M.P. Kumaraswami Raja, In Re.

This is a revision against the conviction of the petitioner under S. 15(b) of the Madras General Sales-Tax Act. The facts are set out in the judgment of the lower Court and it is unnecessary for me to re-state them here. Suffice it to say that in this case, the petitioner has been prosecuted for non-payment of tax provisionally fixed by the Assistant Commercial Tax Officer. The petitioner started his sweetmeat shop on 1st August 1953. The Assistant Commercial Tax Officer visited the shop and it is stated that the petitioner submitted a return in Form A.1 as required by R, 6 of the Rules of the Madras General Sales-Tax Turnover and Assessment Rules of 1939 and on that basis A.2 notice was served on him on 25th October 1933 and for failure to pay the tax for three months, August, September and October, he was prosecuted and convicted.

This is a case in which the petitioner has been asked to pay the sales tax even before the turnover for the year has been determined under the rules. Mr. Seshadri appearing for the petitioner contends that though under the relevant rules the petitioner can be asked to pay the tax, the rules themselves are ultra vires of the powers given to the Government under the statute; The Turnover Rules are framed under S. 3, Cls. 4 and 5 of the Madras General Sales Tax Act.

S. 3(1) says that

“subject to the provision of this Act, (a) every dealer shall pay for each year a tax on his total turnover of such year.”

S. 3, Cl. 4 says that

“for the purpose of this section and the other provisions of this Act, turnover shall be determined in accordance with such rules as may be prescribed:

Provided that no such rule shall come into force unless they are approved by a resolution of the Legislative Assembly.”

This clause, therefore, provides, only for the determination of the turnover.

Under Cl. (5)

“The taxes under Sub-Ss. (1) and (2) shall be assessed, levied and collected in such manner and in such instalments, if any, as may be prescribed.

Prescribed means prescribed by rules made under this Act. Presumably under this sub-section, the authorities are asking the atisessees to pay the tax in advance even before the actual annual turnover is determined in accordance with the rules. In short what the asessees are asked to pay is something in the nature of an advanced tax based on certain surmises either of the assessee himself or of the authorities. The question is whether such a direction asking the assessee to pay the tax is justifiable under the statute. There is a provision in the Income-tax Act, 3. 18(a), under which the income tax assessees can be asstssed on the basis of the past income and could be asked to pay for the current year on certain dates in advance. The Central Legislature has thought fit to give such a power to the Government to assess the income-tax assessees in such a manner and collect the tax in advance. This is bared on the assessment of the previous year.

Apart from the fact that there is no such provision in the Madras General Sales-Tax Act, here the further anomaly is that without the petitioner being assessed in any previous year, he is being asked to pay the tax merely on a surmise may be that of the assessee himself or that of the authorities. Unless the Legislature gives such a power to the authorities to assess in such a manner to collect the tax, I feel there is considerable force in the arguments of Mr. Seshadri that these rules under which the assessee are asked to pay in advance even when they have not been assessed in any of the previous years ate ultra vires of the powers of the Government. The question is one of considerable importance as it affects the revenues of the State. I would prefer a Bench of this Court to give an authoritative decision on this point. This case will, therefore, be posted before a Bench of this Court.

(This case coming on for hearing before the Bench, in pursuance of the aforesaid Order of Reference, the Court made the following)

The Chief Justice:—This is a petition to revise the order of the Additional First Class Magistrate, Kumbakonam, convicting the petitioner of an offence under S. 15(b) of the Madras General Sales-Tax Act for failure to pay the provisional sales tax as demanded from Mm and sentencing him to pay a line of Rs, 50, and in default to suffer simple imprisonment for two months. It was heard in the first ins lance by Somasundaram, J., who directed the case to be posted before a Division Bench as the question involved was one of considerable importance. The facts necessary for a disposal of this case are these: The petitioner is a dealer in sweetmeats. He commenced this business on or about 1st August 1953. On 25th October 1953, he was served with a notice in. Form A-2 demanding from him the payment of a provisional sales-tax for the months from August to October 1953, which was assessed in a sum of Rs. 105, on or before 14th November 1953. The accused failed to pay the amount. On 13th November, 1953, he intimated that he had stopped his business. He was thereupon charged with an offence under S. 15(b) of the Madras General Sale-Tax Act, hereinafter referred to as the Act. There can be no doubt that the assesement and levy of the said lax were in accordance with the Turnover and Assessment Rules made by the Government in exercise of the powers conferred by the Act. The only question raised by the petitioner is whether these rules are valid.

Before we deal with the question, it is useful to set out the material provisions of the Act, and the relevant rules. S. 3(1) provides that

“Subject to the provisions of this Act,—

(a) every dealer shall pay each year a tax on his total turnover for such year; and

(b) the tax shall be calculated at the rate of three pies for every rupee in such turnover.”

provided that if and to the extent to which such turnover relates to articles of food and drink sold in a hotel, boarding house or restaurant, the tax shall be calculated at the rate of four and a half pies for every rupee, if the turnover relating to those articles is not less than twenty Eve thousand rupees.”

“Turnover” is defined in S. 2(v) as the aggregate amount for which goods are either bought by or sold by a dealer; and “year” means, according to S. 2(j), the financial year. Sub-Ss. (A) and (5) of S. 3 run thus:

“(4) For the purposes of this section and the other provisions of this Act, turnover shall be determined in accordance with such rules as may be prescribed;

Provided that no such rules shall come into force unless they are approved by a resolution of the Legislative Assembly.

(5) The taxes under Sub-Ss. (1) and (2) shall be assessed, levied and collected in such manner and in such instalments, if any, as may be prescribed;

Provided that—

(i) in respect of the same transaction of sale, the buyer or the seller, but not both as determined by such rules as may be prescribed, shall be taxed;

(ii) where a dealer has been taxed in respect of the purchase of any goods in accordance with the rules referred to in Cl. (i) of this proviso, he shall not be taxed again in respect of any sale of such goods effected by him.”

The procedure to be followed for assessing the tax is laid down in S. 9. Every dealer whose turnover is Rs. 10,000, or more in a year is required to submit a return or returns relating to his turnover in such manner or within such periods as may be prescribed. If the assessing authority is satisfied with the return, he shall assess the dealer on its basis. If no return is submitted by the dealer before the prescribed date, or if the return submitted appears to the assessing authority incorrect or incomplete, the assessing authority is given the power to assess the dealer to the best of his judgment, provided that before taking action under this provision the dealer is given a reasonable opportunity of proving the correctness and completeness of any return submitted by him. S. 15 deals with offences and penalties. We are only concerned with Cl. (b), which makes failure to pay within the time allowed any tax assessed, an offence punishable with a fine which may extend to one thousand rupees. In case of conviction, the Magistrate is required to specify in the order the tax which the person convicted has failed to pay.

Section 19 confers power on the State Government to make rules to carry out the purposes of the Act, and in particular to provide for (a) all matters expressly required or allowed by this Act to be prescribed. Under Sub-S. (4), of the section, the power to make rules is subject to the condition of the rules being made after previous publication for a period of not less than four weeks. Sub-S. (5) declares that

“all rules made under this section shall be published in the Fort St. George Gazette and upon such publication shall have effect as if enacted in this Act.”

In exercise of the powers so conferred, the Madras Government have made two sets of rules, namely, the Madras General Sales-Tax (Turnover and Assessment) Rules, and the Madras General Sales-Tax Rules. Under R. 6 of the former rules, that is, the Turnover and Assessment Rules, every dealer commencing business after 1st October 1939 whose estimated net turnover for the first twelve months of his business is not less than Rs. 10,000 shall within thirty days of commencing his business submit a return in Form A-1 showing his estimated gross and net turnover for the first twelve months of his business. A dealer who has not so submitted a return but whose net turnover reaches Rs. 10,000 in any year for the first time, shall within thirty days of the day on which his net turn over reaches Ra. 100.000 submit a similar return. If the assessing authority is satisfied that the return submitted under R. 6 is correct and complete, he shall fix provisionally on the basis of the return the annual tax or taxes payable at the rate or rates specified in S. 3 etc.— (R. 7). If no return is submitted or if the return so submitted appears to the assessing authority to be incorrect or incomplete, he shall determine the turnover to the best of his judgment and fix provisionally the annual tax or taxes payable (R. 8). As soon as the tax has been provisionally fixed under R. 7 or R. 8, the essessing authority shall issue to the dealer notice in Form A.2 and the dealer shall pay for each month of the year of assessment one twelth of the tax provisionally fixed at the time and in the manner specified in the notice. R. 11 provides for the final assessment on or before the 1st day of May every year. The dealer is liable to submit a return showing the actual gross and net turnover for the preceding year and the amounts by way of tax or taxes actually collected during such year. On receipt of this return, the assessing authority finally shall assess the tax or taxes payable. If no such return is submitted or if the return so submitted is found to be incorrect or incomplete the asses-sing authority is given power to finally assess the tax according to the best of his judgment. R. 13 prescribes a different method of assessment, return, and levy, but this method is followed only at the express desire of the dealer. As the petitioner in this case never intimated his desire that this method should be applied to him, it is not necessary to set out the details of this method.

The main contention of the petitioner's Counsel was that under S. 3(1) which is the charging provision, the liability for the tax for any year does not accrue till the end of that year because the liability is to pay the tax on the total turnover of such year, in the present case, according to the definition in the Act, the year would be financial year commencing from 1st April 1953 and ending with 31st March 1954. The petitioner however, has been called upon to pay the tax long before the lapse of the year. Under the rules, undoubtedly the petitioner would be liable to pay as per the provisional assessment made by the assessing authority. The contention is that the rules are inconsistent with, and go, beyond, the section, and the rules, in so far as they are consistent with, and repugnant to, the section, are invalid. The alternative argument of petitioner's Counsel was that in case it be held that the rule-making authority, namely, the Government, has been given power to make rules neither covered nor contemplated by the enactment itself, then such delegation of legislative power would be unconstitutional The learned Advocate General sought to uphold the validity of the rules in question on several grounds: firstly, he contended that the rules were not inconsistent with, and did not travel beyond, the sections; and secondly, that even if the rules be inconsistent with the section, they are not liable to be struck down because of the special provision made in S. 19(5) that upon publication in the Fort S. George Gazette the rules shall have effect as if enacted in the Act. According to him, the rules are not open to judicial review. He denied there was any unconstitutional delegation of legislative power.

I shall first deal with the contention that the validity of the rules cannot be examined by a Court of law and that it is not open to a Court to declare any of the rules to be void because they are inconsistent with any of the provisions of the Act. The foundation for this contention is, as already mentioned, S. 19(5) of the Act. Once the rules are made after previous publication for the requisite period and then published in the Fort St. George Gazette, there is no difference between a rule and a section of the Act. So the argument ran. The observations of Lord Herschell L.C in Institute of Patent Agents v. Lock, wood(1), were strongly relied on. To properly appreciate these observations, it is necessary to state the facts of that case. By the Patents, Designs and Trade Marks Act, 1883, S. 101, the Board of Trade was given the power to make from time to lime such general rules as they thought expedient for regulating the practice or registration under the Act. Sub-S. (3) of that section enacted that general rules made under the section shall be of the same effect as if they were contained in the Act. Sub Ss. (4) and (5) laid down the procedure to be followed before the rules came into force. They run as follows:

“(4) Any rules made in pursuance of this section shall be laid before both Houses of Parliament.

(5) If either House of Parliament, with in the next forty days after any rules have been so laid before such house, resolve that such rules, or any of them ought to be annulled, the same shall, after the date of such resolution, be of no effect,”

The Board of Trade made certain rules which were laid before Parliament, and no objection was taken to them within the forty days specified by the Act. It was held that the rules having been laid before both Houses of Parliament without being annulled were of the same effect as if they were contained in the statute, and as long as they remained in force, it was not competent for anyone to question their authority. Lord Herschell was evidently much impressed by the procedure which had to be followed before the rules came into force. The learned Lord Chancellor dealt with the question whether the validity of the rules could be canvassed in the Courts, when once rules had been made by the Board of Trade and laid as provided on the tables of both Houses of Parliament. He said:

“They (the rules) are to be ‘of the same effect as if they were contained in this Act’, My Lords, I have asked in vain for any explanation of the meaning of those words or any suggestion as to the effect to be given to them if, notwithstanding that provision, the rules are open to review and consideration by the Courts. The effect of an enactment is that it binds all subjects who are affected by it. They are bound to conform themselves to the provisions of the law so made. The effect of a statutory rule if validly made is precisely the same that every person must conform himself to its provisions, and, if in each case a penalty be imposed, any person who does not comply with the provisions whether of the enactment or the rule becomes equally subject to the penalty. But there is this difference between a rule and an enactment, that whereas apart from some such provision as we are considering, yon may canvass a rule and determine whether or not it was within the power of those who made it, you cannot canvass in that way the provisions of an Act of Parliament. Therefore, there is that difference between the rule and the statute. There is no difference if the rule is one within the statutory authority, but that very substantial difference, if it is open to consideration whether it be so or not.

I own I feel very great difficulty In giving to this provision that they ‘shall be of the same effect as if they were contained in this Act,’ any other meaning than this, that you shall for all purposes of construction or obligation or otherwise treat them exactly as if they were in the Act.”

The Noble Lord was not unaware of the possibility of there being sometimes a conflict between a provision of the Act and a rule. That difficult situation is thus met by him:

“No doubt there might be some conflict between a rule and a provision of the Act, Well, there is a conflict sometimes between’ two sections to be found in the same Act. You have to try and reconcile them as best you may. If you cannot, you have to determine which 13 the leading provision and which the subordinate provision, and which must give way to the other. That would be so with regard to the enactment and with regard to rules which are to be treated as if within the enactment. In that case probably the enactment itself would be treated as the governing consideration and the rule as subordinate to it.”

Lord Watson took a similar view of the words “shall be of the effect as if they were contained in this Act.” Lord Morris, however, took a contrary view. He observed:

“But if a Court of Justice (before whom all these questions must ultimately come) considers that certain rules are rules which do not come within this section, in my opinion, they would be ultra vires, and it would be the duty of the Court not to regard them as operative. As regards the question of their receiving any further sanction from the fact of their being laid before both Houses of Parliament, that is a matter of precaution; they do not receive any imprimatur from having been laid before both Houses of Parliament; it is only that an opportunity is given to somebody or other, if be chooses to take advantage of it, of moving that they be annulled. It is a precaution which in ninety-nine cases out of a hundred would be practically a sufficient precaution; but with reference to the abstract proposition which was queried in, the judgment of the Master of the Rolls, which has been cited. I have arrived at the conclusion that if the rules were not such rules as it was contemplated, the Board of Trade should have the authority of making under the sections given them the authority of making rules, it was the duty of the Court to determine that they were ultra vires.”

I do not think that this decision helps the learned Advocate General very much. Though I understand from the learned Advocate General that the rules now in question along with the other rules described as “Turnover and Assessment Rules” were approved by the Legislative Assembly there is nothing in the Act which makes such procedure necessary. So except as regards the rules relating to the calculation of the turnover, I do not understand this decision to lay down that even if the rules made relate to a subject matter not covered by the Act itself, they would still be valid because of the provision that they will have the same effect as if made in the Act. And finally, the concluding observations of Lord Herschell himself above cited, dealing with the situation when there might be conflict between a provision of the Act and a rule, practically, bring in judicial review to test the validity of a rule, when it is in conflict with a provision of the Act. This decision was elaborately considered by the Horse of Lords in Minister of Health v. The King [on the prosecution of Yaffee] . It was there held that S. 40 of the Housing Act, 1925, which empowered the Ministry of Health to make an order confirming, with or without modifications, an improvement scheme made under the Act, and providing that the order of the Minister when made shall have effect as if enacted in the Act, did not preclude the Court from calling in question the order of the Minister were the scheme was inconsistent with the provisions of the Act. Viscount Dunedin, after referring to the distinction to which I have referred earlier, that is, in regard to the laying of the rules before the Houses of Parliament, expressed his view that the real clue to the solution of the problem was to be found in the opinion of Lord Herschell contained in his concluding observations, which I have extracted above, dealing with a conflict between a rule and a provision in the Act. Applying those observations to the case before him, the Noble Lord said:

“What that comes to is this: The confirmation makes the scheme speak as if it was contained in an Act of Parliament, but the Act of Parliament in which it is contained is the Act which provides for the framing of the scheme, not a subsequent Act. If therefore the scheme, as made, conflicts with the Act, it will have to give way to the Act. The mere confirmation will not save it.”

Lord Warrington considered that the decision was on the footing that the rules here made by the Board of Trade were within the statutory authority.

In my opinion, the law is correctly staled in Halsbury's Laws of England, Second Edn. Volume XXXI, thus:

“Section 575. Statutory rules, orders, and bye-laws differ from statutes in that they may be open to the judiciary to question their validity, to examine if they have complied with conditions precedent, or if they are inconsistent with the statute under which they are made, and in the case of bye-laws to consider if they are reasonable. If they fail to comply with such conditions, the Court may quash them or treat them as unenforceable. The Court is not precluded from inquiring into the validity of an order because the statute authorising the making of the order provides that it shall have effect as if it were enacted in the statute” (468-9).

There is abundant authority in decisions of the Courts in India for this position.

So it becomes necessary to decide whether Rr. 6 to 11 are in any way inconsistent with any of the provisions of the Act. The learned Advocate General laid considerable stress on the language in S. 3(5) of the Act, which he said was wide enough to permit a rule being made to assess, levy and collect the tax in any manner, so long as it was the total turnover that was finally treated as being liable to tax. While I agree that once the tax has accrued in accordance with the charging section, the rules can provide for the assessment, levy and collection of the tax in such manner as the Government may consider proper and expedient, I fail to see how when the charging section says that every dealer shall pay for a financial year sales-tax on his total turnover for such year, he can be asked to pay before the year has elapsed and therefore the total turnover cannot be ascertained, a provisional tax calculated on an estimated turnover. I quite realise that the Legislature might have made such a provision in the Act itself. An apposite analogy is furnished by S. 18-A of the Indian Income-tax Act. But in the absence of any such provision in the Act itself, a rule cannot go a beyond the Act and make the dealer pay a tax provisionally calculated on an estimated turnover. The objection is not met by reference to the provision in the rules for final adjustment. Nor are we concerned with the convenience of the parties, that is, the assessee and the Government. Here we have a penal provision in S. 15 and the Sales-Tax Act is a fiscal enactment. It is well established that in such cases the Courts will strictly construe the material provisions to deter mine whether an undoubted liability is cast on the subject, for failure to discharge which he could be made to suffer a penalty.

The learned Advocate General relied upon a ruling of this Court in Syed Mohammed and Co. v. State of Madras, to which I was a party, as having decided the question be lore us. Our attention was drawn to the following passage in the judgment of Venkatarama Aiyar, J., who delivered the judgment of the Court:

“It is also contended that it is wrong on principle that a tax should be levied be tore it is finally determined; that under S. 3(2) of the Act the assessment should be only on the annual turnover and that, therefore, R. 15(2) which provides for advance payments of tax every month before the liability to pay arises, which is only when the goods are actually tanned or exported is unconstitutional and that the position is not altered by R. 15(5) which provides for deduction of the amounts which turn out in the events not to have been payable in the returns for subsequent months. But advance payment of tax is a well-recognised feature in the mode of realising tax and the provision in R, 15(2) is in accordance with the practice generally obtaining in this branch of the law. In discussing the validity of a somewhat similar provision in a taxing statute of Southern Iowa, the Court observed;‘

‘It is of course true that as the report is required on the twentieth of the calendar month for transaction of the preceding month, there may at times be gasoline received in the month covered by the report which has not been exported by the twentieth of the succeeding month; but the distributor is entitled to a credit for such exportation in his report made in the next month, and the mere fact that he cannot claim an anticipatory credit for gasoline not yet exported, but intended so to be, seems to us to be too slight a burden to be of any moment, or to raise a substantial constitutional question’. Monomotor Oil Co. v. Johnson. The attack on R. 15(2) must accordingly fail. It may be added that this contention is of academic interest so far as the petitioners are concerned, as it is admitted by them that they tanned all the goods purchased by them for tanning.” (page 313).

No doubt the rule in question was R. 15, which related specially to hides and skins. But that does not furnish a ground of distinction. The attack on R. 15 in that case was that the rule was unconstitutional. So far as I am able to recollect, there was no argument that R. 15 was inconsistent with S. 3(1) and went beyond it and was therefore ultra vires and invalid. The citation from Monomotor Oil Co. v. Johnson(2), shows that the learned Judge was dealing only with, the constitutional, objection. The argument there was that it was only when the goods are actually tanned or exported that the liability to the tax arises. That is why the learned Judge concludes by saying that the contention is of academic interest?, as it was admitted that all the goods had been tanned. I do not, therefore, think that the ruling contains a decision on the point now raised before us.

During the course of his argument, the learned Advocate General placed some reliance on S. 3(6) and on S. 21 of the Act, But the argument was not fully developed, and I am unable to see any substance in it. The learned Advocate General has failed to convince me that the rules which provide for an advance provisional assessment and levy are not inconsistent with the provisions of the Act. In this view, if is not necessary to deal with the other alternative ground, namely, that if it be assumed that the Legislature had delegated to the Government the power to make rules even inconsistent with and beyond the provisions of the Act, then such delegation of legislative power is unconstitutional and invalid.

It follows from our finding above that the demand from the petitioner of the provisional advance tax for the three months was invalid as the rules under which such a demand was made are themselves ultra vires. The petitioner therefore was not guilty of an offence under S. 15(b) of the Act.

I therefore allow the revision petition, and set aside the conviction and sentence against the petitioner. The fine, if paid, will be refunded.

V.C.S