CHATURBHAI M. PATEL versus THE UNION OF INDIA AND OTHERS

'959 In those circumstances, the trial under s. 339 was held The State to be bad. We are not concerned in the present case v. with s. 339. What we have to decide is whether Hiralal G. Kothari pardon under s. 337(1) of the Code of Criminal Pro-and Others cedure can be granted in the case of an offence undflr s. 5 of the Official Secrets Act read with s. 120-B 0f Wanchoo J. the Indian Penal Code. To that there can bo only one answer on the terms of s. 337(1), namely, that no pardon can be granted for an offence of this nature. Therefore, as the present proceedings before the magistrate are only for an offence under s. 5 of the Official Secrets Act re»d with s. 120-B of the Indian Penal Code, Mehra cannot be examined as an approver in that court. There is no force in these appeals and they are hereby dismissed.

Appeals dismissed.

CHATURBHAIM.PATEL

'959 December 2

THE UNION OF INDIA AND OTHERS (JAFER IMAM, S. K. DAS, J. L. KAPUR, A. K. SARKAR, and l\'[. HIDAYATULLAH, JJ.)

Legislative Competence-Validity of enactment-Competence of Central Legislature-Levy of excise duty on tobacco-Pith and substance of legislation-·Central Excises and Salt Act, I944 (I of I944), ss. 6, 8, Riiles-Govermnent of India Act, I935 (26 Geo. V. Ch. 2), s. IOO, Sch. 7, List I, Entry 45, List II, Entries 27, 29.

The petitioner who was doing business in tobacco was charged with the contravention of Rules 15r(C) and 226 of the Central Excise Rules, 1944. framed under the Central Excises and Salt Act, 1944· The Collector finding the charges to be proved ordered confiscation of the goods found in the petitioner's warehouse and levied dutY thereon in lieu of confiscation and also imposed penalty of Rs. 2,000. The petitioner challenged the validity of the orders on the grounds, inter alia, that ss. 6 and 8 of the Act and the Rules made thereunder were beyond the legislative competence of the Central legislature in view of the fact that though the provisions of the Act which provided for the levy of excise duties might fall within item 45 of List I read with s. mo of the Government of India Act, 1935, the Act in question would also be covered by items 27 and 29, of List II, as the possession and trade in tobacco were also regulated, and would, to that extent, be ultra vires. .

I959 Chaturbhai M. Patel . v. v. . -°1 India and Others

Held, that the various provisions of the Central Excises and I959 Salt Act, Ig44, and the Rules made thereunder were essentially connected with the levying and collection of excise duty and in Chaturbhai its true nature and character the Act remained one under item 45 M. Patel of List I and that the incidental trenching upon the provincial . v. v. . -field of items 27 or 29 of List II would not' affect its constitution- The Union °1 India ali ty. and Others

It is within the competence of the Central legislature to provide for matters which may otherwise fall within the competence of the Provincial Legislature if they are necessarily incidental to,effective legislation by the Central legislature on subject of legislation expressly within its power.

State of Rajasthan v. G. Chawla, A.LR. I959 S.C. 544, and Cooverjee Bharucha v. The Excise Commissioner of Ajmer, [I954] S.C.R. 873, followed.

Attorney-General for Canada v. Attorney-General for British Columbia, [r930] A.C. rrr and Attorney-General for Canada v. Attorney-General for Quebec, [1947] A.C. 33. relied on.

0RIGINAJ, JURISDICTION: Petition No. 9 of 1957.

Petition under Article 32 of the Constitution of India for enforcement of fundamental rights.

B. D. Sharma, for the petitioner.

0. K. Daphtary, Solicitar.General of India R. H. Dhebar and T. M. Sen, for the respondents.

1959. December 2. was deliver_ed by

The Judgment of the Court

KAPUR J.-The petitioner was wholesale and retail dealer in tobacco at Banaras and also owned private bonded warehouse for tobacco and held licen-ces for the same. In this petition he challenges the legality of certain orders passed by the Collector of Excise, Allahabad, which on appeal were confirmed and revisions against those orders were dismissed by the Central Government. The petitioner's warehouse was checked by Jnspector Das who on finding some irregu-larity sealed the warehouse on December 8, 1953, and subsequently took possession of all the registers and stock cards. On December 22, 1953, IH bags of kandi i.e. "stems of tobacco", which were found in the petitioner's warehouse, were removed from the ·ware-house by the Inspector and stored in some other

Kapur].

364 SUPREME COUR'r REPORTS [1960(2)]

195Y place. Against those orders the petitioner made Chatu,ihai certain representations to the Collector and some M. Patel correspondence passed. On June 15, 1954, the v. Collector, Central Excise, issued notice to the peti-The Union of India ti oner to show cause why penalty should not be and Otl"" imposed on him for the contrnvention of Rules 15l(C) and 226 of the Central Excise Rules, 1944., a.ad why J(apur ]. the bags of kandi should not be confiscated. The petitioner showed catfse, the Collector heard the peti-tioner who had also filed written arguments. Finding the charges against the petitioner proved, the Collec-tor ordered confiscation of the bags of kandi, imposed fine of Rs. 150 and the duty leviahle thereon in lieu of confiscation. He further imposed penalty of Rs; 2,000 under rr. 15l(C) and 226 of the Central Excise Rules. The appeal taken to the Central l~oard of Revenue was dismissed as the petitioner refused to deposit the penalty of Rs. 2,000 and revision to the Central Board of Revenue was also dismissed for the same reason. This is one of the orders which is chal-lenged by the petitioner.

On July 29, 1954, the Collector called upon the petitioner to produce another surety as the previous surety Mohammad Satar was not prepared to act as such. The petitioner states that he thereupon furnished two bonds in Form 13-4 and B-5 for Rs. 7 ,000 and Rs. 10,000 respectively. As there was sum of Rs. 15, 263-8-0 due from him (the petitioner) as Excise duty, 373 Meis. of tobaco were attached by the Excise Department and sold hy auction for Rs. 6,878-5-0 thus leaving balance of Rs. 8,385-3-0. As the Department made demands for the recovery of this balance of duty the petitioner filed civil suit in the court of the First Additional Civil Judge, Banaras, who issued an ad-interim injunction agail).st the Department restraining it to recover the amount. On January 25, 1956, the Superintendent of Excise called upon the petitioner to deposit cash security of Rs. 10,000 otherwise his licence would be treated as cancelled under r. 181(1) of the Central Excise Rules. The petitioner demurred to this and ,as the outstand-ing amount of excise duty was not paid the Deputy

S.C.R. SUPREME COURT REPORTS

Collector ordered on February 13, 1956, that till the x959 deposit was made the petitj.oner's licence shall remain Chaturbhai inoperative. The petitioner took an appeal against M. Patel this order to the Central Board of Revenue which was v. dissmissed. The petitioner also filed petition under The Union of India Art. 226 in the Punjab High Court which was also and Others dismissed and revision against the order of the Kapur j. Deputy Collector maki.lilg the licence inoperative was dismissed by the Central Board of Revenue on Decem-ber 20, 1956. This is the second order which is challenged.The present petition Wl}S filed on January 21, 1957, in ~hich the petitioner prayed (1) that the provisions of ss. 6, 8, 9 and 10 of the Central Excises and Salt Act, 1944, Act 1 of 1944 (which for the sake of convenience will hereinafter be termed the Act) and the rr. 140 to 148, 150, 171 to 181, 215 and 226 of the -Central Excise Rules made under the Act be declared ultra vires and to issue writ of certiorari or any other writ to quash the orders passed by the Collector as confirmeu on appeal and revision by the Central Board of Revenue and the Central Government respectively. [1 ]These orders have already been referred to. (2) For ~rit of mandamus directing the respondents not to interfere with the fundamental right of the petitioner to carry on trade in tobacco or to store tobacco; (3) directing the respondents to return the goods con-fiscated by them.

]'or the petitioner three points were raised: (1) that ss. 6 and 8 of the Act and the Rules made thereunder were beyond the legislative competence of the Cent-ral legislature under the Constitution Act of 1935; (2) even if they were within the legislative competence they impose excessive and unreasonable restraint on the fundamental right of the petitioner to trade in tobacco and they were not in the interest of the. general public and therefore were not saved by Art. 19(6); (3) orders passed were ultra vires the Act and the Rules made thereunder.

Before we proceed to consider the arguments raised on behalf of the petitioner, it is necessary to examine

the scheme of the Act. Its scope as given in the preamble is :-

Chatutbhai M. Patel v.

"to consolidate and amend the law relating to central duties of excise on goods manufactured or produced in British India and to salt."

The Union of India and Others

Section 2 of the Act gives the definitions. Chapter II . provides for levy and collection of duty. The two main sections, i.e., 6 and 8 fall under this Chapter. Section 6 provides for certain operations to be subject to licences and when quoted it runs as follows :

Kapur].

S. 6 "The Central Government may, by notifi-

cation in the official Gazette, provide that, from snch date as may be specified in the notification, no person shall, except under the authority and in accordance with the terms and conditions of licence granted under this Act engage in-

(a) the production or manufacture or any pro-

cess of the production or manufacture of any specified excisable goods or of saltpetre or of any specified component parts or ingredients of such goods or of specified containers of such goods, or

(b) the wholesale purchase or sale (whether on

his own account or as broker or commission agent)· or the storage of any excisable goods specified in this behalf in part of the Second Schedule."

Section 8 imposes restriction on possession of excis-able goods. It is as follows :

" From such date as may be specified in this behalf by the Central Government by notification in the official Gazette, no person shall, except as provid-ed by rules made under this Act, have in his possession any excisable goods specified in this behalf in Part of the Second Schedule in excess of such quantity af may be prescribed for the purpose of this section as the maximum amount of such goods or of any variety of such goods which may be possessed at any one time-by such person."

Section 9 deals with offences and penalties. Section 10 gives to the court the power to order forfeiture. Sec-tion ll makes provision for recovery of duties due to

S.0.R. SUPREME COURT REPORTS

Government. Chapter VI deals with adjudication of r959 confiscation and penalties specifying the powers of the Chaturbhai ·Collector of Central Excise and appeals against such M. Patel orders and revision to the Central Government. v. Chapter VII contains supplementary provisions; s. 37 The Union of Inditt therein empowers the Central Government to make and Others rules and in the Schedule the rates or duties leviable Kapur]. on each class of goods are given and tobacco falls in item 9.

The question is, as to whether the Act falls within item No. 45 of List I read with s. 100 of the Govern-ment of India Act. It was contended on behalf of the petitioner that even though the imposition of excise duties may fall under item No. 45 of List I of the Constitution Act it is serious encroachment Ion the territory covered by items 27 and 29 of List II of that Act. The argument raised was that although the Act imposes duty of excise within item 45 of List I.and that was one of its objects, it also regulates trade or commerce and therefore falls within the above-mentioned items of List II and would, to that extent, be ultra vires. It was contended that the pith and substance of statute may cover two fields and in support relied upon the following observation of Mahajan, O.J., in Cooverjee B. Bharucha v. The Excise Commissioner and The Chief Commissioner Ajmer &: Ors. ([1]):

"The pith and substance of the regulation is that it raises excise revenue by imposing duties on liquor and intoxicating drugs. by different methods and it also regulates the import, export, transport, manu-facture, sale and possession of intoxicating liquors." But that case did not raise the question of legislative competence ; the point for decision was whether the statute there impugned, infringed the right to carry on trade in liquor and also whether the auction money was fee or tax. It was in that connection that the observation above quoted was made. ·

It was also argued that if the purpose and object of the Act is levying of duty of excise then it could not provide for regulation of trade and reliance was

(1) [1954] S.C.R. 87J. 877, 88'.i·

1959 placed on King v. Barger (') where by majority it Chatu,bhai was held that the question in substance was not an M. Patel exercise of the power of taxation and if it was, the v. statute would be invalid as being in contravention of The Union of India s. 55 of the Constitution Act of Australia. The and Others minority, however, was of the opinion - that the reserved powers of the States are those which remain Kapur]. after full effect was given to the powers granted to the Commonwealth.

In support of the argument that the Act did not · only relate to levying of excise duties but also regulat. ed trade, reference was made to rr. 174 to 182 of the Central Excise Rules which relate to licensing. -Parti-cular reliance was placed on r. 176(2) imposing licence fee which in the case of tobacco is as much as Rs. 100. Reference was also made to r. 181 which deals with revocation and suspension of licences and empowers the Licensing Department to revoke or -suspend lioence under certain circumstances. The rule is as follows :-

R. 181 "(1) Any licence granted under these

Rules may be revoked or suspended by the licensing authority if the holder, or any person in his employ, is found to have committed breach of the con-ditions thereof, or any of the provisions of the Act or these Rules (or has been convicted of an offence under s. I 61, read with s. 109 or with s. 116 of the Indian Penal Code).

(2) ............................................................. .

(3) ............................................................ " Counsel then drew our attention tor. 182 which relates to matches only but which places limitation on the issue of licences for the manufacture of matches.

The next set of Rules which were relied upon were rr. 140 to 148 in regard to warehousing and then our attention was drawn to rr. 210 to 215 relating to penalties, confiscation and appeals. In regard to the latter set of Rules it was submitted that they laid down no prpcedure and did not make any provision for issuing of notice to licensees or hearing them or their witnesses before imposing penalties. From all this

(1) (1908) 6 C.L.R. 41.

S.C.R. SUPREME COURT REPORTS

the conclusion which counsel wished us to draw was x959 that the Act read with Rules shows that the pith and Chaturbhai substance is not merely levying an excise duty but the 1111[• ][Patel ]possession -0f and trade in tobacco was also regulated v. and therefore the subject matter of the Act did not fall The Union of 11tdia exclusively in the legislative field covered by List I but and Others it trenched upon the provincial field of legislation and Kapur J. must be held to fall under List II also.

In .every case where the legislative competence of legislature in regard to particular enactment is challenged with reference to the entries in the various lists it is necessary to examine the pith and substance of the Act and if the matter comes substantially within. an item in the Central List it is not deemed to come within an entry in the Provincial list even though "the classes of subjects looked at singly overlap in many respects". It is within the competence of the Central legislature to provide for matters which may otherwise fall within the competence of the Provincial legislature if they are necessarily incidental to effective legislation by the Central legislature on subject of legislation expressly within its power. Attorney-General for Canada v. Attorney-General for British Columbia (1); Attorney-General for Canada v. Attorney-General for Quebec ([2]). In Gallagher v. Lynn (3) it was held that if the true nature and character of an Act is to protect the health of the inhabitants then even though it may incidentally affect trade, it is not enacted "in respect of" trade. Moreover it is fundamental principle of constitutional law that everything necessary to the exercise of power is included in the grant of the power. Edward Mills Co. Ltd. v. The State of Ajmer ([4]).

The item which falls for consideration in the present case is No. 45 of List I which is as follows:

"Duties of excise on tobacco and other goods manufactured or-produced in India except-

(a) alcoholic liquors for human consumption;

(b) opium, Indian hemp and other narcotic drugs and narcotics ; non-narcotic drugs;

(I) [1930] A.C. III, II8.

(3) [1937] A.C. 863.

(i) (1947] A.C. 33, 43·

(4) (1955] I S.C. R. 735, 749·

(c) medical and toilet preparations containing

alcohol, or any substance included in sub-para-graph (b) of this entry."

Chatu,-bhai M. Patel

The other items which have to be considered are items

The Union of India Nos. 27, 29 and 31 of List II which are as follows:-

Item 27. "Trade and commerce within the Pro. vince ; markets and fairs ; money lending and money lenders." ·

and Others Kapur 1,

Item 29. "Production, supply and distribution of

· goods; development of industries, subject to the provisions in List I w.ith respect to the development of certain industries under Federal control."

The question for decision is whether the Act in question is law with respect to the matters enumer-ated in item 45 of List I or to the matters enumerated in items 27 and 29 of List II. In other words does it, in pith and substance, relate to duties of excise on tobacco as contained in item 45 or it falls within the boundaries of items 27 and 29 of the provincial list and if it falls within the former, is its validity affected by its incidental trespass into the territory reserved for provincial legislation. In the interpretation of the scope of these items the widest possible ampli-tude must be given to the words used and each general word must be held to extend to ancillary or subsidiary matters which can fairly be said to be comprehended in it. United Provinces v. Mst. Atiqa Begum & Ors. ([1]); Navinchandra JJ1afatlal v. The Commissioner of Income-tax ([2]); The State of Madras v. Gannon Dunkerley & Co. ('). In Sultramanyan Chettiar v. Muthuswamy Goundan (') Sir Maurice Gwyer, C.J., dealing with items in the Lists observed :

"It must inevitably happen from time to time that legislation, though purporting to deal with subject in one list, touches also on subject in another list, and the different provisions of the enactment may be so closely intertwined that blind adherence to strictly verbal int<Jrpretation would result in large number of statutes being declared invalid because

(3) [1959] S.C.R. 379, 391, 393.

(I) [1940] F.C.R. III.

(~) [1940] F.C.R. 188, 201.

(2) (1955] I S.C.R. 829, 833, 836.

S.C.R. SUPREME COURT REPORTS

the Legislature enacting them may appear to have legislated in forbidden sphere."

Chaturbhai -M. Patel

We agree as did the Privy Council in Prafulla Kumar -M. Patel Mukherjee and Ors. v. Bank of Commerce Ltd. ([1]) and v. this Court did in State of Rajasthan v. G. Chawla ([2]) that The Union of India this passage correctly describes the ground on which and Others the rule is founded and in our opinion it is correct Kapur]. method of interpreting the words of the various items in the Lists read with s. 100 of the Constitution Act. Hidayatullah, J., in State of Rajasthan v. G. Chawla ([2]) said at p. 546 :-.

"It is equally well-settled that the power to legis late on topic of legislation carries with it the power to legislate on an ancillary matter which can be said to be reasonably included in the power given."

We now proceed to determine the true nature and character or the pith and substance of the Act. It is fiscal measure to levy and realise duty on tobacco. The method of realising duty must be left to the wisdom of the legislature taking each individual trade and its peculiarities and difficulties which arise in that matter. Various provisions of the Act and the Rules show that the authorities are on the track of the move-ment of tobacco from the time it is grown to the time it is manufactured and sbld in the market and the various provisions of the Act and the Rules made thereunder have been considered necessary for effectu-ating the purpose of the Act. Rules made under the Act also are directed for achieving the same objective. Chapter IV in the Rules deals with unmanufactured products. Rule 15 therein requires the growers to make declaration in respect of all land upon which tobacco is to be grown. Rule 17 which requires cur-ing to be done on the declared and approved premises is also step in the same direction. Under Rule 18 security can be demanded from grower and curer. Rules 19, 20 and 21 deal with liability to duty, exemp-tion from duty of certain kinds of tobacco for personal use, books to be kept by growers and curers and the (t) [J947) L,R. 71 I.A. 23, ·P· \2) A.pt. ~959 S.C. ,54t·

x959 manner of keeping the entries in the books. Rule 31 Chaturbhai deals with transport of tobacco from the grower to M. Patel the premises of curer and from the premises of curer v. to public or private warehouse. Chapter V of the The Union of India rules deals with manufactured tobacco and how that and Others is to be kept in warehouses. Similarly at every stage whether the tobacco is in unmanufactured 'stage or Kapur]. manufactured stage provisions have been made in the Rules to keep watch over the movement of tobacco . . All these Rules show that the object of the Act is to make collection of excise duties on tobacco effective and the levying of fees is only collection of money for the upkeep of supervision over the movement of tobacco for the purpose of excise duty. The system of licensing of bonded warehouses was always considered to be part of effective control of evasion of tax in England and Parliament must be deemed to have contemplated the inclusion of this power. Besides, the levying of licence fees is itself form of taxation. Coover)i B. Bharu.cha v. The Excise Commissioner of Ajmer (') and would in this case be within the legislative com-petence of the Central legislature whose powers of taxation should not be restricted so as to exclude the raising of revenue by imposing licensing fees.

In the State of .Madras v. Gannon Dunkerley & Co. ([2]) the following passage from the Broken Hill South Ltd. v. Commmissioner of Taxation (N.S. W.) ([3]):

"In any investigation of the constitutional powers of these great Dominion legislatures, it is not proper that Court should deny to such legis-lature the right of solving taxation problems un-fettered by a' priori legal categories which often derive from the exercise of legislative power in the same constitutional writ " was quoted with approval by Venkatarama Aiyar, J., and if it is only fee, its constitutionality cannot be challenged because of item 69 relating to fees on matters in List I. Counsel for the petitioner relied upon r. 181. This rule may have an indirect effect of depriving an owner of bonded warehouse from the (1) [1954] S.C.R. 873. 877, 822. (2) [1959] S.C.R. 379, 391, 393· . (3) (1936-37) 56 C.L.R. 337, 379·

S.C.R. SUPREME COUHT REPORTS

privilege of keeping such warehouse but that does not I959 mean that the object and purpose of the Act is not Chaturbhai imposition, collection and realisation of duty of excise. M, Patel This rule is means of making the realisation of duty v. effective and necessarily incidental to effectual · legis- The Union of India lation for collection of duties. Attorney.General for and Others Canada v. Attorney General for British Columbia ([1]). Kapur]. Looking at the scheme of the Act, its object and purpose, its true nature and character and the pith a,nd substance the conclusion is inevitable that the Act was within the legislative competence of the Central legislature and although there may be certain matters otherwise within the legislative competence of the provincial legislature they are necessarily incidental to effective legislation by the Central legislature. The va.rious provisions of the Act and the Rules made thereunder were, in our opinion, essentially connected with the levying & collection of excise duty and in its true nature and character the Act remains one tha.t falls under item 45 of List I anrl the incidental trench-ing upon the provincial field of items 27 or 29 would not affect its constitutionality because the extent of invasion of the provincial field may be circumstance to determine the true pith and substance but once that question is determined the Act, in our opinion, would fall on the side of Central field and not that of the provincial field. Prafulla Kumar Mukherjee v. Bank of Commerce Ltd. {[2]).

It was then contended that the restrictions imposed were unreasonable and therefore not saved by Art. -19(6). The basis of this argument was that there is no procedure laid down in the provisions for levying penalties nor any provision made for notice or the taking of evidence and power of confiscation was given to persons who could not be termed unbiased. If the tribunal is to act judicially it must confirm to the principles of natural justice of audi alteram partem and there is no dispute that in the instant ca.se there was no breach of this rule. Not only this, there is right of appeal and a. revision is also provided and both these remedies the petitioner availed himself of. The

(I) [1930] A.C. III, II8, (2) [1947] L.R. 74 I.A. 23, 41. 48

argument of unreasonable restriction because of this ground must also fail.

Chaturbhai M. Patol v. Unfon of and Others Kapur J.

M. Patol Lastly, it was contended that the two main orders v. passed were ultra vires because in 1 the first case the 'The Unfon of India petitioner was asked to deposit the penalty before his and Others appeal or revision could be heard and reliance was Kapur J. placed on Himmatlal Harilal Mehta v. The State of Madhya Pradesh ([1]). But it is difficult to see how that case applies. There was no illegal imposition on the petitioner nor is it shown that anything was threatened to be realised without the authority of law. In regard to the second order Mohammad Satar had ceased to be the petitioner's surety and therefore in terms of the proviso to r. 140 of the Excise Rules which was as follows:-

"Provided that in the event of death, insolvency or

inefficiency of the surety or where the amount of the bond is inadequate, the collector may in his discre-tion demand fresh bond; and may, if the security furnished for bond is not adequate, demand addi-tional security."

The Collector was acting within his powers if he asked for the deposit of cash security of Rs. 10,000. This is not matter with which we can, in the circumstances of this case, interfere. It was also urged that the orders passed were mala fide but no such allegation was made in the petition nor is it shown as to why the orders are mala fide.

In our opinion this petition is without substance and is therefore dismissed with costs.

Petition dismissed.