http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 5  

PETITIONER: GOVERNMENT OF INDIA

       Vs.

RESPONDENT: CITEDAL FINE PHARMACEUTICALS MADRAS &ORS.ETC. ETC.

DATE OF JUDGMENT20/07/1989

BENCH: SINGH, K.N. (J) BENCH: SINGH, K.N. (J) KANIA, M.H.

CITATION:  1989 AIR 1771            1989 SCR  (3) 465  1989 SCC  (3) 483        JT 1989 (3)   118  1989 SCALE  (2)44

ACT:     Medicinal  and Toilet Preparations (Excise  Duties)  Act 1955:   Section--3.19/Medicinal  and   Toilet   Preparations (Excise  Duties) Rules, 1956: Rule 12.     Residuary   Powers   for  recovery  of   sums   due   to Government-Validity of.     Constitution  of India, 1950: Article 14  Medicinal  and Toilet  Preparations (Excise Duties) Rules 1956--Absence  of period   of   limitation  for  recovery  of  sums   due   to Government--Rule 12--Whether unconstitutional.     Limitation--Absence  of  period  of   limitation--Action should be taken within reasonable period--Reasonableness  of period----What is.

HEADNOTE:     The  respondents  were manufacturing  various  medicinal preparations  and in that process were using  tincture  con- taining  alcohol.  On the enforcement of the  Medicinal  and Toilet  Preparations (Excise Duties) Act, 1955  they  became liable  to  pay  duty and also to obtain  licence  but  they continued their manufacture without doing so.     The  Commercial Tax Officer issued demand notices  under Rule  12  of the Medicinal and Toilet  Preparations  (Excise Duties) Rules, 1956 requiring payment of the duty which  the respondents had failed to pay.     The  respondents filed writ petitions in the High  Court challenging  the aforesaid notices, and the proceedings  for recovery  of duty. Allowing the writ petitions the  Division Bench  quashed  the notices as well as the  proceedings  for recovery on the ground that the Act was silent on the  ques- tion of levy of duty on escaped turnover, and hence Rule  12 which provides for recovery of escaped duty was outside  the purview and scope of the Act and, therefore, ultra vires. In  these appeals it was contended that Rule 12 was  invalid and 466 unreasonable and violative of Article 14 of the Constitution because it does not provide for any period of limitation for the recovery of duty.     Allowing  the appeals and setting aside the judgment  of the High Court, this Court,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 5  

   HELD:  1.  The liability to pay tax is  created  by  the charging section 3 and Rule 12 confers, power on the  autho- rised officer to recover duty if the same has not been  paid on  account  of any short-levy or deficiency  or  any  other reason. Rule 12 is referable to section 19(2)(i) of the  Act and  carries  out  the purposes of the Act as  it  seeks  to provide for recovery of duty as contemplated by section 3(3) of  the  Act. It is designed to confer residuary  power  for recovery  of  duty  if unpaid on account  of  short-levy  or deficiency or for any reason it remains unpaid. If  recovery of duty or any amount of sum payable to the Government under the  Act  is not covered by any  specific  Rule,  additional supplementing  provision  is made for its recovery  by  this Rule.  This  Rule does not create any additional  charge  or liability  on the manufacturer for the payment of the  duty. The  High Court Committed error in holding that the Rule  is ultra vires the Act. [470C-D, 470A-B]     2.  Rule 12 does not prescribe any period  within  which recovery  of any duty as contemplated by the Rule is  to  be made, but that by itself does not render the Rule unreasona- ble  or violative of Article 14 of the Constitution. In  the absence of any period of limitation it is settled that every authority  is  to  exercise the power  within  a  reasonable period.  What would be reasonable period, would depend  upon the  facts of each case. Whenever a question  regarding  the inordinate delay in issuance of notice of demand is  raised, it  would be open to the assessee to contend that it is  bad on  the  ground  of delay and it will be  for  the  relevant officer  to consider the question whether in the  facts  and circumstances of the case notice or demand for recovery  was made within reasonable period. No hard and fast rules can be laid  down in this regard as the determination of the  ques- tion  will depend upon the facts of each case. [470F, G,  H, 471A]

JUDGMENT:     CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1403  to 1406 of 1974.     From  the  Judgment and Order dated 23.12. 1971  of  the Madras High Court in W.P. Nos. 1053-54, 4679 & 4715 of 1968.     Anil Dev Singh, Ms. Indu Malhotra and C.V. Subba Rao for the Appellant. 467     R.P. Bhat, G.L. Sanghi, M.N. Krishnamani, Vineet  Kumar, R. Mohan, K.C. Dua and R.A. Perumal for the Respondents. The Judgment of the Court was delivered by     SINGH, J.  These appeals are directed against the  judg- ment  and  order of a Division Bench of the  High  Court  of Madras  dated 2.8. 1974, quashing the notices issued by  the Deputy Commercial Tax Officer, Madras.     The  respondents manufacture various medicinal  prepara- tions  and  in  that process they  use  tincture  containing alcohol.  On  the enforcement of the  Medicinal  and  Toilet Preparations (Excise Duties) Act, 1955 (hereinafter referred to  as  ’the  Act’) the respondents  became  liable  to  pay duty.in  accordance  with  Section 3 of the  Act  read  with Schedule  to the Act. They ’further became liable to  obtain licence,  but they neither paid duty nor  obtained  licence. The Commercial Tax Officer issued notices to the respondents in exercise of his powers under Rule 12 of the Medicinal and Toilet  Preparations  (Excise Duties) Rules  1956  directing them to pay duty on all medicinal preparations  manufactured by  them  after 1.6.1961. The notices were in the  shape  of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 5  

notice  of demand requiring the respondents to pay the  duty which they had failed to pay in accordance with the Act  and the Rules on the use of tincture in manufacturing  medicinal preparations.  The  respondents filed writ  petitions  under Article  226  of the Constitution of India before  the  High Court of Madras challenging the notices and the  proceedings initiated in pursuance thereof for the recovery of duty from them.  A Division Bench of the High Court allowed  the  writ petitions  on the sole ground that Rule 12 under  which  the impugned notices were issued was ultra vires the Act, conse- quently,  proceedings initiated in pursuance  thereof,  were without  jurisdiction. On these findings the writ  petitions were allowed and the notices as well as the proceedings were quashed.     The  sole  question which arises  for  consideration  in these  appeals  relates to the validity of Rule  12  of  the Medicinal  and  Toilet Preparations  (Excise  Duties)  Rules 1956.  The High Court has declared the Rule ultra  vires  on the  ground that the Act was silent on the question of  levy of  duty on escaped turn-over and hence Rule 12  which  pro- vides  for  the  recovery of escaped duty  was  outside  the purview and scope of the Act. The  Act was enacted to provide for the levy and  collection of 468 duty of excise on medicinal and toilet preparations contain- ing  alcohol, opium, Indian hemp or other narcotic drugs  as the preamble states. Section 3 provides for levy and collec- tion of duties. It reads as under:               "3(1). There shall be levied duties of excise,               at the rates specified in the Schedule, on all               dutiable goods manufactured in India.               (2) The duties aforesaid shall be leviable--               (a) where the dutiable goods are  manufactured               in bond, in the State in which such goods  are               released  from  a bonded  warehouse  for  home               consumption, whether such State is the  ,State               of manufacture or not;               (b) where the dutiable goods are not  manufac-               tured  in  bond, in the State  in  which  such               goods are manufactured.               (3) Subject to the other provisions  contained               in  this  Act, the duties aforesaid  shall  be               collected   in   such   manner   as   may   be               prescribed." Excise  duty is imposed by Section 3 on the  manufacture  of dutiable goods at the rates specified in the Schedule.  Sub- section  (2) indicates the stage at which the duty is to  be levied. Section 3(3) provides for collection of duty,   lays down  that  it shall be collected in such manner as  may  be prescribed  by Rules made under the Act. Section  3,  there- fore, imposes duty on the manufacture of medicinal  prepara- tions  and it lays down the rates and it also indicates  the stage  at which the duty is to be levied. So far as  collec- tion  of  duty is concerned the Act leaves the same  to  the rule  making  authority.  Section 19 confers  power  on  the Central  Government to make rules to carry out the  purposes of  the  Act.  The relevant provision of Section  19  is  as under:               "19(1). The Central Government may, by notifi-               cation in the Official Gazette, make rules  to               carry out the purposes of this Act.               (2)  In particulars, and without prejudice  to               the  generality of the foregoing  power,  such               rules may

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 5  

             (i) provide for the assessment and  collection               of duties levied under this Act, the  authori-               ties by whom functions               469               under this Act are to be discharged, the issue               of  notices requiring payment, the  manner  in               which  the  duties shall be  payable  and  the               recovery of duty not paid." Section  19(1) read with Section 3(3) confer wide powers  on the Central Government to make rules which may be  necessary for  carrying  out the purpose of the Act.  Such  rules  may provide  for the assessment and collection of  duties,  and, the  manner in which the duty is to be paid as well  as  for the recovery of duty not paid at all. The Central Government in  exercise  of its power under Section 19 of the  Act  has framed the Medicinal and Toilet Preparations (Excise Duties) Rules  1956 which were enforced on 9th March  1957.  Chapter III of the Rules provide for levy and refund of, and, exemp- tion from duty. Rules 6 to 17 relate to recovery,  exemption and  refund of duty. Rule 6 requires every person who  manu- factures  any dutiable goods, or who stores such goods in  a warehouse  to pay the duty on such goods, at such  time  and place  as  may  be designated. Rule 9  prescribes  time  and manner of payment of duty. According to this Rule no  dutia- ble  goods  shall be removed from any place where  they  are manufactured  either for consumption or for export,  outside such place until the excise duty leviable thereon is paid at such place and in such manner as prescribed in the Rules  or as the Excise Commissioner may require. Rule 11 provides for recovery of duty or charges which may have been  shortlevied through inadvertence, error, collusion, or  mis-construction on  the part of an Excise Officer and through  mis-statement on  the part of the owner and it also provides for  recovery of any refund erroneously made to the manufacturer, owner of the goods on written demand made within six months from  the date of payment of duty. Rule 12 confers residuary power for the recovery of sums due to the Government. Rule 12 reads as under:               "12. Residuary powers for recovery of sums due               to Government--               Where  these  rules do not make  any  specific               provision for            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." 470     As  already noted Rules contained in Chapter III of  the Rules particularly Rules 6, 9, 10 and 11 provide for payment and  recovery  of duty and also the time and manner  of  its payment.  Rule 12 is designed to confer residuary power  for recovery  of  duty  if unpaid on account  of  short-levy  or deficiency or for any reason it remains unpaid. If  recovery of duty or any amount of sum payable to the Government under the  Act  is not covered by any  specific  Rule,  additional supplementing provision is made for its recovery by Rule 12. Rule 12 provides for recovery of duty, as well as any  other sum  payable to the collecting Government under the  Act  if the same is not paid on account of short-levy or  deficiency or for any reason. In substance Rule 12 contains  additional

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 5  

safeguard  for  recovery  of duty, it does  not  create  any additional  charge or liability on the manufacturer for  the payment of the duty. The liability to pay tax is created  by the  charging Section 3 and Rule 12 confers, on  the  autho- rised officer to recover duty if the same has not been  paid on  account  of any short-levy or deficiency  or  any  other reason. Rule 12 is referable to section 19(2)(i) of the Act. The Rule carries out the purposes of the Act as it seeks  to provide for recovery of duty as contemplated by Section 3(3) of  the Act. The High Court committed error in holding  that the Rule provides for recovery of escaped duty although  the Act  is  silent on the question of  escaped  assessment  and therefore Rule 12 is ultra vires the Act.     Learned counsel appearing for the respondents urged that Rule  12 is unreasonable and violative of Article 14 of  the Constitution,  as  it  does not provide for  any  period  of limitation  for the recovery of duty. He urged that  in  the absence of any prescribed period for recovery of the duty as contemplated by Rule 12, the officer may act arbitrarily  in recovering the amount after lapse of long period of time. we find  no substance in the submission. While it is true  that Rule 12 does not prescribe any period within which  recovery of  any duty as contemplated by the Rule is to be made,  but that  by  itself does not render the  Rule  unreasonable  or violative of Article 14 of the Constitution. In the  absence of any period of limitation it is settled that every author- ity  is  to exercise the power within a  reasonable  period. What would be reasonable period, would depend upon the facts of  each case. Whenever a question regarding the  inordinate delay in issuance of notice of demand is raised, it would be open to the assessee to contend that it is bad on the ground of delay and it will be for the relevant officer to consider the  question whether in the facts and circumstances of  the case notice or demand for recovery was made within  reasona- ble 471 period.  No  hard and fast rules can be laid  down  in  this regard as the determination of the question will depend upon the facts of each case.     In  view of the above discussion, we allow  the  appeals and  set aside the judgment and order of the High  Court  of Madras dated 2.8. 1974. There will be no order as to costs. T.N.A.                                Appeals allowed. 472