ivil Appeal No 1202 of 1974
From the Judgment and Order dated 1971972 of the Madras High Court in Writ Petition No 1064 of 1967
Anil Dev Singh and CVS Rao for the Appellant
Ambrish Kumar and ATM Sampath for the Respondent
The Judgment of the Court was delivered by KN SAIKIA J
This appeal by Special Leave is from the Judgment and Order of the High Court of Judicature at Ma dras dated 19th July 1972 in Writ Petition No 1864 of 1967 allowing the petition and quashing the demand made by the appellant under Rule 10 A of the Central Excise Rules hereinafter referred to as the Rules  payable by the respondent under the Central Excise and Salt Act 1944 hereinafter referred to as the Act 
Ms Ramakrishnan Kulwant Rai the respondent firm owned the Steel Rolling Mill located at No 4 B 4 C North Railway 447 Terminus Road Royapuram Madras 13
The said Mill was leased out to a partnership firm known as Ms Steel Indus tries
After termination of the lease the respondent firm took back possession of the said Mill on 1 8 1962 and in formed the Central Excise Authorities about this by their letter dated 16 11 1962 and resumed manufacture of Steel from scraps and was advised to take out a licence for which it applied on 30 11 1962
Though the respondent firm had ultimately sold away the Rolling Mill on 8 4 1963 the Superintendent of Central Excise by his letter dated 13 10 1965 demanded a sum of Rs 310 182013 as excise duty
On information furnished by the firm about its manu facture of only 775455 metric tonnes of Steel the Deputy Superintendent of Central Excise reduced the demand to a sum of Rs 64 1938p only and the demand was reiterated by notice dated 13 4 1967 pursuant whereto the respondent firm showed cause on 15th May 1967 but the Assistant Collector of Customs by his order dated 14th June 1967 confirmed the demand
The respondent firm challenged the demand by moving writ petition No 1864 of 1967 in the High Court of Judicature at Madras contending inter alia that it was manufacturing steel products prior to 13 6 1962 only suspending manufac ture during the period of lease and resuming thereafter and as such was entitled to exemption from payment of duty that the demand for payment of duty was time barred that rules 10  10A invoked in support of the demand were ultra vires inasmuch as there was no provision in the Act to enable the Government to frame rules for the recovery of duty short levied
The High Court by the impugned order following its earlier judgment in writ petition Nos 265  266 of 1967 which relied upon its earlier decision in writ petition No 1055 of 1968 upheld the contention of the respondent firm holding that Rule 10 A did not apply to cases where there had been no prior levy of excise duty in respect of the articles manufactured during the relevant period and that the duty was sought to be recovered only by the issue of demand under Rule 10 A of the Rules
The High Court having rejected leave to appeal the
appellant obtained special leave on 23 7 1974
Mr Anil Dev Singh learned counsel for the appellant submits that it is necessary to decide the substantial question of law of general importance namely whether Rule 10 A of the Rules as it stood at the relevant time was valid or not as conflicting decisions have been creating difficulties for the department in collecting short levies or escaped excise duties
Counsel refers us to  AIR 1972 SC 448 2563 and The learned counsel states that Rule 10 A was in force upto 6 8 1977 whereafter it was amended with effect from that date and the amended rule continued till 16 11 1980 where after it was enacted as Section 11 A of the Act by the Amendment Act 25 of 1978 and that Section came into force with effect from 17 11 1980
Mr Ambrish Kumar the learned counsel for the respond ent submits that the learned standing counsel for the Cen tral Government having conceded that the rationale of the decision in Haji JA Kareem Sait vs Dy
Commercial Tax Officer Mettupalayam 18 STC 370 which held that sub Rule 7 of Rule 5 of the Central Sales Tax Madras Rules 1957 providing for limitation and determination of escaped turn over by best judgment was in excess of the rule making power and the sub Rule as a whole was therefore invalid would apply with equal force to Rule 10 A as well and that in view of the same decision he would not be able to sustain the demands under Rule 10 A and yet he could sustain the demand under Rule 92 of the Rules it is no longer open to the appellant to challenge the validity of Rule 10 A in this appeal and that too after so many years
Counsel for the appellant answers that the learned standing counsel thereby cannot be said to have conceded that Rule 10 A was invalid
He had only said that in view of the decision in 18 STC 370 he would not be able to sustain the demands under Rule 10 A and that even if it could be taken as a concession the appellant could not be estopped from showing that the rule is valid so that Central Excise revenue is not allowed to escape
We agree with the learned counsel for the appellant and proceed to examine the validi ty of Rule 10 A as it stood at the relevant time
Rule 10 A of the Rules read as under 10 A Residuary powers for recovery of sums due to Government Where these Rules do not make any specific provision for the collection of any duty or any deficiency in duty if the duty has for any reason been short levied or of any other sum of any kind payable to the Central Government under the Act or these Rules such duty deficiency in duty or sum shall on a written demand made by the proper officer be paid to such person and at such time and place as the officer may specify
 Rule 10 A provided the machinery for collection of tax from the assessee after the goods had left the factory premises
This rule con 449 templated that the duty or deficiency in duty was payable on a written demand made by the proper officer in cases where either the Rules did not make any specific provision for the collection of any duty or of any deficiency in duty if the duty had for any reason been short levied
Therefore before Rule 10 A could be resorted to it had to be found that either the Central Excise Rules did not make any specific provision for the collection of duty in respect whereof a demand was being made by the proper officer or that there was no specific provision therein for the collection of the deficiency in duty which had been short levied for any reason
It was a residuary provision and it applied only when there was no other specific provision in the Rules
Where there had been no assessment at all there was no reason why claim and demand of the respondent could not be said to be recoverable under Rule 10 A
The learned counsel for the appellant submits that this Rule is perfectly valid being covered by the rule making powers under the Act while the learned counsel for the respondent submits that it is ultra vires the Act being not covered by its rule making powers
The question therefore is whether the Rule is valid
Chapter II of the Act deals with levy and collection of duty
Under Section 3 of the Act duties specified in First Schedule to the Act were to be levied
Sub section 1 of Section 3 at the relevant time read as follows 1 There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India and a duty on salt manufactured in or import ed by land into any part of India as and at the rates set forth in the First Schedule
 In Citadel Fine Pharmaceuticals vs Dis trict Revenue Officer Chingleput  where the enactment namely the Medicinal and Toilet Preparations Excise Duties Act XVI of 1955 was silent on the question of levies of escaped assessment it was held that the Rules made under that Act could not extend the charging power and Rule 12 in so far as it sought to extend the charging power under Section 3 of that Act was held to be invalid and without jurisdic tion
Rule 12 of those Rules read as follows 12
Residuary powers for recovery of sums due to 450 Government Where these rules do not make any specific provision for the collection of any duty or of any deficiency in duty if the duty has for any reason been short levied or of any other sum of any kind payable to the collecting Government under the Act or these rules such duty deficiency in duty or sum shall on written demand made by the proper officer be paid to such person and at such time and place as the proper officer may specify
 Rule 12 was somewhat similar to RUle 10 A of the Rules and had been held to be ultra vires on the ground that it did not have the required statutory backing
In Ms Agarwal Brothers vs The Union of India  it was held that a licence issued under the Central Excise Rules was personal to the licensee and therefore a transferee of factory licensed to manufacture iron and steel products from the former licensee could only be treated as a new licensee after the relevant date mentioned in the Notification No 13 1 of 1962 dated 13th June 1962 and as the petitioner applied for a licence much later the exemption under the Notification was not available to the petitioner who could not be applying for renewal of the earlier licence held by the transferors and hence the exemption under the Notifica tion was not available to the petitioner
Demand therefore could only be made under Rule 10 A which it was held could not be invoked in view of the decisions in WP No 105368 namely the Citadel Fine supra
A Division Bench of Kerala High Court in Kerala Poly thene vs Superintendent Central Excise since reported in  held that Rule 10 A of the rules was not ultra vires the rule making power conferred by the Act on the Central Government
Balakrishna Eradi J as he then was observed that the scope of the rule making power con ferred by Section 31 of the Act was wide enough to embrace all matters relating to the manner in which both the levy and the collection of duties of excise on all excisable goods other than salt were to be made
The provision con tained in Rule 10 A was thus fully within the scope of the said power and hence it was not correct to say that Rule 10 A was ultra vires the rule making power conferred by the Act on the Central Government
The cases of Agarwal Brothers supra and Citadel Fine Pharmaceuticals supra were dis tinguished pointing out that there was much difference in scopes of Section 3 of the Medicinal and Toilet Preparations Excise Duties Act XVI of 1955 and of Section 3 of the Act
Comparing the provisions of the two Sections it was observed that there was funda 451 mental difference in their policy and scheme
Under Section 3 of the Medicinal and Toilet Preparations Act only the manner of collection of the duties was left to be prescribed by the rules and levy of the duty was to be made at the rates specified in the Schedule to the Act
In enacting Section 3 of the Act ie Central Excise and Salt Act the Parliament had empowered the rule making authority to pre scribe by rules the manner of levy of duties and also the manner of collection of duties of excise on all excisable goods other than salt
Manifestly the rule making power conferred by this Section is very much wider in its ambit than the power conferred on the rule making authority under Section 3 of the Medicinal and Toilet Preparations Excise Duties Act whereunder only the manner of collection of duties could be laid down by rules
We respectfully agree with this view
We also find that in Agarwal Brothers supra though one of the questions raised was the validity of Rule 10 A of the Rules the Court did not consider the said question on merits in view of the submission made by the standing counsel for the State Government on the basis of Rule 10 A in the light of the earlier decisions of the same High Court striking down Rule 12 of the Medicinal and Toilet Preparations Excise Duties Rules
That decision can not obviously be regarded as authority supporting the con tention that Rule 10 A was ultra vires the rule making power
We find that Rule 10 A was incorporated because of the decision of the Nagpur High Court in Messrs Chhotabhai Jethabhai Patel vs Union of India After that decision the Central Government by a notifica tion dated December 8 195 1 amended the Rules by addition of the new Rule 10 A
The assessee challenged the validity of the Rule but a full bench of the Nagpur High Court re jected the assessee s contention and held that Rule 10 A covered a case for increased levy on the basis of a change of law
That decision was challenged before this Court unsuccessfully
This Court in Chhotabhai Jethabhai Patel and Co vs The Union of India   reject ed the assessee s claim regarding non applicability of Rule 10 A stating that it had been specifically designed for the enforcement of a demand like the one in that case
We also find that in NB Sanjana vs Elphinstone Spin ning and Weaving Mills Company Ltd 2971 1 SCC 337 while holding that Rule 10 A did not apply to the facts of that case this Court observed that Rule 10 A did not apply as the specific provision for collection of duty in a case like that was specially provided for by Rule 10 and therefore action should have been taken under that Rule
452 In Assistant Collector vs National Tobacco Co Ltd   this Court held that the High Court erroneously refused to consider whether the impugned notice in that case fell under Rule 10 A
It was observed that Rules 10 and 10 A seemed to be so widely worded as to cover any inadvertance error etc whereas Rule 10 A would appear to cover any deficiency in duty if the duty had for any reason been short levied except that it would be outside the purview of Rule 10 A if its collection was expressly provided by any Rule
It was further observed that both the Rules as they stood at the relevant time dealt with collec tion and not with assessment and what was said in NB Sanjana s case supra that Rule 10 A was of residual in character and would be inapplicable if a case fell within a specified category of cases mentioned in Rue 10 was reiter ated
In DR Kohli vs Atul Products Ltd 1985 2 SCR 832 this Court pointed out the differences between the two Rules namely Rule 10 and Rule 10 A as i whereas Rule 10 applies to cases of short levy through inadvertence error collusion or misconstruction on the part of an officer or through mis statement as to the quantity the description or value of the excisable goods on the part of the owner Rule 10 A was a residuary clause applied to those cases which were not covered by Rule 10 and that ii whereas under Rule 10 the deficit amount could not be collected after the expiry of three months from the date on which the duty or charge was paid or adjusted in owner s account current or from the date of making the refund Rule 10 A did not con tain any such period of limitation
 It would thus be clear that this Court interpreted Rule 10 A distinguished it from Rule 10 and applied it to the appropriate facts and circumstances of different cases
It would be reasonable to infer that in none of the cases any doubt about the validity of the Rule 10 A was entertained
We may now examine the contention that at the relevant time Rule 10 A was not covered by the rule making power conferred on the Central Government by Section 37
Section 37 dealt with power of Central Government to make Rules
Sub section 1 said The Central Government may make rules to carry into effect the purposes of this Act Sub section 2 enumerated the matters the rules might provide for in particular  and without prejudice to the generality of the foregoing power Thus the section did not require that the enumerated rules would be exhaustive
Any rule if it could be shown to have been made to carry into effect the pur poses of the Act would 453 be within the rule making power
Chapter II of the Act dealt with the levy and collection of duty
Section 3 as it stood at the relevant time provided that duties specified in the First Schedule were to be levied
We have quoted Sub section 1
The First Schedule contained Item Nos
description of goods and rates of duty
Section 3 has subsequently been amended by the Finance Acts of 1982 and 1984 and the Cen tral Excise Tariff Act of 1985
This section it would be seen expressly empowered the levy and collection of duties of excise on all excisable goods as provided in the Act including its First Schedule
It could not therefore be said that Rule 10 A was not covered by the above provision
It is an accepted principle that delegated authority must be exercised strictly within the limits of the authori ty
If rule making power is conferred and the rules made are in excess of that power the rules would be void even if the Act provided that they shall have effect as though enacted in the Act as was ruled in State of Kerala vs KM Charia Abdullah  Co  Therein the High Court having declared rule 14 A of the Madras General Sales Tax Rules 1939 as ultra vires on appeal this Court by majori ty held that the validity of the rule even though it was directed to have effect as if enacted in the Act was always open to challenge on the ground that it was unauthorised
The validity of the delegated legislation is generally a question of vires that is whether or not the enabling power has been exceeded or otherwise wrongfully exercised
Scrutinising the provisions of Rule 10 A in the light of the above principles and pronouncements of this Court we have no doubt that Rule 10 A of the Rules as it existed at the relevant time was valid and not ultra vires the rule making power
Demand notices lawfully issued under the rule by the competent authority could not therefore be challenged on the ground of the rule 10 A itself being ultra vires
Wheth er those could be challenged on any other ground must neces sarily depend on the facts and circumstances of the case
The High Court having proceeded on the basis that Rule 10 A was not available to support the demand notice we set aside the impugned order of the High Court allow the ap peal and remand the case to the High Court for disposal in accordance with law
We leave the other questions open
Under the peculiar facts and circumstance of the case we leave the parties to bear their own costs
Y Lal Appeal al lowed


Summary:
The petitioners in the writ petition are building contractors engaged in the business of constructing build ings factories bridges etc
They have challenged the levy of sales tax by the concerned State Governments under the sales tax laws passed by them on the turnover 
of the works contracts entered into by them
The petitions raised two questions for the considera tion of the Court the first question relates to the consti tutional validity of the 46th Amendment Act by which the State legislatures have been empowered to levy sales tax on certain transactions described in sub clauses a to f of clause 29 A of Article 366 of the Constitution and the second question is whether the power of the State legisla ture to levy tax on the transfer of property in goods in volved in the execution of works contracts referred to in sub clause b of clause 29A of article 366 of the Constitu tion is subject to the restrictions and conditions in article 286 of the Constitution
On the passing of the 46th Amendment the State Govern ments after making necessary amendments in their laws com menced to levy sales tax on the turn over of the works entered into by the building contractors for constructing houses factories bridges etc
In some States taxable turnover was determined by deducting the money spent on labour engaged in connection with the execution of the works con 321 tracts
In some other States a certain fixed percentage of the total turnover was deducted from the total turnover as labour charges before arriving at the taxable turnover
Each State adopted its own method of determining taxable turnover either by framing rules under its sales tax law or by issu ing administrative directions
Affected and aggrieved by the levy of sales tax so imposed the petitioners filed the writ petitions under article 32 of the Constitution challenging inter alia the Constitu tional validity of the 46th Amendment Act
Civil appeals were also filed by some other building contractors against the orders of the High Court for similar relief
The petitioners and the appellants have raised two contentions viz 1 that the 46th Amendment Act is uncon stitutional because it had not been ratified by the legisla tures of not less than one half of the states by Resolutions passed to that effect by these legislatures before the Bill which led to the amendment in question was presented to the President for assent and 2 that it was not open to the States to ignore the provisions contained in article 286 of the Constitution and the provisions of the Central Sales Tax Act 1966 while making assessment under the Sales Tax laws passed by the legislatures of the States
Notices were issued to the Attorney General for India and the Advocates General for the concerned States some of which contested the Issues
The main contention of the States on the second point was that sub clause b of Article 32629 A bestowed on them a power to levy tax on works contract independent of Entry 54 of List IL Disposing of the Writ Petitions and directing that the appeals be now placed before the Bench hearing Tax matters this Court HELD
There has been in the instant case due compliance of the provisions contained in the proviso to article 3682 of the Constitution
344E Sales tax laws passed by the legislatures of States levying taxes on the transfer of property in goods whether as goods or in some other form involved in the execution of a works contract are subject to the restrictions and condi tions mentioned in each clause of sub clauses of article 286 of the Constitution
355B 322 All transfers deliveries and supplies of goods referred to in clauses a to f of clause 29 A of article 366 of the Constitution are subject to the restrictions and conditions mentioned in clause 1 clause 2 and sub clause a of clause 3 of article 286 of the Constitution and the transfers and deliveries that take place under sub clauses h c and d of clause 29 A of article 366 of the Constitution are subject to an additional restriction mentioned in sub clause b of article 286 3 of the Constitution
349C The power to levy sales tax was conferred on the legis latures of States by the Constitution by Entry 54 of List II of the Seventh Schedule to the Constitution of India
329B State of Bombay and Another vs The United Motors India Ltd and Others  and Bengal Immunity Company Limited vs The State of Bihar  Others  referred to
Ordinarily unless there is a contract to the contrary in the case of a works contract the property in the goods used in the construction of a building passes to the owner as the materials used are incorporated in the buildings
The con tractor becomes liable to pay the sales tax ordinarily when the goods or materials are so used in the construction of the building and it is not necessary to wait till final bill is prepared for the entire work
3S2C Hudson s Building Contracts 8th Edition at page 362 and Benjamin s Sale of Goods 3rd Edition in para 43 at page 36
The constitutional Amendment in article 366 29 A read with the relevant taxation entries has enabled the States to exert its taxing power in an important area of social and economic life of the community
In exercising this power particularly in relation to transfer of property in goods involved in the execution of works contracts in building activity in so far as it affects the housing projects of the under privileged and weaker sections of society the State might perhaps be pushing its taxation power to the peripheries of the social limits of that power and perhaps even of the constitutional limits of that power in dealing with unequals
In such class of cases building Activity  really relates to a basic subsistential necessity
It would he wise and appropriate for the State to consider whether the requisite and appropriate classifications should not he made of such building activity attendant with such social purposes for appropriate separate treatment
355E G 323 Whatever might be the situational differences of indi vidual cases the constitutional limitations on the taxing power of the State as are applicable to works contracts represented by building contracts in the context of the expanded concept of tax on the sale or purchase of goods as constitutionally defined under article 366 29 A would equally apply to other species of works contracts with the requisite situational modifications
355C D At the commencement of the Act it should have been stated that the bill in question had been presented to the President for his assent after it had been fury ratified by the required number of legislatures of the States
This suggestion should be followed by the Central Secretariat hereafter since it was found that even the Attorney General was not quite aware till the case was taken up for hearing that the bill which had become the 46th Amendment had been duly ratified by the required number of States
344F Gannon Dunkerley and Co Madras Ltd vs State of Madras AIR 1954 Mad 1130 Gannon Dunkereley  Co Madras Pvt Ltd vs Sales Tax Officer Matrancher AIR 1957 Kerala 146 Mohamed Khasim vs State of Mysore 1955 VI Sales Tax Cases 211 Pandit Banarsi Das vs State of Madhya Pradesh and Ors 1955 VI Sales Tax Cases 93 Jubilee Engineering Co Ltd vs Sales Tax Officer Hyderabad City  Ors  Bhuramal and Ors
vs State of Rajasthan AIR  State of Madras vs Gannon Dunkerley  Co Madras Ltd  Ms New India Sugar Mills Ltd vs Commissioner Of Sales Tax Bihar 1963 Supp 2 SCR 459 Oil and Natural Gas Commission vs State of Bihar  Ors   Vishnu Agencies Pvt Ltd etc
vs Commercial Tax Officer  Ors
   Northern India Caterers India Ltd vs Lt Governor of Delhi   Sydney Hydraulic and Central Engineering Co vs Blackwood  Son and MR Bornbrook Pvt Ltd vs Federal Commis sioner of Taxation