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1952 DIGILAW 273 (RAJ)

Maharaja Kishangarh Mills Ltd. v. Union of India

1952-11-24

DAVE, RANAWAT, WANCHOO

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Wanchoo, C.J.-The Maharaja Kishangarh Mills Ltd., Kishangarh, made application under Art. 226 of the Constitution of India. The application came up for hearing before a Division Bench of this Court, and, on the 5th of November, 1951, the following two points were referred to a larger Bench for decision: — (1) Whether by virtue of Arts. 278, 279 and 295 of the Constitution of India and the agreement entered into between the President of India and the Raj Pramukh of Rajasthan on the 25th of February, 1950, the Union of India is entitled to levy and recover arrears of excise duty on cloth held in stock or manufactured before the 1st of April, 1950, in case, excise duty thereon was payable to the State of Rajasthan under the provisions of the Rajasthan Excise Duties Ordinance No. 25 of 1949. (2) Whether the publication of the Government notification by which the Jaipur Excise Rules were adopted under the provisions of the Rajasthan Excise Ordinance was sufficient publication in the meaning of sec. 28 of the Rajasthan Excise Duties Ordinance No. 25 of 1949 and whether the publication of the aforesaid notification should be deemed to have been properly authenticated by authentication of the publication of the Ordinance. If not, whether want of authentication would have the effect of invalidating the said Excise Rules? 2. Certain facts may be narrated in order to decide the two points which have been referred to this Bench. The Maharaja Kishangarh Mills Ltd., Kishangarh, is manufacturing cotton cloth at Kishangarh in the State of Rajasthan. The Central Excise and Salt Act, 1944, was extended to the State of Rajasthan by sec. 11 of the Finance Act No. XXV of 1950, from 1st April, 1950, and the necessary rules under that Act also came into force from the said date. The Superintendent of Central Excise, Jaipur Circle, Jaipur, served a notice of demand on the applicant for payment of excise duty on the 16th February, 1951, on cloth manufactured or in stock before the 1st April, 1950. The contention of the applicant was that the Union of India was not entitled to levy excise duty on cloth manufactured or in stock before 1st April, 1950. Therefore, the notice, that was given to the applicant to pay duty on such cloth, was illegal and unauthorised by any provision of law. The contention of the applicant was that the Union of India was not entitled to levy excise duty on cloth manufactured or in stock before 1st April, 1950. Therefore, the notice, that was given to the applicant to pay duty on such cloth, was illegal and unauthorised by any provision of law. The applicant therefore prayed for a proper direction, order, or writ under Art. 226 of the Constitution to be issued to the Union of India, and its officers prohibiting them from levying or collecting any duty or tax by way of excise duty on cloth manufactured by the applicant the Maharaja Kishangarh Mills Ltd., Kishangarh, before the 1st April, 1950. 3. The application was opposed by the opposite parties, and reliance was placed on Arts. 278 and 295 of the Constitution of India, and on the agreement entered into between the President of India and the Raj Pramukh of Rajasthan on the 25th of February, 1950, as authorising the Union of India to demand excise duty on cloth manufactured before the 1st of April, 1950. The two points which have been referred to the Bench for an answer have arisen in view of the reply of the opposite parties to the case put forward on behalf of the applicant. 4. We shall take the second point first. It appears that certain rules were published in the Hindi Rajasthan Gazette of the 12th November, 1949, under sec. 28 of the Rajasthan Excise Duties Ordinance No. XXV of 1949. By these rules the Jaipur Excise Rules with certain modifications were to be the rules under the Rajasthan Ordinance. The Hindi Gazette, however, in which these rules were published, does not contain any authentication of these rules, and does not show by whose authority they were published. We cannot accept the contention on behalf of the opposite parties that the authentication which appears before the Hindi version of the Act in the Gazette of the 12th of November, 1949, covers these rules also. That authentication is dated 15th September, 1949, and appears under the signature of the Law Secretary to the Government of Rajasthan, and merely says that the following Ordinance made and promulgated by the Raj Pramukh on the 5th September, 1949 is being published for general information. The Ordinance referred to is Ordinance No. XXV of 1949. That authentication is dated 15th September, 1949, and appears under the signature of the Law Secretary to the Government of Rajasthan, and merely says that the following Ordinance made and promulgated by the Raj Pramukh on the 5th September, 1949 is being published for general information. The Ordinance referred to is Ordinance No. XXV of 1949. This authentication therefore cannot be said to authenticate the rules which appear on page 170 of the Hindi Gazette, dated Margashiras Krishna 2nd (Nov. 12, 1949). The rules, which are published from page 170 onwards begin as follows (our translation) — "In exercise of the powers conferred under secs. 5 and 26 of the Rajasthan Excise Duties Ordinance of 1949, the Rajasthan Government orders that till new rules are framed under the Jaipur Excise Duties Act of 1945, known as the Jaipur Fxcise Duties Rules of 1945, will be in force throughout the whole of Rajasthan with necessary modifications, and will be deemed to have been made under the Rajasthan Ordinance." Then follow certain additions to the rules. There is no authentication of any kind to these rules which were published in this Gazette. The presumption therefore of sec. 8(2) of the Rajasthan Administration (Amendment) Ordinance No.V of 1949 does not apply to these rules. 5. It was open however to the opposite parties to show that these rules were in fact passed by the Rajpramukh of Rajasthan, and that the authentication was left out in the Gazette by oversight. But the opposite parties have not filed any affidavit to show that these rules were considered and passed by the Rajpramukh of Rajasthan before they were published at page 170 of the Hindi version of the Gazette, dated 12th November, 1949. The position therefore is that the Gazette does not contain any authentication of the rules and the presumption of sec. 8(2) of Ordinance V of 1949 does not apply, and the opposite parties have failed to prove as a fact that these rules were considered and passed by the Rajpramukh of Rajasthan. Under these circumstances, there is nothing to prove that these rules were duly framed by the authority authorised to — frame them by secs. 5 and 26 of the Rajasthan Excise Duties Ordinance No. XXV of 1949. Under these circumstances, there is nothing to prove that these rules were duly framed by the authority authorised to — frame them by secs. 5 and 26 of the Rajasthan Excise Duties Ordinance No. XXV of 1949. The rules, therefore, which appear at page 170 of the Hindi Gazette of the 12th Nov., 1949, not having been proved to have been framed by the authority entitled to frame them, must be held to be invalid and of no effect. In view of this decision, it is not necessary to consider whether under sec. 28 of the Rajasthan Excise Duties Ordinance No. XXV of 1949, it was necessary to publish each and every rule, or whether the publication by reference to the Jaipur Rules of 1945 was sufficient compliance with sec. 28. Our answer therefore to the second question is that as the rules in question have not been authenticated, and no proof has been led to show that they were made by the authority which had the power to make them they are invalid and of no effect. 6. We now turn to the first question which is concerned with the title of the Union of India to recover excise duty for a period before the 1st of April, 1950. In the question referred to us Arts. 278, 279 and 295 of the Constitution are mentioned. It seems however that this is a mistake, because in an earlier part of the order, the reference is to Art. 277 and not to Art. 279. It appears that Art. 279 has no relevance to the point before us, and it is Art. 277 which we have to consider along with Arts. 278 and 295. 7. Before, however, we consider these Articles, we might dispose of the argument based on the agreement between the President of India and the Rajpramukh of Rajasthan, of the 25th February, 1950. This agreement does not specifically refer to cotton excise duties. 278 and 295. 7. Before, however, we consider these Articles, we might dispose of the argument based on the agreement between the President of India and the Rajpramukh of Rajasthan, of the 25th February, 1950. This agreement does not specifically refer to cotton excise duties. Reliance however is placed on that part of the agreement which says that the recommendations of the Indian States Finances Enquiry Committee, 1948-49 contained in Part I of its Report read with Chapters I, II and III of Part II of its Report, in so far as they apply to the State of Rajasthan together with the recommendations contained in Chapter VIII of Part II of its Report, (hereinafter referred to as the Report) are accepted by the parties to the agreement subject to certain modifications. In Part I of the Report, Central Excises which include excise duty on cotton cloth produced in India have been enumerated as part of central revenues. In paragraph 9 Chap. II of Part II of the Report, it is recommended that the Centre will take over all central sources of revenue, and all federal items of expenditure in States, and must also take over all current outstandings including pending assessments, refunds and arrears. The argument is that in view of these recommendations, which were accepted by the agreement, the Union of India must be deemed to have taken over all current outstandings of cotton excise duties on the 1st April, 1950, when the Finance Act brought the Central Excise and Salt Act of 1944 into operation in Rajasthan. It must, however, be remembered that the Report was made in 1949 in the shape of recommendations, and the Constitution came into force from the 26th January, 1950, and the Report was taken into consideration in framing the financial provisions of the Constitution. It is true that the principles of the Report were accepted by the agreement; but this agreement is subject to the provisions in the Constitution itself. We shall therefore have to see whether the provisions in the Constitution made any modifications in the recommendations in the Report. 8. The relevant provisions that require special consideration are Arts. 277 and 295. It is true that the principles of the Report were accepted by the agreement; but this agreement is subject to the provisions in the Constitution itself. We shall therefore have to see whether the provisions in the Constitution made any modifications in the recommendations in the Report. 8. The relevant provisions that require special consideration are Arts. 277 and 295. Art. 277 reads as follows:— "Any taxes, duties, cesses or fees which, immediately before the commencement of this Constitution, were being lawfully levied by the Government of any State or by any municipality or other local authority or body for the purposes of the State, municipality, district or other local area may, notwithstanding that those taxes, duties, cesses or fees are mentioned in the Union list, continue to be levied and to be applied to the same purposes until provision to the contrary is made by Parliament by law." Under this Article, all taxes, duties, cesses or fees, which were being law-fully levied by the Government of any State for purposes of the State were to continue to be levied and be applied to the same purposes, notwithstanding that those taxes, duties, cesses or fees are mentioned in the Union list, until provision to the contrary is made by Parliament by law. This Article obviously therefore modified the recommendation of the Report that all federal sources of revenue with current outstandings will be taken over; by the Union Government. It clearly allowed, till such time as the Union Parliament made provision to the contrary, the State to continue to levy duties which came within the Union list (like the cotton excise duties), and to use the income for its own purposes. It follows therefore that merely because an agreement was made between the President of India and the Rajpramukh of Rajasthan on the 25th February, 1950, by which the principles in the Report were accepted by the parties, the excise duties, which were being levied in Rajasthan before the Constitution came into force, could not be automatically levied and collected by the Union till the Parliament made provision to the contrary. It is admitted that Parliament made provision in this case from the 1st April, 1950 and till that date the State of Rajasthan was entitled under Art. 277 to levy and collect, and to apply to its own use, cotton excise duties which were leviable under Ordinance XXV of 1949. The question then is whether the outstanding . on the 1st April, 1950, would be transferred to the Union Government after the Finance Act of 1950 came into force on the 1st April. There is nothing in the Finance Act of 1950, which specifically transfers the arrears due up to 1st April, 1950, to the Union Government. Reliance in this connection is however placed on Art. 295(1) of the Constitution which runs as follows:— "As from the commencement of this Constitution:— (a) all property and assets which immediately before such commencement were vested in any Indian State corresponding to a State specified in part B of the First Schedule shall vest in the Union, if the purposes for which such property and assets were held immediately before such commencement will thereafter be purposes of the Union relating to any of the matters enumerated in the Union List, and (b) all rights, liabilities, and obligations of the Government of any Indian State corresponding to a State specified in Part B of the First Schedule, whether arising out of any contract or otherwise, shall be the rights, liabilities and obligations of the Government of India, if the purposes for which such rights were acquired or liabilities or obligations were incurred before such commencement will thereafter be the purposes of the Government of India relating to any of the matters enumerated in the Union List, subject to any agreement entered into in that behalf by the Government of India with the Government of that State." 9. It is urged that these arrears were assets which were vested in what corresponded to the State of Rajasthan before the 26th January, 1950, and they became vested in the Union, as the purposes, for which such assets were held before the 26th January, 1950, thereafter becamepurposes of the Union relating to matters enumerated in the Union List. It is true that after the 26th of January, 1950 excise duties on cotton cloth appear in the Union List, and the income thereof was to be utilized for purposes of the Union. It is true that after the 26th of January, 1950 excise duties on cotton cloth appear in the Union List, and the income thereof was to be utilized for purposes of the Union. But Art. 295, in our opinion has to be read along with Art. 277. As Art. 277 allows duties to be levied for purposes of the State even though such duties may be mentioned in the Union List till such time as Parliament provides to the contrary the cotton excise duties continued to be levied by the State of Rajasthan for its own purposes up to the 31st March, 1950. Therefore, if there were any arrears of these duties due to the State of Rajasthan for a period before the 1st April, 1950, those arrears were for purposes of the State of Rajasthan, even after the commencement of the Constitution and up to the 31st March, 1950. It cannot, in consequence be said that they became assets under Art. 295(l)(a) which could be taken over by the Union Government, as after the 26th January they could only be used for purposes of the Union. In the peculiar circumstances created in Part B States by Art. 277, and in view of the fact that Parliament provided otherwise only from the 1st April, 1950, arrears of cotton excise duties must be deemed to be held for purposes of the State up to the 31st of March, 1950, and therefore Art. 295(1) (a) will not apply because even if these arrears were assets held by the State, they could not be said to be held between the 16th January, 1950, and the 1st April, 1950, for purposes of the Union. 10. A similar argument is addressed on Art. 295(1) (b). and it is urged that these arrears can also be treated as rights of the State against the Mills manufacturing cotton cloth, and they became vested in the Union of India after the 26th January, 1950. The reply to this argument is the same as in the case of assets, for these rights become vested in the Government of India if the purposes for which they were acquired were the purposes of the Government of India. 11. The reply to this argument is the same as in the case of assets, for these rights become vested in the Government of India if the purposes for which they were acquired were the purposes of the Government of India. 11. In this case, we have already shown that these arrears were not for purposes of the Government of India between the 26th January 1950, and the 1st April, 1950, as under Art. 277 they could be held and were held for purposes of the State. 12. It was urged on behalf of the applicant that Art. 295 had no application to these arrears at all because they could not be called assets or rights within the meaning of that Article. It was pointed out that sec. 295 is in Chapter III of Part XII of the Constitution, which deals with property, contracts, rights,liabilities, obligations and suits, while matters relating to taxation are in Chapter I from Art. 264 to 291. It is consequently urged these being arrears taxation, we must look only to the provisions in Chapter I of part XII, and that Chapter III of that Part, in which Art. 295 appears, does not apply. We do not think it necessary to decide this point finally assets or rights within the meaning of Art. 295, they did not become vested in the Government of India by virtue of Art. 295, though there seems to be a good deal of force in the argument of learned counsel for the applicant in this connection. 13. It only remains now to deal with the arguments that by virtue of Art. 278, and, the agreement between the President of India and the Rajpramukh of Rajasthan, these arrears became vested in the Government of India. 13. It only remains now to deal with the arguments that by virtue of Art. 278, and, the agreement between the President of India and the Rajpramukh of Rajasthan, these arrears became vested in the Government of India. Art. 278(1) reads as follows:— "Notwithstanding anything in this Constitution, the Government of India may, subject to the provisions of clause(2), enter into an agreement with the Government of a State specified in Part B of the First Schedule with respect to (a) the levy and collection of any tax or duty leviable by the Government of India in such State and for the distribution of the proceeds thereof otherwise than in accordance with the provisions of the Chapter; (b) the grant of any financial assistance by the Government of India to such State in consequence of the loss of any revenue which that State used to derive from any tax or duty leviable under this Constitution by the Government of India or from any other sources; (c) the contribution by such State in respect of any payment made by the Government of India under clause (1) of Art. 291, and when an agreement is so entered into, the provisions of this Chapter shall in relation to such State have effect subject to the terms of such agreement." Stress is laid on clause (a) which provides that an agreement may be made between the Government of India and the Government of a Part B State with respect to the levy and collection of any tax or duty leviable by the Government of India in such State, and for the distribution of the proceeds thereof otherwise than in accordance with the provisions of this Chapter. It is urged that cotton excise duties are leviable by the Government of India, and therefore it was open to the Government of India to enter into an agreement with the State of Rajasthan, as was done on the 25th February, 1950, for the levy and collection of these duties. In the first place, it must be pointed out that the agreement of the 25th February, 1950, does not contain any specific provision about levy and collection of cotton excise duty in Rajasthan. In the first place, it must be pointed out that the agreement of the 25th February, 1950, does not contain any specific provision about levy and collection of cotton excise duty in Rajasthan. We have already pointed out that mere approval in that agreement of the principles in the Report is not enough because of Art. 277 which made a distinctly different provision from that contemplated in the Report. Further, the agreement, which can be entered into under article 278 is with respect to a duty which was leviable by the Government of India. Now it is clear that in view of article 277 cotton excise duty was actually leviable by the State of Rajasthan upto the 31st March, 1950, because Parliament made the contrary provision only from the 1st April, 1950. Therefore, for the period before the 1st April, 1950, cotton excise duty cannot be said to be a duty leviable by the Government of India so far as the State of Rajasthan is concerned, and therefore, Art. 278 can have no application with respect to a duty which was leviable by the State of Rajasthan upto the 31st March, 1950. We are therefore of opinion that the right to collect these arrears cannot be said to have been transferred to the Union of India by virtue of Art. 278 read with the agreement of the 25th February, 1950. We are clearly of the view that Art. 277 is a complete answer to the claim of the Government of India to collect these arrears for a period before the 1st April, 1950. 14. In this connection, we may contrast the provisions contained in sec. 173(4) of the Government of India Act, 1935, which are as follows:— "Arrears of any taxes outstanding immediately before the commencement of Part III of this Act shall be deemed to be due to and may be recovered by the Federal Government op a Provincial Government according as the proceeds of any such tax imposed after the commencement of Part III of this Act would be due to and recoverable by the Federal Government or the Provincial Government. Under this provision, arrears of taxes, which became central sources of revenue under the Government of India Act, were recoverable by the Government of India, and those which remained provincial sources of revenue were recoverable by the Provincial Government. Under this provision, arrears of taxes, which became central sources of revenue under the Government of India Act, were recoverable by the Government of India, and those which remained provincial sources of revenue were recoverable by the Provincial Government. If it was the intention of the Constitution makers that arrears of taxes, which became recoverable by; the Union Government after the 25th January, 1950, should be collected only by the Union Government, we should have found a clear provision similar to sec. 173 (4) of the Government of India Act, 1935. There is, however, no such clear provision in the Constitution. On the other hand there is a provision which is distinctly against it, namely Art. 277. 15. In whatever way we look at the matter, we are satisfied that these arrears did not vest in the Union Government by virtue either of Art. 278 and 295 of the Constitution or the agreement entered into between the President of India and the Rajpramukh of Rajasthan, on the 25th February, 1950. 16. The first question put to us assumes that the cotton excise duty was payable to the State of Rajasthan under the provisions of the Rajasthan Excise Duties Ordinance No. XXV of 1949. An argument was addressed to us that in view of the fact that no valid rules can be said to have been framed under Ordinance No. XXV of 1949, the State of Rajasthan could not recover cotton excise duties from the applicant. That is a question on which we need not express any opinion while answering the first question put to us, as we take it that the question assumes that the duty was payable to the State of Rajasthan. 17. Our answer therefore to the first question addressed to us is that the Union of India is not entitled to levy and recover arrears of excise duty on cotton cloth held in stock or manufactured before the 1st April, 1950, by the applicant,, by virtue of Art. 278 and 295 of the Constitution of India, and the agreement entered into between the President of India and the Rajpramukh of Rajasthan. 18. Let these answers be returned to the Bench concerned.