TMI Blog1991 (7) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... er 25, 1987 (No. 254/87), December 9, 1987 (Nos. 260 to 262/87), January 19, 1988 (Nos. 4-5/88) and March 20, 1990 (Notifications No. 47/90 and 48/90) issued under the Central Excises and Salt Act, 1944 (for short the Central Excise Act) being ultra vires Article 274 of the Constitution. The challenge to these notifications was, however, given up since the petitioners said they were in fact challenging the constitutional validity of the Additional Duties Act itself. Petitioners say that the additional duty of excise has been levied in lieu of sales tax which is State subject falling in Entry 54 of List II of the Seventh Schedule to the Constitution. They say the Union of India could not interfere with a subject falling under the State List (List II) and since the Additional Duties Act was enacted by Parliament in lieu of sales tax, the said duty of excise was ultra vires the provisions of the Constitution. They then say that since under Article 265 no tax could be levied or collected except by authority of law and since that authority was lacking, the Additional Duties Act is invalid and further that the notifications issued thereunder or under the Central Excise Act are again ultr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere, however, not pressed and the arguments ended up by saying that the challenge was only to the constitutional validity of the Act itself. It may be noticed here itself that under Article 255 of the Constitution, on Act of Parliament and no provision in any such Act shall be invalid by reason only that some recommendation as required by the Constitution to be given by the President was not so given, if assent to that Act was given by the President. 4. Part XI of the Constitution deals with relations between the Union and the States. In this, Chapter I deals with legislative relations one of these being the distribution of legislative powers. Various Articles in this Chapter tell us the respective powers of the Parliament and the State Legislatures to make laws. There are three Lists - Union List (List I), State List (List II) and Concurrent List (List III) in the Seventh Schedule of the Constitution which contain matters respecting which laws to be made by Parliament or the Legislature of any State. Parliament has exclusive power to make any law with respect to any matter not enumerated in Concurrent List or State List (Article 248). Such power includes the power of making any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Union List shall be levied and collected by the Government of India, but, if Parliament by law so provides, there shall be paid out of the Consolidated Fund of India to the States to which the law imposing the duty extends sums equivalent to the whole or any part of the net proceeds of that duty, and those sums shall be distributed among those States in accordance with such principles of distribution as may be formulated by such law. Clause (1) of Article 274, insofar as it is relevant, is as under: "274. (1) No Bill or amendment which imposes or varies any tax or duty in which States are interested,............, shall be introduced or moved in either House of Parliament except on the recommendation of the President." 9. Clause (2) of this Article defines the expression "tax or duty in which States are interested" and it means - (a) a tax or duty the whole or part of the net proceeds whereof are assigned to any States; or (b) a tax or duty be reference to the net proceeds whereof sums are for the time being payable out of the Consolidated Fund of India to any State. 10. Article 275 provides for grants-in-aid from the Union to certain States as may be provided by the Parl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tral Excises and Salt Act, 1944, and the rules made thereunder, including those relating to refunds and exemptions from duty, shall, so far as may be, apply in relation to the levy and collection of the additional duties as they apply in relation to the levy and collection of the duties of excise on the goods specified in sub-section (1)." "4. Distribution of additional duties among States. - During each financial year, there shall be paid out of the Consolidated Fund of India to the States in accordance with the provisions of the Second Schedule such sums, representing a part of the net proceeds of the additional duties levied and collected during that financial year, as are specified in that Schedule." "5. Expenditure to be charged on the Consolidated Fund of India. - Any expenditure under the provisions of this Act shall be expenditure charged on the Consolidated Fund of India." 12. Section 6 of the Act grants power to the Central Government to make rules. Section 7, which deals with the declaration of certain goods to be of special importance in inter-State trade or commerce, has since been repealed by the Central Sales Tax (Second Amendment) Act, 1958, w.e.f. 1-10-1958 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eference in this connection was also made to the Wild Life (Protection) Act, 1972. Legislation in respect of this Act was relatable to Entry 20 of the State List in the Seventh Schedule (now since omitted by the Constitution 42nd Amendment Act, 1976, and brought in the Concurrent List Entry 17B) relating to protection of wild animals and birds respecting which Parliament had no power to make a law in that regard applicable to the State. The Legislatures of the various States passed a resolution empowering the Parliament to make law respecting Entry 20 which resulted in passing of the Wild Life (Protection) Act, 1972. 14. We find ourselves unable to agree with the submissions of the petitioners. Once having found that additional duties of excise under the Act fall within the four corners of Article 272 of the Constitution and the meaning of the enactment being plain and clear we find no room for applying the principles of interpretation or construction to conclude that in "pith and substance" the Act imposes a sales tax and is a colourable piece of legislation. Petitioners cannot be heard to say that though the additional duty is a duty of excise, though by different name, it is y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Commission appointed under Article 280 of the Constitution. 16. Distribution of additional duties of excise among the States is as per the Second Schedule of the Act (Section 4). The Schedule provides that in case if during a financial year there is levied and collected in any State a tax on the sale or purchase of the commodities to which the Act applies, no sums shall be payable to that State out of the additional duties of excise in respect of that financial year, unless the Central Government by special order otherwise directs. Such a contingency has never arisen though. But then this provision is in accordance with Article 272 of the Constitution under which the sums are to be distributed among the States in accordance with such principles of distribution as may be formulated by law. This principle that a State shall not be entitled to any share in the additional duties of excise if it levies sales tax is certainly in accordance with the principles formulated by the Parliament and is valid under Article 272 of the Constitution. 17. The question is if the levy in question is forbidden by the Constitution either expressly or by necessary implication. The answer is obvious ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invoked. But that is not the case here. There is no dispute that the Act falls within the four corners of the power conferred by the Parliament and it is relatable to Entry 84 and in any case Entry 97 of Union List in Seventh Schedule of the Constitution. 20. In K.C. Gajapathi Narayana Deo and Others v. The State of Orissa - 1954 Supreme Court Reports page 1 = A.I.R. 1953 S.C. 375, the court examined the precise scope and meaning of the doctrine of colourable legislation and referred to its earlier decision in State of Bihar v. Maharajah Kameshwar Singh and Others -1952 S.C.R. 889 = A.I.R. 1952 (S.C.) 3252, and also to Attorney - General for Ontario v. Reciprocal Insurers and Others - 1924 A.C. 328, Attorney General of Alberta v. Attorney-General for Canada - 1939A.C. 117, Union Colliery Co. of .Columbia Ltd. v. Bryden -1899 A.C. 580, Cunningham v. Torneyhomma - 1903 A.C. 151, Re Insurance Act of Canada -1932 A.C. 41, Moran v. Deputy Commissioner for Taxation, New South Wales -1940 A.C. 838. The court said that the doctrine of colourable legislation did not involve any question of bona fide or mala fide on the part of the legislature and that the whole doctrine revived itself in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in as plenary a manner as if the Commonwealth were a unitary State, subject only to the express limitation found in the Constitution itself and to the necessary freedom of the States to exercise without interference the powers reserved to them." 22. Following observations in the dissenting Judgment may also be noted: "If a legislative power is once granted, neither its abuse, nor its consequences, nor any purpose, motive, or object of the legislature can render its exercise illegal; any remedy for abuse, so long as the limits of the power are not exceeded, must rest with the electors and not with the court." "The objections raised to the validity of the Excise Tariff, 1906 (No. 16) on the ground alleged that it in substance regulates conditions of remuneration of labour, are in reality objections based on abuse of power, consequences, and the purpose, motive, and object of Parliament, and are therefore beyond the competency of the Court to entertain." "The Excise Tariff, 1906 (No. 16) should be construed according to the natural meaning of the language used by the legislature, and should not be turned by an argument of equivalence of effect into an enactment of a totall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e put was disapproved. He said that regulation in the present case, if any there be, was accomplished not by the tax but by the method by which its proceeds were expended, and would equally be accomplished by any like use of public funds, regardless of their source. He said the power to tax and spend was not without constitution constraints and one restriction was that the purpose must be truly national and another was that it might not be used to coerce action left to State control, and yet another was the conscience and patriotism of Congress and the Executive. Quoting Justice Holmes, he said, it must be remembered that legislators are the ultimate guardians of the liberties and welfare of the people in quite as great a degree as the courts. Stone J. further observed as under : "A tortured construction of the Constitution is not to be justified by recourse to extreme examples of reckless congressional spending which might occur if courts could not prevent-expenditures which, even if they could be thought to effect any national purpose, would be possible only by action of a legislature lost to all sense of public responsibility. Such oppositions are addressed to the mind accusto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all subjects of legislation between the Parliament of the Dominion and the several legislatures of the provinces. In assigning legislative power to the one or the other of these Parliaments, it was not made a statutory condition that the exercise of such power shall be, in the opinion of a Court of Law, discreet. Insofar as they possess legislative jurisdiction, the discretion committed to the Parliaments, whether of the Dominion or of the provinces, was unfettered. It was the proper function of a Court of Law to determine what were the limits of the jurisdiction committed to them; but, when that point had been settled, Courts of Law had no right whatever to inquire whether their jurisdiction had been exercised wisely or not. The Court observed that Section 91, sub-section (25) extended the exclusive legislative authority of the Parliament of Canada to "naturalization and aliens" and that the subject to "naturalization" seemed prima facie to include the power of enacting what shall be the consequences of naturalization, or, in other words, what shall be the rights and privileges pertaining to residents in Canada after they had been naturalized. The Court held as under : "Their Lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f reasonable compensation for the use of the City's property. This proposition, however, ingenious or plausible, is unsound both upon principle and authority." 29. In W.C. Hammer v. Roland H, Dagenhart - 247 U.S. 251, the principal question was whether Congress had power to prohibit the shipment in inter-state or foreign commerce or any product of cotton mill situated in the United States, in which, within 30 days before the removal of the product, children under 14 years of age had been employed, or children between 14 and 16 had been employed more than eight hours in a day, or more than six days in any week, or between 7 P.M. and 6 A.M., it was contended by the Government that the provision was valid as the Congress had the power essential to the passage of the Act which was found in the commerce clause of the Constitution which authorised Congress to regulate commerce with foreign nations and among the States. The Supreme Court of United States by majority held that the Act in its effect did not regulate transportation among the States, but aimed to standarise the ages at which children might be employed in mining and manufacturing within the States and that the grant of pow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in inter-state or foreign commerce. Congress is given power to regulate such commerce in unqualified terms. It would not be argued today that the power to regulate does not include the power to prohibit. Regulation means the prohibition of something, and when inter-state commerce is the matter to be regulated, I cannot doubt that the regulations may prohibit any part of such commerce that Congress sees fit to forbid." "The question, then, is narrowed to whether the exercise of its otherwise constitutional power by Congress can be pronounced unconstitutional because of its possible reaction upon the conduct of the states in a matter upon which I have admitted that they are free from direct control. I should have thought that matter had been disposed of so fully as to leave no room for doubt. I should have thought that the most conspicuous decisions of this court had made it clear that the power to regulate commerce and other constitutional powers could not be cut down or qualified by the fact that it might interfere with the carrying out of the domestic policy of any state." 30. The exposition of law in all these cases is no different than what we have said. Though we have seen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "The object of the Bill is to impose additional duties of excise in replacement of the sales taxes levied by the Union and States, on sugar, tobacco and mill-made textiles and to distribute the net proceeds of these taxes, except the proceeds attributable to Union territories, to the States. The distribution of the proceeds of the additional duties broadly follows the pattern recommended by the Second Finance Commission. Provision has been made that the States which levy a tax on the sale or purchase of these commodities after the 1st April, 1958 do not participate in the distribution of the net proceeds. Provision is also being made in the Bill for Including these three goods in the category of goods declared to be of special importance in inter-state trade or commerce so that, following the imposition of uniform duties of excise on them, the rates of sales tax if levied by any State are subject from 1st April, 1958 to the restrictions in Section 15 of the Central Sales Tax Act, 1956." 33. The report of the Ninth Finance Commission holes that additional duties of excise in lieu of sales tax were introduced in 1957 in pursuance to a decision of the National Development Council me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8% which it was to reach within a stipulated period though the Central Government expanded the coverage of the goods under the Act by resorting to definitional changes; (2) Many commodities were also subject to "Nil" rate of duty. These commodities were, therefore, free not merely from the levy of additional duties of excise but also escaped the liability to sales tax which the States were prevented from imposing for the fear of forfeiting their share in the proceeds from the additional duties of excise; (3) Low yield from the additional duties of excise vis-a-vis many-fold increase in the revenue from the sales tax during the period the Act has been in operation; (4) States also apprehend that perhaps merger would remove completely the identity of additional duties of excise as a separate levy and would prejudice the interests of the States. 34. No Finance Commission has ever said in any of their reports that any States ever objected to the Act on the ground that it was unconstitutional being a colourable legislation. Rightly so as various Finance Commissions were concerned merely with the principles on which the additional duties of excise were to be distributed among the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T.C. 69 (D.B.), where the constitutional validity of the Act has been specifically upheld. In that case it was held that merely because an excise duty was intended to replace a sale or purchase tax did not of itself by any logic convert the former into the latter. The Court observed that the Act did not impose a tax on the transaction of sale or purchase at all, but imposed only a duty of excise, and that duty of excise and sale or purchase tax were essentially different. The Court also observed that objects and reasons of a statute could not control the plain meaning of statutory language, and that there was no ambiguity in the statutory language of the Act and that the duty of excise sought to be imposed by that Act could be no stretch be considered, because of the statutory objects and reasons, to be a tax either on sale or purchase of goods. In Empire Industries Ltd. and others v. Union of India and others - A.I.R. 1986 S.C.662 = 1985 (20) E.L.T. 179 (S.C), the validity of the Central Excises and Salt and Additional Duties of Excise (Amendment) Act, 1980, was upheld. By this amending Act duties were sought to be imposed under the Act on the fabrics which were held to be not cov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (S.C.). Two questions were raised for consideration. One was whether the process of bleaching, dyeing, printing, mercerising, etc. amounted to "manufacture" within the meaning of Central Excises and Salt Act, 1944, as it stood prior to its amendment by the amending Act of 1980, so as to attract levy of excise duty on the processed fabrics; and (2) whether, even if the processed fabrics were assessable to excise duty, what was the value on the basis of which the processed fabrics were liable to be assessed in the hand of the processors who carried on these processes on job work basis. The Court observed that the first question was concluded by the decision in Empire Industries case, but the Court expressed its disagreement with the second question which was also touched upon in the Empire Industries case. The Bench, therefore, referred the matter to a larger Bench of five Judges and said the question whether the processing of grey fabric by a processor on job work basis constituted "manufacture" could also be considered by the larger Bench. The five Judges Bench decision in Ujagar Prints case, as noted above, is reported in A.I.R. 1989 S.C. 516 = 1989 (39) E.L.T. 493 (S.C.) which up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... initial stages. It is not that the question if the Act was ultra vires, would not have occurred to the legal luminaries who had been appearing before the Supreme Court in these cases involving the Act. Or perhaps it might be that the question was left to be considered by the Courts in yet another round. There is no limit to the legal ingenuity as it would appear. 40. On filing of these petitions petitioners were able to get interim orders from this court under which the petitioners were to pay half of the amount of duty chargeable as per impugned notifications and for the balance half they were to give bank guarantees to the satisfaction of the Collector of Central Excise concerned. It was stated before us that bank guarantees were being furnished. These bank guarantees were to be kept alive till disposal of the writ petitions. The Supreme Court has held that even if there is a prima facie case there should be no stay in matters involving collection of revenue. In Empire Industries case the Supreme Court had to say as under : "If we may venture to suggest, in fiscal matters specially in cases involving indirect taxes where normally taxes have been realised from the consumers bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o vary or alter such interim orders. We venture to suggest, however, that a consensus should be developed in the matter of interim orders." Lastly, Mr. Chandrasekharan said varying names had been given to Union Duty of Excise under various enactments and they did not cease to be so on account of different nomenclature and different principles under which the proceeds thereof were assigned to the States by Parliament. In particular he referred to the Additional Duties of Excise (Goods of Special Importance), Act, 1957, the Cottage and Other Handloom Industries (Additional Excise Duties on Cloth) Act, 1953, the Mineral Products (Additional Rules of Excise and Customs) Act, 1958, the Cotton Fabrics (Additional Excise Duty) Act, 1957, and the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978. He also said that in fact the additional excise duties like auxiliary excise duty and spedal excise duty were being levied by Parliament under different Finance Acts and not by way of amendments to the Central Excises and Salt Act, 1944. 42. We find that for the petitioners perhaps litigation is business. After getting interim orders they find they are nothing to lose excep ..... X X X X Extracts X X X X X X X X Extracts X X X X
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