2007 (4) TMI 684 - SC - Central Excise

Whether The Jammu and Kashmir Distillery Rules 1946 does not have the statutory backing? Whether Rule is in excess of the rule making power in Section 25 of the Act and suffers from excessive delegation? Whether Rule seeks to get breweries to pay for the salaries and costs of the government officials involved in revenue collection and it is manifestly unjust and arbitrary?

Issues Involved:
1. Validity of Rule 17 of the Jammu and Kashmir Distillery Rules, 1946.
2. Whether Rule 17 is ultra vires the Jammu and Kashmir Excise Act, 1901.
3. Whether Rule 17 imposes a tax or a fee.
4. Whether Rule 17 is manifestly unjust and arbitrary.
5. Whether the decision should be applied prospectively or retrospectively.

Detailed Analysis:

1. Validity of Rule 17 of the Jammu and Kashmir Distillery Rules, 1946
The appellant challenged Rule 17 of the Jammu and Kashmir Distillery Rules, 1946, which required the licensee to pay the salaries of the government excise establishment posted at the distillery. The appellant argued that this rule does not have statutory backing and is beyond the rule-making power conferred by Section 25 of the Jammu and Kashmir Excise Act, 1901.

2. Whether Rule 17 is Ultra Vires the Jammu and Kashmir Excise Act, 1901
The appellant contended that Rule 17 suffers from excessive delegation and is not authorized by the Act. Section 25 of the Act empowers the government to frame rules for the inspection and supervision of distilleries and to carry out the provisions of the Act. However, Rule 17 imposes a financial burden on the licensees without any clear statutory authorization. The court noted that the rule must be within the legislative policy and guidelines provided by the Act, and Rule 17 lacks such statutory backing.

3. Whether Rule 17 Imposes a Tax or a Fee
The court examined whether the payment demanded under Rule 17 constitutes a tax or a fee. It was argued that the payment is neither a fee nor a tax but a charge for parting with exclusive rights and privileges. The court referred to various precedents, including the case of Indian Mica Micanite Industries vs. The State of Bihar, where it was held that the imposition of charges for supervising revenue collection is a tax and not a fee. The court concluded that Rule 17 imposes a tax, which must be authorized by legislation.

4. Whether Rule 17 is Manifestly Unjust and Arbitrary
The appellant argued that Rule 17 is manifestly unjust and arbitrary, violating Article 14 of the Constitution. The court agreed, stating that there is no quid pro quo between the fee charged and the services rendered. The government failed to show any co-relationship between the expenses incurred and the amount raised under Rule 17. The court emphasized that the imposition of charges for services rendered to the government itself, rather than to the taxpayers, is impermissible and arbitrary.

5. Whether the Decision Should Be Applied Prospectively or Retrospectively
The respondents urged that if Rule 17 is struck down, the decision should be prospective, allowing the state to retain the fees paid in the interim. However, the court referred to an interim order dated 11.9.2000, which provided for a refund with interest if the appeals were allowed. Additionally, Section 24-B of the Act mandates the refund of any amount paid that was not payable under the Act, along with interest. Therefore, the court directed the respondents to refund the payments made under Rule 17 with interest at the statutory rate.

Conclusion
The court held that:
- Rule 17 has no statutory backing and is in excess of the Act.
- It is manifestly unjust and arbitrary.
- Rule 17 imposes a tax, not a fee.
- Imposition of such a tax for services rendered to the government itself is impermissible.
- The respondents are directed to refund the payments made under Rule 17 with interest at the statutory rate.

The appeals were allowed, and the orders of the learned Single Judge and the Division Bench were set aside. Each party was directed to bear its own costs.

← Previous Next →