Full Judgment Text
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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