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TaxTMI 
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1994 (7) TMI 369
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.... B.V. Kloosterstreat 6 oss Holland (hereinafter referred to as the 'Dutch buyer') for supplying to the Dutch buyer 1000 metric tonnes of poppy husks. This contract was entered into in pursuance of "certificate of official approval of import" dated April 5, 1973 granted by the Dutch authorities in favour of the said Dutch buyer to purchase/import 1,000,000 kilograms of poppy husks from the appellant on or before 31st August, 1974. The appellant in turn obtained the "Official authorisation of export" from the Office of the Narcotics Commissioner, Government of India permitting him to export 1,000 metric tonnes of poppy shells (broken and crushed) to the aforesaid Dutch buyer. This certificate dated 14th March, 1974 refers specifically to the aforementioned Import Certificate dated 5th April, 1973 issued by the Dutch Authorities. It further specifies that the said goods shall be exported through the Customs House Bombay, by sea, to Holland within three months from the date of issue of the said Authorisation. On March 30, 1974, the appellant applied to the Collector of Excise, District Mandsaur, Madhya Pradesh for grant of permission to transport the said qu....
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....tor of Excise, Mandsaur to permit the export without collecting the export duty but subject to the condition of the appellant furnishing a bank guarantee for the said amount in favour of the Registrar of the High Court. No such interim order was granted in other writ petitions. The writ petitions were heard and dismissed by a Division Bench on 21st October, 1976, against which the appellant approached this Court. Leave was granted on January 28, 1977. Interim orders were passed from time to time permitting the appellant to export poppy husks to Holland either on furnishing bank guarantee or on deposit of a part of the export duty, as the case may be. 5. The main issue in these appeals is whether the State of Madhya Pradesh and its authorities are entitled in law to levy and collect 'duty' as a condition for permitting the export of poppy husks from Madhya Pradesh when the said export is not an export from one State to another State within India but an export across the customs frontier of India, i.e., export to Holland? 6. Opium is a noxious drug. It is dangerous to the health of human beings. The cultivation and trade in opium leads to problems of law and order. Over the....
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.... necessary for packing and transport; and (iii) any mixture, with or without neutral materials, of any of the above forms of opium, but does not include any preparation containing not more than 0.2 per cent of morphine, or a manufactured drug as de find in Section 2 of the Dangerous Drugs Act, 1930. 9. The expressions "import" and "export" have been defined in the Opium Act to "mean respectively to bring into, or take out of, a State otherwise than across any customs frontiers". "Customs frontiers" is defined to mean "any of the customs frontiers of India as defined by the Central Government under Section 3A of the Sea Customs Act, 1878." 10. Two other expressions defined in the Opium Act are "transport" and "sale". They read as follows: "Transport" means to remove from one place to another within the same State. "Sale" does not include sale for export across customs frontiers, and "sell" shall be construed accordingly. 11. The expression 'opium derivative' is defined in Clause (f) and the expression 'manufactured drug' in Clause (g) of Section 2 of the Dan....
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....t: 5. Control of Central Government over production and supply of opium- (1) No one shall - (a) cultivate the poppy (Pap aver somniferum L.) or (b) manufactured opium, save in accordance with rules made under Sub-Section (2) and with the conditions of any licence for that purpose which he may be required to obtain under those rules. (2) The (Central Government) (a) Substituted for "Governor-General in Council" by A.O., 1937 may make rules permitting and regulating the cultivation of the poppy (Pap ever somniferum L.) and the manufacture of opium, and such rules may prescribe the form and conditions of licences for such cultivation and manufacture, the authorities by which such licences may be granted, the fees that may be charged therefore, any other matter requisite to render effective the control of the [Central Government] over such cultivation and manufacture. (3) The [Central Government] may also make rules permitting and regulating the sale of opium from Government factories for export or to [State Governments] or to `facturing chemists. 7. Control of Central Government over operations at land and sea frontiers. - (1) No one shall- (a) import into Indi....
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....ulating the possession, transport, import, export and sale of opium subject to payment of duty or subject to such other conditions, as it may impose. In view of the contentions urged before us, it is necessary to set out Section 5 in its full entity : The State Government may, from time to time, by notification in the Official Gazette, make rules consistent with this Act, to permit absolutely, or subject to the payment of duty or to any other conditions, and to regulate, within the whole or any specified part of the territories administered by such Government, all or any of the following matters: (a) the possession of opium; (b) the transport of opium; (c) The importation or exportation of opium; and (d) the sale of opium and the farm of duties leviable on the sale of opium by retail: Provided that no duty shall be levied under any such rule on any opium imported and on which a duty is imposed by or under the law relating to sea-customs for the time being in force or under the Dangerous Drugs Act, 1930. 17. Section 13 empowers the State Government to frame Rules regarding disposal of things confiscated and rewards. 18. In exercise of the powers conferred by Section 5 (....
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....bay and Calcutta. Rules 11 and 12 deal with export by land while Rules 13, 14 and 15 deal with export by air. Rule 17 in Part-V deals with Transshipment. (This Rule incidentally makes it clear that Transshipment contemplated by the Rules is Transshipment in the course of or as part of import into or export from India.) 20. We shall first deal with the contention of Sri Salve, learned Counsel for the appellant that inasmuch as the movement of poppy husks from Mandsaur district in Madhya Pradesh to Bombay Port for export to Holland is part of one single integrated transaction, it is a case of 'export from India' within the meaning of Section 2(k) and Section 7 of the Dangerous Drugs Act and, therefore, outside the purview of the Opium Act. Counsel submitted that first the Dutch buyer obtained the import permit from the Dutch authorities for importing the said quantity of poppy husks from the appellant. Correspondingly, the appellant applied for and obtained an export authorisation from the Narcotics Commissioner for exporting the said quantity from Mandsaur district in Madhya Pradesh to the said Dutch buyer. On the basis of the export authorisation issued by the Narcotics Co....
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....d regulation over opium. Another feature to note is that import or export, as defined in the Opium Act, does not necessarily involve the element of sale. It is not necessary that the import or export should be occasioned by or result in a sale. Mere movement from one State to another is sufficient to constitute export or import, as the case may be, within the meaning of the Act so long as such movement is not across the customs frontiers. (Sale of opium is dealt with separately from import/export under Sections 4 and 5.) Now coming to the other Act, taking opium out of India across the customs frontiers is 'export from India' within the meaning of the Dangerous Drugs Act and is governed by Section 7 of the Dangerous Drugs Act and the Rules made thereunder. The Rules under the Dangerous Drugs Act, referred to hereinbefore, specifically provide only two Ports from which opium can be exported by sea. They are Bombay and Calcutta. Therefore, any opium to be exported by sea has to first reach either Bombay or Calcutta. Thus, while movement within India from one State to another (not involving crossing of any customs frontiers) is governed by the Opium Act, the movement across th....
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....ermed as an 'agent of necessity" - and hence, export sales. This court (by majority) rejected the said contention holding inter alia: The appellant sold the goods directly to the Corporation. The circumstance that the appellant did so to facilitate the performance of the contract between the Corporation and the foreign buyer on terms which were similar did not make the contract between the appellant and the Corporation the immediate cause of the export. The Corporation in regard to its contract with the foreign buyer entered into a contract with the appellant to procure the goods. Such contracts for procurement of goods for export are described in commercial parlance as back to back contracts. In export trade it is not unnatural to find a string of contracts for export of goods. It is only the contract which occasions the export of goods which will be entitled to exemption. The appellant was made under no contractual obligation to the foreign buyer either directly or indirectly. The rights of the appellants were against the Corporation. Similarly the obligations of the appellant were to the Corporation. The foreign buyer could not claim any right against the appellant nor....
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....ound that it is one single movement commencing in Mandsaur and terminating in Holland. So far as the Collector of Excise, Mandsaur is concerned, the permit granted by him is governed by Rule 8 of the Madhya Pradesh Poppy Husks Rules, in Form P-H. It is true that he would not have granted such permit unless the appellant had produced the export authorisation from the Narcotics Commissioner, Government of India but that only shows that the said export authorisation is the basis for grant of export permit by the Collector. It does not mean that the export permit granted by the Collector is not an independent permit. The Collector's permit is limited and operative within the four corners of the Opium Act and the Rules made thereunder. He cannot grant a permit for export of opium from India. It is equally relevant to notice that the Authorisation of export issued by the Narcotics Commissioner mentions 'Bombay" against the Column "(e) Name of the customs house through which export is to be effected" and under Clause (g), which requires the route to be followed by the goods to be specified, it says "Bombay to Holland". It does not refer to the presence of ....
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....at the appellant cannot refuse to pay the export duty prescribed by Rule 3-A read with Rule 8 of the Madhya Pradesh Poppy Husks Rules on the ground that the movement of poppy husks from Madhya Pradesh was really an integral part of the export of the said quantity from India, i.e., beyond the customs frontiers of India to Holland. 24. The next contention of Sri Salve pertains to the validity of levy of duty (export duty in this case) under the Rules made by the Madhya Pradesh Government under Section 5 of the Opium Act. The learned Counsel contends that Section 5 is in truth and in effect a taxing provision. The Parliament is not competent to levy duty (tax) on opium. Entry 59 of List-I or for that matter Entry 19 of List-Ill does not encompass the power to levy duty on opium. For this proposition, he relies upon the principle enunciated in Sunderaramier, M.P.V. v. State of Andhra Pradesh [1958]1SCR1422 The learned Counsel contends that power to levy duty of excise on opium is the exclusive province of the States under Entry 51 of List-II. The duty levied in this case, it is sure - says the counsel - is levied under the rules made by the Madhya Pradesh Government but on that accoun....
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....her conditions, possession, transport, import/export and sale of opium and the farm of duties leviable on the sale of opium by retail and (b) the State Government may, from time to time, by notification in the Official Gazette make rules consistent with this Act to regulate within the whole or any specified part of the territories administered by such Government, all or any of the following matters, viz., possession, transport, import/export and sale of opium and the farm of duties leviable on the sale of opium by retail. The primary purpose of Section 5 is controlling and regulating the possession, transport, import/export and sale of opium and not collection of revenue - though the relevance and validity of the said purpose is undeniable in the case of noxious goods, as emphasised by this Court in Cooverjee B. Bharucha v. Excise Commissioner, Ajmer and Ors.: [1954]1SCR873 . The section empowers the State Government to make Rules prescribing the situations in which the possession etc. of opium will be permitted and also to specify in which situations the permission would be absolute, i.e., unconditional and in which situations would it be subject to prescribed conditions. One of t....
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....t that a licence, permit or pass be granted under the Act on payment of such fees and subject to such restrictions and on such conditions as he may prescribe. In such a scheme, it is not of the essence whether the amount charge to the licensees is pre-determined as in the appeals of Northern India Caterers and of Green Hotel or whether it is left to be determined by bids offered in auctions held for granting those rights to licensees. The power of the Government to charge a price for parting with its rights and not the mode of fixing that price is what constitutes the essence of the matter. Nor indeed does the label affixed to the price determined either the true nature of the charge levied by the Government or its right to levy the same. The distinction which the Constitution makes for legislative purposes between a 'tax' and a 'fee' and the characteristic of these two as also of 'excise duty' are well- known. "A tax is a compulsory exaction of money by public authority for public purposes enforceable by law and is not a payment for services rendered". A fee is a charge for special services rendered to individuals by some governmental agency and ....
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.... purport to levy duty of excise but that it only purports to empower the State Government to make Rules to permit possession, export etc. of opium subject to such conditions as it may think appropriate to impose including the payment of an amount (called 'duty' by the Section). In this view of the matter, the principle enunciated in Sunderaramier has no application herein. That principle could perhaps have been relevant if Section 5 had purported to levy duty of excise or other tax on opium. Perhaps, it could then have been argued that Entry 59 of List-I or for that matter Entry 19 of List-Ill does not take in the power to levy taxes and duties on opium. We need express no opinion on the said aspect. For the same reason, the argument of Sri Salve that opium among other narcotic drugs has been excluded from the purview of Entry 84 of List-I need not be dealt with. 27. We are, therefore, of the opinion that the duty provided by Rule 3(A) read with Rule 8 of the Madhya Pradesh Poppy Husks Rules is perfectly within the four corners of Section 5 and cannot be faulted on the ground aforesaid. 28. It is then submitted by learned Counsel that the payment of so- called duty (which....
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...." The effect of these provisions was considered by the Constitution Bench of this Court in South India Corporation Private Limited v. Secretary, Board of Revenue: [1964]4SCR280 . It was held that the said provisions save and continue a law notwithstanding the fact that according to the provisions of the Constitution, the law could not have been made by the legislature which had enacted it, though they do not save such enactment from inconsistency with other provisions of the Constitution, viz., provisions other than those relating to legislative competence. The following statement of law brings out the ratio: The object of this article is to maintain the continuity of the pre-existing laws after the Constitution came into force till they were repealed, altered or amended by a competent authority. Without the aid of such an article there would be utter confusion in the field of law. The assumption underlying the article is that the State laws may or may not be within the legislative competence of the appropriate authority under the Constitution. The article would become ineffective and purposeless if it was held that pre Constitution laws should be such as could be made by the....
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....m generally with reference to Entry 19 of List-III. The said section is thus alleged to be beyond the Parliament's legislative competence. Assuming that the said argument is correct, - which argument we have rejected hereinbefore - still such a law is saved by virtue of Article 372 of the Constitution as interpreted by this Court in South India Corporation. It is not suggested by the learned Counsel that Section 5 is inconsistent with any other provision of the Constitution. 31. Once it is held that the Opium Act is a pre Constitution Statute and is saved by Article 372, the Rules made by the Madhya Pradesh Government in 1959 under Section 5 of the said Act are equally within the protection. The principle of the decision of the Constitution Bench in Sardar Inder Singh v. The State of Rajasthan [1957]1SCR605 clearly supports this proposition. It was held in the said decision : It is next contended that the notification dated June 20, 1953, is bad, because after the Constitution came into force, the Rajpramukh derived his authority to legislate from Article 385, and that under that Article his authority ceased when the Legislature of the State was constituted, which was in the ....
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....encement of the Constitution because no factual foundation has been laid for this argument in the High Court, though Article 372 was expressly relied upon by the State. In any event, Explanation-I to Article 372 appears to be a complete answer to this argument. For all the above reasons, we hold that Section 5 is a perfectly valid piece of legislation and cannot be faulted on the grounds suggested. 34. The last submission of Sri Salve is that Section 5 is void on the ground of excessive delegation of the legislative power. It is argued that Section 5 empowers the State Government to levy duty without prescribing either the minima or the maxima. The rate of duty is left entirely to the State Government. No guidance whatsoever is provided by the Act in the said matter. It is open to the State Government to prescribe such rate of duty as it thinks appropriate. This is a clear case of excessive delegation. The Parliament has not retained any control over the acts of its delegate, viz., the State Government; it is a case of total abnegation, it is submitted. It is brought to our notice that the Allahabad High Court has held so in Mis. Rameshwar Prasad Kishan Gopal and Ors. Etc. Etc. v.....
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.... thereunder (or by any other Act or Rules made under such other Act) furnish adequate guidance to the State Government. It must also be noticed that the rule-making power is conferred upon a responsible body like the State Government. The very noxious nature of opium and the desirability to closely control and regulate possession transport, movement and all dealings therein are matters which the State Government has also to keep in mind while making the Rules. We may in this connection refer to the decision of the Constitution Bench of this Court in Harishankar Bagla and Anr. v. State of Madhya Pradesh [19551 1 S.C.R. 380 Section 3(1) of the Essential Supplies (Temporary Powers) Act, 1946 conferred rule making power upon the Central Government. Sub-section (1) read as follows: 3.(1) The Central Government , so far as it appears to it to be necessary or expedient for maintaining or increasing supplies or any essential commodity, or for securing their equitable distribution and availability at fair prices, may by order provide for regulating or prohibiting the production, supply and distribution thereof and trade and commerce therein.... 36. Sub-section (2) elucidated the grounds ....