Holding

Rule 10‑A of the Central Excise Rules is a valid residuary provision within the rule‑making power of the Act and a demand issued under it is lawful.

Summary

The respondent, a steel rolling‑mill owner, was served a demand for excise duty under Rule 10‑A of the Central Excise Rules after the mill changed hands and a short‑levied duty was alleged. The High Court held that Rule 10‑A could not be invoked where no prior assessment of duty existed, quashing the demand. On appeal, the Supreme Court examined whether Rule 10‑A was ultra vires the rule‑making power conferred by Section 37 of the Central Excise and Salt Act, 1944, and whether a demand could be made under it even in the absence of a prior levy. Relying on the wide‑ranging power under Section 3 to prescribe both levy and collection of duties, and on earlier decisions upholding the residuary character of Rule 10‑A, the Court held the rule valid and not beyond the statutory authority. Consequently, the demand notice issued under Rule 10‑A was lawful. The appeal was allowed and the matter remanded to the High Court for disposal.

Issues considered

Whether Rule 10‑A of the Central Excise Rules is ultra vires the rule‑making power under Section 37 of the Central Excise and Salt Act, 1944.
Whether a demand for excise duty can be made under Rule 10‑A when there has been no prior assessment or levy of duty on the goods.
Whether the High Court erred in holding that Rule 10‑A was inapplicable to the present demand.

Legislation cited

Central Excise and Salt Act, 1944s. 3, s. 37

Subjects

Central ExciseRule 10‑Aultra viresdelegated legislationshort‑levied dutyresiduary provisionlevy and collectionstatutory interpretation

Judgment

·,J
A ASSISTANT COLLECTOR OF CENTRAL EXCISE
v.
RAMAKRISHNAN KULWANT RAI

APRIL 12, 1989
B )"
[K.N. SINGH AND K.N. SAIKIA, JJ.]

Central Excises and Salt Act, 1944/Central Excise and Salt Rules,
'
c
1944-Section 3/Rules JO and JOA-Rules whether ultra vires rule
making power-Whether applicable to cases where there has been no
prior levy of Excise duty in respect of article manufactured.
-.
Respondent firm owned a Steel Rolling Mill situate at Madras. ~
The said mill was leased out to a partnership firm viz., M/s. Steel
Industries and after the expiry of the lease period, the Respondent took
hack the possession of the Mill on 1.8.1962 and informed the Central
Excise Authorities, who advised the Respondent to take out a licence for
D which it applied on 30.11.1962 Respondent sold away the Rolling Mill
•
on 8.4.1963. The Superintendent of Central Excise by his letter dated
13.10.1965 raised a demand of Rs.31,018.20 p. on the respondent on
account of excise duty. The Respondent having informed the Depart-
ment that the firm had manufactured only 775.455 metric tonnes Of ~
steel, the demand of excise duty was reduced to Rs.6,419.38 p. only.
E The Respondent, though pleaded that it was not liable to pay excise
duty demanded, yet the Assistant Collector of Customs by his order
dated 14.6.1967 confirmed the demand. I
~
The Respondent-firm challenged the validity of the demand by
filing a Writ Petition in the High Court. Respondent contended before ;..
F the High Court that (i) it was entitled to exemption of duty; (ii) that the
demand for payment of excise duty was time-barred and (iii) that Rules
IOA under which the demand has been made are ultra vires as there was
no provision in the Act to enable the Government to frame rules for the
-..
rerovery of duty short-levied. i
0 The High· Court allowed the Writ Petition and upheld the conten- ,....
tion advanced by the Respondent holding that Rule lOA did not apply to
cases where there has been no prior levy of excise duty in respect of the !
articles manufactured during the relevant period.

Hence this appeal by the Department.
H

444
ASST. COLLECTOR OF CENTRAL EXCISE v. R.K. RAJ 445

The question that arose for determination by this Court was
whether Rule IOA of the Rules, as it stood at the relevant time, was A
valid? Counsel for the appellant while pleading that the Rule was valid
submitted that it was necessary to decide this question ·in view of the
conflicting decisions creating difficulty for the Department in collecting
short-levies or escaped excise duty. Counsel referred to decisions re-
ported in 1972(2) MLJ 476; A.I.R. 1972 SC 2563; 1973 (l) MLJ 99; and B
1977(2) Tax L.R. l6SO .
••
Counsel for the Respondent urged that the Standing Counsel for
the Central Government had conceded the rationale of the decision in
Haji J.A. Kareem sait v. Dy. Commercial Tax Officer, Mettupalayam;,
18 STC 370 which held that Suh-Rule (7) of Rule 5 of the Central Sales
Tax (Madras) Rules. 1957 was in excess of the rule making power and as C
·)o such the Sub-rule as a whole was invalid. ln view of the said decision,
the appellant wonld not be able to sustain tbe demand under Rule IOA;
and it is no longer open to the appellant to challenge the validity of Role
lOA in the appeal.
D
Allowing the appeal and remanding the matter to the High Conrt,
this Court,

'
. },.. HELD: 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. Rule IOA provided the machinery for E
collection of tax from assessee after the goods had left the factory
premises. This rule contemplated 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
.Ji collection of any duty or of any deficiency in duty, if the duty had for
any reason been short levied. It was a residuary provision and it F
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 recover-
able under Rule IOA. [449E; 448H; 449B-C)

The validity of the delegated legislation is generally a question of G
vires, that is, whether or not the enabling power has been exceeded or
not. Rule IOA as it existed at the relevant time, was valid and not ultra
vires the rule making power. Demand notice lawfully issued under the
rule by the competent authority could not, therefore, be challenged on
the ground of the Rule IOA itself being ultra vires. Whether these could
be challen~ed on any other ground must necessarily depend on the facts H
446 SUPREME COURT. REPORTS (1989] 2 S.C.R.

A and circumstances of each case. [453E-F]

Kera/a Polythene v. Superintendent Central & Excise, [1977] 2,
Tax L.R. 1680.

Mis. Chhotabhai Jethabhai.Patel v. Union of India, [1952] ILR
B Nag.156. ·~

State of Kera/a v. K. M. Charie Abdullah & Co., [1965] 1 S.C.R. )'
601.
Any rule if it could be shown to have been made •to carry into
effect the purposes of the Act' would be within the rule making
c power. [452H; 453A]
Citadel Fine Pharmaceuticals v. District Revenue Officer, Ching·
leput, (1973] l M.L.J. 99; M/s. AKarwal Brothers v. Union of India,
(1972] 2 MLJ 476; N.B. Sanjane v. Elphinstone Spinning and Weaving
Mills Company Ltd., [1971] l SCC 337; Assistant Collector v. National
D Tobacco Co. Ltd., [1973] l S.C.R. 822 and D.R. Kohli v. Atul Pro·
ducts Ltd., (1985] 2 S.C.R. 832, referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1202 I
of 1974. ~

i;; From the Judgment and Order dated 19.7.1972 of the Madras
High Court in Writ Petition No. 1064 of 1967.

Anil Dev Singh and C.V.S. Rao for the Appellant.

Ambrish Kumar and A.T .M. Sam path for the Respondent. cl_
F
The Judgment of the Court was delivered by

K.N. SAIKIA, J. This appeal by Special Leave is from the Judg·
ment and Order of the High Court of Judicature at Madras, dated 19th
foly, 1972 in Writ Petition No. 1864 of 1967, allowing the petition and
G 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'.

M/s. Ramakrishnan Kulwant Rai, the respondent firm, owned
H the Steel Rolling Mill, located at No. 4-B, 4-C, North Railway
448 SUPREME COURT REPORTS [1989] 2 S.C.R.

A 2563, 1973 (1) M.L.J. 99 and 1977 (2) Tax L.R, 1680. 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 con-
tinued 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.
B
Mr. Ambrish Kumar, the learned counsel for the respondent ·~
submits that the learned standing counsel for the Central Government
having conceded that the rationale of the decision in Haji I.A. Kareem
Sait v. Dy. Commercial Tax Officer, Mettupalayam, 18 STC 370, which -
held that sub-Rule (7) of Rule 5 of the Central Sales Tax (Madras)
C Rules 1957, providing for limitation and determination of escaped
turnover by best judgment was in excess of the rule-making power and -'I
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 9(2) of the Rules, it is no
D 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
E 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 validity of Rule 10-A as it
stood at the relevant time. Rule 10-A of the Rules read as under:
F
"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 defi-
ciency in duty if the ,duty has for any reason been short
levied, or of any other sum of any kind payable to the
G Central Government under the Act or these Rules, such
duty, deficiency ii\ 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
•
H assessee after the goods had left the factory premises. This rule con-
ASST. COLLECTOR OF CENTRAL EXCISE v. R.K. RA! (SAIKIA, J.) 449

,y· templated that the duty or deficiency in duty was payable on a written
A
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 provi-
-. / sion for the collection of duty in respect whereof a demand was being B
'"-f made by the proper officer, or that there was no specific provision
t 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 ssessment at all there was no reason why claim and
demand of the respondent could not be said to be recoverable under
Rule 10-A. c
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 ques- D
tion, 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 r~levant time,
read as follows: E

- "( 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. imported by
land into, any part of India as, and at _the rates, set forth in F
the First Schedule."

In Citadel Fine Pharmaceuticals v. District Revenue Officer,
Chingleput, [ 1973] 1 M.L.J. 99, 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 G
that the Rules made under that Act could riot 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 juris-
diction. Rule 12 of those Rules read as follows:

" 12. Residuary powers for recovery of sums due to H
450 SUPREME COURT REPORTS [1989] 2 S.C.R.

Government-Where these rules do not make any specific
A
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 ihe collecting
Government under the Act or these rules, such duty, defi-
ciency in duty or sum shall on written demand made by the
B proper officer, be paid to such person and at such time and
place, as the proper officer may specify." y

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 Mis. Agarwal Brothers v. The Union of
India, [ 1972] 2 M.L.J. 476, it was held that a licence issued under the
-
C 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. 131 of 1962, dated
13th June, 1962, and as the petitioner applied'for a licence much later,
D the exemption under the Notification was not available to the peti-
tioner who could not be applying for renewal of the earlier licence held
by the transferors and hence the exemption under the Notification 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 W.P. No. 1053/68, namely the Citadel Fine
E (supra).

A Division Bench of Kerala High Court in Kera/a Polythene_ v.
Superintendent, Central Excise, since reported in 1977 2 Tax L.R.
1680, held that Rule 10-A of the rules was not ultra vires the rule
-
making power conferred by the Act on the Central Government.
F Balakrishna Eradr, J., as he then was, observed that the scope of the

-
rule making power conferred by Section 3(1) of the Act was wide
enough to embrace all matters relating to the manner in which both the
lavy and the collection of duties of excise on all excisable goods other
than salt were to be made. The provision contained in Rule 10-A was
thus fully within the scope of the said power and hence it was not
G 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 distinguished 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
H provisions of the two Sections it was observed that there was funda-.
: ~:

ASST. COLLECTOR OF CENTRAL EXCISE v. R.K. RA! (SAIKIA, J.] 451

v mental difference in their policy and scheme. Under Section 3 of the A
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 i.e. Central Excise and Salt Act, the
Parliament had empowered the rule making authority to prescribe by
rules the manner of levy of duties and also the manner of collection of
B
--./ 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
c
·'f 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 D
decision can not obviously be regarded as authority supporting the
contention that Rule 10-A was ultra vires the rule-making power.
I We find that Rule 10-A, was incorporated because of the deci-
i sion of the Nagpur High Court in Messrs Chhorabhai Jethabhai Patel v.
E ~
Union of India, [1952] I.LR. Nag. 156. After that decision the Central
Government by a notification, dated December 8, 1951,.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 rejected
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
F
-"' challenged before this Court unsuccessfully. This Court in Chhotabhai
Jethabhai Patel and Co. v. The Union of India, [1962] 2 Suppl. .S.C.R.
";
1, rejected 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.N.B. Sanjana v. Elphinstone Spinning and G
~ Weaving Mills Company Ltd., [1971] 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.
H

j
·;,, . ·oft;
452 SUPREME COURT REPORTS [1989] 2 S.C.R.

A In Assistant Collector v. National Tobacco Co. Ltd., [1973] 1
S. C.R. 822, 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
B 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 1
time dealt with collection and not with assessment and what was said in
N.B. Sanjana's case (supra) that Rule 10-A was of residual in charac-
ter. and would be inapplicable if a case fell within a specified category
of cases mentioned in Rue 10, was reiterated.
-
c
In D.R. Kohli v. Atul Products Ltd., [1985] 2 S.C.R. 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
D 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
E account current or from the date of making the refund, Rule 10-A did
not contain 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
F 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
G 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
H to have been made "to carry into effect the purposes of the Act" would
ASST. COLLECTOR OF CENTRAL EXCISE v. R.K. RA! ISAIKIA, J.) 453
¥. be within the rule making power. Chapter II of the Act dealt with the
A
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
I
~1 rates of duty. Section 3 has subsequently been amended by the Finance B
Acts of 1982 and 1984, and the Central 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 includ-
- ing 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 exer- c
r cised strictly within the limits of the authority. 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 Kera/a v. K.M.
Charia Abdullah & Co., [1965] 1 SCR 601. Therein the High Court D
having declared rule 14-A of the Madras General Sales Tax Rules,
1939 as ultra vires, on appeal, this Court by majority 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 E
exceeded or otherwise wrognfully exercised. Scrutinising the provi-
• sions of Rule 10-A in the light of the above principles and pronounce-
ments of this Court, we have no doubt that Rule 10-A'of the Rules, as
1i
it existed at the rekvant 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 F
of the rule 10-A itself being ultra vires. Whether those ·could be cha!-
,,,...
... -
lenged on any other ground must necessarily depend on the facts and
circumstances of the case .

The High Court having proceeded on the basis that Rule 10-A «" 1
was not available to support the demand notice, we set aside the G
-f impugned order of the High Court, allow the appeal, 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 allowed. •H

". ~ ,:~~