M. K. PAPIAH & SONS versus THE EXCISE COMMISSIONER & ANR.

M. K. P APIAH & SONS

THE EXCISE COMMISSIONER & ANR.

February 20, 1975

[K. K. MATHEW, V. R. KIUSHN.\ IYER AND P. K. GOSWAMI, JJ.J

.Mvsore Excise Act, 1965, Sections 16, 22 and 23 read with Mysore Excise (D1.ml/ery and W~rehouse) Rules, 1967 and with Mysore Excise (Excise Duties) Rules, 1968-Excise duty. levv of-Removal of arrack fi·o111 Govemment 1v,1re-ho11scs after the purchase of the same, ij attracts liability to pay excise duty.

Mvsore ~·xcise Act, 1965, Secs. 22 and 71- Dc/egotion of power to fi.t rates o.f excise duty I~ G?vemment by making rules-Legislarure, if has abdi-cated Its essen11a/ leu1s/at1re functwn-Rule-making power, whether provides the necessary check.

Karna/aka Sales Tax Act. 1957. Secs. 2, 5' and 19-Levy uf sales tax upon sale of arrack mnde by Government tn licensces-lmPositi011 of liability to sales tax, if covered by Entry 54, List fl, Schedule Vil of the Constitution.

. 'fh~ ~ppellan~. an exci~e contractor secured the privilege of vending arrack m retail m certain taluks in the State of Karnataka tor period of 18 months beginning from 28-12-1967 and ending on 30-6-69. He purchased arrack from the Government at tirice of 17 paise per litre and the Government collected besides the sale price of arrack, excise duty, health cess and education cess. Thti Government also collected sales tax on the sale price of arrack, on excise duty, on health cess and on education cess tor the period from 28-12-1967 to 31-1-1968 and made similar demands for the month of February, 1968 also.· The app6llant and other excise contractors filed writ petitions in the High Court at Karnataka challenging the validity of the levy and collection of exci'e Cluty, educatio11 cess. health ctss 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 certi-E ficates granted by the High Court against the order.

ft was contended for the appellant (i) that no excise duty can be levied on licensee in respect of the quantity of arrack purchased by him from Govern· ment depots, (ii) that the. power to fix the rate of excise duty conferred under s. 22 of the Mvsore 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 ft~nction 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, 19 57 under which the tax was levied was beyond the legislative competence of the state le~islaturc.

Rejecting the contentions and dismissing the appeals,

HELD : (i) It is clear from the return filed before the High Court that the Government ourchases arrack from the distillers and keeps it in the warehouses eatablished 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 warehouse also. It cannot be said that 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 A~t w~uld sen:e as 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 dele-gate. In this case, s. 71 of the Act whi~h provides .for the rule-makine power imposes the necessary check upon the wide power g1ven to the Government to fix the rate. The laying of rules before the legislature provides control ov~r delegated legislation. Again the legislature may also retain its control over_ 111 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. [610E-F; 614E·PlCorporatio11 of C11lq11ta & Anr. v. Liberty Ci11e111a, [1965] 2. S.C.R. 477, lla1wrsi D1is v. Slate of Madhya Pradesh, [1959] S.C.R. 427, Municipal Board, l1ap11r v. Ragli11rn1dra Kripal, [ 196n] l S.C.R. 1950, Deri Dm~i Gopa/ K,·is/ia11 v. S/'ale of P11njab, [1967] 3 S.C.R. 557, Municipal Corporatio11 of Delhi v. Bir/a Cotton Spinning and Wearing Mills, [1968] 3 S.C.R. 251, Sita Ram Bislia111bhar Dayal v. State of z'.J.I'. [1972] 2 S.C.R. 141, Mi11ister of Health v. r:1c Kim;, [ 193 I] A.C. 524, lnxtit11tt of P111en1 Agents '" Joseph. Lockivovd. l:894] A.C. 347 <znd Cobb & Co. v. Kropp, [1967] 1 A.C. 141 (P.C.), refo1rred to.

(iii) Section 19 of tbc. Kar.11:1taka Sulcs Tax Act, 1957. makes it clear that notwithstanring anything containe,i in this Act of 1957, the Government :;hall in respect 01 any sale of goods effected by it be entitled to collect by way of tax ;my amount which u rci;:istcrcd dcakr e!Tecting such sale would have been entitled to collect bv way of tnx under the Act. The section is clear that the (]ovc·rnmcnt could collect th~ tax on the sule made by it as if it were n rcgis· tcrcd dealer, notwithstunding unything contained in s. 2 or s. S. The i;ection ll,clf creates ri11ht in the State to recover and an obli~ntion on the purchaser from the State to iiny the umount. Any imposition of liability or obligu:tion ·in respect of sale or purchase of goods will lie covered by Entry S4 of Lint II of tbe Seventh Schedule of the C<institution. Section 19 i" therefore, not 11/tru l'ires the powers of the legislature. [615A·CJ

CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 1883 to 1886 of 1969.

From the judgment & Order dated the 12th July, 1968 of ·ihe Mysore High Court in W.P. Nos. 949, 955, 956 and 958 of 1968.

K. Srinivasan and Vineet Kumar, for the appellants.

Ii. B. Datar (ln C.A. No. 1883/69) and M. Veerappa, for· thl' respcmdents.

The Judgment of the Court was delivered by

MATHEW, J. The appellant was an excise contractor. He secur-ed the privilege of vending arrack in retail in certain taluks in the State of Karnataka for period of 18 months beginning from. 28-12-1967 and ending on 30-6-1969. He purchased arrack from the Govern-ment at 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 Karnatak:a cbal-lenging the validity of the levy and collection of excise duty, education cess, health cess and sales tax. The High Court accepted some of the conte:ntions of the appellant, granted him reliefs on that basis but rejected the other prayers. The appellant has filed these appeals or 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 J licensee in respi::ct 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 Mvsore Excise Act of 1965 on the Government was bad for the

rca?on .that it w.as an abdication by the state lcgi~laturc of its essential lcgislat1ve function and that no 8ales tax could be levied on the price for sale of arrack since s. 19 of the Mysore Sales Tax Act 1957 under whi1=h the tax was levied was beyond the legislative comp~tcncc of the state legislature.

Section 22 of the Mysore Excise Act, 1965 (hereinafter rdcrred 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 appellant was that sections I 6, 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 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 o~ t~1e 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 Govern-ment, establish or license warehouse wherein intoxicants may be deposited and kept without payment of duty and that without the sanction of the State Govcrnmc;;~ no i111oxicant 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 bond has been executed for tl,le payment there-of.

It is clear from the return filed before the High Court that thl' 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 theliability to pay excise duty shall be levied on the excisable article issued from ware Excise Commissioner who is competent to establish or license ware-house wherein intoxicants may be deposited and kept under clause ( e) ot s. 16 and therefore it is not warehouse established or licensed b"· the State Government. -H

We see no force in this contention. Section 23 provides that excise duty shall be levied on ihe excisable article issued from ware-

provides that

house also. We sec no reason to think that warehouse established 1.1r licensed under s. 16 ( e) is not warehouse within tbe meaning: of that exprll$Sion in s. 23,

!'he second contention raised by the appellant was that s. 22 of the Act provides for delegation of the power to fix the rates bf excise duty co 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-for,e the section is bad.

'fhe High Court after referring to th..: preamble of the Act said that it was the policy of the Act both to raise revenue and to dis-courage con:iUmption of liquor by making the price -0f liauor s.uffi-c1e11tly high, and that that would serve as 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 f~om 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 likely to encourage the produc-tion and consumption of iJlicit liquor and consequently the control and regulation of liquor as well as the revenue from excise duty may be affected advers1~ly. The Court therefore held that the need to arrive at such rates of: excise duty as will Sl"rve the twin objects of the policy underlying the Act operates as guidance for determination of the rates of e:xcise duty.

We are not certain whether the preamble of the Act gives any guidance tor fixing the rate of excise duty. But that does not mean that the legislature here has no control over the delegate. The le:gis-lative "nntrol over delegated legislation may take many forms.

In Corporation of Calcutta & A.nr. v. Liberty Cinema(I), the vali-dity of s. 548(2) of the Calcutta Municipal Act, 1951, which em-powered 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 exa~sive 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 fixa-tion of rates of tax not being an essential legislative function, could be validly delegated to non-legislative body. but observed that when it was Jeft to such 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 entrnstl'-d to it under the Act. .

In Municipal Board, Hapur v. Raghuvendra Kripal([3 ]) the validity of the U;P. Municipalities Act, 1916, was involved. The Act had empowered the municipalities to fix the rate of tax and after having enurnetated the kinds of taxes to be levied, prescribed an elabor·ate

(2) [1959] S.C.R. 42'7.

(ll [l965J 2, S.C.R. 477.

(3) [1966) I S.C.R. 950

procedure for such levy and .also provided for the sanction of the Govemm~nt. · Section 13 5 ( 3) of the Act raised conclusive preswnp-tion that the procedure prescribed had been gone througb. on .certain· notification being' issued by the Government in that ~egard. This provision, it was contended, was ultra vires because there was an abdication of essential legislative functions by the legislature with res-B pect to the imposition of tax ina~much as the. State Government . was given the pow~r to condone the breaches of the Act and to set at naught the Act itself. This, it was contended, was an indirect exempt-ing or dispensing power. Hidayatullah, J. speaking for the majority, said that regard being had to the democratic set up of the municipali-ties which need the proceeds of these taxes for their own administra-tion, it is prop.:r to leave to these municipalities the power to impose and collect 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 a.nd controls by Government which could veto the action of the Board in case it did not carry out the mandate of the legislature. ·

I.n Devi Dass Gopal Krishnan v. State of Pun;ab([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 rates as it thought fit was bad. The Court struck down the section on the ground that the legislature did notlay 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 cif the Act would not provide sufficient guidance for the fixation of rates of tax. He pointed out the danger inherent in the· process of delegation :

"An overburdened Legislature or one controlled by powerful executive may unduly overstep the limits of dele-gation. It may not lay down any policy at all; it may declare its policy in vague and general terms; it may Ii>t 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 [egislatio11. This self ·effacement of legislative power in favour of another agency either in whole or in part is beyond the permissible limits of delega-tion." · In Municipal Corporaiion of Delhi v. Birla Cotton Spinning and Weaving Mills([2]), the main question was about the constitutionality of delegation of taxing powers to municipal corporations. The Delhi Municipal Corpo~ation Act (66 of 1957) bys. 113(2) had \m}power-ed the CorporaM.on 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 articles and property tp be taxed, the systems of assessment to be adopted (I) [l967]3;S.C.R. 557. (2) [1968] 3, S.C.R. 251.

[19751 3 s.c.R.

and the exemptions, if any, to be granted. The. majority of the court held the cklcgation to ho valid. Wanchoo, .J. observed tbat there were sutlicient guidance, checks and saf,guards in t11c Act which prevented excessive dckgation. The learned Chief Justice observed that statements in certain cases to tho effect that th, power to fix rates cf taxes is 1101.· an essential legislative fUnctioh \Vere too broad and that •·tl1c natur~ of th~ body to \vhich dclcg~tion is n1atl.; is also :t factor to be taken into consideration in dctcrminin~ whether there is suftieicnt guidance in the matt·.::r of dl.!Icgation··. .r\ccording to the learned Chief Jmticc, the fact that dclc~ation was made to an dected body responsible to the people including those· who paid taxes provid[1]:d, grci1t check on the eleci.ed councillors imposing unrcason-:1blc rates cf tax. He then said :

"The guidance may take the form of providing maximum rates of tax up to which local body may be givon the dis-cretion to nlakc its choi:.:c-, or it n1,uy take the form of provid-ing for consuLation with the people o( the local area and then fixing th~ rati:s 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 wntch-dog on the actiqns of the local body in this matter on 0 behalf cf the legislature. There may be other ways in which guidance may be provided.'" ·In Sita Ram· Bishambhar D,ayal v. State of U.P.([1]} s. 3-D(ll of the U. P. Sales Tax Act, 1948, had provided for levying taxes at such rates as may be prescribed by the State Government not exceeding the 171aximum prescribed therein. Hegdc, J., in speaking fnr the. Court, observed : ·

'"However much one might deplore the "New Despotism'· of the execmive, the very complexity of the modern society arid Th:.! demand it makes on its Government have set in. motion forces which have made it absolutely necessary for the Lcgh:Iatures to entrust more and more po\v<=ts to the executive. Text hook doctrines evolved in the 19th centurv have become out of date." -

in. po\v<=ts to the -upon -the wide Sub,secli"DD, { 4) 4) of be'.(;~:µ((. ijs

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,secli"DD, { 4) 4) of that section provides :

"Every rule made under this section shall be'.(;~:µ((. ijs soon as may be after it is made, before each Hi:w9e of _t!)e State Legislature while it is in sessii:ln for totµ'I~pef/Od- of thirty days which may be comprised in _one .se~ji6ii ,o.r. in two or more successive sessions and if befcmi.the_,'\'Xpiry,.<~ •. · the session in which it is so laid or the sessTon ·immodia~Y,: follo\ving, both Hous::s agree in nlaking any modification in·. the rule (it?) shall thereafter have effect 9nly ih -such modi-fied form or be of no cffcci;· ns. · the_ ~:1<c may (I) [19721 2, S.C.R. 141.

be; so however that any such modification or annulment shall be without prejudice to the validity of anything pre-viously done under that rule."

The appellant submitted that s. 71(4) does not provide guara~tcc for legis'ativc control over d7legated legislation. The ~trgu1n~nt \Vi.IS that the rules would come into forcz as soon as they n arc framed and that the power of the legislature to annul the rules subsequcntl1y cannot be rcgard·'d as sufficient contrc,l over delegated legislation.

Thal laying of rules b'forc the legislature is control over delegated Jcgisb:ion is implied in the speech of Lord Thankerton in the House of Lords in Minisrer of llealt!z v. The King(') where he said:

"'ln this case, as in similar cases that have .cOme before tho courts, Parliament· has delegated its legislative function to u Minist·or of the. Crown, but in this case Parliament has retained no specific control over the exercise of the function by tho Minister, such as condition that the order should be '.aid before Parliam2nt and might be annulled by resolu-tion of either House within limited period."

Lockwood(') Lord·

In filsiitute of Patent Agellts v. Joseph Lockwood(') \Vatson said : 'The Legislature retained so far check that it required that the regulations which they framed should be laid upon the wbk of both Houses; and of course these regulations could have been annulled by an unfavourable . resolution upon nlo:ion made in either House.''

Jn Banard Schewartz's "An fntroduction to American Adminis-trative Law·• it is stated :

"In Britain, Parliamentary control over delegated legis-lation is exercised through the· various forms of 'iaying' prescribed in enabling Acts.· Through them, the legislature is enab!cd at least in theory to exercise continuing super-vision ovzr administrz:tive rules and regulations.'' ·

.As D~an Landis pointed out, the English techniques for laying the ruks before the Houses have several virtues. "For one thing, they bring the !e~i>lativc into close and constant contact with the adminis-trative .'T').

Th·: legislature may also retain its control over its delegate by exercising its power of repeJl. This was the basis on which the Privy Co1.111cil in Ct'!.'1:1 c~ Ci>. v. Kron,.?("') upf1e~d ih..:-v;.1lidi:v of delega-tin~ of t:1c-p0\v~r to fix rates to the Commissioner of Transport in th:It c:[1]s=.~. The qu~stion there \Vas \Vh~th~r ·the Queensland -Leizis-htur,: h:d legishtive authority uhdcr the impugned Acts to invest the Cornn1i!'~io~~~-f~r Transport \vith pJWe~ to impose and levy (I) [1931] A.C. 5'.!4. (2) [1894] A.C. 347. ('3) see Landis, .. The Administrative Process ... 77 (1938~ . (4) [1967] l,A.C. 141 (P.C.). .

licence and permit fees. It was not dispute<l; ~fore the~ Lordships ~t fees imposed are to be regarded as constitutmg taxlltion. According-ly, it was contended that the legislature had abdicated its exc.lusive power of levying taxation. The Privy Council held that Queensland Legislature was entitled to use any agent or machinery that it con-sidered appropriate for carrying out the object and the purposes of the Acts and to use the Commissioner for Transpoit as its instru-B ment 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 with-draw such authority and discretion as it bad vested in him, it had not assiblled, transferred or abrogated its sovereign power to levy taxes, nor had it renounced or abdicated its responsibilities in favour of new1y 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 Tram:port Acts could not reasonably be described as 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 :µgislature 'create and endow with its own capacity new legislative power not created by the Act to which it owes its own existence' (5ee In re the Initiative 011d Refere11dum Act ( 1919) A.C. 945 at 945)."

The point to be emphasized-and this is rather crucial-is the :.tatcment of their Lordships that the legislature preserved its capacity intact and retained perfect control over the Commissioner for Trans-E port inasmuch as it could at any time repeal the legislation and with-draw the autlwrity and discretion it had vested in him, and, therefore, the legislature did UQt abdicate its functions. -We, therefore, think that the power to fix the rate of excise duty cornferred Qil the government by s. 22 of the Act is valid. The dilution Qf P,UI'liameIJitary watch-dogging of delegated legislation may be deplored but, m 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 pur· ports to levy sales tax upon the sale of arrack made by the Govern-ment · 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 sec no merit in this contention. Section 19 of the Act reads:

"19. State Government entitied to collect tax as regis-tered dealcrs.-Notwithstanding anvthing contained in this Act the Government o:f Mysore shall, in respect of any sale of goods e:tfected by them, be entitled to co11ect by way of tax any amount which registered dealer effecting such sale would have been entitled to collect by way of tax under this Act." ·

M. K, PAPIAH v. EXCISE COMMR. (Mathew; /.)

Thi3 section makes it clear that notwithstan<llng

aI1}thina QOll-

tained in that Act, the Government shall in respect of. any Ille of goods effected by it be entitled to collect by way of taX aDJ amoat which registered dealer effecting such sale would have been CDtided to collect by way of tax under the Act. The section is clear thlt the Government could collect the tax on the sale made by it as if it were registered dealer, not withstanding anything contained in s. 2 or s. 5. The section itseH creates right in the State to r.:cover and an obligation on the purchaser from the State to pay the amount. ADY imposition of liability or obligation in respect of. sale or purchase of goods will be covered by Entry 54 of List Il of the Seventh Schedule of the Constitution.

We do not think that s. 19 is ultra vires the powers of the legis-c lature.

We therefore dismiss the appeals but make no order as to costs.

Appeals dismissed.