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PETITIONER: V. NAGAPPA

       Vs.

RESPONDENT: IRON ORE MINES CESS COMMISSIONER & ANOTHER

DATE OF JUDGMENT10/04/1973

BENCH: MATHEW, KUTTYIL KURIEN BENCH: MATHEW, KUTTYIL KURIEN GROVER, A.N. MUKHERJEA, B.K.

CITATION:  1973 AIR 1374            1973 SCR  (3) 943  1973 SCC  (2)   1

ACT: Iron  Ore Mines Labour Welfare Cess Act (58 of 1961), Ss.  2 and  3--Power delegated to Government to fix rate of  excise duty--If suffers from vice of excessive delegation.

HEADNOTE: Section  2  of the Iron Ore Mines Labour Welfare  Cess  Act, 1961,  provides  that the Central Government may levy  as  a cess  for purposes of the Act, on all iron ore produced,  an excise  duty at such rate, not exceeding 50 P. per tonne  of iron ore, as the Central Government may, from time to  time, fix by notification. The  appellant,  a lessee of an iron  mine,  challenged  the validity  of  the  Act, but the  High  Court  dismissed  the petition. In  appeal to this Court, it was contended that s. 2 of  the Act suffers from the vice- of excessive delegation in  that, under  the section, the Central Government has been given  a blanket  power to fix the rate of excise duty from  time  to time, without any guidelines. Dismissing the appeal, HELD  :  The necessary guidance for fixing the rate  can  be found  in the amount of expenditure necessary  for  carrying out the purposes of the Act.  The policy of the Act has been clearly  stated,  and s. 3 has specified  the  purposes  for which  the  excise duty collected is to  be  utilised.   The purposes  mentioned  are not vague, or indefinite,  and  the expenses  to  be  incurred  for  those  purposes  could   be calculated with reasonable certainty.  The power to levy the duty must be taken to be limited by the expenses required to discharge  the  statutory function to be  performed  by  the delegate,  and  so, the rate that is to be fixed  should  be such  as  would bring in the amount necessary  to  meet  the needs  of the delegate for discharging the functions.   That the  amount  collected  will be expended  for  the  purposes enumerated  in  s.  3 is ensured  first,  by  requiring  the Government   to   make   an  appropriation   by   means   of parliamentary   legislation,  and  secondly,  by   requiring accounts and reports to be published in the official Gazette [951 D-G] Further, the fact that s. 2 has fixed the maximum rate would

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indicate  that  the delegate is not  given  an  uncontrolled discretion  in  the  matter of fixing the  rate.   The  area within   which  discretion  may  be  exercised  is   clearly demarcated,  and  hence, it cannot be said  that  a  blanket power has been declared to the Government. [951 G-H] Corporation of Calcutta and Another v. Liberty Cinema A.I.R. 1965  1107,  Banarsidas v. State of M.P., A.I.R.  1958  S.C. 909,  Municipal  Board, Hapur v. Raghuvendra  Kripal  A.I.R. 1966  S.C. 693, Devi Das Gopal Krishnan v. State of  Punjab, A.I.R.  1967  S.C. 1895, Vasantlal Maganbhai  Sanjanwala  v. State  of Bombay, A.I.R. 1961 S.C. 4, Municipal  Corporation of  Delhi  v. Birla Cotton and Spinning and  Weaving  Mills, A.I.R. 1968 S.C. 1232 Kruse v. Johnson.[1898] 2 Q.B. 91  and D. Ramaraju v. State of A.P., A.I.R. 1972 S.C. 828, referred to. 944

JUDGMENT: CIVIL  APPELLATE  JURISDICTION : Civil Appeal  No.  1695  of 1969. Appeal  by special leave from the judgment and  order  dated February 20, 21, 1967 of the Mysore High Court Bangalore  in Writ Petition No. 347 of 1965. V.   M. Tarkunde and D. N. Mishra, for the appellant. P.   P. Rao, for the respondents. The Judgment of the Court was delivered by MATHEW,  J.  The appellant, who was operating an  iron  mine within  the State of Mysore on the basis of a lease  granted by the State, filed a writ petition before the High Court of Mysore  challenging  the validity of the provisions  of  the Iron  Ore Mines Labour Welfare Cess Act (Central Act  58  of 1961),   hereinafter   referred  to  as  "the   Act".    The contentions of the appellant in the writ petition were  that the  Act is violative of article 14 of the  Constitution  in that  it  imposes  a flat rate of excise duty  on  iron  are without  reference to the actual content of iron in the  ore and’  that  there was excessive  delegation  of  legislative power  in that the power to fix the rate of excise duty  was delegated to the government.  The prayer in the petition was for  a  declaration of the invalidity of the  Act  with  the consequential   relief  of  quashing  the  demand  made   in pursuance  to the Act.  That petition was heard  along  with other similar petitions.  The High Court dismissed the  writ petitions  by  a common order and this  appeal,  by  special leave,  is  against the order in so far as  it  affects  the appellant The  Act provides for the levy and collection of a  cess  on iron  ore for financing the promotion of welfare  of  labour employed.  in the iron ore mining industry.  So far  as  the Mysore  State was concerned, the Act was brought into  force from  October 1, 1963.  Sections 2 and 3 of the Act  contain the  crucial provisions thereof.  As the argument-, in  this case centered round the said Provisions, it is necessary  to set them out :               "2. With effect from such date as the  Central               Government   may,  by  notification   in   the               official  Gazette,  appoint,  there  shall  be               levied  and  collected,  as  a  cess  for  the               purposes of this Act on all iron ore  produced               in any mine, a duty of excise at such rate not               exceeding fifty naye paise per metric tonne of               iron  ore as the Central Government may,  from               time  to  time,. fix by  notification  in  the

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             official Gazette.               "3.  An amount equivalent to the  proceeds  of               the duty levied under this Act, reduced by the               cost of col-                945               lection   as   determined   by   the   Central               Government,  to,ether  with  any  income  from               investment  of the said amount and  any  other               moneys received by the Central Government  for               the  purposes of this Act, shall,  after  due,               appropriation  made by Parliament by law,  be,               utilised by the Central Government to meet the               expenditure   incurred  in   connection   with               measures   which,  in  the  opinion  of   that               Government,  are  necessary  or  expedient  to               promote the welfare of labour employed in  the               iron ore mining industry and in particular                (a)  to defray the cost of measures  for  the               benefit  of  labour employed in the  Iron  Ore               Mining Industry directed towards :-               (i)   the  improvement  of public  health  and               sanitation, the prevention of disease, and the               provision    and   improvement   of    medical               facilities,               (ii)  the  provision and improvement of  water               supplies and facilities for washing,               (iii) the   provision   and   improvement   of               educational facilities,               (iv)  the  improvement of standards of  living               including    housing   and   nutrition,    the               amelioration  of  social  conditions  and  the               provisions of recreational facilities, and               (v)   the, provision of transport to and  from               work;                (b)  to make grants to a State Government,  a               local authority, the owner of an iron ore mine                             or  any other person, of money in aid  of  any               scheme approved by the Central Government  for               any  purpose  connected with  the  welfare  of               labour   employed  in  the  iron  ore   mining               industry               (c)   to pay annually grants in aid to such of               the  owners of iron ore mines as  provided  to               the  satisfaction  of the  Central  Government               welfare facilities of the prescribed  standard               for  the benefit of labour employed  in  their               mines, so, however, that the amount payable as               grant in aid to the owner of an iron ore  mine               shall not exceed-.               (i)   the  amount  spent by the owner  of  the               mine  in the provision of welfare  facilities,               as determined by the Central Government or any               person specified by it in this behalf or               946               (ii)  such  amount  as may  be  prescribed  by               rules made under this Act;               whichever is less : Provided that no grant  in               aid shall be payable in respect of any welfare               facilities  provided by the owner of  an  iron               ore  mine  where  the  amount  spent   thereon               determined  as  aforesaid  is  less  than  the               amount  prescribed  by  rules  made  in   this               behalf.               (d)   to  meet  the  allowances,  if  any   of

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             members of the Advisory Committees constituted               under   section  4,  and  the   salaries   and               allowances, if any, of persons appointed under               Section 5." Sections  4 and 5 empower the Central Government to  appoint Advisory Committees and the necessary staff for  enforcement of  the  provisions  of the Act.   Section  6  empowers  the Central  Government to exempt from the operation of the  Act such  States as those in which there is, in the  opinion  of the Central Government, a law making adequate provision  for the  financing of activities similar to those dealt with  by the Act.  Section 7 requires the Central Government to cause to  be published in the official Gazette a report giving  an account  of  its activities under the Act  together  with  a statement  of  accounts.   Section 8  empowers  the  Central Government  to  make  rules for  carrying  into  effect  the purposes of the Act. Pursuant  to the power conferred by Section 8, rules  called the  Iron  Ore Mines Labour Welfare Cess  Rules  1963,  were framed  and published by a notification dated September  20, 1963. On  the first question decided against the appellant by  the High Court, no arguments were addressed before us and we  do not, therefore, think it necessary to discuss that question. The only point argued on behalf of the appellant was that s. 2  of the Act suffers from the vice of excessive  delegation in  that under that Section the Central Government has  been given  a blanket power to fix the rate of excise  duty.   It was  contended  that the section, while leaving  it  to  the Central  Government to fix the rate and change it from  time to  time,  has  failed to give sufficient  guidance  to  the Government  in  the matter of fixing the rate,  nor  has  it indicated  the  basis  for fixation  or  the  relevant  con- sideration to be taken into account for fixing the rate. The High Court relying on the decision of this Court in Cor- poration  of  Calcutta  and  Another  v.  Liberty  Cinema(1) negatived the contention. (1)  A. I.R. 1965 S. C. 1107. 947 in  that  case  the validity of s. 548(2)  of  the  Calcutta Municipal Act, 1951 which empowered the corporation to  levy fees "at such rates as may from time to time be fixed by the Corporation"  was  challenged  on the  ground  of  excessive delegation  as it provided no guidance for the  fixation  of the  amount.  The majority upheld the provision  relying  on the  decision  in Banarsidas v. State of M.P. (1)  that  the fixation of rates of tax being not an essential  legislative function  could  be validly delegated to  a  non-legislative body,  but observed further that when it was left to such  a body,  the  legislature  must  provide  guidance  for   such fixation.   The  Court found the guidance  in  the  monetary needs  of  the Corporation for carrying  out  the  functions entrusted to it under the Act.  It was further observed that the  power  to collect taxes was limited  by  "the  expenses required  to  discharge  those  functions".   The  minority, however, held that no guidance could be discovered from  the provisions  of the Act.  According to them if  the  monetary needs of the Corporation could afford any guidance, applying the  same  principle  it  would have to  be  held  that  the monetary  needs  of  the State or the  union  would  provide sufficient guidance in case a similar power to fix the  rate of tax was delegated to the Government by the legislature. The question for consideration is whether subsequent   deci- sions of this Court have in any way modified or altered  the principles  laid  down  in this ruling and if  so,  to  what

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extent, and whether s. 2 of the Act suffers from the vice of excessive delegation. In  Municipal  Board,  Hapur v.  Raghuvendra  Kripal(2)  the validity of the U.P. Municipalities Act, 1916 was  involved. The Act had empowered the municipalities to fix the rates of tax  and  after having enumerated the kinds of taxes  to  be levied,  prescribed an elaborate procedure for such  a  levy and  also  provided  for the  sanction  of  the  government. Section  135(3) of the Act raised a  conclusive  presumption that  the  procedure prescribed had been gone through  on  a certain notification being issued by the Government in  that regard.   This provision, it was contended, was ultra  vires because  there  was an abdication of  essential  legislative functions by the legislature with respect to the  imposition of tax inasmuch as the State Government was given the  power to condone the breaches of the Act and to set at naught  the Act  itself.  This, was an indirect exempting or  dispensing power.  Hidayatullah, J., speaking for the majority, pointed out :               ".  . . . regard being had to  the  democratic               set  up of the municipalities which  need  the               proceeds   of  these  taxes  for   their   own               administration, it is proper to leave to               (1) A.I.R. 1958 S. C. 909.               (2) A.I.R. 1966 S. C. 693.               948               these  municipalities the power to impose  and               collect these taxes.  The taxes are,  however,               predetermined  and a procedure for  consulting               the  wishes of the People is devised"  (at  p.               698). Apart  from  the fact that the Board was  a  representative, body  of  the local population on whom the tax  was  levied, there were other safeguards by way of checks and controls by government which ,could veto the action of the Board in case it did not carry out the mandate of the legislature. In  Devi Das Gopal Krishnan v. State of Punjab (1), s. 5  of the  East Punjab General Sales Tax Act, 1948  empowered  the State  Government  to  fix sales tax at  such  rates  as  it thought  fit.   The  Court struck down the  section  on  the ground  that the legislature did not lay down any policy  or guidance  to  the  executive in the matter  of  fixation  of rates.   Subba Rao, C.J. speaking for the Court pointed  out that the needs of the State and the purpose of the Act would not provide sufficient ,guidance in the fixation of rates of tax.   It  was further contended that s. 5 as  amended  only prescribed the maximum rate and did not disclose any  policy giving  guidance to the executive for fixing any rate  other than  the. maximum.  The Court rejected this  contention  on the  ground that the discretion granted to the executive  to fix  the  rate between one pice and two pice in a  rupee  is insignificant and did not exceed the per-permissible limits. In this case the learned Chief Justice reiterated his  views about the permissible limits of delegation, expressed in his dissenting  judgment  in Vasantlal Maganbhai  Sanjanwala  v. State  of Bombay(2).  He pointed out the danger inherent  in the process of delegation thus :               "An overburdened legislature or one controlled               by  a powerful executive may unduly  over-step               the limits of delegation.  It may not lay down               any  policy at all : It may. not set down  any               standard for the guidance of the executive; it               may confer an arbitrary power on the executive               to change or modify the policy laid down by it               without reserving for itself any control ,over

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             subordinate legislation.  This self-effacement               of  legislative  power in  favour  of  another               agency  either ill whole or in part is  beyond               the permissible limits of delegation". (at  p.               1901). In  Municipal  Corporation  of Delhi  v.  Birla  Cotton  and Spinning  and  Weaving Mills(3), the main question  was  the constitutionality   of  delegation  of  taxing   powers   to Municipal (1) A.I.R. 1967 S. C. 1895. (3) A.I.R. 1968 S. C. 1232. (2) A.I.R. 1961 S. C. 4. 949 Corporations.   The Delhi Municipal Corporation Apt  (66  of 1957)  by  s. 113(2) had empowered the Corporation  to  levy optional  taxes.   Under  s. 150, power  was  given  to  the Corporation  to  define the maximum rate of such tax  to  be levied,  the  classes  of persons and  the  descriptions  of articles  and  properties  to  be,  taxed,  the  systems  of assessment  to  be adopted and the exemptions if any  to  be granted.   The  delegation made to the  Corporation  in  the matter  of  imposing the optional taxes was said  to  suffer from the vice of excessive delegation.  The majority of  the Court  held  the  delegation to the  valid.   Wanchoo,  C.J. observed  that  there were sufficient guidance,  checks  and safeguards in the Act which prevented excessive  delegation, The  learned  Chief  Justice  observed  that  statements  in certain cases to the effect that the power to fix the  rates of  taxes  was  not an essential  feature  were  too  broad. Sikri, J. (as be then was), in his concurring judgment  held the  view  that there was "adequate guide or policy  in  the expression  "purposes of the Act in section 113" and "it  is not  necessary  to rely on the safeguards mentioned  by  the learned Chief Justice to sustain the delegation".  He said.               "Apart from authority, in my view, ’Parliament               has   full  power  to   delegate   legislative               authority  to subordinate bodies.  This  power               flows,  in  my judgment from art. 246  of  the               Constitution.   The  word  "exclusive"   means               exclusive  of  any other legislature  and  not               exclusive’  of  any  other  subordinate  body.               There  is, .however, one restriction  in  this               respect  and  that is also contained  in  art.               246.  Parliament must pass a law in respect of               an  item  or  items  of  the-  relevant  list.               Negatively  this means that Parliament  cannot               abdicate  its functions.  It seems to me  that               this  was  the  position  under  the   various               Government of India Acts and the  constitution               has  made no, difference in this  respect.   I               read  (1883) 9 AC 117 and (1885) 10 AC 282  as               laying  down  that  legislatures  like  Indian               legislatures   had  full  power  to   delegate               legislative  authority to subordinate  bodies.               In the judgments in these cases no such  words               as ’policy’, ’standard’ or ’guidance’ is  men-               tioned" (at p. 1266). Wanchoo,  C.J.  made a functional approach to  the  question when  he  stated  that  "the nature of  the  body  to  which delegation  is  made  is  also a factor  to  be  taken  into consideration  in  determining whether there  is  sufficient guidance in the matter of delegation" (at 1244).   According to  the learned Chief Justice the fact that  delegation  was made to an elected body responsible to the people  including those  who paid taxes provided a great check on the  elected

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councillors  imposing  unreasonable rates  of  tax.   Again, guide or control on the limit of taxation could be seen 950 in  the  expression "purposes of the Ace’ in  S.  113.   The power  to tax was circumscribed by the need to  finance  the functions  which were made incumbent on the  Corporation  to perform.   The necessity of adopting budget  estimates  each year  as provided under the Act afforded another  limit  and guide-line  in  the  matter.  Further,  the  fact  that  the government  was made the watchdog to control the actions  of the  Corporation in the matter of fixing the rates  provided another  check against arbitrarily exercising the  power  of taxation vested with the Corporation.  The guidance may also take the form of providing maximum rates of tax upto which a local  body may be given the discretion to make its  choice. Lastly,  relying  on Kruse v. Johnson(1) the  learned  Chief Justice  pointed out that in the case of subordinate  public representative   bodies,  such  as  municipal  boards,   the reasonableness  of  their action could be reviewed  by  ,the Courts.  Thus the majority relied on the safeguards inherent in  delegating the power to an, elected body and  guidelines provided  under  the  various  provisions  of  the  Act  for upholding the ,delegation.  They observed the power from the angle  of its exercise and gauged its propensity  for  abuse functionally. In  D. Ramaraju v. State of A.P.(2) the question  was  about the vires of the Andhra Pradesh (Krishna and Godavari  Delta Area)  Drainage  Cess  Act, 1968.  Section  3  of  that  Act provided   for  levy  and  collection  of   drainage   cess. According to sub-section (1) of that section there shall  be levied and collected by the Government, for a period of  six years  from  the date of the commencement of the Act,  as  a drainage  cess  on every land in the ,delta  area  comprised within  a division specified in column (2) of the  Schedule, for the purposes of the Act in that division, a tax at  such rate per acre per annum, not exceeding the rate specified in the  corresponding  entry  in column  (3)  thereof,  as  the Government may, by notification, specify in respect of  that division.  The schedule referred to in the section fixed the maximum  rate  at which drainage cess may be  collected  and according to it the maximum rate shall be Rupees 10 per acre per  annum for the Godavari eastern delta, and the  Godavari central  delta.  Section 8(1) provides for a cess  fund  and any moneys received from the Central or State Government  or any  other  source  for the purposes of  the  Act  shall  be credited  to  the  Fund together with the  proceeds  of  the Drainage  Cess as levied and collected under the Act.   Sub- section (4) of S. 8 provides that the fund, in so far as  it relates  to  the proceeds of the drainage  cess  levied  and collected  in a division, shall be applied  towards  meeting the  cost of the drainage schemes which the Board may,  with the  concurrence  of  the  Government,  undertake  in   that division. (1) (1898) 2 S.C. 91. (2) A.I.R. 1972 S.C. 828. 951 In  answer to the contention that the section  furnishes  no sufficient  guidelines for exercising the discretion to  fix the  rate, and therefore, the section was bad on the  ground of excessive delegation of legislative power, the Court said that  the  Act  contained  sufficient  guidelines  for   the fixation  of  the  rate  of  cess,  that  there  was  enough materials  on records to justify a uniform rate of cess  for each acre of land in a division of the deltaic area and that the imposition of tax on land for raising general revenue is

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substantially   different   from  the  levy  of   cess   for implementation of a drainage scheme for the benefit of lands in an area. Tested  in the light of the reasoning adopted in  the  cases referred  to  above,  we are of opinion  that  the  Act  has furnished definite guidelines for the government to exercise the power to fix the rate of excise duty. Section  3 has specified the purposes for which  the  excise duty collected is to be utilized.  We do not think that  the purposes  mentioned  are  vague or indefinite  or  that  the expenses to be incurred for   those   purposes   cannot   be calculated with reasonable certainty.   The  power  to  levy the duty must be taken to be limited by     the     expenses required to discharge the statutory function to be performed by the delegate and so, the rate that is to be fixed  should be  such as would bring in the amount necessary to meet  the needs of the delegate for discharging the functions. That the amount collected will be expended for the  purposes enumerated  in  s.  3 is ensured firstly  by  requiring  the Government   to   make   an  appropriation   by   means   of parliamentary   legislation  and  secondly,  by   requiring, accounts  and  reports  to  be  published  in  the  official Gazette. The policy of the Act has been clearly stated; the  purposes for  which  the tax collected should be expended  have  been enumerated  and the purposes are such that it is  reasonably possible for the delegate to calculate the amount  necessary to  meet  them.  In these circumstances, we think  that  the necessary  guidance for fixing the rate can be found in  the amount  of  expenditure  necessary  for  carrying  out   the purposes of the Act.  Quite apart from these  circumstances, the fact that s. 2 has fixed the maximum rate would indicate that the delegate is not given an uncontrolled discretion in the  matter of fixing the rate.  The area within  which  the discretion   has  to  be  exercised  having   been   clearly demarcated,  it cannot be said that a blanket power  to  fix the rate has been delegated to government. We dismiss the appeal with costs. V.P.S. Appeal dismissed. 952