Full Judgment Text
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PETITIONER:
CHATURBHAI M. PATEL
Vs.
RESPONDENT:
THE UNION OF INDIA AND OTHERS
DATE OF JUDGMENT:
02/12/1959
BENCH:
KAPUR, J.L.
BENCH:
KAPUR, J.L.
IMAM, SYED JAFFER
DAS, S.K.
SARKAR, A.K.
HIDAYATULLAH, M.
CITATION:
1960 AIR 424 1960 SCR (2) 362
CITATOR INFO :
R 1962 SC 922 (13)
RF 1967 SC1512 (63)
ACT:
Legislative Competence-Validity of enactment-Competence of
Central Legislature-Levy of excise duty on tobacco-Pith and
substance of legislation-Central Excises and Salt Act, 1944
(1 of 1944), ss. 6, 8, Rules-Government of India Act, 1935
(26 Geo. V. Ch. 2), s. 100, Sch. 7, List 1, Entry 45, List
11, Entries 27, 29.
HEADNOTE:
The petitioner who was doing business in tobacco was charged
with the contravention of Rules 151(C) and 226 of the
Central Excise Rules, 1944, framed under the Central Excises
and Salt Act, 1944. The Collector finding the charges to be
proved ordered confiscation of the goods found in the
petitioner’s warehouse and levied duty thereon in lieu of
confiscation and also imposed a penalty of RS. 2,000. The
petitioner challenged the validity of the orders on the
grounds, inter alia, that ss. 6 and 8 of the Act and the
Rules made thereunder were beyond the legislative competence
of the Central legislature in view of the fact that though
the provisions of the Act which provided for the levy of
excise duties might fall within item 45 of List 1 read with
S. 100 of the Government of India Act, 1935, the Act in
question would also be covered by items 27 and 29, of List
11, as the possession and trade in tobacco were also
regulated, and would, to that extent, be ultra vires.
363
Held, that the various provisions of the Central Excises and
Salt Act, 1944, and the Rules made thereunder were
essentially connected with the levying and collection of
excise duty and in its true nature and character the Act
remained one under item 45 of List 1 and that the incidental
trenching upon the provincial field of items 27 or 29 of
List 11 would not affect its constitutionality.
It is within the competence of the Central legislature to
provide for matters which may otherwise fall within the
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Competence of the Provincial Legislature if they are
necessarily incidental to effective legislation by the
Central legislature on a subject of legislation expressly
within its power.
State of Rajasthan v. G. Chawla, A.I.R. 1959 S.C. 544, and
Cooverjee Bharucha v. The Excise Commissioner of Ajmer,
[1954] S.C.R. 873, followed.
Attorney-General for Canada v. Attorney-General for British
Columbia, [1930] A.C. 111 and Attorney-General for Canada v.
Attorney-General for Quebec, [1947] A.C. 33, relied on.
JUDGMENT:
ORIGINAL JURISDICTION: Petition No. 9 of 1957.
Petition under Article 32 of the Constitution of India for
enforcement of fundamental rights.
B. D. Sharma, for the petitioner.
C. K. Daphtary, Solicitar-General of India R. H. Dhebar
and T. M. Sen, for the respondents.
1959. December 2. The Judgment of the Court was delivered
by
KAPUR J.-The petitioner was a wholesale and retail dealer in
tobacco at Banaras and also owned a private bonded warehouse
for tobacco and held licences for the same. In this
petition he challenges the legality of certain orders passed
by the Collector of Excise, Allahabad, which on appeal were
confirmed and revisions against those orders were dismissed
by the Central Government. The petitioner’s warehouse was
checked by Inspector Das who on finding some irregularity
sealed the warehouse on December 8, 1953, and subsequently
took possession of all the registers and stock cards. On
December22,1953, 11 1/2 bags of kandi i.e. " stems of
tobacco ". which were found in the petitioner’s warehouse,
were removed from the warehouse by the Inspector and stored
in some other
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place. Against those orders the petitioner made certain
representations to the Collector and some correspondence
passed. On June 15, 1954, the Collector, Central Excise,
issued a notice to the petitioner to show cause why a
penalty should not be imposed on him for the contravention
of Rules 151(C)and 226 of the Central Excise Rules, 1944,
and why the bags of kandi should not be confiscatted. The
petitioner showed cause, the Collector heard the petitioner
who had also filed written arguments. Finding the charges
against the petitioner proved, the Collector ordered
confiscation of the bags of kandi, imposed a fine of Rs. 150
and the duty leviable thereon in lieu of confiscation. He
further imposed a penalty of Rs. 2,000 under rr. 151(C) and
226 of the Central Excise Rules. The appeal taken to the
Central Board of Revenue was dismissed as the petitioner
refused to deposit the penalty of Rs. 2,000 and a revision
to the Central Board of Revenue was also dismissed for the
same reason. This is one of the orders which is challenged
by the petitioner.
On July 29, 1954, the Collector called upon the petitioner
to produce another surety as the previous surety Mohammad
Satar was not prepared to act as such. The petitioner
states that he thereupon furnished two bonds in Form B-4 and
B-5 for Rs. 7,000 and Rs. 10,000 respectively. As there was
a sum of Rs. 15, 263-8-0 due from him (the petitioner) as
Excise duty, 373 Mds. of tobaco were attached by the Excise
Department and sold by auction for Rs. 6,878-5-0 thus
leaving a balance of Rs. 8,385-3-0. As the Department made
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demands for the recovery of this balance of duty the
petitioner filed a civil suit in the court of the First
Additional Civil Judge, Banaras, who issued an ad-interim
injunction against the Department restraining it to recover
the amount. On January 25, 1956, the Superintendent of
Excise called upon the petitioner to deposit a cash security
of Rs. 10,000 otherwise his licence would be treated as
cancelled under r. 181(1) of the Central Excise Rules. The
petitioner demurred to this and as the outstanding amount of
excise duty was not paid the Deputy
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Collector ordered on February 13, 1956, that till the
deposit was made the petitioner’s licence shall remain
inoperative. The petitioner took an appeal against this
order to the Central Board of Revenue which was dissmissed.
The petitioner also filed a petition under Art. 226 in the
Punjab High Court which was also dismissed and a revision
against the order of the Deputy Collector making the licence
inoperative was dismissed by the Central Board of Revenue on
December 20, 1956. This is the second order which is
challenged.
The present petition was filed on January 21, 1957, in which
the petitioner prayed (1) that the provisions of ss. 6, 8, 9
and 10 of the Central Excises and Salt Act, 1944, Act 1 of
1944 (which for the sake of convenience will hereinafter be
termed the Act) and the rr. 140 to 148, 150, 171 to 181, 215
and 226 of the Central Excise Rules made under the Act be
declared ultra vires and to issue a writ of certiorari or
any other writ to quash the orders passed by the Collector
as confirmed on appeal and revision by the Central Board of
Revenue and the Central Government respectively. These
orders have already been referred to. (2) For a writ of
mandamus directing the respondents not to interfere with the
fundamental right of the petitioner to carry on trade in
tobacco or to store tobacco; (3) directing the respondents
to return the goods confiscated by them.
For the petitioner three points were raised: (1) that ss. 6
and 8 of the Act and the Rules made thereunder were beyond
the legislative competence of the Central legislature under
the Constitution Act of 1935; (2) even if they were within
the legislative competence they impose excessive and
unreasonable restraint on the fundamental right of the
petitioner to trade in tobacco and they were not in the
interest of the general public and therefore were not saved
by Art. 19(6); (3) orders passed were ultra vires the Act
and the Rules made thereunder.
Before we proceed to consider the arguments raised on
behalf of the petitioner, it is necessary to examine
47
366
the scheme of the Act. Its scope as given in the preamble
is:-
"to consolidate and amend the law relating to central-duties
of excise on goods manufactured or produced in British
India and to salt."
Section-2 of the Act gives the definitions. Chapter 11
provides for levy and collection of duty. The two main
sections, i.e., 6 and 8 fall under this Chapter. Section 6
provides for certain operations to be subject to licences
and when quoted it runs as follows:
S. 6 " The Central Government may, by notification in the
official Gazette, provide that, from such date as may be
specified in the notification, no person shall, except under
the authority and in accordance with the terms and
conditions of a licence granted under this Act engage in
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(a) the production or manufacture or any process of the
production or manufacture of any specified excisable goods
or of saltpetre or of any specified component parts or
ingredients of such goods or of specified containers of such
goods, or (b) the wholesale purchase or sale (whether on his
own account or as a broker or commission agent) or the
storage of any excisable goods specified in this behalf, in
part A of the Second Schedule."
Section 8 imposes restriction on possession of excisable
goods. It is as follows:
"From such date as may be specified in this behalf by the
Central Government by notification in the official Gazette,
no person shall, except as provided by rules made under this
Act, have in his possession any excisable goods specified in
this behalf in Part B of the Second Schedule in excess of
such quantity as may be prescribed for the purpose of this
section as the maximum amount of such goods or of any
variety of such goods which may be possessed at any one-time
by such a person."
Section 9 deals with offences and penalties. Section 10
gives to the court the power to order forfeiture. Section
11 makes provision for recovery of duties due to
367
Government. Chapter VI deals with adjudication of
confiscation and penalties specifying the powers of the
Collector of Central Excise and appeals against such orders
and revision to the Central Government. Chapter VII
contains supplementary provisions; s. 37 therein empowers
the Central Government to make rules and in the Schedule the
rates or duties leviable on each class of goods are given
and tobacco falls in item 9.
The question is, as to whether the Act falls within item No.
45 of List 1 read with s. 100 of the Government of India
Act. It was contended on behalf of the petitioner that even
though the imposition of excise duties may fall under item
No. 45 of List 1 of the Constitution Act it is a serious
encroachment on the territory covered by items 27 and 29 of
List 11 of that Act. The argument raised was that although
the Act imposes duty of excise within item 45 of List 1 and,
that was one of its objects, it also regulates trade or
commerce and therefore falls within the above-mentioned
items of List 11 and would, to that extent, be ultra vires.
It was contended that the pith and substance of a statute
may cover two fields and in support re -lied upon the
following observation of Mahajan, C.J., in Cooverjee B.
Bharucha v. The Excise Commissioner and The Chief
Commissioner Ajmer & Ors. (1):
" The pith and substance of the regulation is that it raises
excise revenue by imposing duties on liquor and intoxicating
drugs by different methods and it also regulates the import,
export, transport, manufacture, sale and possession of
intoxicating liquors."
But that case did not raise the question of legislative
competence ; the point for decision was whether the statute
there impugned, infringed the right to carry on trade in
liquor and also whether the auction money was a fee or a
tax. It was in that connection that the observation above
quoted was made.
It was also argued that if the purpose and object of the Act
is levying of duty of excise then it could not provide for
regulation of trade and reliance was
(1) [1954] S.C.R. 873, 877, 882.
368
placed on King v. Barger (1) where by a majority it was held
that the question in substance was not an exercise of the
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power of taxation and if it was, the statute would be
invalid as being in contravention of S. 55 ’of the
Constitution Act of Australia. The minority, however, was
of the opinion that the reserved powers of the States are
those which remain after full effect was given to the powers
granted to the Commonwealth.
In support of the argument that the Act did not only relate
to levying of excise duties but also regulated trade,
reference was made to rr. 174 to 182 of the Central Excise
Rules which relate to licensing. Particular reliance was
placed on r. 176(2) imposing a licence fee which in the case
of tobacco is as much as Rs’ 100. Reference was also made
to r. 181 which deals with revocation and suspension of
licences and empowers the Licensing Department to revoke or
suspend a licence under certain circumstances. The rule is
as follows:-
R. 181 " (1) Any licence granted under. these Rules may be
revoked or suspended by the licensing authority if the
holder, or any person in his employ, is found to have
committed a breach of the conditions thereof, or any of the
provisions of the Act or these Rules (or has been convicted
of an offence under s. 161, read with s. 109 or with s. 116
of the Indian Penal Code).
(2)............................
(3)..............................
Counsel then drew our attention to r. 182 which relates to
matches Only but which places limitation on the issue of
licences for the manufacture of matches.
The next set of Rules which were relied upon were rr. 140 to
148 in regard to warehousing and then our attention was
drawn to rr. 210 to 215 relating to penalties, confiscation
and appeals. In regard to the latter set of Rules it was
submitted that they laid down no procedure and did not make
any provision for issuing of notice to licensees or hearing
them or their witnesses before imposing penalties. From all
this
(1) (1908) 6 C.L.R. 41.
369
the conclusion which counsel wished us to draw was that the
Act read with Rules shows that the pith and substance is not
merely levying an excise duty but the possession of and
trade in tobacco was also regulated and therefore the
subject matter of the Act did not fall exclusively in the
legislative field covered by List 1 but it trenched upon the
provincial field of legislation and must be held to fall
under List 11 also.
In every case where the legislative competence of a
legislature in regard to a particular enactment is
challenged with reference to the entries in the various
lists it is necessary to examine the pith and substance of
the Act and if the matter comes substantially within an item
in the Central List it is not deemed to come within an entry
in the Provincial list even though "the classes of subjects
looked at singly overlap in many respects". It is within
the competence of the Central legislature to provide for
matters which may otherwise fall within the competence of
the Provincial legislature if they are necessarily
incidental to effective legislation by the Central
legislature on a subject of legislation expressly within its
power. Attorney-General for Canada v. Attorney-General,’
for British Columbia (1); Attorney-General for Canada v.
Attorney-General for Quebec (2). In Gallagher v. Lynn (3)
it was held that if the true nature and character of an Act
is to protect the health of the inhabitants then even though
it may incidentally affect trade, it is not enacted " in
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respect of " trade. Moreover it is a fundamental principle
of constitutional law that everything necessary to the
exercise, of a power is included in the grant of the power.
Edward Mills Co. Ltd. v. The State of Ajmer (4).
The item which falls for consideration in the present case
is No. 45 of List 1 which is as follows:
" Duties of excise on tobacco and other good,% manufactured
or produced in India except
(a) alcoholic liquors for human consumption;
(b) opium, Indian hemp and other narcotic drugs and
narcotics; non-narcotic drugs;
(1) [1930] A.C. 111, 118.
(2) [1947] A.C. 33, 43.
(3) [1937] A.C. 863.
(4) [1955] 1 S.C.R. 735, 749.
370
(c) medical and toilet preparations containing alcohol, or
any substance included in sub-paragraph (b) of this entry."
The other items which have to be considered are items
Nos. 27, 29 and 31 of List 11 which are as follows :-
Item 27. "Trade and commerce within the Province ; markets
and fairs; money lending and money lenders."
Item 29. "Production, supply and distribution of goods;
development of industries, subject to the provisions in List
1 with respect to the development of certain industries
under Federal control."
The question for decision is whether the Act in question is
a law with respect to the matters enumerated in item 45 of
List 1 or to the matters enumerated in item 27 and 29 of
List 11. In other words does it, in pith and substance,
relate to duties of excise on tobacco as contained in item
45 or it falls within the boundaries of items 27 and 29 of
the provincial list and if it falls within the former, is
its validity affected by its incidental trespass into the
territory reserved for provincial legislation. In the
interpretation of the scope of these items the widest
possible amplitude must be given to the words used and each
general word must be held to extend to ancillary or
subsidiary matters which can fairly be said to be
comprehended in it. United Provinces v.Mst. Atiqa Begum &
Ors. (1); Navinchandra Mafatlal v.The Commissioner of
Incometax (2); The State of Madras v. Gannon Dunkerley & Co.
(5). In Subramanyan Chettiar v. Muthuswamy Goundan (4) Sir
Maurice Gwyer, C.J., dealing with items in the Lists
observed:
" It must inevitably happen from time to time that
legislation, though purporting to deal with a subject in one
list, touches also on a subject in another list, and the
different provisions of the enactment may be so closely
intertwined that blind adherence to a strictly verbal
interpretation would result in a large number of statutes
being declared invalid because
(1) [1940] F.C.R. 111.
(2) [1955] 1 S.C.R. 829, 833, 836.
(3) [1959] S.C.R. 379, 391, 393.
(4) [1940] F.C.R. 188, 201.
371
the Legislature enacting them may appear to have legislated
in a forbidden sphere."
We agree as did the Privy Council in Prafulla Kumar
Mukherjee and Ors. v. Bank of Commerce Ltd. (1) and this
Court did in State of Rajasihan v. G. Chawla (2) that this
passage correctly describes the ground on which the rule is
founded and in our opinion it is a correct method of
interpreting the words of the various items in the Lists
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read with s. 100 of the Constitution Act. Hidayatullah, J.,
in State of Rajasthan v. G. Chawla(2) said at p. 546 :-
" It is equally well-settled that the power to legislate on
a topic of legislation carries with it the power to
legislate on an ancillary matter which can be said to be
reasonably included in the power given."
We now proceed to determine the true nature and character or
the pith and substance of the Act. It is a fiscal measure
to levy and realise duty on tobacco. The method of
realising duty must be left to the wisdom of the legislature
taking each individual trade and its peculiarities and
difficulties which arise in that matter. Various provisions
of the Act and the Rules show that the authorities are on
the track of the movement of tobacco from the time it is
grown to the time it is manufactured and sold in the market
and the various provisions of the Act and the Rules made
thereunder have been considered necessary for effectuating
the purpose of the Act. Rules made under the Act also are
directed for achieving the same objective. Chapter IV in
the Rules deals with unmanufactured products. Rule 15
therein requires the growers to make a declaration in
respect of all land upon which tobacco is to be grown. Rule
17 which requires curing to be done on the declared and
approved premises is also a step in the same direction.
Under Rule 18 a security can be demanded from a grower and
curer, Rules 19, 20 and 21 deal with liability to duty,
exemption from duty of certain kinds of tobacco for personal
use, books to be kept by growers and curers and the
(1) [1947] L.R. 74 I.A. 23, 41.
(2) A.I.R. 1959 S.C. 544.
372
manner of keeping the entries in the books.Rule 31 deals
with transport of tobacco from thegrower to the premises
of a curer and from the premises of a curer to a public or
a private warehouse. Chapter V of the rules deals with
manufactured tobacco and how that is to be kept in
warehouses. Similarly at every stage whether the tobacco
is in unmanufactured stage or manufactured stage
provisions have been made in the Rules to keep a watch over
the movement of tobacco. All these Rules show that the
object of the Act is to make collection of excise duties on
tobacco effective and the levying of fees is only a
collection of money for the upkeep of supervision over the
movement of tobacco for the purpose of excise duty. The
system of licensing of bonded warehouses was always
considered to be a part of effective control of evasion of
tax in England and Parliament must be deemed to have
contemplated the inclusion of this power. Besides, the
levying of licence fees is itself a form of taxation.
Cooverji B. Bharucha v. The Excise Commissioner of Ajmer (1)
and would in this case be within the legislative competence
of the Central legislature whose powers of taxation should
not be restricted so as to exclude the raising of revenue by
imposing licensing fees. In the State of Madras v. Gannon
Dunkerley & Co. (2) the following passage from the Broken
Hill South Ltd. v. Commmissioner of Taxation (N.S. W.) (3):
" In any investigation of the constitutional powers of these
great Dominion legislatures, it is not proper that a Court
should deny to such a legislature the right of solving
taxation problems unfettered by a priori legal categories
which often derive from the exercise of legislative power in
the same constitutional writ " was quoted with approval by
Venkatarama Aiyar, J., and if it is only a fee, its
constitutionality cannot be challenged because of item 69
relating to fees on matters in List 1. Counsel for the
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petitioner relied upon r. 181. This rule may have an
indirect effect of depriving an owner of a bonded warehouse
from the
(1) [1954] S.C.R. 873, 877, 822. (2) [1959] S.C.R. 379,
391, 393.
(3) (1936-37) 56 C.L.R. 337, 379.
373
privilege of keeping such a warehouse but that does not mean
that the object and purpose of the Act is not imposition,
collection and realisation of duty of excise. This rule is
a means of making the realisation of duty effective and
necessarily incidental to effectual legislation for
collection of duties. Attorney-General for Canada v.
Attorney-General for British Columbia (1). Looking at the
scheme of the Act, its object and purpose, its true nature
and character and the pith and substance the conclusion is
inevitable that the Act was within the legislative
competence of the Central legislature and although there may
be certain matters otherwise within the legislative
competence of the provincial legislature they are
necessarily incidental to effective legislation by the
Central legislature. The various provisions of the Act and
the Rules made thereunder were, in our opinion, essentially
connected with the levying & collection of excise duty and
in its true nature and character the Act remains one that
falls under item 45 of List 1 and the incidental trenching
upon the provincial field of items 27 or 29 would not affect
its constitutionality because the extent of invasion of the
provincial field may be a circumstance to determine the true
pith and substance but once that question is determined the
Act, in our opinion, would fall on the side of Central field
and not that of the provincial field. Prafulla Kumar
Mukherjee v. Bank of Commerce Ltd. (").
It was then contended that the restrictions imposed were
unreasonable and therefore not saved by Art. 19(6). The
basis of this argument was that there is no procedure laid
down in the provisions for levying penalties nor any
provision made for notice or the taking of evidence and
power of confiscation was given to persons who could not be
termed unbiased. If the tribunal is to act judicially it
must confirm to the principles of natural justice of audi
alteram partem and there is no dispute that in the instant
case there was no breach of this rule. Not only this, there
is a right of appeal and a revision is also provided and
both these remedies the petitioner availed himself of. The
(1) [1930] A.C. 111, 118.
48
(2) [1947] L.R. 74 I.A. 23, 41,
374
argument of unreasonable restriction because of this ground
must also fail.
Lastly, it was contended that the two main orders passed
were ultra vires because in the first case the petitioner
was asked to deposit the penalty before his appeal or
revision could be heard and reliance was placed on
Himmatlal Harilal Mehta v. The State of Madhya Pradesh
(1). But it is difficult to see how that case applies.
There was no illegal imposition on the petitioner nor is it
shown that anything was threatened to be realised without
the authority of law. In regard to the second order
Mohammad Satar had ceased to be the petitioner’s surety and
therefore in terms of the proviso to r. 140 of the Excise
Rules which was as follows :-
" Provided that in the event of death, insolvency or
inefficiency of the surety or where the amount of the bond
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is inadequate, the collector may in his discretion demand a
fresh bond; and may, if the security furnished for a bond is
not adequate, demand additional security."
The Collector was acting within his powers if he asked for
the deposit of cash security of Rs. 10,000. This is not a
matter with which we can, in the circumstances of this
case,’ interfere. It was also urged that the orders passed
were mala fide but no such allegation was made in the
petition nor is it shown as to why the orders are mala fide.
In our opinion this petition is without substance and is
therefore dismissed with costs.
Petition dismissed.
(1) [1954] S.C.R. 1122.
375