Research › Browse › Judgment

Kerala High Court · body

1965 DIGILAW 285 (KER)

Ruby Rubber Works v. Rubber Board

1965-09-29

M.S.MENON, V.P.GOPALAN NAMBIYAR

body1965
Judgment :- 1. The appellant, the Ruby Works, Limited, is a Company which uses rubber for the manufacture of its goods. It was directed to pay the rubber cess imposed under the Rubber Act, 1947, by the Rubber Board constituted under that enactment. The validity of the demand was challenged by the Company in O.P. No. 1042 of 1963; but without success. This appeal is from the decision rejecting that petition. 2. The imposition is under S.12 of the Rubber Act, 1947, as amended by the Rubber (Amendment) Act, 1960. Sub-sections (1), (2) and (3) of that Section read as follows: "12. (1) With effect from such date as the Central Government may by notification in the Official Gazette, appoint, there shall be levied as a cess for the purposes of this Act, a duty of excise on all rubber produced in India at such rate, not exceeding fifty naye paise per kilogram of rubber so produced, as the Central Government may fix. (2) The duty of excise levied under sub-section (1) shall be collected by the Board in accordance with rules made in this behalf either from the owner of the estate on which the rubber is produced or from the manufacturer by whom such rubber is used. (3) The owner or, as the case may be, the manufacturer shall pay to the Board the amount of the duty within one month from the date on which he receives a notice of demand therefor from the Board and, if he fails to do so, the duty may be recovered from the owner or the manufacturer, as the case may be, as an arrear of land revenue." 3. In exercise of the powers conferred by sub-section (1) of S.12, the Central Government appointed the 1st day of April. 1961, "as the date from which the duty of excise at the rate of thirty naye paise per kilogram of rubber shall be levied as a cess on all rubber, produced in India." That was by S.O.162 of the Ministry of Commerce and Industry dated the 13th January, 1961. 4. 1961, "as the date from which the duty of excise at the rate of thirty naye paise per kilogram of rubber shall be levied as a cess on all rubber, produced in India." That was by S.O.162 of the Ministry of Commerce and Industry dated the 13th January, 1961. 4. The Rubber (Amendment) Act, 1960, amended not only S.12 of the Rubber Act, 1947, by the substitution of a new section ; but also S.25 of that Act by the insertion of clause (xxa) in sub-section (2) of that section and by the substitution of a new sub-section for sub-section (3) of that section. Sub-section (1) of S.25 provides that the Central Government may, by notification in the Official Gazette, make rules to carry out the purposes of the Act, and sub-section (2) that in particular, and without prejudice to the generality of the foregoing power, rules made under this section may provide for all or any of the matters specified in that sub-section. Clause (xxa) reads as follows: "(xxa) the cases and circumstances in which the duty of excise under S.12 shall be payable by the owner and the manufacturers respectively, the manner in which the duty may be assessed, paid or collected, the regulation of the production, manufacture, transport or sale of rubber in so far as such regulation is necessary for the proper levy, payment or collection of the duty;" and the new sub-section (3): "(3) Every rule made under this section shall be laid as soon as may be after it is made before each House of Parliament while it is in session for a total period of thirty days which may be comprised in one session or in two successive sessions, and if before the expiry of the session in which it is so laid or the session immediately following, both Houses agree in making any modification in the rule or both Houses agree that the rule should not be made, the rule shall thereafter have effect only in such modified form or be of no effect, as the Case may be, so however that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule." 5. The Rubber Rules, 1955, were also amended by the Rubber (Amendment) Rules, 1961, as can be seen from S.O.163 of the Ministry of Commerce and Industry dated the 13th January, 1961. The amendments consisted of the insertion of clauses (e) and (f) in R.33, the insertion of R.33B, 33C and 33D after R.33 and the insertion of Form M in the First Schedule to the Rubber Rules, 1955. R.33D is in the following terms : "33 D. (1) Every manufacturer shall by demand notice sent through registered post or in such other manner as the Board may direct be intimated of the amount assessed on the quantity of rubber acquired during the periods specified in R.33(e). On receipt of such notice, the manufacturer shall pay to the Board the amount specified therein either in cash at the Board's office at Kottayam or by Money Order or by Bank Draft, or cheque duly crossed and payable at Kottayam to the Secretary of the Board within 30 days from the date of receipt of the said notice. (2) On such demand being made, if a manufacturer fails to pay the amount within the due date, the Board may take steps to report the fact to the Central Government or the State Government concerned for recovery of the outstanding amount as an arrear of land revenue." 6. It is not contended that clause (xxa) of sub-section (2) of S.25 spells an excessive delegation of legislative power. It was clause (3) of Bill No. 32 of 1960, introduced in the Lok Sabha on the 1st August, 1960, that became S.3 of the Rubber (Amendment) Act, 1960, the section which deals with the amendments to S.25 of the principal Act. The Memorandum regarding delegated legislation says: "Clause 3 of the Bill seeks to amend S.25 of the Act in order to vest power in the: Central Government to make rules for the regulation, manufacture, production, transport or sale of rubber in so far as such regulation is essential for the proper levy and collection of the duty of excise and also for prescribing the circumstances in which the duty shall be payable by the purchaser and the manufacturer respectively. The delegation of legislative power is of at normal character." 7. It is also not contended that the Rubber (Amendment) Rules, 1961, have not been laid before Parliament as contemplated by sub-section (3) of S.25. The delegation of legislative power is of at normal character." 7. It is also not contended that the Rubber (Amendment) Rules, 1961, have not been laid before Parliament as contemplated by sub-section (3) of S.25. The two contentions raised by the appellant are: (1) that S.12 is beyond the powers conferred by Entry 84 in List I of the 7th Schedule to the Constitution; and (2) that R.33D is beyond the powers conferred by S.12 of the Act. 8. The Statement of Objects and Reasons appended to Bill No. 32 of 1960 sums up the reasons for substituting a new S.12 for the old S.12 in the Rubber Act, 1947. That Statement reads as follows: "S. 12 of the Rubber Act, 1947, provides for the levy and collection of cess on all rubber produced in India at a rate not exceeding one anna per pound of rubber. This cess is payable by the owner of the estate on which rubber is produced and is assessed on the total amount of rubber produced as stated in the return which every owner of an estate has to furnish to the Rubber Board not later than 15 days after the expiry of the period in respect of which the assessment is made. S.10 of the Act makes it obligatory on the part of every owner of the estate to register himself with the Rubber Board. This method of collection of the cess provided under the Act has led to considerable evasion of cess by the owners of the estates, either by evasion of registration or by failure to submit correct returns or any returns at all. There are about 26,000 estates under production in the country & most of them are small holdings. Many of them do not render returns of production to the Rubber Board and thus evade payment of duty. From October, 1947 to December 1954, it was found that 20,608 tons of rubber escaped assessment and the Board suffered during the period a loss of Rs. 2,30,805. The Rubber Board estimates that under the present system there is no likelihood of more than 65 per cent of the potential revenue being realised each year. From October, 1947 to December 1954, it was found that 20,608 tons of rubber escaped assessment and the Board suffered during the period a loss of Rs. 2,30,805. The Rubber Board estimates that under the present system there is no likelihood of more than 65 per cent of the potential revenue being realised each year. "With a view to improving the efficiency of collection, it is proposed to amend S.12 of the Act so as to enable the cess to be collected either from the owner or the manufacturer who ultimately consumes the rubber produced in the estates. There are at present 347 registered rubber manufacturers in the country. It is felt that it would be far more easy to collect the cess from a small number of manufacturers than from about 26,000 producers whose number will increase year by year. The proposed amendment of S.12 in the amending Bill is an enabling measure for the administrative change in the method of collection being contemplated. The opportunity for the amendment of S.12 is also being utilised to increase the permissible maximum rate for the levy of cess from one anna per pound to 50 Naye paise per kilogram. This is necessary for the implementation of certain plans for speeding up the production of natural rubber in the country which are now under consideration." 9. Entry 84 in List I of the 7th Schedule to the Constitution corresponds to Entry 45 in List I of the 7th Schedule to the Government of India Act, 1935. Both speak of "duties of excise on tobacco and other goods manufactured or produced in India." Entry 45 came up for consideration before the Federal Court in In re C.P. Motor Spirit Act, AIR 1939 F.C.1 and Madras Province v. Boddu Paidanna & Sons, AIR. 1942 F.C. 33; and before the Privy Council in G.G. in Council v. Madras Province, AIR. 1945 P. C. 98. The Privy Council said: "A duty of excise is primarily a duty levied upon a manufacturer or producer in respect of the commodity manufactured or produced. It is a tax upon goods." 10. In R.C. Jall v. Union of India, AIR. 1962 SC. 1281- a case under Ordinance 39 of 1944 - the Supreme Court followed the decisions above mentioned and said: "Excise duty is primarily a duty on the production or manufacture of goods produced or manufactured within the country. It is a tax upon goods." 10. In R.C. Jall v. Union of India, AIR. 1962 SC. 1281- a case under Ordinance 39 of 1944 - the Supreme Court followed the decisions above mentioned and said: "Excise duty is primarily a duty on the production or manufacture of goods produced or manufactured within the country. It is an indirect duty which the manufacturer or producer passes on to the ultimate consumer, that is, its ultimate incidence will always be on the consumer. Therefore, subject always to the legislative competence of the taxing authority, the said tax can be levied at a convenient stage so long as the character of the impost, that is, it is a duty on the manufacture or production, is not lost. The method of collection does not affect the essence of the duty, but only relates to the machinery of collection for administrative convenience. Whether in a particular case the tax ceases to be in essence an excise duty, and the rational connection between the duty and the person on whom it is imposed ceased to exist, is to be decided on fair construction of the provisions of a particular Act." It went on to say : 'S. 2 of Ordinance 39 of 1944 clearly shows that the tax is an excise duty on the manufacture or production of coal or coke. S.5(2) thereof confers in express terms a power on the Central Government to make rules, inter alia, to provide for the manner in which the duties imposed by the Ordinance shall be collected and the persons who shall be liable to pay the duty. R.3 of the Rules made by the Central Government provides for the recovery of excise duty on the coal produced ; under the said rule it would be collected by the Railway Administration by means of a surcharge on freight and such duty of excise shall be recovered from the consignor, if the freight charges are being pre-paid, at the time of consignment or from the consignee if the freight charges are collected at the destination of the consignment. The machinery provided for the collection of the tax is, in our view, a reasonable one. The machinery provided for the collection of the tax is, in our view, a reasonable one. Having regard to the nature of the tax, that is, the tax being an indirect one to be borne ultimately by the consumer, it cannot be said that there is no rational connection between the tax and the consignee. When the consignor pays, it cannot be denied that it is the most convenient stage for the collection of the tax, for it is the first time the coal leaves the possession of the consignor. The fact that the consignee is made to pay, in the contingency contemplated by R.3(b) of the Rules cannot affect the essence of the tax, for the consignor, if he had paid the freight, would have passed it on to the consignee and instead the consignee himself pays it. The Central Government was legally competent to evolve a suitable machinery for collection without disturbing the essence of the tax or ignoring the rational connection between the tax and the person on whom it is imposed. We hold that the machinery evolved under the Rules for collection of the duty satisfies the said conditions and therefore the exigibility of the tax at the destination point in the hands of the consignee cannot legitimately be questioned." 11. An earlier case making a similar approach is Baldeo Singh v. I.T. Commissioner, AIR. 1961 SC. 736. The question in that case was whether S.23A of the Indian Income-tax Act, 1922, was justified under Entry 54 in List I of the Seventh Schedule to the Constitution. The Supreme Court dealt with that question as follows: "Mr. Sastri says that in law a company and its shareholders are different persons, - a proposition which is indisputable - and therefore S.23A is incompetent as it purports to tax the shareholders on the income of the company in which they hold shares. He points out, and this again is not in dispute, that the section does not give a right to a shareholder on an order being made under it, to realise from the company the dividend, which by the order is to be deemed to have been paid to him. He says, and this also seems right, that the income remains the income of the company and a shareholder is taxed on a portion of it representing the dividend deemed to have been paid to him. He says, and this also seems right, that the income remains the income of the company and a shareholder is taxed on a portion of it representing the dividend deemed to have been paid to him. In spite of all this it seems to us that the legislation was not incompetent. Under entry 54 a law could of course be passed imposing a tax on a person on his own income. It is not disputed that under that entry a law could also be passed to prevent a person from evading the tax payable on his own income. As is well known the legislative entries have to be read in a very wide manner and so as to include all subsidiary and ancillary matters. So entry 54 should be read not only as authorising the imposition of a tax but also as authorising an enactment which prevents the tax imposed being evaded. If it were not to be so read, then the admitted power to tax a person on his own income might often be made infructuous by ingenious contrivances. Experience has shown that attempts to evade the tax are often made". 12. In the above case the Supreme Court was well aware of the fact that in certain circumstances the section may work hardship. It said: "In conceivable circumstances the section may work hardship on members of the public who hold shares in such a company but that would not take the section outside the competence of the legislature. It would still be an enactment preventing evasion of tax. Considerations of hardship are irrelevant for deciding questions of legislative competence." 13. In the case before us, there is no question of any hardship at all. Prior to the Rubber (Amendment) Act, 1960, the appellant paid the duty to the producer and he paid it to the Board. Now the appellant does not pay it to the producer but pays it directly to the Board. That and that alone is the change that has been effected. 14. Both the above decisions were followed in Khyerbari Tea Co. v. State of Assam, AIR. 1964 SC. 925. The Court said: "It is impossible to sustain the argument that it is not competent to the legislature to devise a proper and appropriate machinery to recover a tax which it is competent to the legislature to levy. 14. Both the above decisions were followed in Khyerbari Tea Co. v. State of Assam, AIR. 1964 SC. 925. The Court said: "It is impossible to sustain the argument that it is not competent to the legislature to devise a proper and appropriate machinery to recover a tax which it is competent to the legislature to levy. This question has been frequently considered by this Court and the power of the legislature to create appropriate machinery to recover a tax, or to prevent the evasion of the payment of tax has been consistently recognised." 15. In M/s. Chhotabhai v. Union of India, AIR. 1962 SC. 1006, also the Supreme Court had to deal with a characteristic of an excise duty. It said: "A duty of excise is a tax-levy on home-produced goods of a specified class or description, the duty being calculated according to the quantity or value of the goods and which is levied because of the mere fact of the goods having been produced or manufactured and unrelated to and not depended on any commercial transaction in them." 16. There can be no doubt that the duty imposed under S.12 is a duty of excise on the rubber produced in this country. It is equally clear that the collection of the said duty from manufacturers of rubber goods like the appellant does not make it any the less an excise duty on the production of rubber or disrupt the necessary connection between the duty and the person on whom it is imposed. It follows that S.12 has to be treated as valid and well within entry 84 in List I of the 7th Schedule to the Constitution. 17. Under sub-section (2) of S.12 the duty can be collected by the Board "either from the owner of the estate on which the rubber is produced or from the manufacturer by whom such rubber is used". It is common ground that the option has to be exercised by a rule framed under S.25 of the Act. It is also agreed that the only rule that can be pressed into service for collecting the duty from the manufacturer is R.331) extracted in Para.5 above. 18. R.331) clearly indicates that the option has been exercised and that the duty is to be collected from the manufacturer. It is also agreed that the only rule that can be pressed into service for collecting the duty from the manufacturer is R.331) extracted in Para.5 above. 18. R.331) clearly indicates that the option has been exercised and that the duty is to be collected from the manufacturer. The contention of the appellant is that while S.12 speaks of a collection of duty "from the manufacturer by whom such rubber is used" R.331) provides for an assessment of duty "on the quantity of rubber acquired" by him; and that the rule should be held to be ultra vires on that account. 19. The contention of the appellant is summarised as follows in the judgment under appeal: "The argument is that what the section envisages is a collection from the manufacturer who has used such rubber and what the rule envisages is a collection from a manufacturer who has acquired the rubber, whether he has in fact used it or not. The emphasis, it is contended, has been shifted from the use which is insisted by the section, to mere acquisition by the rules." The judgment rejects the contention on the ground that the word "used" has a wider significance than actual consumption in the process of manufacture and that the mere possession of the rubber as a necessary raw-material for the purpose of manufacture by a manufacturer will amount to a use of that commodity by that manufacturer. 20. One of the decisions to which counsel for the Board drew our attention was British Motor Syndicate Limited v. Taylor & Son, (1901) 1 Ch. 122. It was held in that case that an acquisition and possession of articles for trade purposes with the intention of using them in trade would amount to a use of those articles. Vaughan Williams, L.J. said : "There was acquisition and possession of these articles for trade purposes with the intention of using them in trade; and in my judgment such an acquisition and such a possession of an article, whatever its nature may be, is a user." 21. Our attention has been drawn to R.33 (e) mentioned in R.33D and to the Form M mentioned in R.33 (e). Our attention has been drawn to R.33 (e) mentioned in R.33D and to the Form M mentioned in R.33 (e). R.33 (e) reads as follows: "All manufacturers, whether they hold valid licences issued under R.40 or not, shall submit half-yearly returns in Form M for the periods 1st April to 30th September and 1st October to 31st March of each financial year showing the total quantity in kilograms of all rubber (a) purchased or otherwise acquired during such periods (separately for indigenous and imported rubber) and (b) consumed or used in the process of manufacture during the same periods. " 22. The words "consumed or used in the process of manufacture" in R.33(e) and the heading of column 2 in Form M - quantity of rubber purchased/ acquired - and the heading of column 3 in Form M - quantity of rubber consumed by manufacturer (Indigenous and imported) - were emphasised by counsel for the appellant. We are unable to hold that those words in any way control or affect the meaning of the word "used" in sub-section (2) of S.12. The words "by whom such rubber is used" qualifies the word "manufacturer" and we take the view that the expression "from the manufacturer by whom such rubber is used" is only another way of saying "from the manufacturer of rubber goods by the use of indigenous rubber." 23. In the light of what is stated above, this appeal must fail and has to be dismissed. We do so; but in the circumstances of the case without any order as to costs.