Holding

Rule 12 is a valid residuary power under Section 19(2)(i) of the Act and does not contravene Article 14; recovery must be made within a reasonable period.

Summary

The respondents, manufacturers of medicinal preparations using alcohol tincture, failed to pay excise duty and obtain a licence under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955. The Commercial Tax Officer issued demand notices under Rule 12 of the 1956 Rules to recover the unpaid duty. The High Court quashed the notices, holding Rule 12 ultra vires the Act and violative of Article 14 for lacking a limitation period. On appeal, the Supreme Court examined whether Rule 12 was within the powers conferred by Section 19 of the Act and whether the absence of a prescribed limitation period rendered it unreasonable. The Court held that Rule 12 is a valid residuary provision authorised by Section 19(2)(i) and does not violate Article 14; the power must be exercised within a reasonable period, determined case‑by‑case. Consequently, the appeals were allowed and the High Court judgment set aside.

Issues considered

Whether Rule 12 of the Medicinal and Toilet Preparations (Excise Duties) Rules, 1956 is ultra vires the Medicinal and Toilet Preparations (Excise Duties) Act, 1955.
Whether Rule 12 violates Article 14 of the Constitution by not prescribing a limitation period for recovery of duty.
What constitutes a reasonable period for exercising the power of recovery under Rule 12.

Legislation cited

Constitution of Indias. Article 14
Medicinal and Toilet Preparations (Excise Duties) Act, 1955s. 19(1), s. 19(2)(i), s. 3

Subjects

excise dutymedicinal preparationsRule 12limitation periodArticle 14ultra viresresiduary powertax recoveryreasonable period

Judgment

GOVERNMENT OF INDIA A
v.
CITEDAL FINE PHARMACEUTICALS MADRAS &OR,S.
ETC. ETC.

JULY 20, 1989
B
[K.N. SINGH AND M.H. KANIA, JJ.]

Medicinal and Toilet Preparations (Excise Duties) Act 1955:
Sectinn-3.19/Medicinal and Toilet Preparation.< !Excise Duties)
-I Rules, 1956: Rule 12.
c
' Residuary Powers for recovery of sums due to Government-
Validity of

(
Constitution of India, 1950: Article 14 Medicinal and Toilet Pre-
·1 parations (Excise Duties) Rules 1956--Absence of period of limitation
for recovery of sums due to Government-Rule 12-Whether uncons- D
titutional.

Limitation-Absence of period of limitation-Action should be
taken within reasonable period-Reasonableness of period-What is.

The respondents were manufacturing various medicinal prepara- E
!ions and in that process were using tincture containing alcohol. On the
enforcement of the Medicinal and Toilet Preparations (Excise Duties)
• Act, 1955 they became liable to pay duty and also to obtain licence but
they continued their manufacture without doing so.

The Commercial Tax Officer issued demand notices under Rule F
12 of the Medicinal and Toilet Preparations (Excise Duties) Rules, 1956
requiring payment of the duty which the respondents had failed to pay.

The respondents tiled writ petitions in the High Court challenging
the aforesaid notices, and the proceedings for recovery of duty. Allow-
ing the writ petitions the Division Bench quashed the notices as well as G
the proceedings for recovery on the ground that the Act was silent on
the question of levy of duty on escaped turnover, and hence Rule 12
which provides for recovery of escaped duty was outside the purview
and scope of the Act and, therefore, ultra vires.

In these appeals it was contended that Rule 12 was invalid and H
465
466 SUPREME COURT REPORTS [1989) 3 S.C.R.

unreasonable and violative of Article 14 of the Constitution because it
A
does not provide for any period of limitation for the recovery of duty.
'
Allowing the appeals and setting aside the judgment of the High
Court, this Court,

B HELD: 1. The liability to pay tax is created by the charging
section 3 and Rule 12 confers, power on the authorised officer to
recover duty if the same has not been paid on account of any short-levy
or deficiency or any other reason. Rule 12 is referable to section 19(2)(i)
of the Act and carries out the purposes of the Act as it seeks to provide
for recovery of duty as contemplated by section 3(3) of the Act. It is
designed to confer residuary power for recovery of duty if unpaid on
c account of short-levy or deficiency or for any reason it remains unpaid.
If recovery of duty or any amount of sum payable to the Government
under the Act is not covered by any specific Rule, additional supple-
menting provision is made for its recovery by this Rule. This Rule does i
not create any additional charge or liability on the manufacturer for the
D payment of the duty. The High Court Committed error in holding that
the Rule is ultra vires the Act. [470C-D, 470A-B)

2. Rule 12 does not prescribe any period within which recovery of
any duty as contemplated by the Rule is to be made, but that by itself
does not render the Rule unreasonable or violative of Article 14 of the --4,.
E Constitution. In the absence of any period of limitation it is settled that
every authority is to exercise the power within a reasonable period.
What would be reasonable period, would depend upon the facts of each
case. Whenever a question regarding the inordinate delay in issuance of '
notice of demand is raised, it would be open to the assessee to contend
that it is bad on the ground of delay and it will be for fhe relevant officer
p to consider the question whether in the facts and circumstances of the J
case notice or demand for recovery was made within reasonable period.
No hard and fast rules can be laid down in this regard as the determina-
tion of the question will depend upon the facts of each case. [470F, G, H, 471A]

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1403
O to 1406 of 1974.

From the Judgment and Order dated 23.12.1971 of the Madras 'r
High Court in W.P. Nos. 1053-54, 4679 & 4715of1968.

Anil Dev Singh, Ms. Indu Malhotra and C.V. Subba Rao for the
H Appellant.
' ~: .
GOVT. 01' INDIA v. C.F. PHARMACEUTICALS [SINGH, J.] 467

R.P. Bhat, G.L. Sanghi, M.N. Krishnamani, Vineet Kumar, R.
A
Mohan, K.C. Dua and R.A. Perumal for the Respondents.

The Judgment of the Court was delivered by

SINGH, J. These appeals are directed against the judgment and
order of a Division Bench of the High Court of Madras dated 2.8.1974, B
quashing the notices issued by the Deputy Commercial Tax Officer,
Madras.

The respondents manufacture various medicinal preparations
and in that process they use tincture containing alcohol. On the
enforcement of the Medicinal and Toilet Preparations (Excise Duties) C
Act, 1955 (hereinafter referred to as 'the Act') the respondents
became liable to pay duty in accordance with Section 3 of the Act read
with Schedule to the Act. They further became liable to obtain licence,
but they neither paid duty nor obtained licence. The Commercial Tax
Officer issued notices to the respondents in exercise of his powers
under Rule 12 of the Medicinal and Toilet Preparations (Excise D
Duties) Rules 1956 directing them to pay duty on all medicinal pre-
parations manufactured by them after 1.6.1961. The notices weie in
the shape of notice of demand requiring the respondents to pay the
duty which they had failed to pay in accordance with the Act and the
Rules on the use of tincture in manufacturing medicinal preparations.
The respondents filed writ [>etitions under Article 226 of the Constitu- E
tion of India before the High Court of Madras challenging the
notices and the proceedings Initiated in pursuance thereof for the
recovery of duty from them. A Division Bench of the High Court
allowed the writ petitions on the sole ground that Rule 12 under which
the impugned notices were issued was ultra vires the Act, con-
l sequently, proceedings initiated in pursuance thereof, were without F
jurisdiction. On these findings the writ petitions were allowed and the
notices as well as the proceedings were quashed.

The sole question which arises for consideration in these appeals
relates to the validity of Rule 12 of the Medicinal and Toilet Prepara-
tions (Excise Duties) Rules 1956. The High Court has declared the G
Rule ultra vires on the ground that the Act was silent on the question
of levy of duty on escaped turn-over and hence Rule 12 which provides
for the recovery of escaped duty was outside the purview and scope of
the Act.·

The Act was enacted to provide for the levy and collection of H
--------·-------------··-----·--~

468 SUPREME COURT REPORTS (1989) 3 S.C.R.

A duty of excise on medicinal and toilet preparations containing alcohol,
opium, Indian hemp or other narcotic drugs as the preamble states.
Section 3 provides for levy and collection of duties. It reads as under:

. "3(1). There shall be levied duties of excise, at the rates
. specified in the Schedule, on all dutiable goods manufac-
B ttired in India.·
'•

(2) The duties aforesaid shall be leviable-

(a) where the dutiable goods are manufactured in bond, in
. .. _the State in which such goods are released from a bonded
warehouse for home consumption, whether such State is
c the State of manufacture or not; .

(b) where the dutiable .goods are not manufactured in
bond, in the State in which such goods are manufactured.

D · (3) Subject to the other provisions contained in this Act,
( the duties aforesaid shall be collected in such manner as
may be prescribeq."

Exci~e duty is iqiposed by Section 3 on the, manuf~cture or' dutiable
goods at the rates specified in the Schedule. Sub-section (2) indicates
E · the stage at' which the duty is to be levied. Section 3(3) provides for
collection of duty, it lays down that it shall be collected in such manner
· as may be prescribed by Rules made under the Act. Section 3, there-
fore, imposes duty on the manufacture of medicinal preparations and
it lays down the rates and it also. indicates the stage at which the duty is
to_ be levied. So far as collection of duty is concerned the Act leaves the
F same to the rule makin!l"authority. Section 19 confers power on the
· ·.. , Central Government to make rules to carry out the purposes of the
Act. The relevant provision of Section 19 is as under: . .
,, .
· "19(1). The Central Government may, by notification in
. the Official Gazette, make rules to carry out the purposes
G ' of this Act. / I

(2) In particulars, and without prejudice to the generality
of the foregoing power, such rules _may

(i) provide for the assessment and collection of duties
H ·levied under this Act, the authorities by whom functions
GOVT. Of lNPIA v. C.F. PHARMACEUTICALS !SINGH, J.j 469

under this Act are to be discharged, the jssue of notices A
requiring payment, the manner in which the duties shall be
payable and the recovery of duty not paid."

Section 19(1) read with Section 3(3) confer wide powers on the Central
Government to make rules which may be necessary for carrying out
B
the pmpose of the Act. Such rules may provide for the assessment and
collection ·of duties, and, the manner in which the duty is to be paid as
well as for the recovery of duty not paid at all. The Central Govern-
ment in exercise of its power under Section 19 of the Act has framed
the Medicinal and Toilet Preparations (Excise Duties) Rules 1956
which were enforced on 9th March 1957. Chapter III of the Rules
pmvide for levy and refund of, and, exemption from duty. Rules 6 to c
17 relate to recovery, exemption and refund of duty. Rule 6 requires
ev11ry person who manufactures any dutiable goods, or who stores such
goods in a w>irehouse to pay the duty on such goods, at such time and
place as may be designated. Rule 9 presqibes time and manner of
payment of duty. According to this Rule no dutiable goods shall be
D
removed from any place where they are manufactured either for
consumption or for export, outside such place until the excise duty
leviable thereon is paid at such place and in such manner as prescribed
in the Rules or as the Excise Commissioner may require. Rule 11
provides for recovery o( duty or charges which may have been short-
levied through inadvertence, error, collusion, or mis-construction on
E
the pa,(! of an Excise Officer and through mis-statement on the part of
the owner and it also provides for recovery of any refund erroneously
made to the manufacturer, owner of the goods on written dema~d
made within six months from the date of payment of duty. Rule 12
confers residuary power for the recovery of sums due to the Govern-
ment. Rule 12 reads as under:
F
"12. Residuary powers for recovery of sums due to
Government-

Where these rules do not make any specific provision for
the collection of duty, or of any deficiency in duty if the
duty has for any reason been short-levied, or of any other G
sum of any kind payable to the collecting Government
{ under the Act or these rules, such duty, deficiency in duty
' or s11m shall, on written demand made by the proper
officer, be paid to such person and at such time and place,
11s the proper officer may specify."
470 SUPREME COURT REPORTS [1989] 3 S.C.R.

A As already noted Rules contained in Chapter III of the Rules
particularly Rules 6, 9, 10 and 11 provide for payment and recovery of
duty and also the time and manner of its payment. Rule 12 is designed
to confer residuary power for recovery of duty if unpaid on account of
short-levy or deficiency or for any reason it remains unpaid. If re-
B covery of duty or any amount of sum payable to the Government
under the Act is not covered by any specific Rule, additional supple-
menting provision is made for its recovery by Rule 12. Rule 12 pro-
vides for recovery of duty, as well as any other sum payable to the
collecting Government under the Act if the same is not paid on
account of short-levy or deficiency or for any reason. In substance
Rule 12 contains additional safeguard for recovery of duty, it does not
C create any ac;lditional charge or liability on the manufacturer for the
payment of the duty. The liability to pay tax is created by the charging
Section 3 and Rule 12 confers, on the authorised officer to recover
duty if .the same has not been paid on account of any short-levy or
deficiency or any other reason. Rule 12 is referable to section 19(2)(i)
D of the Act. The Rule carries out the purposes of the Act as it seeks to
provide for recovery of duty as contemplated by Section 3(3) of the
Act. The High Court committed error in holding that the Rule pro-
vides for recovery of escaped duty although the Act is silent on the
question of escaped assessment and therefore Rule 12 is ultra vires the
Act.

Learned counsel appearing for the respondents urged that Rule
12 is unreasonable and violative of Article 14 of the Constitution, as it
does not provide for any period of limitation for the recovery of duty.
He urged that in the absence of any prescribed period for recovery of
the duty as contemplated by Rule 12, the officer may act arbitrarily in
F recovering th·e amount after lapse of long period of time. we find no
substance in the submission. While it is true that Rule 12 does not
prescribe any period within which recovery of any duty as contemp-
lated by the Rule is to be made, but that by itself does not render the
Rule unreasonable or violative of Article 14 of the Constitution. In the
absence of any period of limitation it is settled that every authority is
G to exercise the power within a reasonable period. What would be
reasonable period, would depend upon the facts of each -ease.
Whenever a question regarding the inordinate delay in issuance of
notice of demand is raised, it would be open to the assessee to contend
that it is bad on the ground of delay and it will be for the relevant
officer to consider the question whether in the facts and circumstances
H of the case notice or demand for recovery was made within reasonable
GOVT. OF INDIA v. C.F. PHARMACEUTICALS [SINGH, J.] 471

period. No hard and fast rules can be laid down in this regard as the A
determination of the question will depend upon the facts of each case.

In view of the above discussion, we allow the appeals and set
aside the judgment and order of the High Court of Madras dated
2.8.1974. There will be no order as to costs.
B
T.N.A . Appeals allowed.

..