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PETITIONER: M.   K. PAPLAH & SONS

       Vs.

RESPONDENT: THE EXCISE COMMISSIONER & ANR.

DATE OF JUDGMENT20/02/1975

BENCH: MATHEW, KUTTYIL KURIEN BENCH: MATHEW, KUTTYIL KURIEN KRISHNAIYER, V.R. GOSWAMI, P.K.

CITATION:  1975 AIR 1007            1975 SCR  (3) 607  1975 SCC  (1) 492

ACT: Mysre  Excise Act, 1965.  Sections 16, 22 and 23  read  with Mysore  Excise  (Distillery and Warehouse) Rules,  1967  and with Mysore Excise (Excise Duties) Rules, 1968-Excise  duty. levy  of Removal of arrack from Government warehouses  after the  purchase  of  the same, if attracts  liability  to  pay excise duty. Mysore  Excise  Act, 1965, Secs. 22 and  71-  Delegation  of power  to fix rates of excise duty to Government  by  making rules-Legislature,   if   has   abdicated   its    essential legislative function-Rule-making power, whether provides the necessary check. Karnataka  Sales  Tax Act. 1957. Secs. 2, 5 and  19-Levy  of sales  tax  upon  sale  of  arrack  made  by  Government  to licensees-Imposition  of liability to rates tax, if  covered by Entry 54, List II, Schedule VII of the Constitution.

HEADNOTE: The appellant. an excise contractor secured the privilege of vending  arrack in retail in certain taluks in the State  of Karnataka  for a period of 18 months beginning  from  28-12- 1967  and ending on 30-6-69.  He purchased attack  from  the Government  at  a  price  of 17  paise  per  litre  and  the Government  collected  besides  the sale  price  of  arrack. excise   duty.  health  cess  and  education   cess.    ’rho Government  also  collected sales tax on the sale  price  of attacks 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 at Karnataka challenging the validity of the levy and  collection of excise duty, education cess. health  cess 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 certificates granted  by the High Court against the order. It  was contended for the appellant (i) that no excise  duty can  be levied on a licensee in respect of the  quantity  of arrack  purchased by him from Government depots,  (ii)  that the.  power to fix the rate of excise duty  conferred  under

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s..  22 of the Mysore 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 function  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, 1957 under  which the tax was levied was beyond  the  legislative competence of the state legislature. Rejecting the contentions and dismissing the appeals, HELD : (i) It is clear from the return filed before the High Court   that  the  Government  purchases  arrack  from   the distillers  and  keeps it in the warehouses  established  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  a  warehouse also.   It  cannot be said that a 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 Act  would serve  as  a 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  delegate.  In this case, a. 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.   The  laying of  rules  before  the  legislature provides  control  over delegated  legislation.   Again  the legislature may also retain its control over its 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. [ 6140E-F; 614 E-F] 608 Corporation of Calcutta & Anr. v. Liberty Cinema, [1965]  2. S.C-R  477, Batwrsi Das v. State of Madhya  Pradesh,  [1959] S.C.R.  427,  Municipal Board, Hapur v.  Raghuvendra  Kripal [1966]  1 S.C.R. 1950, Devi Dass Gopal Krishan v.  State  of Punjab, [1967] 3 S.C.R- 557, Municipal Corporation of  Delhi v. Birla Cotton Spinding and Weaving Mills, [1968] 3  S.C.R. 251,  Sita Ram Bisliambhar Dayal v. State of U.P.  [1972]  2 S.C.R. 141, Minister of Health v. The King, [1931] A.C. 524, Institute of Patent Agents v.  Joseph Lockwood, [1894]  A.C. 347  and  Cobb  & Co. v. Kropp, [1967] 1  A.C.  141  (P.C.), referred to. (iii)     Section  19 of the Karnataka Sales Tax Act.  1957. makes  it clear that notwithstanding anything  contained  in this  Act  of 1957, the Government shall in respect  of  any sale  of goods effected by it be entitled to collect by  way of  tax any amount which a registered dealer effecting  such sale would have been entitled to collect by way of tax under the  Act.   The section is clear that the  Government  could collect  the  tax  on the sale made by it as if  it  were  a registered dealer, notwithstanding anything contained in  s. 2 or & 5. The section itself creates a right in the State to recover and an obligation on the purchaser from the State to pay  the amount.  Any imposition of liability or  obligation in  respect of sale or purchase of goods will be covered  by Entry  54  of  List  II  of  the  Seventh  Schedule  of  the Constitution.  Section 19 is therefore, not ultra vires  the powers of the legislature. [615A-C]

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 1883 to

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1886 of 1969. From  the judgment & Order dated the 12th July, 1968 of  the Mysore  High  Court in W.P. Nos. 949, 955, 956  and  958  of 1968. K.   Srinivasan and Vineet Kumar, for the appellants. H.   B. Datar (In C.A. No. 1883/69) and M. Veerappa, for the respondents. The Judgment of the Court was delivered by MATHEW,  J.   The appellant was an  excise  contractor.   He secured the privilege of vending arrack in retail in certain taluks  in the State of Karnataka for a period of 18  months beginning  from  28-12-1967  and ending  on  30-6-1969.   He purchased arrack from the Government at a 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 Karnataka  challenging  the validity  of  the  levy  and  collection  of  excise   duty, education  cess, health cess 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 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  a licensee  in respect 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  Mysore  Excise Act of 1965 on the Government was bad for the 609 reason that it was an abdication by the state legislature of its  essential  legislative function and that no  sales  tax could be levied on the price for sale of arrack since S.  19 of  the Mysore Sales Tax Act, 1957 under which the  tax  was levied  was beyond the legislative competence of  the  state legislature. Section  22  of  the Mysore Excise  Act,  1965  (hereinafter referred  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 appelant was that sections  16, 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 a 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 of  the 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

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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  Government, establish or license a warehouse  wherein intoxicants  may  be deposited and kept without  payment  of duty  and that without the sanction of the State  Government no intoxicant 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 a bond has been executed for  the  payment thereof. It is clear from the return filed before the High Court that the 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  the  liability to pay excise  duty  shall  be levied  on the excisable article issued from  a  ware-Excise Commissioner  who  is competent to establish  or  license  a warehouse  wherein  intoxicants may be  deposited  and  kept under  clause  (e)  of  s. 16 and  therefore  it  is  not  a warehouse established or licensed by the State Government. We  see  no force in this contention.  Section  23  provides that  excise duty shall be levied on the  excisable  article issued from a ware- 610 house  also.   We see no reason to think  that  a  warehouse established  or  licensed under s. 16(e)  is  not  warehouse within the meaning of that expression in S. 23. The second contention raised by the appellant was that S. 22 of  the Act provides for delegation of the power to fix  the rates  of excise duty to 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- fore the section is bad. The  High Court after referring to the preamble of  the  Act said that it was the policy of the Act both to raise revenue and to discourage consumption of liquor by making the  price of liquor sufficiently high, and that- that ’would serve  as a  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  from  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 Rely to encourage the  production and  consumption  of  illicit liquor  and  consequently  the control and regulation of liquor as well as the revenue from excise duty may be adversely.  The Court therefore held that the  need  to arrive at such rates of excise  duty  as  will serve  the  twin objects of the policy  underlying  the  Act operates  as  guidance  for determination of  the  rates  of excise duty. We are not certain whether 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 delegate.    The   legislative   control   over    delegated legislation may take many forms. In Corporation of Calcutta & Anr. v. Liberty Cinema(1),  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

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majority  upheld  the provision relying on the  decision  in Banarsi Das v. State of Madhya Pradesh (2 ) holding that the fixation of rates of tax not being an essential  legislative function,  could be validly delegated to  a  non-legislative body. but observed 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. In  Municipal  Board,  Hapur v.  Raghuvendra  Kripal(2)  the validity 1916, was involved.  Ile Act had to fix the rate of tax  and  after  having  of  the  U.P.  Municipalities  Act, empowered  the municipalities enumerated the kinds of  taxes to be levied, prescribed an elaborate (1) [1965] 2,S.C.R.477.    (2) [1959] S.C.R. 427. (3)  [1966] 1 S.C.R. 950 611 procedure for such a levy and also provided for the sanction of  the  Government., Section 135 (3) of the  Act  raised  a conclusive  prerumption  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, it  was contended,  was an indirect exempting or  dispensing  power. Hidayatullah, J. speaking for the majority, said that 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   these municipalities the power to impose and collert 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 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  Dass  Gopal Krishnan v.  State  of  Punjab(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 raters as it thought fit was  bad.   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 purposes of the Act  would  not  provide sufficient  guidance for the fixation of rates of  tax.   He pointed out the danger inherent in theprocess of  delegation :               "An overburdened Legislature or one controlled               by  a powerful executive may  unduly  overstep               the limits of delegation.  It may not lay down               any  policy at all; it may declare its  policy               in  vague  and general terms; 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  subordinate   legislation.               This  self-effacement of legislative power  in               favour of awther agency either in whole or  in               part  is  beyond  the  permissible  limits  of               delegation."

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In  Municipal Corporation of Delhi v. Birla  Cotton  Spining and,  Weaving  Mills(1),  the main question  was  about  the constitutionality   of  delegation  of  taxing   powers   to municipal corporations.  The Delhi Municipal Corporation Act (66  of 1957) by s. 113(2) had empowered the Corporation  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 articler,   and  property  to  be  taxed,  the  systems   of assessment to be adopted (1) [1967]3, S.C.R. 557. (2) [1968] 3, S.C.R. 251 . 612 and the exemptions, if any, to be granted.  The majority  of the  court held the delegation to be 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 ,rates  of taxes  is  not an essential legislative  function  were  too broad  and 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".   According to  the  learned  Chief Justice,  the  fact that delegation was made to  an  clected body  responsible  to the people including  those  who  paid taxes  provided  a great check on  the  elected  councillors imposing unreason.able rates of tax.  He then said :               "The guidance may take the, form of  providing               maximum rates of tax up to which a local  body               may  be  given  the  discretion  to  make  its               choice,  or it may take the form of  providing               for consultation with the people of the  local               area  and  then fixing the  rates  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 a watchdog on the actions of the local body               in  this matter on behalf of the  legislature.               There may be other ways in which guidance  may               be provided." In Sita Ram Bisharnbhar Dayal v. State of U.P.(1) s.  3-D(1) of  the U.P. Sales Tax Act, 1948, bad provided  for  levying taxes  at  such  rates as may be  prescribed  by  the  State Government  not  exceeding the maximum  prescribed  therein. Hegde, J., in speaking for the Court, observed :               "However  much  one  might  deplore  the  ’New               Despotism’   of  the  executive,   the   ’very               complexity  of  the  modern  society  and  the               demand it makes on its Government have set  in               motion  forces which have made  it  absolutely               necessary for the Legislatures to entrust more               and  more powers to The executive.  Text  book               doctrines  evolved  in the 19th  century  have               become out of date." 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-section (4) of that section provides : "Every rule made under this section shall be laid as soon as may  be  after it is made, before each House  of  the  State Legislature  while  it is in session for a total  period  of thirty days which may be comprised in one session or in  two or more successive sessions and if before the expiry of  the session  in which it is so laid or the  session  immediately

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following,  both Houses agree in making any modification  in the  rule (it ?) shall thereafter have effect only  in  such modified form or      be of no effect, as the case may (1)  [1972] 2, S.C.R. 141. 613               be;  so however that any such modification  or               annulment  shall be without prejudice  to  the               validity  of  anything previously  done  under               that rule." The  appellant  submitted that s. 71(4) does not  provide  a guarantee    for   legislative   control   over    delegated legislation.   The  argument was that the rules  would  come into force as soon as they are framed and that the power  of the  legislature to annul the rules subsequently  cannot  be regarded as sufficient control over delegated legislation. That laying of rules before the legislature is control  over delegated  legislation  is  implied in the  speech  of  Lord Thankerton  in the House of Lords in Minister of  Health  v. The King(1) where he said :               "In  this case, as in similar cases that  have               come   before  the  courts,   Parliament   has               delegated   its  legislative  function  to   a               Minister  of  the  Crown,  but  in  this  case               Parliament  has retained no  specific  control               over  the  exercise  of the  function  by  the               Minister,  such as a condition that the  order               should be ’aid before Parliament and might  be               annulled  by  a  resolution  of  either  House               within a limited period." In  Institute of Patent Agents v. Joseph Lockwood  (2)  Lord Watson said :               "The Legislature retained so far a check  that               it  required that the regulations  which  they               framed  should be laid upon the table of  both               Houses; and of course these regulations  could               have   been   annulled  by   an   unfavourable               resolution  upon  a  motion  made  in   either               House." In   Bernard  Schewartz’s  "An  Introduction   to   American Administrative Law" it is stated :               "In   Britain,  Parliamentary   control   over               delegated legislation is exercised through the               various   forms  of  ’laying’  prescribed   in               enabling Acts.  Through them, the  legislature               is  enabled at least in theory to  exercise  a               continuing  supervision  over   administrative               rules and regulations." As  Dean  Landis  pointed out, the  English  techniques  for laying  the  rules before the Houses have  several  virtues. "For  one thing, they bring the legislative into  close  and constant contact with the administrative."(3). The  legislature  may  also  retain  its  control  over  its delegate  by exercising its power of repeal.  This  was  the basis  on which the Privy Council in Cobb & Co. v.  Kropp(4) upheld the validity of delegation of the power to fix  rates to the Commissioner of Transport in that case.  The question there   was   whether  the   Queensland   Legislature,   had legislative authority under the impugned Acts to invest  the Commissioner for Transport with power to impose and levy (1) [1931] A.C. 524.        (2) [1894] A.C. 347. (3)  see Landis, "The Administrative Process", 77 (1938). (4)  [1967] 1, A.C. 141 (P.  C.). 614 licence  and permit fees.  It was not disputed before  their Lordships   that  .fees  imposed  are  to  be  regarded   as

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constituting  taxation.  Accordingly, it was contended  that the legislature had abdicated its exclusive power of levying taxation.    The   Privy  Council   held   that   Queensland Legislature was entitled to use any agent or machinery  that it  considered appropriate for carrying out the  object  and the  purposes  of the Acts and to use the  Commissioner  for Transport  as its instrument 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 withdraw  such authority and discretion as it had vested in him, it had not assigned,  transferred or abrogated its sovereign  power  to levy   taxes,  nor  had  it  renounced  or   abdicated   its responsibilities  in favour of a newly  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  Transport  Acts  could   not               reasonably  be described as a 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 Legislature ’create and endow  with               its  own capacity a new legislative power  not               created  by the Act to which it owes  its  own               existence  (see  in  re  the  Initiative   and               Referendum Act (1919) A.C. 945 at 945)." The point to be emphasized-and this is rather crucial-is the statement of their Lordships that the legislature  preserved its  capacity intact and retained perfect control  over  the Commissioner  for  T port inasmuch as it could at  any  time repeal  the  legislation  and with draw  the  authority  and discretion  it  had  vested  in  him,  and,  therefore   the legislature did not abdicate its functions. We,  therefore,  think  that the power to fix  the  rate  of excise duty conferred on the government by s. 22 of the  Act is  valid.  The dilution of parliamentary  watch-dogging  of delegated   legislation  may  be  deplored  but,,   in   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  purports to levy sales tax upon the sale  of  arrack made   by  the  Government  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  see no merit in this contention.  Section 19 of the Act reads:               "19.  State Government entitled to collect tax               as     registered     dealers.-Notwithstanding               anything contained in this Act the  Government               of  Mysore  shall, in respect of any  sale  of               goods effected by them, be entitled to collect               by  way of tax any amount which  a  registered               dealer  effecting  such sale would  have  been               entitled  to collect by way of tax under  this               Act." 615 This  section makes it clear that  notwithstanding  anything contained  in that Act, the Government shall in  respect  of any  sale of goods effected by it be entitled to collect  by way of = any amount which a registered dealer effecting such sale would have been entitled to collect by way of tax under the  Act.   The section is clear that the  Government  could collect  the  tax on the sale made, by it as if  it  were  a

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registered dealer, not withstanding anything contained in s. 2  or s. 5. The section itself creates a right in the  State to recover and an obligation on the purchaser from the State to   pay  the  amount.   Any  imposition  of  liability   or obligation  in respect of sale or purchase of goods will  be covered  by Entry 54 of List If of the Seventh  Schedule  of the Constitution. We do not think that s. 19 is ultra vires the powers of the, legislature. We  therefore  dismiss the appeals but make no order  as  to costs. V.M.K.               Appeals dismissed. 616