1989 (7) TMI 100 - SC - Central Excise

Validity of Rule 12 upheld as implementing Section 19(2)(i) and Section 3(3); no fixed limitation but reasonable delay standard

SC upheld validity of Rule 12 of the Medicinal and Toilet Preparations (Excise Duties) Rules, 1956, rejecting the High Court's view that it was ultra ... Rule-making power under a taxing statute - Residuary rule for recovery of duty - Scope of collection and recovery of excise duty - Ultra vires challenge to subordinate legislation - Reasonableness and Article 14 challenge to tax procedureRule-making power under a taxing statute - Residuary rule for recovery of duty - Ultra vires challenge to subordinate legislation - Scope of collection and recovery of excise duty - Validity of Rule 12 of the Medicinal and Toilet Preparations (Excise Duties) Rules, 1956 insofar as it authorises recovery of duty not specifically provided for elsewhere in the Rules. - HELD THAT: - The Act imposes excise duty on manufacture and provides that duties shall be collected in such manner as may be prescribed; Section 19(2)(i) expressly empowers rules to provide for assessment and collection of duties, issue of notices requiring payment and recovery of duty not paid. Rules 6 to 11 specify modes and occasions of payment and particular remedies for short-levy, refund recovery and payment on removal. Rule 12 is a residuary provision conferring power to recover any duty, deficiency or other sum payable to the Government where the Rules make no specific provision. Rule 12 does not create a new charge or substantive liability - the liability to pay arises from the charging section of the Act - but supplies an additional procedural safeguard for recovery where the Rules are silent. Consequently Rule 12 falls within the rule-making competence conferred by Section 19 read with Section 3(3) and carries out the purposes of the Act; the High Court erred in holding the Rule ultra vires on the ground that the Act was silent regarding escaped turnover. [Paras 3, 5]Rule 12 is intra vires the Act and valid as a residuary rule for recovery of duty.Reasonableness and Article 14 challenge to tax procedure - Whether Rule 12 is unreasonable or violative of Article 14 for not prescribing a period of limitation for recovery. - HELD THAT: - Absence of a prescribed period in Rule 12 does not render the provision arbitrary or violative of Article 14. Inherent in the exercise of statutory power is the obligation to act within a reasonable period; what is reasonable depends on the facts of each case. Allegations of inordinate delay in issuance of a demand can be raised by the assessee and considered by the relevant officer on facts. No inflexible temporal limit is required by the Rule itself. [Paras 6]Rule 12 is not invalid under Article 14 for lack of a specified limitation period; delay, if inordinate, is a factual defence available to the assessee.Final Conclusion: Appeals allowed; the judgment and order of the High Court of Madras dated 2-8-1974 quashing the notices and proceedings was set aside. No order as to costs. Issues: Validity of Rule 12 of Medicinal and Toilet Preparations (Excise Duties) Rules, 1956Analysis:The case involves appeals against a High Court judgment quashing notices issued by the Deputy Commercial Tax Officer to a company manufacturing medicinal preparations. The company failed to pay duty or obtain a license as required by the Medicinal and Toilet Preparations (Excise Duties) Act, 1955. The High Court declared Rule 12, under which the notices were issued, as ultra vires the Act, leading to the quashing of the notices and proceedings. The main issue is the validity of Rule 12, which the High Court found to be outside the scope of the Act due to the Act's silence on the levy of duty on escaped turnover.The Act imposes duties on the manufacture of dutiable goods, specifying rates and the stage at which duty is levied. Section 3(3) allows for the collection of duty as prescribed by rules. Section 19 grants the Central Government the power to make rules for the Act's purposes. The Medicinal and Toilet Preparations (Excise Duties) Rules, 1956, include Rule 12, providing for the recovery of sums due to the government when no specific provision exists. Rule 12 is a residuary power for the recovery of unpaid duty or other sums, supplementing other rules in Chapter III governing duty payment and recovery.The Court held that Rule 12 is not unreasonable or violative of Article 14 of the Constitution, despite lacking a prescribed period for duty recovery. It emphasized that authorities must act within a reasonable period, determined case by case. The absence of a limitation period does not render the rule arbitrary, as reasonableness depends on individual circumstances. The Court allowed the appeals, setting aside the High Court's judgment and order.In conclusion, the Supreme Court upheld the validity of Rule 12 of the Medicinal and Toilet Preparations (Excise Duties) Rules, 1956, rejecting the High Court's finding of it being ultra vires the Act. The Court clarified that Rule 12 serves as a supplementary provision for the recovery of unpaid duty or sums due to the government, ensuring compliance with the Act's duty imposition and collection mechanisms.