1962 (1) TMI 56 - SC - Central Excise

Whether the new Rules purporting to be framed either under the cochin Act or under the Travancore Act in August 1960? Held that - It appears that these new Rules have been abrogated as from January 1958. So it Was urged on behalf of the State that this Court should not grant a mere declaration as to the invalidity of the Rules when they are no longer in existence. This argument in our opinion has no force because we must look to the situation as it was when the petitions were presented. The Cochin petitions were presented in 1956 and the Travancore petitions were presented in 1955 and at that time the Rules were in force and they continued in force till December 1957. Therefore the petitioners would be entitled to a declaration that the Rules were invalid because at any rate that would give them relief so far as the period after their petitions is concerned while the Rules remained in force. We therefore allow the appeals and set aside the order of the High Court. The petitions are allowed and it is hereby declared that the new Rules purporting to be framed either under the cochin Act or under the Travancore Act in August 1960 and thereafter in January 1951 were invalid ab initio and have no force and effect. The appellants will get their costs from the State-one set of hearing costs.

Issues involved:

1. Whether the Cochin Act and the Travancore Act were repealed by the Finance Act, 1950.
2. Validity of the new Rules framed under the Cochin Act and Travancore Act after April 1, 1950.
3. Whether the new Rules constituted a tax sustainable under the Constitution.
4. Whether the new Rules violated the appellants' fundamental rights under Articles 14 and 19(1)(g) of the Constitution.
5. Whether the levy of licence fees was an excise duty or a tax on trade.

Issue-wise detailed analysis:

1. Repeal by the Finance Act, 1950:

The primary issue was whether the Cochin Act and the Travancore Act were repealed by the Finance Act, 1950. The appellants contended that the Cochin Act and the Travancore Act stood repealed by Section 13(2) of the Finance Act, 1950, upon the introduction of the Central Excises and Salt Act, 1944, in the Part State of Travancore-Cochin from April 1, 1950. The Court examined the provisions of the Finance Act and concluded that the Cochin Act and the Travancore Act were laws corresponding to the Central Act and thus stood repealed from April 1, 1950. This conclusion was based on the substantial similarity in the control and regulation of tobacco under both the Cochin and Travancore Acts and the Central Act.

2. Validity of the new Rules:

The new Rules framed under the Cochin Act and the Travancore Act in August 1950 and January 1951 were challenged as being ab initio void since the Acts under which they were purportedly issued stood repealed from April 1, 1950. The Court held that since the Cochin Act and the Travancore Act were repealed by Section 13(2) of the Finance Act, 1950, there was no law in operation to justify the framing of the new Rules. Consequently, the new Rules were declared invalid ab initio and without force and effect.

3. Constitutionality of the tax:

The State contended that the graded licence fee introduced after April 1, 1950, was a tax sustainable under item 60 or 62 of List II of the Seventh Schedule to the Constitution. However, the Court found that without the support of a valid law (since the Cochin Act and the Travancore Act were repealed), the new Rules could not impose a tax, as this would clearly offend Article 265 of the Constitution, which mandates that no tax shall be levied or collected except by authority of law.

4. Fundamental rights under Articles 14 and 19(1)(g):

The appellants argued that the levy of licence fees under the new Rules infringed their fundamental rights under Articles 14 and 19(1)(g) of the Constitution. The High Court had dismissed these contentions, but the Supreme Court did not find it necessary to delve into these arguments in detail, as the new Rules were already declared invalid due to the repeal of the Cochin Act and the Travancore Act.

5. Levy of licence fees as excise duty or tax on trade:

The Court examined whether the licence fees constituted an excise duty or a tax on trade. It was concluded that the Cochin Act and the Travancore Act did not directly levy any duty on the production or manufacture of tobacco. Instead, they imposed restrictions and required licences for various stages of tobacco trade. The Court noted that the essence of an excise duty is a tax on goods produced or manufactured in the taxing country, typically paid by the producer or manufacturer. The system of auctioning the right to possess and sell tobacco in the former States of Travancore and Cochin was seen as a method of realizing duty through licences rather than a direct excise duty. Thus, the levy of licence fees under the new Rules was not considered an excise duty.

Conclusion:

The Supreme Court allowed the appeals, set aside the High Court's order, and declared that the new Rules framed under the Cochin Act and the Travancore Act were invalid ab initio. The appellants were entitled to relief for the period after their petitions were filed while the Rules remained in force. The State was directed to forbear from levying and collecting the licence fees under the invalid Rules.

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