BIMAL CHANDRA BANERJEE versus STATE OF MADHYA PRADESH

BIMAL CHANDRA BANERJEE

STATE OF MADHYA PRADESH

August 19, 1970

(J. C. SHAH, K. S. HEGDE AND A. N. GROVER, JJ.]

Madhya Pradesh Excise Act (M.P. 2 of 1915), ss. 25, 26. 27, 62(1) and 62(2) ds. (d) and (h)-Condition in licence prescribing minimum liquor to be purchased from the Government and payn1ent of excise duty on liquor not taken delivery of-Validity.

The appellants were excise contractors. In purported exercise of its powers under els. (d) •nd (h) of s.62(2) of the Madhya Pradesh Exciso Act, 1915, which confers pO\\•er on the State Government to make rules, the State Government introduced condition· in the licences of th~ appellants prescribing the minimum quantity of liquor v.:hich the appellants. should purchase from the Governmcnt and the compulsory pay111ent uf £'Xcise duty on the quantity of liquor H'hich they jailed to take de!fi·c1-_i· of. The State Government issL~ed notices dcman-ding the duty.

On the question of their validity,

HELD : Assuming the po\ver to tax can be delegated to the execu-tive, no tax can be imposed by any bye-law or rule or regulation unle:s'i the statute under which the suborCiinate legislation is 111ade specially authorises its imposition. [850 C-D]

In the present case, the Legislature has levied excise duty or coun-tervaillini: duty only on the excisable articles \lihich have been either in1-ported, exported, transported. n1anufacturcd, cultivated or collected under any licence granted under s.13, or n1anU:factured in any distillery or brewery established or licensed under the Act; and the State Governn1ent has not been empowered to levy anv duty on liquor which the contractors failed to lift. Therefore, the State Governn1ent was exercising po\ver which it did not possess and hence the rule in1posing the condition in the licences and the demand notices a·re invalid. f8-+9 H; A-Cl

CIVIL APPELLATE Ju;:rsDICTION: Civil Appeals Ncs. 2214 of 1969 and 308 of 1970.

Appeals from the judgments and orders dated April 9. 1965 of the Madhya Pradesh High Court in Misc. Petitions Nos. 426 and 524 of 1964 respectively.

M. C. Chagla, R. A. Roman and S. S. Klwnduja, for the appellant (in C.A. No. 2214 of 1969).

R. A. Roman. S .. S. Khanduja and N. K. Shejwa/kar, for the appellants (in C.A. No. 308 of 1970).

I, N. Shroff, for the respondents (in both appeals).

The Judgment of the Court was delivered by

Hegde, J. These appeals by certificates granted by the High Conrt of Madhya Pradesh raise common questions of law. Hence we propose to dispose them of by common order.

The appellants herein are excise contractors. They are the rnccessful bidders for some of the shops in Madhya Pradesh for the financial year i 964-65. The sale memorandum on the >trength of which auction was held intimated that the successful bidders will have to sell prescribed minimum quantity of liquor in their shops and if they fail to take delivery of the prescribed minimum quantity of Jiquvr, they will have to pay excise duty on the quantity of liquor which they failed to take delivery. On ~1arch 20. 1 %.+. the Government in the purported exercise of its powers unc.kr els. I dJ and (h) of s. 62 of the Madhya Pradesh Excise Act. 1915 I Act II of 1915) (to be hereinafter referred to '" the Act) issued the notification No. 144401089/V-SR amend-ing the rules published on January 7. 1960. This notification prescribed that the conditions mentioned therein should be insert-ed in the licences to be issued to the successful bidders. At pre-sent we are only concerned with cl. 2(C) thereof. That clause reads :

"The minimym quantity for taking issues from the Warehouse for sale is fixed at 3213 p. litres spiced spirit and 25940 p. litres plain spirit. You shall be liable to make good every month the deficit of monthly average of the total minimum duty on or before the 10th day of each month following the month to which the deficit duty relates."

The appellants are challenging the validity of this notification.

An excise licensee in Madhya t'radesh as in other places has to meet three charges namely ( 1) he has to pay the prescribed licence fee for obtaining the privilege of vending liquor in shop I 2 ! he has to pay the price of the liquor purchased by him-generally the Government has monopoly of liquor manufacture and ( 3) he has to pay excise duty on the liquor purchased by him.

In this case there is no dispute that the appellants had paid the prescribed licence fee, the price of the liquor purchased by them and also the duty on the liquor taken delivery of by them. The dispute centres round the duty required to be paid by them imd~r. the impugned clause in the notification of March 20, 1964 referred to earlier. The controversy is whether the said clause is valid in Jaw.

The Government of Madhya Pradesh have issued demand notices on the appellants demanding the duty said to be due from them as per the impugned clause in the notification. The appel-H lants have challenged the validity of these notices as well.

It is contended on behalf of the appellants that excise duty is 11 tax. The same can be levied on the basis of valid law. No

· tax can be levied on 'the basis of contract nor can tax be levied by executive orders. Tax can only be levied by the legislature. Hence the fact that cl. 2(C) in the notification of March 20, 1964 has been made- part of the licence condition is immaterial. It was contended that the question for decision is whether the Gov-ernment of Madhya Pradesh was entitled to amend its rules and add the impugned clause as part of the licence conditions.

The scheme of the Act is similar to the scheme of other excise Acts in this country. In the Act 'Excise Duty' and "counter-vailing duty" have been defined [in s. 2 ( 6-A)] as meaning any such excise duty or countervailing duty, as the case may be, as is mentioned in Entry 51 of List II in the Seventh Schedule to the Constitution, which entry reads :

"Duties of excise on the following goods manufac-tured or produced in the State and countervailing duties at the 'same or lower rates on similar goods manufactur-ed or produced elsewhere in India :- .

(a) alcoholic liquors for human consumption;

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

but not including medicinal and toilet preparations con-taining alcohol or any substance included in sub-paragraph lb) of this entry."

In view of this entry the State is competent to levy excise duty only on goods manufactured or produced in the State. The ex-pression "export'' is defined in s. 2(9) of the Act as meaning to take out of the State otherwise than across customs frontier - as defined by the Central Government. The term manufacture· is defined ins. 2-.!_14). It reads:

" 'manufacture' includes every process whether natural or artificia1 by which any intoxicant is produced or prepared and also redistillation and every process for the rectification, flavouring, blending or colouring of liquor."

The word "transport" is defined in s. 2 (19) to mean to move from one place to another within the State.

The excise duty is duty on inanufacture or production and countervailing duty is tax imposed on excisable articles brought into the State from·other parts of the country. Chapter V of the Act deals with Duties. and Fees. That Chapter contains four sections viz. ss. 25. 26, 27 and 27 A. Section 25 deals with duty on excisable articles. Section 26 prescribes the ways of levying

fl. such duty. s~ction 2 7 provides for payment for grant of lcas~­licence fee. Section 27 saves the duties that were being levied at commencement of the Constitution. Herein we are not con-cerned with s. 27-A.

Section 25 reads :

"Duty on excisable articles :-( 1) An excise duty or countervailing duty as the case may be, shall, if th~ . State Government so direct, be levied on excisable articles-

(a) imported; or

(b) exported; or

( c) transported; or

( d) manufactured, cultivated or collected und~ any licence granted under s. 13; or ·

( e) manufactured i11 any distillery established, or any distillery or bw1very licensed under this Act;

Provided that it shall be lawful for the State Govern-ment to exempt any excisable article from any duty to which the same may be 'liable under this Act.

( 2) Duty may be imposed under sub-section ( 1) at different rates according to the places to which any excisable article is to be removed or according to the strength and quality of such article.

( 3) Notwithstanding anything contained in sub-section ( l) duty shall not be imposed thereunder on any article which has been imported into India and was liable. on such importation. to duty under the Sea Cus-toms Act. VIII of 1878 or the Indian Tariff Act, VIII of 1894."

Under this section excise duty or countervailing duty can be imposed on excisable article when they are either imported or exported or transported or manufactured or cultivated or collected and not otherwise.

Section 26 deals with the manner of levying the duty. It says:

"Subject to such rules regulating the time, place and manner as the State Government may prescribe, such duty shall be levied rateably on the quantity of exisable article imported, exported, transported collected or manufactured in or issued from distillery, brewery or warehouse.

Provided that :

(I) duty may be levied-

( a) on intoxicating drugs by an acreage rate levied on the cultivation of the hemp plant or by rate charged on the quantity collected;

(b) on spirit or bear manufactt:red rn any distii!ery established or any distillery or bre-wery licensed under this Act-(i) in accordance with such scale of equi-valents calculated on the quantity of materials used, or by the degree of attenuation of the wash or wort, as the case may be, as the State Government may prescribe, or

(ii) by rate charged directly on the mate-rials used;

( c) on tari, by tax on each tree from which the tari is drawn.

( 2) where payment is made upon the issue of an excisable article for sale from warehouse, it shall be at the rate of duty in force on the date of issue of such article from the warehouse."

Section 27 says:

"Pa:)'ment for grant of leases : Instead of or in addi-tion to any duty leviable under this chapter, the State Government may accept payment of sum in considera-tion of the grant of any lease under section 18."

Section 18 deals with power to grant lease of right to manu-facture or right to sell excisable articles.

The only other relevant section for our present purpose is S. 62 which confers power on the State Government to make rules. Clause (I) of that section says :

"The State Government may make rules for the purpose of carrying out the provisions of this Act."

In Clause 2 reliance was placed on sub-els ( d) and (h). Those sub-clauses read :

"In particular, and without prejudice to the genera-lity of the foregoing provision, the State Government may make rules ..... .

( d) regulating the import, export, transport, manu-facture, collection, possession, s11pply or storage of any intoxicant, or the cultivation of the hemp plant and may by such rules, among other matters.-

( i) regulate the tapping of tari producing trees, the drawing by tari from such trees, the marking of the same and the maintenance of such marks;

(ii) declare the process by which spirit shall be dena-tured and the denaturrtion of spirit ascertained, and

(iii) cause spirit to be denatured through the agency or under the supervision of its own officers;

( d-1) regulating the import, export, transport, col-lection possession, supply, storage or sale of Mahua flowers prescribing licences and permits therefor. throughout the State or in any specified area or for any specified period."

(h) prescribing the _authority by the form in wliich and the terms and conditions on and subject to which any licence, permit or pass shall be granted, and may by such rules among other matters-

( i) fix the period for which any licence, permit or pass shall continue in force,

(ii) prescribe the scale of fees or the manner of fix-ing the fees payable in respect of any such license, permit or pass.

(iii) prescribe the amount of security to be deposited by holders of any licence, permit or pass for the performance the conditions of the same;

(iv) prescribe the account to be maintained and the returns to be submitted by licence holders, and

( v) prohibit or regulate the partnership in, or the transfer of, licences."

Neither s. 25 ors. 26 ors. 27 ors. 62(1) or els. (d) and (h) of s. 62 (2) empower the rule making authority viz. the State Government to levy tax on excisable articles which have not been either imported, exported, transported, manufactured, cultivated or collected under any licence granted under s. 13 or manufactur-ed in any distillery established or any distillery or brewery licensed under the Act. The legislature has levied excise duty only on Ll69 Sup. CI/71 (P)-71

those· articles which come within the scope of s. 25. The rule making authority has not been conferred with any power to levy duty on any articles which do not fall within the scope of s. 25. Therefore it is not necessary to consider whether any such power can be conferr~d on that authority. Quite clearly the State Gov-ernment purported to levy duty. on liquor which the contractors failed to lift. In so doing it was attempting to· exercise power which i; did not possess.

No tax can be in1posed by any bye-law or rule or regulation unless the statute under which the subordi.,ate legisla,tion is made specially autl'.orises the imposition even if it is assumed . that the power to tax can be delegated to .the executive. The basis of the statutcry power conferred by the statute cannot be transgressed by the rnle making authority. rule .making authority has no ple-nary power. It has to act within the limits of the power granted to it

We are of the opinion that the impugned rnle as well as the demands are 1~.)t authorised by law. Hence we allow these appeals as well as the writ petitions from which the5e appeals arise and quash the impugned notification as well as the demand notices. The State of Madhya Pradesh shall pay the costs of ihe appellants in both these appeals-hearing fee one set.

Appeals allowed.