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PETITIONER: BIMAL CHANDRA RANERJEE

       Vs.

RESPONDENT: STATE OF MADHYA PRADESH

DATE OF JUDGMENT: 19/08/1970

BENCH: HEGDE, K.S. BENCH: HEGDE, K.S. SHAH, J.C. GROVER, A.N.

CITATION:  1971 AIR  517            1971 SCR  (1) 844  1970 SCC  (2) 467  CITATOR INFO :  D          1975 SC2008  (33)  F          1976 SC 633  (2,6)  D          1976 SC2020  (12)  F          1976 SC2237  (14,15)  RF         1980 SC2018  (16)  RF         1987 SC 993  (10,13)  RF         1991 SC 735  (8,9)  R          1992 SC1393  (8,9)

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

HEADNOTE: The  appellants  were  excise  contractors.   In   purported exercise of its powers under cls. (d) and (h) of s.62(2)  of the Madhya Pradesh Excise Act 9 1915, which confers power on the  State  Government to make rules, the  State  Government introduced  a  condition in the licences of  the  appellants prescribing  the  minimum  quantity  of  liquor  which   the appellants  should  purchase  from the  Government  and  the compulsory payment of excise duty on the quantity of  liquor which they failed to take delivery of.  The State Government issued notices demanding the duty. On the question of their validity, HELD  :  Assuming the power to tax can be delegated  to  the executive,  no tax can be imposed by any bye-law or rule  or regulation  unless the statute under which  the  subordinate legislation  is  made specially authorises  its  imposition. [850 C-D] In the present case, the Legislature has levied excise  duty or countervailing duty only on the excisable articles  which have   been   either   imported,   exported,    transported, manufactured,  cultivated  or collected  under  any  licence granted  under  s.13, or manufactured in any  distillery  or brewery established or licensed under the Act; and the State Government has not been empowered to levy any duty on liquor

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which the contractors failed to lift.  Therefore, the  State Government  was exercising a power which it did not  possess and  hence the rule imposing the, condition in the  licences and the demand notices are invalid. [849 H; A-C]

JUDGMENT: CIVIL APPELLATE JURISDICTION  Civil Appeals Nos. 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.  Khanduja,  for  the appellant (in C.A. No. 2214 of 1969). R.   A. Roman, S. S. Khanduja and N. K. Shejwalkar, 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 Court  of  Madhya  Pradesh raise common  questions  of  law. Hence we propose to dispose them of by a common order. 845 The appellants herein are excise contractors.  They are  the successful  bidders for some of the shops in Madhya  Pradesh for the financial year 1964-65.  The sale memorandum on  the strength  of  which  auction was held  intimated that  the successful  bidders will have to sell a  prescribed  minimum quantity  of liquor in their shops and if they fail to  take delivery of the prescribed minimum quantity of liquor,  they will have to pay excise duty on the quantity of liquor which they  failed  to  take delivery.  On  March  20,  1964,  the Government  in  the purported exercise of its  powers  under cls. (d) and (h) of s. 62 of the Madhya Pradesh Excise  Act, 1915  (Act 11 of 1915) (the hereinafter referred to  as  the Act) issued the notification No. 144401089/V-SR amending the rules  published  on  January 7,  1960.   This  notification prescribed  that the conditions mentioned therein should  be inserted  in  the licences to be issued  to  the  successful bidders.   At  present we are only concerned with  cl.  2(C) thereof.  That clause reads               "The  minimum quantity for taking issues  from               the  Warehouse  for sale is fixed at  3213  p.               liters spiced spirit and 25940 p. liters 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 Pradesh 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 a shop (2) he has to pay the price of  the liquor  purchased  by  him generally the  Government  has  a 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 centers round  the,  duty required to be paid by them under the impugned clause in the notification  of  March 20, 1964 referred to  earlier.   The controversy is whether the said clause is valid in law.

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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 appellants have challenged the validity of these notices  as well. It  is contended on behalf of the appellants that   excise duty  is  a tax.  The same can be levied on the basis  of  a valid law.  No 846 tax can be levied on the basis of a 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 a part of  the licence condition is immaterial.  It was contended that  the question  for decision is whether the Government  of  Madhya Pradesh was entitled to amend its rules and add the impugned clause as a 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 "countervailing  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               manufactured  or  produced in  the  State  and               countervailing  duties  at the same  or  lower               rates   on  similar  goods   manufactured   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   containing   alcohol   or   any               substance included in subparagraph (b) 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  expression               "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 in s. 2 (14).  It reads               manufacture’  includes every  process  whether               natural or artificial 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 a duty on Manufacture or production  and countervailing  duty is a 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  27A. Section  25 deals with duty on excisable articles.   Section 26 prescribes the ways of levying 847 such  duty.   Section 27 provides for payment for  grant  of leases licence fee.  Section 27A saves the duties that  were being levied at commencement of the Constitution.  Herein we are not concerned with S. 27-A.               Section 25 reads               Duty  on  excisable articles :-(1)  An  excise

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             duty or a countervailing duty as the case  may               be, shall, if the State Government so               direct, be levied on excisable articles-               (a)   imported; or               (b)   exported; or               (c)   transported; or               (d)   manufactured,  cultivated  or  collected               under any                 licence granted under s. 13; or               (e)   manufactured    in    any     distillery               established,  or  any  distillery  or  brewery               licensed under this Act;               Provided that it shall be lawful for the State               Government  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               subsection  (1)  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  Customs               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  ratably               on the quantity of exisable article  imported,               exported,     transported     collected     or               manufactured  in or issued from a  distillery,               brewery or warehouse.               848               Provided that               (1)   duty may be levied-               (a)   on intoxicating drugs by an acreage rate               levied on the cultivation of the hemp plant or               by a rate charged on the quantity collected;               (b)   on  spirit or bear manufactured  in  any               distillery  established or any  distillery  or               brewery 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 a 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   a               warehouse, it shall be at the rate of duty  in

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             force  on  the date of issue of  such  article               from the warehouse."               ’Section 27 says               "Payment for grant of leases Instead of or  in               addition  to  any  duty  leviable  under  this               chapter,  the  State  Government  may   accept               payment of a sum in consideration of the grant               of any lease under section 18."               Section 18 deals with power to grant I ease of               right   to  manufacture  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               (1) of that section gays               "The  State Government may make rules for  the               purpose  of carrying out the pro-visions  of               this Act."               In Clause 2 reliance was placed on sub-cls.               (d) and (h).  Those sub-clauses read               "In  particular, and without prejudice to  the               generality  of  the foregoing  provision,  the               State Government may make rules.               849               (d)   regulating    the    import,     export,               transport,      manufacture,       collection,               possession,   supply   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  denatured and the  denaturation  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,   collection  possession,   supply,               storage  or sale of Mahua flowers  prescribing               licences and permits therefore, throughout the               State  or  in any specified area  or  for  any               specified period."               (h)   prescribing the authority by the form in               which  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 fixing the fees payable in  respect               of any such license, permit or pass.               (iii) prescribe  amount  of  security  to   be               deposited by holder of any licence, permit  or               pass for the performance of 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."

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Neither s. 25 or s. 26 or s. 27 or S. 62(1) or cls. (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  manufactured  in  any  distillery established or any distillery or brewery licensed under  the Act.  The legislature has levied excise duty only on Sup.  Cl/71 (P)-71 850 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 conferred on that  authority. Quite clearly the State Government purported to levy duty on liquor which the contractors failed to lift.  In so doing it was attempting to exercise a power which it did not possess. No  tax can be imposed by any bye-law or rule or  regulation unless  the statute under which the subordinate  legislation is  made specially authorises the imposition even if  it  is assumed  that  the  power to tax can  be  delegated  to  the executive.   The basis of the statutory power  conferred  by the  statute  cannot  be transgressed  by  the  rule  making authority.   A rule making authority has no  plenary  power. It has to act within the limits of the power granted to it. We are of the opinion that the impugned rule as well as’ the demands  are  not authorised by law.  Hence we  allow  these appeals  as  well  as the writ petitions  from  which  these appeals arise and quash the impugned notification as well as the  demand notices.  The State of Madhya Pradesh shall  pay the  costs of the :appellants in both these  appeals-hearing fee one set. V.P.S.                 Appeals allowed. 851