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PETITIONER: ORIENT WEAVING MILLS (P) LTD

       Vs.

RESPONDENT: THE  UNION OF INDIA

DATE OF JUDGMENT: 28/02/1962

BENCH: SINHA, BHUVNESHWAR P.(CJ) BENCH: SINHA, BHUVNESHWAR P.(CJ) KAPUR, J.L. HIDAYATULLAH, M. SHAH, J.C. MUDHOLKAR, J.R.

CITATION:  1963 AIR   98            1962 SCR  Supl. (3) 481  CITATOR INFO :  R          1963 SC 104  (12)  RF         1963 SC1237  (8)  R          1986 SC1541  (10)  RF         1989 SC 644  (17)

ACT: Central   Excise--Power  of  Central  Government  to   grant exemption--Rule--Notification  granting  exemption  to   co- operative society---Constitutional validity--Central Excises and   Salt   Act,  1944  (1  of  1944),   ss.   37(2),   cl. (xvii)--Central Excise Rules, 1944 r. 8(1)--Constitution  of India, Arts. 14, 19(1)(f) and (g),43.

HEADNOTE: By r. 8 (1) of the Central Excise Rules, 1944, framed by the Central  Government in exercise of its Power under s.  37(2) cl.  xvii  of the Central Excises and Salt Act,  1944,  "the Central    Government   may   from   time   to   time,    by notification  .in  the Official Gazette, exempt  subject  to such conditions as may be specified in the notification  any excisable  goods  for  the whole or any  part  of  the  duty leviable  on such goods." By two notifications issued  under the said rule the Central Government exempted cotton fabrics produced on power looms owned by co-operative societies from the  duty  leviable thereon subject to  certain  conditions. Under  s  38 of the Act the said rule and  notifications  on publication in the Official Gazette had effect as if enacted in the Act.  The petitioners, apprehending loss of  business in  competition  with the fifth respondent,  a  co-operative society,  challenged the-rule and the notifications  on  the grounds(1  ) that the power of ’exemption conferred  on  the Union Government violated Arts. 14, 19(1)(f) and (g) of  the Constitution and (2) that assuming that it dic 482 not do so, the exemption granted by the notifications was in excess of the power granted by r. 8(1). Held, that the contentions were without substance and must fail. Rule  8  of  the Rules was as much a part of  the.   Act  as

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s.37(2)  cl. (xvii) and it was always open to the  State  to tax certain classes of goods and not to tax others.  It  was the  function  of the State to determine what and  of  taxes should  be levied and in what manner.  Regard being  bad  to the  directive  principles  contained  in  Art.  43  of  the Constitution,   there  was  no  doubt  that  the  State   in differentiating between goods produced in big establishments and similar goods produced by small power-loom weavers in  a cooperative  society,  had made a  classification  that  was constitutionally  valid.  There  could,  therefore,  be   no excessive delegation of the power to grant exemption. It was fallacious to contend that exemption, if at all,  had to be granted in respect of any particular specified variety of  ’cotton  fabrics’,  and not with  reference  to  persons producing them.  The tax was on the production of the  goods but  was payable by persons producing them.   The  exemption granted   was   ,   therefore,  within  the  terms  of   the notifications.

JUDGMENT: ORIGINAL JURISDICTION : Petition No. 110 of  1961. Petition  under  Art. 32 of the Constitution  of  India  for enforcement of Fundamental Rights. A.   V.  Viswanatha  Sastri and R. Gopalakrishnan,  for  the Petitioners. K.   N. Rajagopal Sastri, P. K. Chatterjee and P. D.  Menon, for the respondents. 1962.  February 28.  The Judgment of the Court was delivered by SINHA,  C.  J.  By  this petition,  under  Art.  32  of  the Constitution,     the     petitioners     challenge      the constitutionality  of  certain  provisions  of  the  Central Excises  and Salt Act (1 of 1944) which will be referred  in the course of this judgment as the Act, read with r.8 of the Central  Excise  Rules, 1944 (1960)  and  the  notifications thereunder,   to  be  herein  after  set  out.   The   first petitioner is the Orient 483 Weaving Mills Private Ltd. (which will be termed hereinafter as the Company), and the second petitioner is a director  of the Company.  The respondents to the petition are (1)  Union of  India,  through the Secretary to  Government  of  India, Ministry of Finance (Department of Revenue), New Delhi,  (2) Secretary,   Central  Board  of  Revenue,  New  Delhi,   (3) Superintendent,  Central  Excise’  Cuttack,  (4)  Collector, Central Excise, Calcutta, (5) Board of Directors, Madhunagar Powerloom  Weavers’  Cooperative Society Ltd.,  through  its President (to be hereinafter referred to as the Society). The  petition is founded on the following allegations.   The Company is incorporated under the Indian Companies Act, 1913 with  its  head office at Nayabazar.  Cuttack.   The  second petitioner  is  the director of the Company,  which  runs  a weaving  mill at Nayabazar in Cuttack.  There are 160  looms operating in the mill, and nearly 300 employees are employed in  the  factory, which produces, on the average,  about  45 lakh  yards  of cloth (4 1/2 million  yards).   The  paid-up capital of the Company is Rs, 7,10,6-00, divided into  7,100 shares  of the value of Rs. 100 each.  It has  8  directors, including a representative of the Government of Orissa.  The Company  commenced  production on October 1, 1955,  and  has been sustaining losses eversince it started functioning "due to  adverse circumstances in the State of Orissa and due  to the  heavy  taxation  and duties".   Eversince  the  Company

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started  production,  it, has been  paying  excise  duty-Rs. 2,16.,670 for the year 1958- 59, Rs. 1,82,529 for the  year. 1959-60  and  Rs. 2,15,500 for the  year  1960-61.   "Cotton fabrics"  is one of the items in the first schedule  of  the Act, which sets out the description of goods and the rate of duty leviable under s. 3 of the Act.  The petitioners  chief grievance  is  that the respondent No. 5,  the  Society,  is being granted exemption 484 from  the  excise  duty, though, it  is  contended,  it  has installed 100 looms in the same premises and 100 workmen are employed  therein.  The authorised capital of the  aforesaid Society is Rs.2,40,000, divided into shares of the value  of Rs.  100 each.  It is said to be a profit  earning  concern, whose profit is disposed of in accordance with its bye-_law. 35.   The  Society.-  it is further contended,  is  for  all practical   purposes   Similarly  situated   alongwith   the petitioner Company in the matter of production, distribution and  marketing of their produce.  It is further stated  that the  weavers  of the Society stand on the  same  or  similar footing  as the shareholders of the Company.  The  exemption was  granted  to  the  Society  in  virtue  of  the  Central Government Notification No. 74 of 1959, dated July 31, 1959, and  Notification  No.  70 of 1960, dated  April  30,  1960, issued  by  the Ministry of Finance,  Government  of  India, (Department  of  Revenue).  The notifications are  in  these terms                "Government  of  India, Ministry  of  Finance               (Department  of Revenue) New Delhi.  The  31st               July, 1959.rule 8 of the Central Excise  Rules               1944  as in force in India and as  applied  to               the  State of Pondicherry, the  Central  Govt.               hereby  exempt cotton fabrics produced by  any               co-operative  society  formed  of  owners   of               cotton  powerlooms,  which  is  registered  or               which may be registered on or before the  31st               March,  1961  under any law  relating  to  co-               operative  societies,  from the whole  of  the               duty   leviable   thereon,  subject   to   the               following conditions :-               (a)   that  every member of  the  co-operative               societies had been exempt from excise duty for               three years immediately preceding the date  of               his joining such society;                485               (b)   that   the   total  number   of   cotton               powerlooms  owned by the co-operative  society               is  not  more than four times  the  number  of               members forming such society;               (c)   that  a certificate is produced by  each               member  of the co-operative society  from  the               State  Govt. concerned or such Officer as  may               be nominated by the State the number of cotton               powerloons  in’-his  ownership  and   actually               operated  by him does not exceed four and  did               not  exceed four at any time during the  three               years  immediately preceding the date  of  his               joining  the society, and that he  would  have               been  exempt from excise duty even if  he  had               not joined the co-operative society; and               (d)   that  the  exemption  shall  be.  avail-               able...               (i)   for  a period ending on the  31st  July,               1962  in  respect of  registered  co-operative               societies  which  have  commenced   production

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             prior to the date of this notification; and               (ii)  for  a  period of three years  from  the               date of commencement of production in  resPect               of  cooperative  societies  which  have   been               registered  but have not commenced  production               or  which may be registered on or  before  the               31st March, 1961.                              (No. 74/59)                              Sd/-Illegible                              S.K. Bhattacbarjee,                Deputy-Secretary to Govt. of India.                F.   N. 74,/59/F.  No. 13/59-CXrll".               "Government  of India, I Ministry  of  Finance               (Department of Revenue) New, Delhi.  The  10th               April. 1960.               486               Notification               Central Excise GSR.  In pursuance of sub-rule (1) of. rule 8 of the Central Excise  Rules, 1944 as in force in India and as  applied  to the State of Pondicherry and in supersession of the  Notifi- cation of the Govt. of India Ministry of Finance (Department of Revenue) No. 74/59Central Excise dated the 31st July 1959 the Central Govt. hereby exempts cotton fabrics produced  on powerloom  owned by any cooperative society or owned  by  or allotted to the members of the society, which is  registered or which may be registered on or before the 31st March  1961 under  any law relating to co-operative societies  from  the whole of the duty leviable thereon, subject to the following conditions :-               (a)   that  every member of  the  co-operative               society who has been a manufacturer of  cotton               fabrics  on  powerlooms has been  exempt  from               excise   duty  for  three  years   immediately               preceding   the  date  of  his  joining   such               society;               (b)   that   the   total  number   of   cotton               powerlooms  owned by the co-operative  society               or owned by or allotted to its members is  not               more  than  four times the number  of  members               forming such society.               (c)   that  each  member of  the  co-operative               society  produce a certificate from the  State               Govt.   concerned  or  such  officer  as   may               bonafide  member of the society and  that  the               number  of  cotton  powerlooms  owned  by   or               allotted  to him and actually operated by  him               does  not exceed four and did not exceed  four               at any time during the three years immediately               preceding the date of his joining the                487 society, and that he would have been exempt from excise duty even if he had not joined the co-operative societies and               (d)   that the exemption shall be available...  (i)  for  a period ending on the  31st’  July               1962  in  respect  of  registered  cooperative               societies  which  have  commenced   production               prior to the date of the notification; and               (ii)  for  a  period of three years  from  the               date of commencement of production in  respect               of  co-operative  societies  which  have  been               registered- but have not commenced  production               or  which may be registered on or before  31st               March, 1961                No. 70/60

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              Sd./Illegible                G. P. Durairaj,               Under  Secretary  to the Govt.  of  India  No.               70/60/P.  No. 13/1159 CXIII" The   Company   made  a  representation  to   the   relevant authorities  but  to no purpose.  As the Company is  to  pay excise duty on the "cotton fabrics" produced by it, its cost of  production,  as  compared to that of  the  Society,  was higher  by  12.5% in 1958 and 10% in 1959, with  the  result that  the, Company is at a disadvantage, as compared to  the Society,  in  the  competitive market  of  Orissa.   Due  to heavier  taxation on fine cloth, the Company  has  abandoned the  production  of  that quality  and  has  restricted  its production to coarse and medium cloth.  The apprehension  of the  Company is that on account of the exemption granted  to the  Society, the Company’s business will be very  adversely affected.  It is contended that r. 8 of the Central 488 Excise Rules, 1944, under the Act, vests the Government with unguided power wholly or partially to exempt any goods  from the   duty  leviable  under  the  Act,  and  is,   therefore discriminatory  as against the petitioner;’  The  Government notifications  exempting the Society or such other  similars societies  as  may hereafter come into existence,  have  the effect  of  violating the  petitioners’  fundamental  rights under  Arts, 14 and 19(1)(f) & (g) of the Constitution.   It is  also  contended  that  the  power  conferred  upon   the Government  under the Rules, aforesaid, being  unguided  and uncontrolled, goes beyond the permissible limits of a  valid delegation, and is, therefore, void.  The petitioners  moved the High Court of Orissa under Art. 226 of the Constitution, challenging the constitutionality of the Government measures aforesaid, but the Court refused to grant any relief on  the round  that it had no jurisdiction to issue any writ to  the ’Union  Government  in  New Delhi.   In  the  premises,  the petitioners  pray for a declaration that the levy of  excise duty  on  the  piece-goods produced by  the  petitioners  he declared  to be unconstitutional, and for a  direction  that the  respondents 1-4 treat them on the same footing as  the, society and exempt them from the payment of the excise duty, as  also for an appropriate writ or order for the,  enforce- ment  of their fundamental right guaranteed under  Arts.  14 and 19(1)(f) & (g) of the Constitution. The application was opposed on behalf of the respondents  1- 4.  and  an’  affidavit  sworn to  by  an  Under  Secretary, Ministry  of Finance (Department of Revenue)  Government  of India, was filed in opposition.  It was stated on behalf  of the  Union  Government  and the Revenue  that  the  relevant provisions  of the Act and the Rules, and the  notifications which  have  been  impugned  by  the  petitioners,  did  not infringe  any provisions of the Constitution, and  that  the exemption  granted to the society was in’ pursuance  of  the well recognised 489 principle,  being  acted upon by the Government,  to  confer ’Self-employment   benefits   in  the  interest   of   small producers,  and with a view to encourage cottage  industries and  small  scale industries employing a limited  number  of hands.  The Society, it was contended, was not the owner  of the  powerlooms, but each weaver was the owner of  not  more than  4  powerlooms: the Society was run  on  a  cooperative basis for the benefit of the weavers, who shared the profits earned  by  working on a cooperative basis, by sale  of  the cloth produced by each weaver on his looms, after paying for the  services rendered by the Society to its members;  hence

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it was not correct to characterize the Society as running. a mill  with  an  installed capacity of,  100  looms.   It  is further  stated that the Society, as such, is not  a  profit earning  concern  , as wrongly contended. on behalf  of  the petitioners.   The  Society, under  the  sanctioned  scheme, purchases the cloth produced by the weaver on his looms at a price  equivalent to the cost of the raw materials, cost  of the  services rendered by the Society and cost of labour  of the  weaver, plus a margin of profit for him.   The  Society undertakes  the  sale  of the piece-goods  produced  by  the weaver without making any profit to itself, ’except that  it levies  handling charges, which ire paid by the  buyer.   If the  Society makes any savings out of the  handling  charges thus,  realised, the weaver gets a share, of the savings  by way  of divided Unlike the Company, the Society is not  the, owner  of the looms.  The Society is only a servant  of  the weaver owners and renders them services, which they need, to help  them to market their produce’.. The Society is,  thus, only an organization which assists all individual owners  of looms  in the production and sale of the products  of  their respective  looms,  for  their exclusive  benefit.   It  is, therefore,,  claimed that-the exemption granted in.  respect of the goods produced in co-operative society of which the 490 weavers   are  the  owner  members,  each   individual   not possessing  more  than  4  looms, is  in  pursuance  of  the Notification  No., 70/60 dated April 30, 1960, issued  under r.  8,  under the provisions of the Act, and is based  on  a valid  classification, and does not infringe the  provisions of Arts. 14 and 19(1)(f) & (g) of the Constitution. On  those  pleadings and on the arguments at  the  Bar,  the following  points arise for decision in this  case,  namely, (i) whether the power of exemption conferred upon the  Union Government  violates  Arts.  14 and 19(1)(f) &  (g)  of  the Constitution  on  the  ground that it  is  uncontrolled  and unguided,  and (2) whether, assuming that the power  is  not unconstitutional,    the    exemption   granted    by    the notifications, aforesaid, is in excess of the power  granted by r. 8. Before   discussing  the  vires  of  the  law,  or  of   the notification issued under the Act, read with r.8  aforesaid, it  is necessary to examine the relevant provision,% of  the Act and the Rules.  The Act consolidates and amends the  law relating  to central duties of excise on goods  manufactured or  produced In certain parts of India, and to salt.   Under s.  2(d), "excisable goods" means "’goods specified  in  the First  Schedule  as being subject to a duty  of  excise  and includes salt".  The first schedule contains the description of goods and rates of duty leviable under s. 3, which is the charging section and is in these words:               "3(1)  There shall be levied and collected  in               such  manner  as may be prescribed  duties  of                             excise  on all excisable goods other than  sal t               which  are produced or manufactured  in  India               and a duty on salt manufactured in, or  impor-               ted  by land into, any part of India, as,  and               at the rates, set forth in the First Schedule.               491               (IA)................................................               (2).................................................               (3)   Different tariff values may be fixed for               different  class  or description of  the  same               article." Item  No. 19 in the First Schedule is "cotton fabrics",  and

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means all varieties of fabrics manufactured either wholly or partly  from  cotton,  with  certain  specified  exemptions, including fabrics manufactured on handloom, and then  follow the  description of different kinds of cotton fabrics,  with their  relative  rates of duty.  Section 37  authorises  the Union  Government  to make rules to carry  into  effect  the purposes of the Act.  By sub-s. (2) of s. 37, it is provided that  rules may be framed providing for a number of  matters recited  therein,  including cl. (xvii), which is  in  these terms:               "exempt  any goods from the whole or any  part               of the duty imposed by this Act." In   pursuance  of  this  rule  making  power,  the   Union, Government  has made Rules.  For the purposes of this  case, it is only necessary to quote r. 8, which is as follows:               "Power  to  authorise exemption from  duty  in               special cases:               (1)   The Central Government may from time  to               time, by notification in the Official Gazette,               exempt  subject to such conditions as  may  be               specified  in the notification  any  excisable               goods  from the whole or any part of the  duty               leviable on such goods,               (2)   The  Central  Board of  Revenue  may  by               special  order  in each case exempt  from  the               payment  of  duty tinder circumstances  of  an               exceptional nature, any excisable goods." 492 In  pursuance  of  the  powers  conferred  on  the   Central Government by sub-r.(1) of r.8, the notifications re  formed to  above were issued by the Central Government.  By  virtue of s. 38 of the Act, all rules made and notifications issued by the Central Government, as aforesaid, are required to  be published  ’in  the Official Gazette,  and  thereupon  those rules and notifications "shall have effect as if enacted  in this  Act".  Thus it is manifest that the notifications  and the  rule impugned in this case have been incorporated  into the Act itself, and have become part of the taxing  statute. It  is  also  noteworthy  that  the  petitioners  have   not challenged  the vires of the Act.  The petition is  directed against  r.8 and the notifications aforesaid, exempting  the tools  produced by the co-operative societies, like the  5th respondent, from payment of the excise duty.  That being  so it  is a little difficult to appreciate the first prayer  of the  petitioners, asking for a declaration that the levy  of excise  duty on the piece goods produced by the  petitioners be  declared  to be unconstitutional.  It is  one  thing  to attack  the constitutionality of the provisions of  the  Act authorising the levy of the excises duty on the  petitioners it  is quite a different thin, to complain of the  exemption granted  in  respect  of  the  goods  produced  by  the  5th respondent.  the  vires  of  the Act  itself  has  not  been challenging we need not say anything more on that aspect  of a possible controversy which has not been actually raised in the petition. The petition is substantially based upto the contention that r.8 suffers from the vice of excessive delegation of  powers to  the  Central Government to exempt partly or  wholly  any excisable  goods,  and, secondly, that the  power  even  it’ constitutional has been invalidly exercised in so far as the notifications  aforesaid containing the exemption  operating in  favour  of the 5th respondent have been  Made.   In  our opinion, there is no substance in 493 either of the two contentions.  Rule 8 is as much a part  of

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the  statute as s. 37(2) cl. (xvii).  It is always  open  to the  State  to tax certain classes of goods and not  to  tax others.   The legislature is the best judge to decide as  to the incidence of taxation, as also as to the amount of  tax, to be levied in respect of different classes of goods.   The Act recognizes and only gives effect to the well established principle that there must be a great deal of flexibility  in the  incidence  of taxation of a particular kind.   It  must vary from time to time. as also in respect of goods produced by  different  processes and different agencies.   The  same principle his been recognised in s.23 of the Sea Customs Act (VIII of 1878), which has been applied to excise duty  also, by  virtue  of  s. 12 of the Act.  The  latter  section  has authorized the Central Government to apply the provisions of the Sea Customs Act, to excise duty imposed by the Act, with such  modifications  aDd  alterations  as  it  may  consider necessary  or desirable to adapt them to circumstances.   It is  a  function of the State in order to raise  revenue  for State  purposes,  to determine what kind of taxes  shall  be levied  and in what manner.  Its function therefore,  is  to raise revenues for public purposes.  The State naturally  is interested  in raising all the revenue necessary for  public purposes,  without sacrificing the legitimate  interests  of persons  and  groups, who deserve special treatment  at  the hands  of  the  State  for  reasons,  which  the  State  may determine,  entitling them to be placed in a special  class. The  Directive Principles of the Constitution, contained  in Part  IV.,  lay  down  the policies  and  objectives  to  be achieved, for ,promoting the welfare of the people.  In  the ’ context of the present controversy, the following words of Art. 43 are particularly apposite:                "............    and in particular, the State               shall endeavor to promote cottage industries               494               on  an  individual or  co-operative  basis  in               rural areas." It  has rightly been pointed out in the affidavit  filed  on behalf of the respondents 1-4 that. the exemption granted by the  impugned  notifications  is  meant  primarily  for  the protection  of petty producers of cotton fabrics not  owning more  than four power looms, from. unreasonable  competition by  big producers, like the petitioner Company.   The  State has,  therefore, made a valid classification  between  goods produced  in big establishments arid similar goods  produced by small powerloom weavers in the mofussil, who are  usually ignorant,  illiterate and poor and suffer from handicaps  to which big establishments like the petitioner Company are not subject.   It has also been pointed out that  the  exemption was  available to individual weavers, who employed not  more than  five looms on their own account.  The fact  that  they have  banded together in a co-operative effort  to  increase their  efficiency and to take advantage of State aid  should not  count against them.  It must, therefore, be  held  that there  is  no room for the contention that  there  has  been excessive delegation of power to exempt. It  was  next contended that if it were held that  r.  8  is valid  and constitutional, the notifications are bad  in  so far  as  they  exempt certain classes  of  persons  and  not classes  of goods from the excise duty.  It is  argued  that the  tax is a duty of excise on Ire any goods", and item  12 has  reference  to a particular variety  of  goods,  namely, ’cotton  fabrics’;  the  exemption if any  could  have  been granted  in respect of any particular specified  variety  of ’cotton  fabrics’  and  not with reference  to  the  persons producing  the  same  variety of those  fabrics.   There  is

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apparently  & fallacy in this argument.  The tax is  on  the production  of  any  goods, but it  is  payable  by  persons producing such goods.  The exemption also is  495 with reference to such goods as come within the  description of excisable goods.  The respondent No. 5 has been  exempted from payment of excise duty in respect of goods produced  by the weavers.  It has not been exempted from the payment of a personal   tax,  like  Income  Tax.   The  exemption   must, therefore,  have  reference to the same kind  of  tax  which would  otherwise have been leviable but for  the  exemption. From  the notifications set out above, it is  manifest  that the  Government  has  exempted cotton  fabrics  produced  on power-looms  owned  by a co-operative society,  and  in  the present  instance owned by the members of  the  Co-operative Society.   It  has  not been contended before  us  that  the conditions  laid  down for granting the exemption  have  not been  fulfilled by the members of the  Cooperative  Society, the respondent No. 5. Hence, the exemption granted is within the terms of the notifications aforesaid, which have  effect as  if enacted as a part of the Statute.  The vires  of  the Statute, as already indicated, has not been questioned. It  must, therefore, be held that there is no merit in  this petition.   It is, accordingly, dismissed with costs to  the answering respondents. Petition dismissed. 496