PETITIONER: M. K. PAPLAH & SONS Vs. RESPONDENT: THE EXCISE COMMISSIONER & ANR. DATE OF JUDGMENT20/02/1975 BENCH: MATHEW, KUTTYIL KURIEN BENCH: MATHEW, KUTTYIL KURIEN KRISHNAIYER, V.R. GOSWAMI, P.K. CITATION: 1975 AIR 1007 1975 SCR (3) 607 1975 SCC (1) 492 ACT: Mysre Excise Act, 1965. Sections 16, 22 and 23 read with Mysore Excise (Distillery and Warehouse) Rules, 1967 and with Mysore Excise (Excise Duties) Rules, 1968-Excise duty. levy of Removal of arrack from Government warehouses after the purchase of the same, if attracts liability to pay excise duty. Mysore Excise Act, 1965, Secs. 22 and 71- Delegation of power to fix rates of excise duty to Government by making rules-Legislature, if has abdicated its essential legislative function-Rule-making power, whether provides the necessary check. Karnataka Sales Tax Act. 1957. Secs. 2, 5 and 19-Levy of sales tax upon sale of arrack made by Government to licensees-Imposition of liability to rates tax, if covered by Entry 54, List II, Schedule VII of the Constitution. HEADNOTE: The appellant. an excise contractor secured the privilege of vending arrack in retail in certain taluks in the State of Karnataka for a period of 18 months beginning from 28-12- 1967 and ending on 30-6-69. He purchased attack from the Government at a price of 17 paise per litre and the Government collected besides the sale price of arrack. excise duty. health cess and education cess. 'rho Government also collected sales tax on the sale price of attacks on excise duty. on health cess and on education cess for the period from 28-12-1967 to 31-1-1968 and made similar demands for the month of February. 1968 also. The appellant and other excise contractors filed writ petitions in the High Court at Karnataka challenging the validity of the levy and collection of excise duty, education cess. health cess and sales tax. The High Court accepted some of the contentions of the appellant, granted him reliefs on that basis but rejected the other prayers. The appellant has filed these appeals on the basis of certificates granted by the High Court against the order. It was contended for the appellant (i) that no excise duty can be levied on a licensee in respect of the quantity of arrack purchased by him from Government depots, (ii) that the. power to fix the rate of excise duty conferred under s.. 22 of the Mysore Excise Act of 1965 on the Government was bad for the reason that it was an abdication by the state legislature of its essential legislative function and (iii) that no sales tax could be levied on the price for sale of arrack since S. 19 of the Mysore Sales Tax Act, 1957 under which the tax was levied was beyond the legislative competence of the state legislature. Rejecting the contentions and dismissing the appeals, HELD : (i) It is clear from the return filed before the High Court that the Government purchases arrack from the distillers and keeps it in the warehouses established or licensed under s. 16 and that any removal of arrack after the purchase of the same will attract the liability to pay excise duty. Section 23 provides that excise duty shall be levied on the excisable article issued from a warehouse also. It cannot be said that a warehouse established or licensed under S. 16(e) is not warehouse within the meaning of that expression in s. 23. [609G-610A] (ii) The High Court held that the preamble of the Act would serve as a guidance to fix the rates of excise duty. It cannot be said with certainty that the preamble of the Act gives any guidance for fixing the rate of excise duty. But that does not mean that the legislature here has no control over the delegate. In this case, a. 71 of the Act which provides for the rule-making power imposes the necessary check upon) the wide power given to the Government to fix the rate. The laying of rules before the legislature provides control over delegated legislation. Again the legislature may also retain its control over its delegate by exercising its power of repeal the power to fix the rate of excise duty conferred on the Government by s. 22 is valid. [ 6140E-F; 614 E-F] 608 Corporation of Calcutta & Anr. v. Liberty Cinema, [1965] 2. S.C-R 477, Batwrsi Das v. State of Madhya Pradesh, [1959] S.C.R. 427, Municipal Board, Hapur v. Raghuvendra Kripal [1966] 1 S.C.R. 1950, Devi Dass Gopal Krishan v. State of Punjab, [1967] 3 S.C.R- 557, Municipal Corporation of Delhi v. Birla Cotton Spinding and Weaving Mills, [1968] 3 S.C.R. 251, Sita Ram Bisliambhar Dayal v. State of U.P. [1972] 2 S.C.R. 141, Minister of Health v. The King, [1931] A.C. 524, Institute of Patent Agents v. Joseph Lockwood, [1894] A.C. 347 and Cobb & Co. v. Kropp, [1967] 1 A.C. 141 (P.C.), referred to. (iii) Section 19 of the Karnataka Sales Tax Act. 1957. makes it clear that notwithstanding anything contained in this Act of 1957, the Government shall in respect of any sale of goods effected by it be entitled to collect by way of tax any amount which a registered dealer effecting such sale would have been entitled to collect by way of tax under the Act. The section is clear that the Government could collect the tax on the sale made by it as if it were a registered dealer, notwithstanding anything contained in s. 2 or & 5. The section itself creates a right in the State to recover and an obligation on the purchaser from the State to pay the amount. Any imposition of liability or obligation in respect of sale or purchase of goods will be covered by Entry 54 of List II of the Seventh Schedule of the Constitution. Section 19 is therefore, not ultra vires the powers of the legislature. [615A-C] JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 1883 to
1886 of 1969.
From the judgment & Order dated the 12th July, 1968 of the
Mysore High Court in W.P. Nos. 949, 955, 956 and 958 of
1968.
K. Srinivasan and Vineet Kumar, for the appellants.
H. B. Datar (In C.A. No. 1883/69) and M. Veerappa, for the
respondents.
The Judgment of the Court was delivered by
MATHEW, J. The appellant was an excise contractor. He
secured the privilege of vending arrack in retail in certain
taluks in the State of Karnataka for a period of 18 months
beginning from 28-12-1967 and ending on 30-6-1969. He
purchased arrack from the Government at a price of 17 paise
per litre and the Government collected besides the sale
price of arrack, excise duty, health cess and education
cess. The Government also collected sales tax on the sale
price of arrack, on excise duty, on health cess and on
education cess for the period from 28-12-1967 to 31-1-1968
and made similar demands for the month of February, 1968
also. The appellant and other excise contractors filed writ
petitions in the High Court of Karnataka challenging the
validity of the levy and collection of excise duty,
education cess, health cess and sales tax. The High Court
accepted some of the contentions of the appellant, granted
him reliefs on that basis but rejected the other prayers.
The appellant has filed these appeals on the basis of
certificates granted by the High Court against the order.
The contentions raised by counsel for the appellant before
this Court were : that no excise duty can be levied on a
licensee in respect of the quantity of arrack purchased by
him from Government depots, that the power to fix the rate
of excise duty conferred under s. 22 of the Mysore Excise
Act of 1965 on the Government was bad for the
609
reason that it was an abdication by the state legislature of
its essential legislative function and that no sales tax
could be levied on the price for sale of arrack since S. 19
of the Mysore Sales Tax Act, 1957 under which the tax was
levied was beyond the legislative competence of the state
legislature.
Section 22 of the Mysore Excise Act, 1965 (hereinafter
referred to as ‘the Act’) provides for levy of excise duty
at such rate or rates as the government may prescribe on
excisable articles manufactured or produced in the State
under any licence or permit granted under the Act. Section
23 of the Act deals with the method of levying excise
duties.
The first contention of the appelant was that sections 16,
22 and 23 of the Act read with Mysore Excise (Distillery
and Warehouse) Rules, 1967 and with Mysore Excise (Excise
Duties) Rules, 1968, enables levy of excise duty only when
arrack is issued from a distillery or warehouse or other
place of storage established or licensed under the Act and
since the government depot from which he purchased arrack
does not come under the above category, no excise duty can
be levied.
The High Court found that though sections 22 and 23 of the
Act and Rule 2 of the Mysore Excise (Excise Duties) Rules,
1968, do not expressly state that excise duty levied at the
stage of issue of liquor from the government depot should be
collected from the issuer or from the person to whom it is
issued, it is obvious that excise duty cannot be collected
from the State Government which issues liquor from its
depots and that the only person from whom it can be
collected is the licensee, to whom the State Government
issues liquor from its depots.
The material portion of s. 16 of the Act provides that the
Excise Commissioner may, with the previous sanction of the
State Government, establish or license a warehouse wherein
intoxicants may be deposited and kept without payment of
duty and that without the sanction of the State Government
no intoxicant shall be removed from any distillery, brewery,
warehouse or other place of storage established or licensed
under the Act unless the duty, if any imposed under the Act
has been paid or a bond has been executed for the payment
thereof.
It is clear from the return filed before the High Court that
the Government purchase arrack from the distillers and keeps
it in the warehouse established or licensed under s. 16 and
that any removal of arrack after the purchase of the same
will attract the liability to pay excise duty shall be
levied on the excisable article issued from a ware-Excise
Commissioner who is competent to establish or license a
warehouse wherein intoxicants may be deposited and kept
under clause (e) of s. 16 and therefore it is not a
warehouse established or licensed by the State Government.
We see no force in this contention. Section 23 provides
that excise duty shall be levied on the excisable article
issued from a ware-
610
house also. We see no reason to think that a warehouse
established or licensed under s. 16(e) is not warehouse
within the meaning of that expression in S. 23.
The second contention raised by the appellant was that S. 22
of the Act provides for delegation of the power to fix the
rates of excise duty to the Government by making rules and
since no guidance has been furnished to the government by
the Act for fixing the rate there was abdication of
essential legislative function by the legislature and there-
fore the section is bad.
The High Court after referring to the preamble of the Act
said that it was the policy of the Act both to raise revenue
and to discourage consumption of liquor by making the price
of liquor sufficiently high, and that- that ‘would serve as
a guidance to fix the rates of excise duty, that the rates
fixed will be such as would keep the balance between these
somewhat conflicting objects so as to serve the purpose of
each. The Court further said that if the rate of excise
duty is too low, not only will the revenue from excise
duties suffer but also there will be increase in the
consumption of liquor; but if the rate of excise duty on
liquor is too high, it is Rely to encourage the production
and consumption of illicit liquor and consequently the
control and regulation of liquor as well as the revenue from
excise duty may be adversely. The Court therefore held that
the need to arrive at such rates of excise duty as will
serve the twin objects of the policy underlying the Act
operates as guidance for determination of the rates of
excise duty.
We are not certain whether the preamble of the Act gives any
guidance for fixing the rate of excise duty. But that does
not mean that the legislature here has no control over the
delegate. The legislative control over delegated
legislation may take many forms.
In Corporation of Calcutta & Anr. v. Liberty Cinema(1), the
validity of S. 548(2) of the Calcutta Municipal Act, 1951,
which empowered the Corporation to levy fees “at such rates
as may from time to time be fixed by the Corporation” was
challenged on the ground of excessive delegation as it
provided no guidance for the fixation of the amount. The
majority upheld the provision relying on the decision in
Banarsi Das v. State of Madhya Pradesh (2 ) holding that the
fixation of rates of tax not being an essential legislative
function, could be validly delegated to a non-legislative
body. but observed that when it was left to such a body, the
legislature must provide guidance for such fixation. The
Court found the guidance in the monetary needs of the
Corporation for carrying out the functions entrusted to it
under the Act.
In Municipal Board, Hapur v. Raghuvendra Kripal(2) the
validity 1916, was involved. Ile Act had to fix the rate of
tax and after having of the U.P. Municipalities Act,
empowered the municipalities enumerated the kinds of taxes
to be levied, prescribed an elaborate
(1) [1965] 2,S.C.R.477. (2) [1959] S.C.R. 427.
(3) [1966] 1 S.C.R. 950
611
procedure for such a levy and also provided for the sanction
of the Government., Section 135 (3) of the Act raised a
conclusive prerumption that the procedure prescribed had
been gone through on a certain notification being issued by
the Government in that regard. This provision, it was
contended, was ultra vires because there was an abdication
of essential legislative functions by the legislature with
respect to the imposition of tax inasmuch as the State
Government was given the power to condone the breaches of
the Act and to set at naught the Act itself. This, it was
contended, was an indirect exempting or dispensing power.
Hidayatullah, J. speaking for the majority, said that regard
being had to the democratic set up of the municipalities
which need the proceeds of these taxes for their own
administration, it is proper to leave to these
municipalities the power to impose and collert these, taxes.
He further said that apart from the fact that the Board was
representative body of the local population on whom the tax
was levied, there were other safeguards by way of checks and
controls by Government which could veto the action of the
Board in case it did not carry out the mandate of the
legislature.
In Devi Dass Gopal Krishnan v. State of Punjab(1) the
question was whether s. 5 of the East Punjab General Sales
Tax Act, 1948, which empowered the State Government to fix
sales, tax at such raters as it thought fit was bad. The
Court struck down the section on the ground that the
legislature did not lay down any policy or guidance to the
executive in the matter of fixation of rates. Subba Rao,
C.J., speaking for the Court, pointed out that the needs of
the State and the purposes of the Act would not provide
sufficient guidance for the fixation of rates of tax. He
pointed out the danger inherent in theprocess of delegation
:
“An overburdened Legislature or one controlled
by a powerful executive may unduly overstep
the limits of delegation. It may not lay down
any policy at all; it may declare its policy
in vague and general terms; it may not set
down any standard for the guidance of the
executive; it may confer an arbitrary power on
the executive to change or modify the policy
laid down by it without reserving for itself
any control over subordinate legislation.
This self-effacement of legislative power in
favour of awther agency either in whole or in
part is beyond the permissible limits of
delegation.”
In Municipal Corporation of Delhi v. Birla Cotton Spining
and, Weaving Mills(1), the main question was about the
constitutionality of delegation of taxing powers to
municipal corporations. The Delhi Municipal Corporation Act
(66 of 1957) by s. 113(2) had empowered the Corporation to
levy certain optional taxes. Under s. 150, power was given
to the Corporation to define the maximum rate of tax to be
levied, the classes of persons and the description of
articler, and property to be taxed, the systems of
assessment to be adopted
(1) [1967]3, S.C.R. 557.
(2) [1968] 3, S.C.R. 251 .
612
and the exemptions, if any, to be granted. The majority of
the court held the delegation to be valid. Wanchoo, C.J.
observed that there were sufficient guidance, checks and
safeguards in the Act which prevented excessive delegation.
The learned Chief Justice observed that statements in
certain cases to the effect that the power to fix ,rates of
taxes is not an essential legislative function were too
broad and that “the nature of the body to which delegation
is made is also a factor to be taken into consideration in
determining whether there is sufficient guidance in the
matter of delegation”. According to the learned Chief
Justice, the fact that delegation was made to an clected
body responsible to the people including those who paid
taxes provided a great check on the elected councillors
imposing unreason.able rates of tax. He then said :
“The guidance may take the, form of providing
maximum rates of tax up to which a local body
may be given the discretion to make its
choice, or it may take the form of providing
for consultation with the people of the local
area and then fixing the rates after such
consultation. It may also take the form of
subjecting the rate to be fixed by the local
body to the approval of Government which acts
as a watchdog on the actions of the local body
in this matter on behalf of the legislature.
There may be other ways in which guidance may
be provided.”
In Sita Ram Bisharnbhar Dayal v. State of U.P.(1) s. 3-D(1)
of the U.P. Sales Tax Act, 1948, bad provided for levying
taxes at such rates as may be prescribed by the State
Government not exceeding the maximum prescribed therein.
Hegde, J., in speaking for the Court, observed :
“However much one might deplore the ‘New
Despotism’ of the executive, the ‘very
complexity of the modern society and the
demand it makes on its Government have set in
motion forces which have made it absolutely
necessary for the Legislatures to entrust more
and more powers to The executive. Text book
doctrines evolved in the 19th century have
become out of date.”
In this case, we think that s. 71 of the Act which provides
for the rule-making power imposes the necessary check upon
the wide power given to the government to fix the rate.
Sub-section (4) of that section provides :
“Every rule made under this section shall be laid as soon as
may be after it is made, before each House of the State
Legislature while it is in session for a total period of
thirty days which may be comprised in one session or in two
or more successive sessions and if before the expiry of the
session in which it is so laid or the session immediately
following, both Houses agree in making any modification in
the rule (it ?) shall thereafter have effect only in such
modified form or be of no effect, as the case may
(1) [1972] 2, S.C.R. 141.
613
be; so however that any such modification or
annulment shall be without prejudice to the
validity of anything previously done under
that rule.”
The appellant submitted that s. 71(4) does not provide a
guarantee for legislative control over delegated
legislation. The argument was that the rules would come
into force as soon as they are framed and that the power of
the legislature to annul the rules subsequently cannot be
regarded as sufficient control over delegated legislation.
That laying of rules before the legislature is control over
delegated legislation is implied in the speech of Lord
Thankerton in the House of Lords in Minister of Health v.
The King(1) where he said :
“In this case, as in similar cases that have
come before the courts, Parliament has
delegated its legislative function to a
Minister of the Crown, but in this case
Parliament has retained no specific control
over the exercise of the function by the
Minister, such as a condition that the order
should be ‘aid before Parliament and might be
annulled by a resolution of either House
within a limited period.”
In Institute of Patent Agents v. Joseph Lockwood (2) Lord
Watson said :
“The Legislature retained so far a check that
it required that the regulations which they
framed should be laid upon the table of both
Houses; and of course these regulations could
have been annulled by an unfavourable
resolution upon a motion made in either
House.”
In Bernard Schewartz’s “An Introduction to American
Administrative Law” it is stated :
“In Britain, Parliamentary control over
delegated legislation is exercised through the
various forms of ‘laying’ prescribed in
enabling Acts. Through them, the legislature
is enabled at least in theory to exercise a
continuing supervision over administrative
rules and regulations.”
As Dean Landis pointed out, the English techniques for
laying the rules before the Houses have several virtues.
“For one thing, they bring the legislative into close and
constant contact with the administrative.”(3).
The legislature may also retain its control over its
delegate by exercising its power of repeal. This was the
basis on which the Privy Council in Cobb & Co. v. Kropp(4)
upheld the validity of delegation of the power to fix rates
to the Commissioner of Transport in that case. The question
there was whether the Queensland Legislature, had
legislative authority under the impugned Acts to invest the
Commissioner for Transport with power to impose and levy
(1) [1931] A.C. 524. (2) [1894] A.C. 347.
(3) see Landis, “The Administrative Process”, 77 (1938).
(4) [1967] 1, A.C. 141 (P. C.).
614
licence and permit fees. It was not disputed before their
Lordships that .fees imposed are to be regarded as
constituting taxation. Accordingly, it was contended that
the legislature had abdicated its exclusive power of levying
taxation. The Privy Council held that Queensland
Legislature was entitled to use any agent or machinery that
it considered appropriate for carrying out the object and
the purposes of the Acts and to use the Commissioner for
Transport as its instrument to fix and recover the licence
and permit fees, provided it preserved its own capacity
intact and retained perfect control over him; that as it
could at any time repeal the legislation and withdraw such
authority and discretion as it had vested in him, it had not
assigned, transferred or abrogated its sovereign power to
levy taxes, nor had it renounced or abdicated its
responsibilities in favour of a newly created legislative
authority and that, accordingly, the two Acts were valid.
Lord Morris of Borth-y-Gest said :
“What they (the legislature) created by the,
passing of the Transport Acts could not
reasonably be described as a new legislative
power or separate legislative body armed with
general legislative authority (see R. v.
Burah, (1878), 3 A. C. 889). Nor did the
queensland Legislature ‘create and endow with
its own capacity a new legislative power not
created by the Act to which it owes its own
existence (see in re the Initiative and
Referendum Act (1919) A.C. 945 at 945).”
The point to be emphasized-and this is rather crucial-is the
statement of their Lordships that the legislature preserved
its capacity intact and retained perfect control over the
Commissioner for T port inasmuch as it could at any time
repeal the legislation and with draw the authority and
discretion it had vested in him, and, therefore the
legislature did not abdicate its functions.
We, therefore, think that the power to fix the rate of
excise duty conferred on the government by s. 22 of the Act
is valid. The dilution of parliamentary watch-dogging of
delegated legislation may be deplored but,, in the
compulsions and complexities of modern life cannot be
helped. The last contention raised by the appellant was
that s. 19 of the Karnataka Sales Tax Act, 1957 is invalid
as it purports to levy sales tax upon the sale of arrack
made by the Government to licensees. The appellant
submitted that the definition of ‘dealer in s. 2 of the Act
excludes the Government of Mysore and that by virtue of the
provisions in s. 5(3) of that Act, no tax could be levied on
the sale of arrack by government to the appellant. We see
no merit in this contention. Section 19 of the Act reads:
“19. State Government entitled to collect tax
as registered dealers.-Notwithstanding
anything contained in this Act the Government
of Mysore shall, in respect of any sale of
goods effected by them, be entitled to collect
by way of tax any amount which a registered
dealer effecting such sale would have been
entitled to collect by way of tax under this
Act.”
615
This section makes it clear that notwithstanding anything
contained in that Act, the Government shall in respect of
any sale of goods effected by it be entitled to collect by
way of = any amount which a registered dealer effecting such
sale would have been entitled to collect by way of tax under
the Act. The section is clear that the Government could
collect the tax on the sale made, by it as if it were a
registered dealer, not withstanding anything contained in s.
2 or s. 5. The section itself creates a right in the State
to recover and an obligation on the purchaser from the State
to pay the amount. Any imposition of liability or
obligation in respect of sale or purchase of goods will be
covered by Entry 54 of List If of the Seventh Schedule of
the Constitution.
We do not think that s. 19 is ultra vires the powers of the,
legislature.
We therefore dismiss the appeals but make no order as to
costs.
V.M.K. Appeals dismissed.
616