1959 (8) TMI 52 - HC - Central Excise

Summary

Issues Involved:
1. Legality of the partnership due to lack of license under the Central Excises and Salt Act, 1944.
2. Whether the plaintiff's participation in the tobacco business is illegal.
3. Interpretation of Rule 178 of the Central Excise Rules, 1944.
4. Applicability of Section 23 of the Indian Contract Act.

Detailed Analysis:

Issue 1: Legality of the Partnership Due to Lack of License

The plaintiff-firm sought a settlement of accounts or dissolution of a partnership formed on 21-4-1951 with the first defendant firm. The first defendant firm had a license for dealing in tobacco, but the plaintiff did not. The lower court dismissed the suit, finding the partnership illegal due to the plaintiff not having a license as required under the Central Excises and Salt Act, 1944.

Issue 2: Whether the Plaintiff's Participation in the Tobacco Business is Illegal

The court examined whether the plaintiff's participation in the tobacco business without a license rendered the partnership illegal and unenforceable. The defendants argued that the partnership was illegal under Section 23 of the Indian Contract Act because it was "forbidden by law," citing Section 6 and penalties under Section 9 of the Central Excises and Salt Act, 1944.

Issue 3: Interpretation of Rule 178 of the Central Excise Rules, 1944

The court analyzed Rule 178 extensively. Rule 178(2) prohibits the transfer or sale of a license. However, Rule 178(4) allows a licensee to enter into a partnership and requires the licensee to report the partnership to the licensing authority within thirty days and get the license amended. The court emphasized that the obligation to report lies with the original licensee, not the incoming partner.

Issue 4: Applicability of Section 23 of the Indian Contract Act

The court found that the partnership did not violate Section 23 of the Indian Contract Act, as the plaintiff was not required to obtain a fresh license. The partnership was not considered a transfer of the license, and the plaintiff's participation did not attract penalties under Section 9.

Conclusion:

The court concluded that the partnership was not illegal and the plaintiff's participation in the business did not require a fresh license. The suit was remanded to the lower court for trial on other issues. The costs were to abide by the result of the fresh trial, and the court-fee paid on the memorandum of appeal was to be refunded to the appellant.

Separate Judgment:

UMAMAHESWARAM J. agreed with the conclusion and emphasized that the rules under the Central Excise Act are different from those under the Abkari Act. He reiterated that the partnership is protected under Rule 178(4) and that the Central Excise Act is a fiscal statute aimed at tax collection, not public policy or illegality.

Summary:

The court held that the partnership was not illegal despite the plaintiff not having a separate license under the Central Excises and Salt Act, 1944. The obligation to report the partnership lay with the original licensee, and the partnership did not constitute a transfer of the license. The case was remanded to the lower court for further proceedings on other issues.