Case: Union Of India And Others Vs. Maharaja Krishnagarh Mills Ltd.(In Liquidation)

ground that "federal sources of revenue" include the duty of excise in question. It is also clear that all outstanding dues from assessees including pending assessment and arrears have been by the terms of the agreement made over to the Centre. This agreement, as the preamble itself indicates, has been made in accordance with the provisions of Arts. 278 and 295 of the Constitution. The relevant portions of Art 278 are as under :-"278. (1) Notwithstanding anything in this Constitution, the Government of India, may, subject to the provisions of clause (2), enter into an agreement with the Government of a State specified in Part B of the First Schedule with respect to -(a) the levy and collection of any tax or duty leviable by the Government of India in such State and for the distribution of the proceeds thereof otherwise than in accordance with the provisions of this Chapter: ........and, when agreement is so entered into, the provisions of this Chapter shall in relation to such State have effect subject to the terms of such agreement."It is noteworthy that the provisions of Art. 278 override pro tanto other provisions of the Constitution including Art. 277 and the terms of the agreement override the provisions of the Chapter, namely Chapter I of Part XII. In this Chapter are contained Arts. 264 to 291. Thus, on a construction of the provisions of Arts. 277 and 278 it is clear that in the absence of any agreement between the Government of India and the Government of a State specified in Part B, duties of custom which immediately before the commencement of the Constitution were being lawfully levied by the Government of such a State continue to be levied by that State until provision to the contrary is made by Parliament by law, notwithstanding that such a duty is mentioned in the Union List. Article 277, therefore, is in the nature of a saving provision permitting the States to levy a tax or a duty which, after the Constitution, could be levied only by the Centre. But Art 277 must yield to any agreement made between the Government of India and the Government of a State in Part B in respect of such taxes or duties etc. The provision to the contrary contemplated by Article 277 was made by the Finance Act, XXV of 1950, S. 11, which extended the Central Excises and Salt Act, 1944, along with other Acts to the whole of India except the State of Jammu and Kashmir. But that section has effect only from April 1, 1950 and therefore does not apply to the arrears of duty of excise now in controversy. The agreement envisaged by Art. 278 was entered into as aforesaid on February 25, 1950.That agreement conceded to the Centre the right to levy and collect the arrears of the duty in question. The reasons given by the High Court for the conclusion that in spite of Art. 278 read with the agreement aforesaid, the Union Government was not entitled to realise the arrears - (1) that the agreement does not contain any specific provision about levy and collection of cotton excise duty in Rajasthan, (2) that the mere approval in the agreement of the principles set out in the report is not enough in view of Art. 277 which made a distinctly different provision from that contemplated in the report and (3) that the agreement could be only with respect to a duty which was leviable by the Government of India. In our opinion, none of these reasons aforesaid can stand in the way of the Union of India. Though the agreement does not in terms refer to levy and collection of cotton excise duty in Rajasthan, as a "federal source of revenue", is also covered by the agreement. Nor is it correct to say that the agreement read with the report is not enough to override the provisions of Art. 277. The agreement read with Art. 278, as already indicated, in terms, overrides the provisions of Art. 277. The only other reason which weighed with the High Court in getting over the terms of Art. 278 cannot also hold good. That a duty of the kind now in controversy on the date of the agreement after coming into force of the Constitution is leviable only be the Government of India even in respect of the State of Rajasthan is clear beyond all doubt. The Union List only, namely, entry 84 in the Seventh Schedule, authorises the levy and collection of the duty in question. Neither the State List, List II, nor the Concurrent List, List III, contains any such authorisation. It is true that Art. 277 has saved, for the time being, until Parliament made a provision to the contrary, the power of the State of Rajasthan to levy such a duty, but that is only a saving provision, in terms subject to the provisions of Art. 278. Thus, the combined operation of Arts. 277 and 278 read with the agreement vests the power of levy and collection of the duty in the Union of India. It is only in the absence of an agreement like the one we have in this case that the Rajasthan Government could continue to levy and collect the duty in question. The agreement between the two Governments completely displaced the operation of Art. 277 in regard inter alia to the levy of this duty so far as the State of Rajasthan in concerned. It is clear, therefore, that the High Court was in error in holding that Art. 277 was any answer to the claim of the Government of India and should override the provisions of Art. 278 read with the agreement. On a proper construction of these provisions, in our opinion, the result is just to the contrary. In this view of the matter, it is not necessary to consider the other arguments advanced on behalf of the appellants, whether Art. 295 should prevail over Art. 277.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]It is, therefore, necessary for us first to determine that controversy. At the outset, it may be mentioned that the writ petition filed by the respondent in the High Court under Art, 226 of the Constitution did not allege any facts bearing on this part of the controversy. Thus, there was no foundation laid in the pleadings for a contention that the Rules aforesaid had not been promulgated on a proper authentication. As already indicated the petition was founded only on the lack of power in the Union Government to levy and collect the excise duty with reference to the provisions of the Central Excise and Salt Act of 1944 and the Rules framed thereunder. There is no reference to the provisions of Ordinance 25 of 1949 promulgated by the Rajasthan Government. It was only in the reply to the writ petition made by the respondent in the High Court that reliance was placed upon the said Ordinance and the Rules framed thereunder. We do not find any pleadings, or any petition by way of amendment of the pleadings, in the record of this case raising the contention that the Rules framed under the Ordinance aforesaid had not been promulgated on a proper authentication. The High Court, therefore, on the face of the pleadings, was not justified in permitting the petitioner before it to raise this contention, but our decision need not be rested on the lack of pleadingsauthority that promulgated the rules having intended the signature of the Law Secretary appearing at the beginning of the publication as an authentication of the rules, we are of opinion that the formal requirements of S. 8(2) of the Ordinance 5 of 1949 were satisfied. Whether the authentication appears in the beginning of the notification or at the end of it is not material so long as it is clear on a reference to the publication in the Gazette that the matter is substantially covered by the authentication, whether appearing at the beginning or the end of the notification. The High Court, therefore, was in error in coming to the conclusion that the authentication covered the Ordinance proper without the Rules framed thereunder. The correct conclusion from the record as it stands is that the authentication covers the entire notification including both the Ordinance proper and the Rules framed thereunder which became parts of theagreement envisaged by Art. 278 was entered into as aforesaid on February 25, 1950.That agreement conceded to the Centre the right to levy and collect the arrears of the duty in question. The reasons given by the High Court for the conclusion that in spite of Art. 278 read with the agreement aforesaid, the Union Government was not entitled to realise the arrears - (1) that the agreement does not contain any specific provision about levy and collection of cotton excise duty in Rajasthan, (2) that the mere approval in the agreement of the principles set out in the report is not enough in view of Art. 277 which made a distinctly different provision from that contemplated in the report and (3) that the agreement could be only with respect to a duty which was leviable by the Government of India. In our opinion, none of these reasons aforesaid can stand in the way of the Union of India. Though the agreement does not in terms refer to levy and collection of cotton excise duty in Rajasthan, as a "federal source of revenue", is also covered by the agreement. Nor is it correct to say that the agreement read with the report is not enough to override the provisions of Art. 277. The agreement read with Art. 278, as already indicated, in terms, overrides the provisions of Art. 277. The only other reason which weighed with the High Court in getting over the terms of Art. 278 cannot also hold good. That a duty of the kind now in controversy on the date of the agreement after coming into force of the Constitution is leviable only be the Government of India even in respect of the State of Rajasthan is clear beyond all doubt. The Union List only, namely, entry 84 in the Seventh Schedule, authorises the levy and collection of the duty in question. Neither the State List, List II, nor the Concurrent List, List III, contains any such authorisation. It is true that Art. 277 has saved, for the time being, until Parliament made a provision to the contrary, the power of the State of Rajasthan to levy such a duty, but that is only a saving provision, in terms subject to the provisions of Art. 278. Thus, the combined operation of Arts. 277 and 278 read with the agreement vests the power of levy and collection of the duty in the Union of India. It is only in the absence of an agreement like the one we have in this case that the Rajasthan Government could continue to levy and collect the duty in question. The agreement between the two Governments completely displaced the operation of Art. 277 in regard inter alia to the levy of this duty so far as the State of Rajasthan in concerned. It is clear, therefore, that the High Court was in error in holding that Art. 277 was any answer to the claim of the Government of India and should override the provisions of Art. 278 read with the agreement. On a proper construction of these provisions, in our opinion, the result is just to the contrary. In this view of the matter, it is not necessary to consider the other arguments advanced on behalf of the appellants, whether Art. 295 should prevail over Art. 277.