3 S.C.R.

SUPREME COURT REPORTS 481

conveying the property when a mere loan was intended on the security of the property. It is unfortunate, having regard to the provision of s. 58(c) of the Transfer of Property Act, that the plaintiff is debarred from proving that the transaction was in the nature of a mortgage. In the circumstances we direct that there will be no order as to costs throughout.

Appe, al allowed.

ORIENT WEAVING MILLd (P) LTD.

THE UNION OF INDIA

(B. P. SINHA, c. J., J. L. KAPUR, M. HIDAYATULLAH, J. c. SHAH and J. R. MUDHOLKAR, JJ.)

Central Excise-Power of Central Government to grant exemption-Rule-Notification granting exemption to co-operah'.ve society-Constitutional mlidity-Central Excises and Salt Act, 1944 (1of1944), ss. 37(2), cl. (xvii)-Central Excise Rules, 1944, r. 8(1)-Constitution of India, Arts, 14, 19(1)(/) and (g), 43.

By r. 8 (1) of the Central Excise Rules, 1944, framed by the Central Government in exercise of its Power under s. 37(2)

cl. xvii of the Central Excises and Salt Act, 1944, "the Central Government may from time to time, by notification in the Official Gazette, exempt subject to such conditions as may be specified in the notification any excisable goods for the whole or any part of the duty leviable on such go'.>ds." By two notifications issued under the said rule the Central Government exempted cotton fabrics produced on po, ver looms owned Dy co-operative societies ti'om the duty leviable thereon subject to certain conditions.

Under s 38 of the Act the said rule and notifications on publication in the Official Gazette had effect as if enacted in the Act. The petitioners, apprehending loss of business in competition with the fifth respondent, a co-operative society, chal1enged the rule and the notifications on the grounds( I) that the power of exemption conferred on the Union Government violated Arts. 14, 19(l)(fl and (g} of the Constitution and (2) that assuming that it did

196!

K. Simrathmull '.

S. Nanjalingioh

Gowder

Shah J.

Ftbuary 38.

llMI

Orittil W talting

Mills (P) Lld.

y, 1 lu Union of lndi4

482 SUPREME COURT REPoRTs (1962] SUPP

not do so, the exemption granted by the notifications \Vas in excess of the power granted by r. 8(1).

field, that the contentions were \Vithout substance a1.d must fail.

Rule 8 of the Rules was as much a part of the Act as s. 3712) cl. (xvii~ and it was always open to the State to tax certain classes of goods and not to tax others.

It wa5 the function of the State to .determine what hind of taxes should be levied and in what manner.

R•gard being had to the directive principles contained in Art. 43 of the Constitution, there was no doubt that the State in differentiating between goods produced in big establishments and similar gocds pro duccd by small powerloom weavers iu a co-oprrative societ', had made a classification that was constitutiona!Jy valid.

There could, therefore, be no excessive dr.kgation of the power to grant exemption.

It \\•as fallacious to contend that exemption, if at all, had to be granted in respect of any particular specified variety of 'cotton fabrics', an<l not with reference to persons producing them.

The tax was on the production of the goods but was payable by pcnons producing them.

The exemption granted was, therefore, \vithin the ternls of the notifications.

ORIGINAL JuruSDlCTION : Petition Ko. llO of of 1961.

Petition under Art. 32 of the Constitution of India. for enforcement of Fundamonta.I Rights.

A. V. Viswanatha Sastri and R. Gopalakrishnan, for the Petitioners.

K. N. Rajagopal SaBtri, P. K. Ghatterje.e and P. D.

Menan, for the respondents.

1962. February 28.

The Judgment of the Court wa.s delivered by

SINHA, C. J.- By this petition, under Art. 32 of the Constitution, tho petitioners cha.Henge the constitutionality of certain provisions of the Central Excises and Sa.It Act (l of 1944) which will be referred in the course of this judgment as the Act, read with r.8 of the Central Excise Rules, 1944 ( 1!}60) and the notifioations thereunder, to be hereinafter set out. The first petitioner is the Orient

Weaving Mills Private Ltd. (which will be termed hereinafter as the Company), and the second petitioner is a director of the Company. The respondents .to the petition are (1) Union of India, through the Secretary to Government of India, Ministry of Finance (Department of Revenue), New Delhi, (2) Secretary, Central Board of Revenue, New Delhi, (3) Superintendent, Central Excise, Cuttack,

(4) Collector, Central Excise, Calcutta, (5) Board of Directors, Madhunagar Powerloom Weavers' Co~

operative Society Ltd., through its President (to be hereinafter referred to as the Society).

The petition is founded on the following allegations. The Company is incorporated under the Indian Companies Act, 1913, with its head office at Nayabazar, Cuttack. The second petitioner is the director of the Corn pany, which runs a weaving mill (Lt Nayabazar in Cuttack. There are 160 looms operating in the mill, and nearly 300 employees are employed in the factory, which produces, on the average, about 45 Jakh yards of cloth (4 1/2 million yards). The paid-up capital of the Company is Rs, 7, l0,000, divided into 7,100 shares of the value of Rs. 100 each. It has 8 directors, including a representative of the Government of Orissa. The Company commenced production on Octobt>r 1, 1955, and has been sustaining losses eversince it started functioning "due to adverse circumstances in the State of Orissa and due to the heavy taxation and duties".

Eversince the Company started production, it has been paying excise duty~Rs. 2,16,670 for the year 1958- 59, Rs. l,82,529 for the year 1959-60 and Rs. 2,15,500 for the year 1960-61. "Cotton fabrics"

is one of the items in the first schedule of the Act, which sets out the description of goods and the rate of duty leviab!e under s. 3 of the Act.

The petitioner's chief grievance is that the respondent No. 5, the Society, is being granted exemption

Oritrd Weaving

Milla (P) Lfd,'

Vo '1_.1-, The Union of Indi.~. ..-:,.l Sinha <':7-J.

"'l ·~

1962 ··- on.ni.JY .... .,

Millo (P) Ltd. . .. .• n. Ullia of Indio -- sa..c.J.

484 SUPREME COURT REPORTs (1962] SUPP.

from the excise duty, though, it is contended, it has installed I 00 looms in the same premises and 100 workmen are employed therein. The autho rised capital of the aforesaid Society is lts.2,40 ,000, divided into shares of the value of Rs. 100 each.

It is said to be a profit earning concern, whose profit is disposed of in accordance with its byelaw 35. The Society, it is further contended, is for all practical purpose~ aimilarly situated alongwith the petitioner Company in the matter of production, distribution and marketing of their produce. It is further stated that the weavers of the Society stand on the same or similar footing as the shareholders of the Company. The exemption was granted to the Society in virtue of the Central Government Notification Xo. 74 of 1959, dated July 31, 1959, and .N'otifioation Xo. 70 of 1960, dated April 30, 1960, iBBued by the Ministry of Finance, Government of India, (Department of Revenue). The notifications are in these terms :

"Government of India, Ministry of Finance (Dep1i.rtment of Revenue) ew Delhi. The 31st July, 1959.

G. S. R. In pursuance of sub-mle (I) of rule 8 of the Central Excise Rules 1944 as in force in India and as applied to the State of Pondicherry, the Central Govt. hereby exempt cotton fabrics produced by any co-operative society formed of owners of cotton power•

looms, which iB registered or which may be registered on or before the 31st March, I 961 un.der any law relating t0 co-operative societies, from the whole of the duty leviable thereon, subject to the following conditions:-

(a) that every member of the co-operative societies had been exempt from excise

duty for three years immediately precedin'g the date of his joining such society; I

(bl that the total number of cotton power!ooms owned by the co-operative society is not mere than four times the number of members forming such society;

( c) that a certificate is produced by each member of the co-operative society from the State Govt. concerned or such Officer as may be nominated by the State the number of cotton powerloons in his ownership and actually operated by him does not exceed four and did not tixceed four at any time during the three years immediately preceding the date of his joining the society, and that he would have been. exempt from excise duty even if he had not joined the co-operative society; and

( d) that the exemption shall be available ...

(i) for a period ending on the 31st July, 1962 in respect of registered co-operative societies which have commenced production prior to the date of this notification; and

(ii) for a period of three years from the dat.e of commencement of production in respect of co-operative societies which have been registered "but have not commenced production or which may be registered on or before the :Hst March, 1961. (No. 74/59) Sd/-Illegible S. K. Bhattacharjee, Deputy Secretary to Govt. of India.

F. N'. 74/59/F. No. 13/59-CXIII".

"Government of India, Ministry of .Finance (Department of Revenue) New Delhi. '.J.'he 10th April. 1960,

01Uni W1aViftR Mi/11 (P) Lid.

_, ' "· ' - Thi Union of lna11

Sinha o.J.

1~62

Orit'11 I\' to-Vint , , Milli (P) L<d. '

~"!t_t n.ion 3( India

Sina C • ./,

N otifiwtion

Central Exciso

GSR.

In pursuance of 8Uh-rule (I) of rule 8 of the Central Excise Rules, 1944 as in force ii) India and as applied to the State of Pondicherry and in supersession of the Notifi cation of the Govt. of India llinistry of Finance (Department of Revenue) No. 74/59- Central Excise dated the 31st July 1959 the Central Govt. hereby exeU1pts cotton fabrics produced on powerloom owned by any cooperative 8ociety or owned by or allotter! to the members of the society, which is registered or which may bo register:d on or before the :n st :lfarch 1961 under any law relating to co.operative societies from the wholo of the duty lcviable thereon, nbjr•rt to the following conditions :-

(a) that every memher of the co-operative sociPtV who has been a manufacturer of cotton fabics on powerlooms has been exempt from excise dut.r for three years immediatB!y preclding the date of his jnininir such society;

(b) that tho total number of cotton powerlooms owned by the co-operative society or owned by or allotted to its members is not more than four times the number of members forming such society. (cl that each member of the co-uporativc society pro<lu<'.e a certificate from the Stat<> Govt. concerned or such ofticer as may be nominated by the State Govt. that he is a houafide m"mber of the society and that the num bcr •lf cotton powerlooms owned b.v or allotted to him and actually opt1rated bv him doe8 not "xceed four and did not exceed four at any time during the three years immediawir preceding the date of his joining te

society, and that he would have been ee:°1pt from excise duty even if h"' had not Jomed the co-operative societies and

( d) that , the exemption shall be available ...

(i) for a period ending on the 3 lst July 1962 in respect of registered co operative societies which have commenced production prior to the date of the notification; and

(ii) for a period of three years from the date of commencement of production in respect of co-operative societies which have been registered but have not commenced production or which may be registered on or before 31st March, 1961.

No. 70/60 Sd./Illegible G. P. Durairaj, Under Secretary to the Govt. of ifndia No. 70/60/P. No. 13/1/59 CXIII"

The Company made a representation to the relevant authorities but to no purpose. As the Company is to pay excise duty on the "cotton fa 1Jrics" produced l; y it, its cost of production, as compared to that of the Society, was higher by l :?.5% in 1958 and 10% in 1959, with the result that the Company is at a disadvantage, as compared to tho Society, in the competitive market of Orissa.

Due to heavier taxation on fine cloth, the Company has abandoned the production of that quality and ha" restricted its production to coarse and medium cloth. The apprehension of the Company is that on account of the exemption granted to the Society, the Company's bn.iiness will be very adverselJ aifecteq. It is contended tqat r. 8 of the CeIJtrl

Orient Weaving

Mills (f) Ltd.

Vo The Union of India

Sinha C. J.

Orient lft2i.rin(

Mills , P) Lid.

Tlit U11io1l of India

Sinha C . ./.

Excise Rules, l!l44, under the Act, vests the Government with ungui<led power wholly or partially to uxempt. any goo<ls from the <luty lcviable under the Act ancl is, thernfore, dearly discrimina- ' . tory as against the petitioner. The Government notifications exr.>mpting the Society, or such other similar societies as may horcitfter come into existence, have the effPCt of viol<J, ting the petitioners' funrfa.mcntal rights under Arts, 14 and 19(l)(f) & (g) of the Constitution. It is also conten<lc<l that th" power conferred upon the Government under the Rules, afore81tid, being ungilidcd and uncontrolled, goes beyond tho permiHsi ble limits of a vnlid delegation, and is, therefore, voiri. The petitioners moved the High Court of Orissa under Art. 226 of thn Constitution, chal!Pnging the constitutionality of the Govrrnment measures aforesaid, but the Court refused to grant any relief on the ground that it. had no jurisdiction to issue any wriL to the Union Government in Xew Delhi.

In the premises, the petitioners prny for a declaration that the lovy of excise duty on the piece.goods produced by the pet.itioners be declared to be unconstitutional, and for a dirertion that tlw respondents 1-4 treat them on tho S<tme footing as the Sucit:ty and exempt them from the p/\yment of th<' excise duty, as also for an appropriate writ or order for the enforcement of their fundamental right guaranteed under ·

Arts. 14 and 19( I )(f) & (g) of the Constitution.

The application was oppoRed on behalf of the respondents l 4, and an affidavit sworn to by an

Cnder Secretary, ~Iinistry of Finance (Department of Revcnnel Govcrnm<'nt of India, was filed in opposit.ion. It was stated on behalf of the Union Government and the Rev<'UUe that the relevant

provisions of the Act and the Rules, and t.he notifications which have been impugned by the petitioners, did not. infringe any provisionH of tho Constitution, and that the exemption grant<ld to the society was in pursuance of the well recognised

principle, being acted upon by the Government, to 1962 confer self-employment benefits in the interest of 11 d d 'th ' t Orient W11r11'tig sma pro ucers, an w1 a view o encourage Mills (P}Ltd. cottage industries and small scale industries em v. ploying a limited num her of hands.

The Society, The Union •f India it was contended,· was not the owner of the power- Sinha c. J. looms, but each weaver was the owner of not more than 4 powerlooms: the Society was run on a cooperative basis for the benefit of the weavers, who shared the profits earned hy working on a cooperative basis, by sale of the cloth produced by each weaver on his looms, after paying for the services rendered by the Society to its members; hence it was not correct to characterise the Society as running a mill with an installed capacity of 100 looms. It is further stated that the , Society, as such, is not a profit earning concern, as wrongly contended on behalf of the petitioners. The Society, under the sanctioned scheme, purchases the cloth produced by the weaver on his looms at a price equivalent to the cost of the raw materials, . cost of the services rendered by the Sc.iciety and cost of labour of the weaver, plus a margin of profit for him.

The Society undertakes the sale of the piece-goods produced by the weaver without mak ing any profit to itself, except that it levies handling charges, which nre paid by the buyer. If the Society makes any savings out of the handling charges thus realised, the weaver gets a share of the savings by way of dividend. Unlike the Com- pany, the Society is not the. owner of the looms.

The Society is only a servant of the weaver-owners and renders them services, which they need, to help them to market their produce. The Society is, thus, only an organisation which assists all individual owners of looms in the production and sale of the products of their reBpective looms, for their exclusive benefit. It is, therefore, claimed thrtt the exemption granted in respect of the goods produceq in co-operative societies, of wqich tlj()

Ork11t W "'"; n1 Mill•. (P) Lid.

•• Tiu Union of India

SinAa C. J.

weavers are the owner members, each individual not possessing more than 4 looms, is in pursuance of the Notification No. 70/60 dated April :{0, 1960, issued under r. 8, under the provisions of the Act, and is based on a valid classification, and docs not infringe the provisions of Arts. 14 and 19(l)(f) & (g) of the Constitution. ·

On those pleadings, and on the arguments at the Bar, the following points ariso for decision in this case, namely, (I) whether tho power of exemption conferred upon the Union Government violates Arts. 14 and 19(l){f) & (g) of the Constitution on the ground that it is uncontrolled and unguided, and (2) whether. assuming that the power is not unconstitutional, the exemption granted by tho notifies tions, aforesaid,. is in excess of the power granted by r. 8.

Before discussing the vires of the law, or of the notification issued under the Act, read with r.8 aforesaid, it iA necessary to examine the relevant provisions of the Act and the Rules. Tho Act consolidatr, s and 11mcnds the law relating to central duties of excise on goods manufactured or produced in certain parts of India, and to salt.

Under s. 2( d), ''excisable goods" means "goods specified in the First Sohedulo as being subject to a duty of excise and includes salt". The first schedule con tains the description of goods anrl rates of duty leviablo under s. 3, which is the char!!ing section and is in these words' : -

"3(1) Th., re shall be levied and collected iri such manner as may he 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 impor ted by land into, any part of India, as, and at the rates, set forth in the }'irst

Schedule.

{lA) ............................................... . (2) ..............................•..................

' ( 3) Different tariff values may be fixed for different class or description of the same article."

Item No. 19 in the First Schedule is "cotton fabrics", and. means all varieties of fabrics manu- . factured either wholly or partly from cotton, with certain specified exemptions, including fabrics manufactured on handloom, and then follow the description of different kinds of cotton fabrics, with their relative rates of duty. Section 37 authorises the Union Government to make rules to carry into effect the purposes of the Act. By sub-s. (2) of s. 37, it is provided that mies may be framed providing for a number of matters recited therein, including

cl. (xvii), which is in these terms:

"exempt any goods from the whole or any part of the duty imposed by this Act.'' In pursuance of this rule making power, the Union Government has made Rules. For the purposes of this case, it is only necessary to quote r. 8, which is as follows:

"Power to authorise exemption from duty in special cases:

 (1) The Central Government may from time to time, by notification in the Official Gazette, exempt subject to such conditions as may be specified in the notification any excisable goods. from the whole or any part of the duty leviable on such goods,

(2) Th.e Central Board of Revenue may by special order in each case exempt from the payment of duty, under circumstances of an exceptional nature, any excisable

oods." ·

l96S

Orhnr W eavini

Mills (P) ~Id.

The Union of India

Sin!M c. J,

19fi2 o,;,.,, w 1aving

Milu (P) W

T. I e Unic.n of India

Sinha C. J.

492 SUPREME OOURT REPORTS (1962] SUPP.

In pursuan<>, e of the powers conferred on the Cr•ntrnl Governmont by sub-r.(l) of r.8, the notificatious referred t.o above were issued by the Central Gon, rnment..

By virtue of s. 38 of tho Act, all rule;; made and notifications iRsued by the Central Government, as aforesaid, are required to he published in the Official Gazette, and thereupon those rules and notifications "shall have effect a.~ if enacted in this Act". Thus it is manifest that the notifications and the rule impugned in this case h:i.vc been incorporated into th.1 Act itself, an<l have

bt, c.mie part of the taxing statute. It is also noteworthy that the petitioners have not challenged the vires of the Act. The petition is directed against r.8 ; rn; J tht' nc>tifications afore8aid, exempting the

goo!~ prorlucBd by the co-operative societies, like the 5th respondent, from payment of the excise duty.

That bcin)! so, it is a. little difficult to appreciate tlie first prayer of the petitionerP, a.skin~ for a de<:laration that the levy of excise dutv on the piec•· goods pr•>duceJ by the petitioners be declar(,~] to be unconstitutional. It is one thing t, o nttnck tho constitution1llity of the prn\'isinn8 of the Act :tut.ho

rising the levy of the excises dut.v on the petitioners; it is quite a different thing to complain of the exemption grant{ld in respoct of the good~ pro<lt1cecl by the 5th re8pundent.

A~ the vi res of th' Act itself has not been challenged, we ne1id rnt say anything more on that aspect of a fH>ssible controvNsy which ha8 not ht••n actually raised in the petition.

The petition is substantially based upto the contention that r.8 suffers from the v ic" of excessive delegation of powers to the C'..entral Gov!'rnment to exempt partly or wholly an.v excisable good~. and, secondly, thrit the pow..r even it constitutional has been invalidlv exercisPrl in so far as the notifi cations aforesaid containing the exemplion operating in favour of the 5th rospondent have been made. Iµ our opinion, there is Qo sllbsta.nce ill

either of the two contentions. Rule 8 is as much a part of the statute as s. 37(2) cl. (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 as to the amount of tax to be levied in respect of different classes of goods.

The Act recognises and only gives effect to the well established principle that there must be a great deal of flexibility in the incidence of taxation of a particular kind. It must vary from time to time. as also in respect of goods produced by different processes and different agencies.

The same principle has been recognised iu s.23 of the Sea Customs Act (VIII of 187&), which bas been applied to excise duty also, by virtue of s. 12 of the Act. The latter section has authorised the Cenral Government to apply the provisions of the Sea Customs Act, to excise duty imposed by the Aot, with such modifications and alterations as it may consider necessary or desirable to adapt them to <'ircumstances. It is a function of the State in order to raise revenue for State purposes, to determine what kind of taxes shall be levid and in what manner. Its function, therefore, is to raise revenues for public purposes.

The State naturally is interested in raising all the revenue necessary for public purposes, without sacrificing the legitimate interests of persons and groups, who deserve special treatment at the hands of tile State for reasons, which the State may determine, entitling them to be placed in a special class. The Directive Principles of the Constitution, contained in Part IV .. lay down the policies and objectives to be achieved, for promoting the welfare of the people. In the context of the present controversy, the following words of Art. 43 are particularly apposite: ·

" ............ and in particular, the State shall endeavour to promote cottage industries

o, ient We.avin1 Mill• <nLttJ.

The Union of India

Sinha c, J.

OrUnt Wuoing Mills (P) Ltd.

Thi Union of India

Sin.A• C. J.

on an individual or co-oporativc basis in rural areas." It has rightly been pointed out in the affidavit filed on behalf of the respPnucnt8 ; 4 that the exemption granted by the impugned notifications iA mrant primarily for the protctt.iun l•f petty producers of cot ton fabrics not owning more than four power looms, from unrtasonablc competition by big produc<•rs, lik" the petitioner Company. The State has, therefore, made a valid cl11ssification between goods produced in big establishments and similar goodB produced by small powcrloom weavers in the rnofas8-il, who are usually ignorant, illiterate and poor and suffor from handicaps to which big ostablishments like the petitioner Cornp1my aro not subject. It has alHo been pointed out that the ex emption was available to individual wcavern, who employed not more than five looms on their own account.

The fact thnt they have banded together in a co.operntive effort to increase their efficiency and to take advantage of State aid should not count

againt them. It must, therefore, he h1, ld that there is no room for the contention that there has been excessive delegation of power to exempt.

It was next contencJt.d that if it were helrl that r. 8 is valid an<! constitutional, the notifications are ba<l in so far as they exempt certain claSBes of persons and not classes of goods from the excise duty.

It is argued that the tax is a rluty of exoise on "any goods", and item 12 bas reforcnco to a particular variety of goods, rnimely, 'cotton fabrics'; the exemption if any could have been granted iR respect of any particular specified variety of 'cotton fabrics' and not with reference to the per8ons producing the same variety of those fabrics. There is a pparcntly a fallacy in this argument. The tax is on the production of any goods, but it is payable by per sons producing such goods. The exemption also ia

,,.,,

with reference to such goods as come within the description of excisable 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 tile 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 power-looms 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 Cooperative 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.

It must, therefore, be held that there is no merit in this petition. It is, accordingly, dismissed with costs to the answering respondents.

Pdiflion dismissed.

Orient Wtaft"I

Mills (P) Ltd.

•• Tiit Union of Inrlia

SinhaC. J.