. The 10th April. 1960.
486 Notification Central Excise GSR. In
pursuance of sub-rule (1) of. rule 8 of the Central Excise Rules, 1944 as in
force in India and as applied to the State of Pondicherry and in supersession
of the Notification of the Govt. of India Ministry of Finance (Department of
Revenue) No. 74/59Central Excise dated the 31st July 1959 the Central Govt.
hereby exempts cotton fabrics produced on powerloom owned by any cooperative
society or owned by or allotted to the members of the society, which is
registered or which may be registered on or before the 31st March 1961 under
any law relating to co-operative societies from the whole of the duty leviable
thereon, subject to the following conditions :(a) that every member of the
co-operative society who has been a manufacturer of cotton fabrics on
powerlooms has been exempt from excise duty for three years immediately
preceding the date of his joining such society;
(b) that the total number of cotton
powerlooms owned by the co-operative society or owned by or allotted to its
members is not more than four times the number of members forming such society.
(c) that each member of the co-operative
society produce a certificate from the State Govt. concerned or such officer as
may bonafide member of the society and that the number of cotton powerlooms
owned by or allotted to him and actually operated by him does not exceed four
and did not exceed four at any time during the three years immediately
preceding the date of his joining the 487 society, and that he would have been
exempt from excise duty even if he had not joined the co-operative societies
and (d) that the exemption shall be available...
(i) for a period ending on the 31st' July
1962 in respect of registered cooperative societies which have commenced
production prior to the date of the notification; and (ii) for a period of
three years from the date of commencement of production in respect of
co-operative societies which have been registeredbut have not commenced
production or which may be registered on or before 31st March, 1961 No. 70/60
Sd./Illegible G. P. Durairaj, Under Secretary to the Govt. of India No. 70/60/P.
No. 13/1159 CXIII" The Company made a representation to the relevant
authorities but to no purpose. As the Company is to pay excise duty on the
"cotton fabrics" produced by it, its cost of production, as compared
to that of the Society, was higher by 12.5% in 1958 and 10% in 1959, with the
result that the, Company is at a disadvantage, as compared to the Society, in
the competitive market of Orissa. Due to heavier taxation on fine cloth, the
Company has abandoned the production of that quality and has restricted its
production to coarse and medium cloth. The apprehension of the Company is that
on account of the exemption granted to the Society, the Company's business will
be very adversely affected. It is contended that r. 8 of the Central 488 Excise
Rules, 1944, under the Act, vests the Government with unguided power wholly or
partially to exempt any goods from the duty leviable under the Act, and is, therefore
discriminatory as against the petitioner;' The Government notifications
exempting the Society or such other similars societies as may hereafter come
into existence, have the effect of violating the petitioners' fundamental
rights under Arts, 14 and 19(1)(f) & (g) of the Constitution. It is also
contended that the power conferred upon the Government under the Rules,
aforesaid, being unguided and uncontrolled, goes beyond the permissible limits
of a valid delegation, and is, therefore, void. The petitioners moved the High
Court of Orissa under Art. 226 of the Constitution, challenging the
constitutionality of the Government measures aforesaid, but the Court refused
to grant any relief on the round that it had no jurisdiction to issue any writ
to the 'Union Government in New Delhi. In the premises, the petitioners pray
for a declaration that the levy of excise duty on the piece-goods produced by
the petitioners he declared to be unconstitutional, and for a direction that
the respondents 1-4 treat them on the same footing as the, society and exempt
them from the payment of the excise duty, as also for an appropriate writ or
order for the, enforcement of their fundamental right guaranteed under Arts. 14
and 19(1)(f) & (g) of the Constitution.
The application was opposed on behalf of the
respondents 1
4. and an' affidavit sworn to by an Under
Secretary, Ministry of Finance (Department of Revenue) Government of India, was
filed in opposition. It was stated on behalf of the Union Government and the
Revenue that the relevant provisions of the Act and the Rules, and the
notifications which have been impugned by the petitioners, did not infringe any
provisions of the Constitution, and that the exemption granted to the society
was in' pursuance of the well recognised 489 principle, being acted upon by the
Government, to confer 'Self-employment benefits in the interest of small
producers, and with a view to encourage cottage industries and small scale
industries employing a limited number of hands. The Society, it was contended,
was not the owner of the powerlooms, but each weaver was the owner of not more
than 4 powerlooms: the Society was run on a cooperative basis for the benefit
of the weavers, who shared the profits earned by working on a cooperative
basis, by sale of the cloth produced by each weaver on his looms, after paying
for the services rendered by the Society to its members; hence it was not
correct to characterize the Society as running. a mill with an installed
capacity of, 100 looms. It is further stated that the Society, as such, is not
a profit earning concern , as wrongly contended. on behalf of the petitioners.
The Society, under the sanctioned scheme, purchases the cloth produced by the
weaver on his looms at a price equivalent to the cost of the raw materials,
cost of the services rendered by the Society and cost of labour of the weaver,
plus a margin of profit for him. The Society undertakes the sale of the
piece-goods produced by the weaver without making any profit to itself, 'except
that it levies handling charges, which ire paid by the buyer. If the Society
makes any savings out of the handling charges thus, realised, the weaver gets a
share, of the savings by way of divided Unlike the Company, the Society is not
the, owner of the looms. The Society is only a servant of the weaver owners and
renders them services, which they need, to help them to market their produce'..
The Society is, thus, only an organization which assists all individual owners
of looms in the production and sale of the products of their respective looms,
for their exclusive benefit. It is, therefore,, claimed that-the exemption
granted in. respect of the goods produced in co-operative society of which the
490 weavers are the owner members, each individual not possessing more than 4
looms, is in pursuance of the Notification No., 70/60 dated April 30, 1960,
issued under r. 8, under the provisions of the Act, and is based on a valid
classification, and does not infringe the provisions of Arts. 14 and 19(1)(f)
& (g) of the Constitution.
On those pleadings and on the arguments at
the Bar, the following points arise for decision in this case, namely, (i)
whether the power of exemption conferred upon the Union Government violates
Arts. 14 and 19(1)(f) & (g) of the Constitution on the ground that it is
uncontrolled and unguided, and (2) whether, assuming that the power is not
unconstitutional, the exemption granted by the notifications, aforesaid, is in
excess of the power granted by r. 8.
Before discussing the vires of the law, or of
the notification issued under the Act, read with r.8 aforesaid, it is necessary
to examine the relevant provision,% of the Act and the Rules. The Act
consolidates and amends the law relating to central duties of excise on goods
manufactured or produced In certain parts of India, and to salt. Under s. 2(d),
"excisable goods" means "'goods specified in the First Schedule
as being subject to a duty of excise and includes salt". The first
schedule contains the description of goods and rates of duty leviable under s.
3, which is the charging section and is in these words:
"3(1) There shall be levied and
collected in such manner as may be prescribed duties of excise on all excisable
goods other than salt which are produced or manufactured in India and a duty on
salt manufactured in, or imported by land into, any part of India, as, and at
the rates, set forth in the First Schedule.
491
(IA)................................................
(2).................................................
(3) Different tariff values may be fixed for
different class or description of the same article." Item No. 19 in the
First Schedule is "cotton fabrics", and means all varieties of
fabrics manufactured either wholly or partly from cotton, with certain specified
exemptions, including fabrics manufactured on handloom, and then follow the
description of different kinds of cotton fabrics, with their relative rates of
duty. Section 37 authorises the Union Government to make rules to carry into
effect the purposes of the Act. By sub-s. (2) of s. 37, it is provided that
rules may be framed providing for a number of matters recited therein,
including cl. (xvii), which is in these terms:
"exempt any goods from the whole or any
part of the duty imposed by this Act." In pursuance of this rule making
power, the Union, Government has made Rules. For the purposes of this case, it
is only necessary to quote r. 8, which is as follows:
"Power to authorise exemption from duty
in special cases:
(1) The Central Government may from time to
time, by notification in the Official Gazette, exempt subject to such
conditions as may be specified in the notification any excisable goods from the
whole or any part of the duty leviable on such goods, (2) The Central Board of
Revenue may by special order in each case exempt from the payment of duty
tinder circumstances of an exceptional nature, any excisable goods." 492
In pursuance of the powers conferred on the Central Government by sub-r.(1) of
r.8, the notifications re formed to above were issued by the Central
Government. By virtue of s. 38 of the Act, all rules made and notifications
issued by the Central Government, as aforesaid, are required to be published
'in the Official Gazette, and thereupon those rules and notifications
"shall have effect as if enacted in this Act". Thus it is manifest
that the notifications and the rule impugned in this case have been
incorporated into the Act itself, and have become part of the taxing statute.
It is also noteworthy that the petitioners
have not challenged the vires of the Act. The petition is directed against r.8
and the notifications aforesaid, exempting the tools produced by the
co-operative societies, like the 5th respondent, from payment of the excise
duty. That being so it is a little difficult to appreciate the first prayer of
the petitioners, asking for a declaration that the levy of excise duty on the
piece goods produced by the petitioners be declared to be unconstitutional. It
is one thing to attack the constitutionality of the provisions of the Act authorising
the levy of the excises duty on the petitioners it is quite a different thin,
to complain of the exemption granted in respect of the goods produced by the
5th respondent. the vires of the Act itself has not been challenging we need
not say anything more on that aspect of a possible controversy which has not
been actually raised in the petition.
The petition is substantially based upto the
contention that r.8 suffers from the vice of excessive delegation of powers to
the Central Government to exempt partly or wholly any excisable goods, and,
secondly, that the power even it' constitutional has been invalidly exercised
in so far as the notifications aforesaid containing the exemption operating in
favour of the 5th respondent have been Made. In our opinion, there is no
substance in 493 either of the two contentions. Rule 8 is as much a part of the
statute as s. 37(2) cl. (xvii). It is always open to the State to tax certain
classes of goods and not to tax others. The legislature is the best judge to
decide as to the incidence of taxation, as also as to the amount of tax, to be
levied in respect of different classes of goods. The Act recognizes and only
gives effect to the well established principle that there must be a great deal
of flexibility in the incidence of taxation of a particular kind. It must vary
from time to time. as also in respect of goods produced by different processes
and different agencies. The same principle his been recognised in s.23 of the
Sea Customs Act (VIII of 1878), which has been applied to excise duty also, by
virtue of s. 12 of the Act. The latter section has authorized the Central
Government to apply the provisions of the Sea Customs Act, to excise duty
imposed by the Act, with such modifications aDd alterations as it may consider
necessary or desirable to adapt them to circumstances. It is a function of the
State in order to raise revenue for State purposes, to determine what kind of
taxes shall be levied and in what manner. Its function therefore, is to raise
revenues for public purposes. The State naturally is interested in raising all
the revenue necessary for public purposes, without sacrificing the legitimate
interests of persons and groups, who deserve special treatment at the hands of
the State for reasons, which the State may determine, entitling them to be
placed in a special class.
The Directive Principles of the Constitution,
contained in Part IV., lay down the policies and objectives to be achieved, for
,promoting the welfare of the people. In the ' context of the present
controversy, the following words of Art. 43 are particularly apposite:
"............ and in particular, the
State shall endeavor to promote cottage industries 494 on an individual or
co-operative basis in rural areas." It has rightly been pointed out in the
affidavit filed on behalf of the respondents 1-4 that. the exemption granted by
the impugned notifications is meant primarily for the protection of petty
producers of cotton fabrics not owning more than four power looms, from.
unreasonable competition by big producers, like the petitioner Company. The
State has, therefore, made a valid classification between goods produced in big
establishments arid similar goods produced by small powerloom weavers in the
mofussil, who are usually ignorant, illiterate and poor and suffer from
handicaps to which big establishments like the petitioner Company are not
subject. It has also been pointed out that the exemption was available to
individual weavers, who employed not more than five looms on their own account.
The fact that they have banded together in a co-operative effort to increase
their efficiency and to take advantage of State aid should not count against
them. It must, therefore, be held that there is no room for the contention that
there has been excessive delegation of power to exempt.
It was next contended that if it were held
that r. 8 is valid and constitutional, the notifications are bad in so far as
they exempt certain classes of persons and not classes of goods from the excise
duty. It is argued that the tax is a duty of excise on Ire any goods", and
item 12 has reference to a particular variety of goods, namely, 'cotton
fabrics'; the exemption if any could have been granted in respect of any
particular specified variety of 'cotton fabrics' and not with reference to the
persons producing the same variety of those fabrics. There is apparently &
fallacy in this argument. The tax is on the production of any goods, but it is
payable by persons producing such goods. The exemption also is 495 with reference
to such goods as come within the description of excisable goods. The respondent
No. 5 has been exempted from payment of excise duty in respect of goods
produced by the weavers. It has not been exempted from the payment of a
personal tax, like Income Tax. The exemption must, therefore, have reference to
the same kind of tax which would otherwise have been leviable but for the
exemption.
From the notifications set out above, it is
manifest that the Government has exempted cotton fabrics produced on
power-looms owned by a co-operative society, and in the present instance owned
by the members of the Co-operative Society. It has not been contended before us
that the conditions laid down for granting the exemption have not been
fulfilled by the members of the Cooperative Society, the respondent No. 5.
Hence, the exemption granted is within the terms of the notifications
aforesaid, which have effect as if enacted as a part of the Statute. The vires
of the Statute, as already indicated, has not been questioned.
It must, therefore, be held that there is no
merit in this petition. It is, accordingly, dismissed with costs to the
answering respondents.
Petition dismissed.
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