1962 (2) TMI 2 - SC - Central Excise

Whether the power of exemption conferred upon the Union Government violates Articles 14 and 19(1)(f) & (g) of the Constitution on the ground that it is uncontrolled and unguided? Whether, assuming that the power is not unconstitutional, the exemption granted by the nofications, aforesaid, is in excess of the power granted by Rule 8? Held that - There is no substance in either of the two contentions. Rule 8 is as much a part of the Statute as Section 37(2) clause (xvii). It is always open to the State to tax certain classes of goods and not to tax others. The legislature is the best judge to decide as to the incidence of taxation, as also to the amount of tax to be levied in respect of different classes of goods. The respondent No. 5 has been exempted from payment of excise duty in respect of goods produced by the weavers. It has not been exempted from the payment of a personal tax, like income-tax. The exemption must, therefore, have reference to the same kind of tax which would otherwise have been leviable but for the exemption. From the notifications set out above, it is manifest that the Government has exempted cotton fabrics produced on powerlooms owned by a co-operative society, and in the present instance owned by the members of the Co-operative Society. It has not been contended before us that the conditions laid down for granting the exemption have not been fulfilled by the members of the Co-operative Society, the respondent No. 5. Hence, the exemption granted is within the terms of the notifications aforesaid, which have effect as if enacted as a part of the Statute. The vires of the Statute as already indicated, has not been questioned. Appeal dismissed.

Issues Involved:
1. Constitutionality of Rule 8 of the Central Excise Rules, 1944.
2. Validity of the exemption notifications issued under Rule 8.
3. Alleged violation of Articles 14 and 19(1)(f) & (g) of the Constitution.

Issue-wise Detailed Analysis:

1. Constitutionality of Rule 8 of the Central Excise Rules, 1944:
The petitioners challenged the constitutionality of Rule 8, arguing that it vests the Government with unguided power to exempt any goods from excise duty, thus being discriminatory. However, the court held that Rule 8 is part of the statute and is valid. It is within the legislative competence to decide the incidence and amount of taxation. The court emphasized that the State has the authority to tax certain classes of goods and exempt others, based on well-recognized principles aimed at promoting welfare and supporting small producers and cottage industries, as outlined in the Directive Principles of State Policy under Article 48 of the Constitution.

2. Validity of the Exemption Notifications Issued Under Rule 8:
The petitioners contended that the exemption notifications were invalid as they allegedly favored certain classes of persons rather than classes of goods. The court rejected this argument, clarifying that the exemption is related to the goods produced by specific persons (i.e., members of co-operative societies) and not a personal tax exemption. The notifications were found to be within the terms of Rule 8 and the Act, and thus valid. The court noted that the exemptions aimed to protect small producers from unreasonable competition from larger establishments, which is a valid classification.

3. Alleged Violation of Articles 14 and 19(1)(f) & (g) of the Constitution:
The petitioners argued that the exemptions granted to the Society violated their fundamental rights under Articles 14 and 19(1)(f) & (g). The court held that the exemptions did not violate these rights as they were based on a valid classification intended to support small-scale and cottage industries. The differentiation between large producers and small weavers was justified, given the latter's economic and operational disadvantages. The court emphasized that the State's policy to promote self-employment and small-scale industries through such exemptions was constitutionally valid and did not constitute discrimination.

Conclusion:
The petition was dismissed as the court found no merit in the arguments presented by the petitioners. The court upheld the constitutionality of Rule 8 and the validity of the exemption notifications issued under it. The exemptions were deemed to be in line with the State's policy to support small producers and did not infringe upon the petitioners' fundamental rights. The petitioners were ordered to bear the costs of the respondents.

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