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PETITIONER: ASSISTANT COLLECTOR OF CENTRAL EXCISE

       Vs.

RESPONDENT: RAMAKRISHNAN KULWANT RAI

DATE OF JUDGMENT12/04/1989

BENCH: SAIKIA, K.N. (J) BENCH: SAIKIA, K.N. (J) SINGH, K.N. (J)

CITATION:  1989 AIR 1829            1989 SCR  (2) 444  1989 SCC  Supl.  (1) 541 JT 1989  Supl.     99  1989 SCALE  (1)968

ACT:     Central  Excises and Salt Act, 1944/Central  Excise  and Salt Rules, 1944--Section 3/Rules 10 and 10A--Rules  whether ultra  vires rule making power--Whether applicable to  cases where there has been no prior levy of Excise duty in respect of article manufactured.

HEADNOTE:     Respondent  firm owned a Steel Rolling Mill  situate  at Madras.  The said mill was leased out to a partnership  firm viz.,  M/s.  Steel Industries and after the  expiry  of  the lease period, the Respondent took back the possession of the Mill  on 1.8.1962 and informed the Central  Excise  Authori- ties,  who advised the Respondent to take out a licence  for which  it  applied on 30.11.1962 Respondent  sold  away  the Rolling  Mill  on 8.4.1963. The  Superintendent  of  Central Excise  by  his letter dated 13.10.1965 raised a  demand  of Rs.31,018.20 p. on the respondent on account of excise duty. The Respondent having informed the Department that the  firm had  manufactured only 775.455 metric tonnes of  steel,  the demand  of excise duty was reduced to Rs.6,419.38  p.  only. The Respondent, though pleaded that it was not liable to pay excise duty demanded, yet the Assistant Collector of Customs by his order dated 14.6.1967 confirmed the demand.     The  Respondent-firm  challenged  the  validity  of  the demand by filing a Writ Petition in the High Court. Respond- ent contended before the High Court that (i) it was entitled to  exemption of duty; (ii) that the demand for  payment  of excise  duty was time-barred and (iii) that Rules 10A  under which the demand has been made are ultra rites as there was     provision  in the Act to enable the Government to  frame rules for the recovery of duty short-levied.     The High Court allowed the Writ Petition and upheld  the contention advanced by the Respondent holding that Rule  10A did not apply to cases where there has been no prior levy of excise  duty in respect of the articles manufactured  during the relevant period. Hence this appeal by the Department. 445     The question that arose for determination by this  Court was whether Rule 10A of the Rules, as it stood at the  rele-

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vant time, was valid? Counsel for the appellant wile  plead- ing that the Rule was valid submitted that it was  necessary to decide this question in view of the conflicting decisions creating difficulty for the Department in collecting  short- levies or escaped excise duty. Counsel referred to decisions reported  in 1972(2) MLJ 476; A.I.R. 1972 SC 2563; 1973  (1) MLJ 99; and 1977(2) Tax L.R. 1680.     Counsel  for  the  Respondent urged  that  the  Standing Counsel for the Central Government had conceded the  ration- ale of the decision in Haji J.A. Kateera sait v. Dy. Commer- cial Tax Officer, Mettupalayam;, 18 STC 370 which held  that Sub-Rule  (7)  of Rule S of the Central Sales  Tax  (Madras) Rules  1957  was in excess of the rule making power  and  as such  the  Sub-rule as a whole was invalid. In view  of  the said  decision, the appellant would not be able  to  sustain the  demand under Rule 10A; and it is no longer open to  the appellant  to  challenge  the validity of Rule  10A  in  the appeal.       Allowing  the appeal and remanding the matter  to  the High Court, Court,     HELD: Chapter II of the Act deals with levy and  collec- tion  of duty. Under Section 3 of the Act, duties  specified in  First  Schedule to the Act were to be levied.  Rule  10A provided  the machinery for collection of tax from  assessee after  the  goods had left the factory premises.  This  rule contemplated that the duty or deficiency in duty was payable on  a  written demand made by the proper  officer  in  cases where  either the rules did not make any specific  provision for the collection of any duty or of any deficiency in duty, if  the duty had for any reason been short levied. It was  a residuary  provision and it applied only when there  was  no other specific provision in the Rules. Where there had  been no  assessment  at  all there was no reason  why  claim  and demand of the Respondent could not be said to be recoverable under Rule 10A. [449E; 448H; 449B-C]     The validity of the delegated legislation is generally a question  of  vires, that is, whether or  not  the  enabling power  has been exceeded or not. Rule 10A as it  existed  at the  relevant time, was valid and not ultra vires  the  rule making  power. Demand notice lawfully issued under the  rule by  the competent authority could not, therefore,  be  chal- lenged  on  the ground of the Rule 10A  itself  being  ultra vires. Whether these could be challenged on any other ground must necessarily depend on the facts 446 and circumstances of each case. [453E-F]     Kerala  Polythene  v. Superintendent Central  &  Excise, [1977] 2, Tax L.R. 1680.     M/s.  Chhotabhai  Jethabhai  Patel v.  Union  of  India, [1952] ILR Nag. 156. Stateof  Kerala  v.  K.M. Charie Abdullah &  Co.,  [1965]  1 S.C.R.601.     Any  rule  if it could be shown to have  been  made  ’to carry into, effect the purposes of the Act’ would be  within the rule making power. [452H; 453A]     Citadel  Fine Pharmaceuticals v. District Revenue  Offi- cer,  Chingleput, [1973] 1 M.L.J. 99; M/s. Agarwal  Brothers v. Union of India, [1972] 2 MLJ 476; N.B. Sanjane v. Elphin- stone Spinning and Weaving Mills Company Ltd., [1971] 1  SCC 337;  Assistant  Collector  v. National  Tobacco  Co.  Ltd., [1973]  1 S.C.R. 822 and D.R. Kohli v. Atul  Products  Ltd., [1985] 2 S.C.R. 832, referred to.

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JUDGMENT:     CIVIL  APPELLATE JURISDICTION: Civil Appeal No. 1202  of 1974.     From  the  Judgment  and Order dated  19.7.1972  of  the Madras High Court in Writ Petition No. 1064 of 1967. Anil Dev Singh and C.V.S. Rao for the Appellant. Ambrish Kumar and A.T.M. Sampath for the Respondent. The Judgment of the Court was delivered by     K.N. SAIKIA, J. This appeal by Special Leave is from the Judgment  and Order of the High Court of Judicature  at  Ma- dras,  dated  19th July, 1972 in Writ Petition No.  1864  of 1967, allowing the petition and quashing the demand made  by the  appellant under Rule 10-A of the Central Excise  Rules, hereinafter  referred  to  as ’the Rules’,  payable  by  the respondent  under  the Central Excise and  Salt  Act,  1944, hereinafter referred to as ’the Act’.     M/s.  Ramakrishnan  Kulwant Rai,  the  respondent  firm, owned the Steel Rolling Mill, located at No. 4-B, 4-C, North Railway 447 Terminus  Road,  Royapuram,  Madras-13. The  said  Mill  was leased out to a partnership firm known as M/s. Steel  Indus- tries.  After termination of the lease the  respondent  firm took  back possession of the said Mill on 1-8-1962  and  in- formed  the Central Excise Authorities about this  by  their letter  dated  16-11-1962 and resumed manufacture  of  Steel from scraps and was advised to take out a licence for  which it  applied  on 30-11-1962. Though the respondent  firm  had ultimately  sold  away  the Rolling Mill  on  8-4-1963,  the Superintendent  of  Central  Excise,  by  his  letter  dated 13-10-1965  demanded  a sum of Rs. 31,0  18.2013  as  excise duty.  On information furnished by the firm about its  manu- facture  of only 775.455 metric tonnes of Steel, the  Deputy Superintendent of Central Excise reduced the demand to a sum of  Rs.  6,4 19.38p only, and the demand was  reiterated  by notice dated 13-4-1967, pursuant whereto the respondent firm showed  cause on 15th May, 1967 but the Assistant  Collector of  Customs, by his order dated 14th June,  1967,  confirmed the demand. The  respondent  firm challenged the demand by  moving  writ petition No. 1864 of 1967 in the High Court of Judicature at Madras  contending,  inter alia, that it  was  manufacturing steel products prior to 13-6-1962, only suspending  manufac- ture during the period of lease and resuming thereafter, and as  such,  was entitled to exemption from payment  of  duty; that  the demand for payment of duty was time  barred;  that rules  10 & 10A invoked in support of the demand were  ultra vires  inasmuch  as  there was no provision in  the  Act  to enable  the  Government to frame rules for the  recovery  of duty short-levied.      The  High  Court by the impugned  order  following  its earlier  judgment in writ petition Nos. 265 & 266  of  1967, which relied upon its earlier decision in writ petition  No. 1055  of 1968, upheld the contention of the respondent  firm holding  that Rule 10-A did not apply to cases  where  there had  been  no prior levy of excise duty in  respect  of  the articles  manufactured during the relevant period  and  that the  duty  was sought to be recovered only by the  issue  of demand  under Rule 10-A of the Rules. The High Court  having rejected  leave to appeal, the. appellant  obtained  special leave on 23-7-1974.      Mr.  Anil Dev Singh, learned counsel for the  appellant submits  that  it  is necessary to  decide  the  substantial question of law of general importance, namely, whether  Rule 10-A  of  the Rules, as it stood at the relevant  time,  was

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valid  or  not as conflicting decisions have  been  creating difficulties  for the department in collecting  short-levies or  escaped  excise duties. Counsel refers us  to  1972  (2) M.L.J. 476, AIR 1972 S.C. 448 2563,  1973  (1) M.L.J. 99 and 1977 (2) Tax L.R.  1680.  The learned  counsel  states that Rule 10-A was  in  force  upto 6-8-1977  whereafter  it was amended with effect  from  that date  and the amended rule continued till  16-11-1980  where after  it  was  enacted as Section 11-A of the  Act  by  the Amendment  Act 25 of 1978 and that Section came  into  force with effect from 1.7-11-1980.     Mr. Ambrish Kumar, the learned counsel for the  respond- ent  submits that the learned standing counsel for the  Cen- tral  Government having conceded that the rationale  of  the decision  in  Haji J.A. Kareem Sait v.  Dy.  Commercial  Tax Officer, Mettupalayam, 18 STC .370, which held that sub-Rule (7) of Rule 5 of the Central Sales Tax (Madras) Rules  1957, providing for limitation and determination of escaped  turn- over by best judgment was in excess of the rule-making power and  the sub-Rule as a whole, was therefore, invalid,  would apply with equal force to Rule 10-A as well and that in view of  the  same decision he would not be able to  sustain  the demands under Rule 10-A and yet he could sustain the  demand under  Rule 9(2) of the Rules, it is no longer open  to  the appellant  to  challenge the validity of Rule 10-A  in  this appeal, and that too after so many years.     Counsel  for  the  appellant answers  that  the  learned standing  counsel  thereby cannot be said to  have  conceded that Rule 10-A was invalid. He had only said that in view of the decision in 18 STC 370, he would not be able to  sustain the  demands under Rule 10-A; and that even if it  could  be taken  as a concession, the appellant could not be  estopped from  showing that the rule is valid so that Central  Excise revenue is not allowed to escape. We agree with the  learned counsel for the appellant and proceed to examine the validi- ty of Rule 10-A as it stood at the relevant time. Rule  10-A of the Rules read as under:               "10-A.  Residuary powers for recovery of  sums               due  to Government--Where these Rules  do  not               make any specific provision for the collection               of  any duty or any deficiency in duty if  the               duty has for any reason been short levied,               or of any other sum of any kind payable to the               Central  Government  under the  Act  or  these               Rules,  such duty, deficiency in duty  or  sum               shall, on a written demand made by the  proper               officer,  be paid to such person and  at  such               time and place as the officer may specify."     Rule  10-A provided the machinery for collection of  tax from  the  assessee  after the goods had  left  the  factory premises. This rule con- 449 templated that the duty or deficiency in duty was payable on a  written demand made by the proper officer in cases  where either the Rules did not make any specific provision for the collection  of any duty or of any deficiency in duty if  the duty had for any reason been short levied. Therefore, before Rule  10-A  could be resorted to, it had to  be  found  that either  the Central Excise Rules did not make  any  specific provision  for the collection of duty in respect  whereof  a demand  was being made by the proper officer, or that  there was no specific provision therein for the collection of  the deficiency  in  duty  which had been short  levied  for  any reason.  It  was a residuary provision and it  applied  only

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when  there  was no other specific provision in  the  Rules. Where  there  had  been no assessment at all  there  was  no reason  why claim and demand of the respondent could not  be said to be recoverable under Rule 10-A.     The learned counsel for the appellant submits that  this Rule  is  perfectly valid being covered by  the  rule-making powers  under  the  Act while the learned  counsel  for  the respondent, submits that it is ultra vires the Act being not covered by its rule-making powers. The question,  therefore, is whether the Rule is valid.     Chapter II of the Act deals with levy and collection  of duty.  Under Section 3 of the Act duties specified in  First Schedule  to the Act were to be levied. Sub-section  (1)  of Section 3, at the relevant time, read as follows:               "(1)  There shall be levied and  collected  in               such  manner  as may be prescribed  duties  of               excise on all excisable goods other than  salt               which  are produced or manufactured in  India,               and a duty on salt manufactured in, or import-               ed by land into, any part of India as, and  at               the rates, set forth in the First Schedule."                   In  Citadel Fine Pharmaceuticals  v.  Dis-               trict  Revenue Officer, Chingleput,  [1973]  1               M.L.J.  99, where the enactment,  namely,  the               Medicinal  and  Toilet  Preparations   (Excise               Duties)  Act (XVI of 1955) was silent  on  the               question  of levies of escaped assessment,               it was held that the Rules made under that Act               could  not extend the charging power and  Rule               12,  in  so  far as it sought  to  extend  the               charging  power under Section 3 of  that  Act,               was  held to be invalid and without  jurisdic-               tion. Rule 12 of those Rules read as follows:               "12. Residuary powers for recovery of sums due               to               450               Government--Where these rules do not make  any               specific  provision for the collection of  any               duty or of any deficiency in duty if the  duty               has  for any reason been short-levied,  or  of               any  other  sum  of any kind  payable  to  the               collecting  Government under the Act or  these               rules,  such duty, deficiency in duty  or  sum               shall  on  written demand made by  the  proper               officer,  be paid to such person and  at  such               time  and  place, as the  proper  officer  may               specify."     Rule  12 was somewhat similar to RUle 10-A of the  Rules and  had been held to be ultra vires on the ground  that  it did not have the required statutory backing. In M/s. Agarwal Brothers v. The Union of India, [1972] 2 M.L.J. 476, it  was held  that a licence issued under the Central  Excise  Rules was personal to the licensee and therefore, a transferee  of factory licensed to manufacture iron and steel products from the former licensee could only be treated as a new  licensee after the relevant date mentioned in the Notification No. 13 1  of  1962, dated 13th June, 1962, and  as  the  petitioner applied  for a licence much later, the exemption  under  the Notification  was not available to the petitioner who  could not  be applying for renewal of the earlier licence held  by the transferors and hence the exemption under the  Notifica- tion was not available to the petitioner. Demand, therefore, could only be made under Rule 10-A which, it was held, could not be invoked in view of the decisions in W.P. No. 1053/68, namely the Citadel Fine (supra).

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   A  Division Bench of Kerala High Court in  Kerala  Poly- thene  v. Superintendent, Central Excise, since reported  in 1977  2 Tax L.R. 1680, held that Rule 10-A of the rules  was not  ultra vires the rule making power conferred by the  Act on the Central Government. Balakrishna Eradi, J., as he then was,  observed that the scope of the rule making power  con- ferred by Section 3(1) of the Act was wide enough to embrace all  matters relating to the manner in which both  the  levy and  the  collection of duties of excise  on  all  excisable goods  other than salt were to be made. The  provision  con- tained  in Rule 10-A was thus fully within the scope of  the said  power  and hence it was not correct to say  that  Rule 10-A was ultra vires the rule making power conferred by  the Act on the Central Government. The cases of Agarwal Brothers (supra)  and Citadel Fine Pharmaceuticals (supra) were  dis- tinguished  pointing out that there was much  difference  in scopes of Section 3 of the Medicinal and Toilet Preparations (Excise  Duties) Act (XVI of 1955) and of Section 3  of  the Act.  Comparing  the provisions of the two Sections  it  was observed that there was funda- 451 mental difference in their policy and scheme. Under  Section 3  of  the Medicinal and Toilet Preparations  Act  only  the manner of collection of the duties was left to be prescribed by  the  rules and levy of the duty was to be  made  at  the rates  specified  in the Schedule to the  Act.  In  enacting Section  3 of the Act i.e. Central Excise and Salt Act,  the Parliament  had empowered the rule making authority to  pre- scribe  by rules the manner of levy of duties and  also  the manner  of collection of duties of excise on  all  excisable goods  other  than salt. Manifestly the  rule  making  power conferred  by this Section is very much wider in  its  ambit than the power conferred on the rule making authority  under Section  3 of the Medicinal and Toilet Preparations  (Excise Duties)  Act  whereunder only the manner  of  collection  of duties  could be laid down by rules. We  respectfully  agree with  this  view.  We also find  that  in  Agarwal  Brothers (supra) though one of the questions raised was the  validity of  Rule 10-A of the Rules, the Court did not  consider  the said  question on merits in view of the submission  made  by the  standing counsel for the State Government on the  basis of  Rule 10-A in the light of the earlier decisions  of  the same High Court, striking down Rule 12 of the Medicinal  and Toilet Preparations (Excise Duties) Rules. That decision can not  obviously be regarded as authority supporting the  con- tention  that  Rule  10-A was ultra  vires  the  rule-making power.     We find that Rule 10-A, was incorporated because of  the decision  of  the  Nagpur High Court  in  Messrs  Chhotabhai Jethabhai  Patel v. Union of India, [1952] I.L.R. Nag.  156. After  that decision the Central Government by  a  notifica- tion, dated December 8, 195 1, amended the Rules by addition of  the new Rule 10-A. The assessee challenged the  validity of  the Rule but a full bench of the Nagpur High  Court  re- jected  the  assessee’s contention and held that  Rule  10-A covered  a case for increased levy on the basis of a  change of  law.  That  decision was challenged  before  this  Court unsuccessfully. This Court in Chhotabhai Jethabhai Patel and Co. v. The Union of India, [1962] 2 Suppl. S.C.R. 1, reject- ed the assessee’s claim regarding non-applicability of  Rule 10-A stating that it had been specifically designed for  the enforcement of a demand like the one in that case.     We  also find that in N.B. Sanjana v. Elphinstone  Spin- ning and Weaving Mills Company Ltd., [2971] 1 SCC 337, while holding  that Rule 10-A did not apply to the facts  of  that

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case,  this Court observed that Rule 10-A did not  apply  as the specific provision for collection of duty in a case like that  was specially provided for by Rule 10 and,  therefore, action should have been taken under that Rule. 452     In  Assistant  Collector v. National Tobacco  Co.  Ltd., [1973]  1  S.C.R. 822, this Court held that the  High  Court erroneously refused to consider whether the impugned  notice in  that  case fell under Rule 10-A. It  was  observed  that Rules 10 and 10-A seemed to be so widely worded as to  cover any inadvertance, error etc.; whereas Rule 10-A would appear to  cover  any deficiency in duty if the duty had,  for  any reason,  been short-levied, except that it would be  outside the  purview  of Rule 10-A if its collection  was  expressly provided by any Rule. It was further observed that both  the Rules as they stood at the relevant time dealt with  collec- tion  and  not  with assessment and what was  said  in  N.B. Sanjana’s  case  (supra) that Rule 10-A was of  residual  in character and would be inapplicable if a case fell within  a specified category of cases mentioned in Rue 10, was reiter- ated.     In  D.R.  Kohli v. Atul Products Ltd., [1985]  2  S.C.R. 832, this Court pointed out the differences between the  two Rules namely Rule 10 and Rule 10-A as: "(i) whereas Rule  10 applies to cases of short levy through inadvertence,  error, collusion  or misconstruction on the part of an officer,  or through mis-statement as to the quantity, the description or value of the excisable goods on the part of the owner,  Rule 10-A  was  a residuary clause applied to those  cases  which were  not  covered by Rule 10 and that; (ii)  whereas  under Rule 10, the deficit amount could not be collected after the expiry  of three months from the date on which the  duty  or charge  was paid or adjusted in owner’s account  current  or from  the date of making the refund, Rule 10-A did not  con- tain any such period of limitation."     It would thus be clear that this Court interpreted  Rule 10-A,  distinguished it from Rule 10 and applied it  to  the appropriate  facts and circumstances of different cases.  It would  be reasonable to infer that in none of the cases  any doubt about the validity of the Rule 10-A was entertained.     We  may now examine the contention that at the  relevant time  Rule  10-A was not covered by the  rule  making  power conferred  on the Central Government by Section 37.  Section 37  dealt  with power of Central Government to  make  Rules. Sub-section (1) said: "The Central Government may make rules to carry into effect the purposes of this Act."  Sub-section (2)  enumerated the matters the rules might provide for  ’in particular’ and "without prejudice to the generality of  the foregoing power." Thus, the section did not require that the enumerated  rules would be exhaustive. Any rule if it  could be  shown to have been made "to carry into effect  the  pur- poses of the Act" would 453 be within the rule making power. Chapter II of the Act dealt with the levy and collection of duty. Section 3 as it  stood at  the relevant time provided that duties specified in  the First Schedule were to be levied. We have quoted Sub-section (1).     The  First Schedule contained Item Nos.  description  of goods  and  rates of duty. Section 3 has  subsequently  been amended  by the Finance Acts of 1982 and 1984, and the  Cen- tral  Excise Tariff Act of 1985. This section, it  would  be seen, expressly empowered the levy and collection of  duties of  excise  on all excisable goods as provided  in  the  Act including  its First Schedule. It could not,  therefore,  be

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said that Rule 10-A was not covered by the above provision.     It  is  an accepted principle that  delegated  authority must be exercised strictly within the limits of the authori- ty. If rule making power is conferred and the rules made are in excess of that power the rules would be void even if  the Act  provided that they shall have effect as though  enacted in  the Act as was ruled in State of Kerala v.  K.M.  Charia Abdullah  &  Co., [1965] 1 SCR 601. Therein the  High  Court having  declared rule 14-A of the Madras General  Sales  Tax Rules, 1939 as ultra vires, on appeal, this Court by majori- ty  held that the validity of the rule, even though  it  was directed to have effect as if enacted in the Act, was always open  to challenge on the ground that it  was  unauthorised. The  validity  of the delegated legislation is  generally  a question  of  vires, that is, whether or  not  the  enabling power  has been exceeded or otherwise wrongfully  exercised. Scrutinising the provisions of Rule 10-A in the light of the above  principles and pronouncements of this Court, we  have no  doubt that Rule 10-A of the Rules, as it existed at  the relevant time, was valid and not ultra vires the rule making power. Demand notices lawfully issued under the rule by  the competent  authority could not, therefore, be challenged  on the ground of the rule 10-A itself being ultra vires. Wheth- er those could be challenged on any other ground must neces- sarily depend on the facts and circumstances of the case.     The  High Court having proceeded on the basis that  Rule 10-A was not available to support the demand notice, we  set aside  the impugned order of the High Court, allow  the  ap- peal, and remand the case to the High Court for disposal  in accordance  with  law. We leave the  other  questions  open. Under  the peculiar facts and circumstance of the  case,  we leave the parties to bear their own costs. Y.  Lal                                          Appeal  al- lowed. 454