In Re: M.P. Kumaraswami Raja

Somasundaram, J.—This is a revision against the conviction of the petitioner u/s 15(b), Madras General Sales Tax Act. The facts are set out

in the judgment of the lower court and it is unnecessary for me to restate 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 1-8-

1953. The Assistant Commercial Tax Officer visited the shop and it is stated that the petitioner submitted a return in form A-l as required by Rule

6 of the Rules of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939 and on that basis A-2 notice was served on him on 25-

10-1953 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 lax, the rules

themselves are ''ultra vires'' of the powers given to the Government under the statute. The Turnover rules are framed u/s 3, Cis. 4 and 5, Madras

General Sales Tax Act.

Section 3(1) says that ""subject to the provisions of this Act, (a) every dealer shall pay for each year a lax on his total turnover for such year.

Section 3, Clause 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 Clause (5)

The taxes under Sub-sections (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 assessees to pay

the tax in advance even before the actual annual turnover is determined in accordance with the rules. In short what the assessees 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 pya the tax is justifiable under the statute. There is provision in the Income Tax Act, Section 18(a), under

which the in-come-tax assesseos can be assessed on the basis of the past income and could be asked to pay lor 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 based 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 assesses 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 assessees are asked to pay in advance even when they have not been

assessed in any of the previous years are ''ultra vires'' of the powers of the Government. The question is one of considerable importance as it

affects the revenues of the Stale. 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,

ORDER

Rajamannar, C.J.

This is a petition to revise the order of the Additional First Class Magistrate, Kumba-konam, convicting the petitioner of an offence u/s 15(b),

Madras General Sales Tax Act for failure to pay the provisional sales-tax as demanded from him and sentencing him to pay a fine of Rs. 50, and in

default to suffer simple imprisonment for two months. It was heard in the -first instance 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 1-8-1953. On 25-10-1953, 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

ot Rs. 105, on or before 14-11-1953. The accused failed to pay the amount. On 13-11-1953, he intimated that he had stopped his business. He

was thereupon charged with an offence u/s 15(b), Madras General Sales Tax Act, hereinafter referred to as the Act. There can be no doubt that

the assessment and levy of the said tax 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. Section 3 (1) provides

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 turn over.

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 lour and a halt pies for every rupee, if the turnover relat- ing to those articles is not less"" than twenty-five thousand

rupees"",

''Turnover"" is denied in Section 2(v) as the aggregate amount for which goods are either bought by or sold by a dealer; and ""year"" means,

according to Section 2(j), the financial year. Sub-sections (4) and (5) of Section 3 run thus;

(4) For the purposes of this section and the other provisions of thus Act, turnover shall be deter- mined 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-sections (1) and (2) shall be assessed, levied and collected in such man ner 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 deter- mined 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

Clause (i) of this proviso, he shall not be taxed again in res-'' pect of any sale of such goods effected by him.

The procedure to be followed for assessing the tax is laid down in Section 9. Every dealer whose turnover is Rs. 10,000, or more in a year is

required to sub mit 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

sub- mitted 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 Section 15 deals with offences and penal ties. We are only concerned with Clause (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 V of

conviction, the Magistrate is required to specify in the order the tax which the person convicted has failed to pay. (11) Section 19 confers powers,

on the State Government to make rules to cany 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-section (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-section (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 Rule 6 of the former rules, that is, the Turnover and Assessment rules,

every dealer commencing business after 1-10-1939 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-l 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 clay on which his net turnover reaches Rs. 10,000 submit a similar return. If the assessing authority is satisfied that the

return submitted under Rule 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 Section 3 etc. (rule 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 (rule 8).

As soon as the tax has been provisionally fixed, under Rule 7 or Rule 8, the assessing authority shall issue to the dealer a notice in form A-2 and

the dealer shall pay for each month of the year of assessment one-twelfth of the tax provisionally fixed at the time and in the manner specified in the

notice. Rule 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 assessing authority is given power to finally assess the tax according to the best of his judgment. Rule 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 u/s 3(1) which is the charging provision, the liability for the tax for any year I 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 1-4-1953 and ending with 31-3-1954. 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 inconsistent 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 Section 19(5) that upon publication in the Fort St. George Gazette the rules shall have

effect as if enacted in the Act. According to him, the rules arc 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 Section 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. Lockwood'', 1894 AC 347 (A) 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, Section 101, the Board of Trade was given the

power to make from time to time such general rules as they thought expedient for regulating the practice or registration under the Act. Sub-section

(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. Subsections

(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, within 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 bo 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 andan enactment, that whereas apart from some such provision

as we are considering, you 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 sale and the statute. There is no difference if the rule

is one within the statutory authority, but that very substantial difference, it 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 is the leading pro vision

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 same 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, it he

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 giving 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 under- stand this

decision to lay down that even if the rules made relate to a subject-matter not coverded 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 House of Lords in -- ''Minister of Health v. The King (on the prosecution of Yaffee)'', 1931 AC

494 (B). It was there held that Section 40, Housing Act, 1923, 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 where 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 comamed is the Act which provides for the framing of the

scheme, not a subsequent Act. It therefore the scheme, as made, conilicis with the Act, it will have to give way to the Act. The mere counfirmation

will not save it.

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

authority.

In my opinion, the law is correctly stated in Halsbury''s Laws of England, Second Edn., "" Volume 31, thus:

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 it they are inconsistent with the statute under winch they are made, and in the case of bye-laws to

consider it they are reasonable. If they fail to comply with such contritions, 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 Rules 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 Section 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 opposite analogy is furnished by Section 18-A of the Indian Income Tax Act: But in the absence of any such provision in the Act

itself, a rule cannot go 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 Section 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 determine 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 rulmg of this Court in -- V.M. Syed Mohamed and Co. and Another Vs. The State of Madras

and Another, to which I was a party, as having decided the question before us. Our attention was drawn to the following passage in the judgment

of Venkata-rama 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 before it is finally determined; that u/s 3(2) of the Act the assessment

should be only on the annual turnover and that, therefore, Rule 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 Rule 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 Rule 15(2) is. in

accordance, with the practice generally obtaining in this branch of the law. In discussing the vafi-dity of a somewhat similar provision hi 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''. ''Monamotor Oil Co. v. Johnson'', (1933) 78 Law Ed. 1141 (D). The attack on Rule 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."" (p. 613).

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

Rule 15 in that case was that the rule was unconstitutional. So far as I am able to recollect, there was no argument that Rule 15 was inconsistent,

with Section 3(1) and ""went beyond it and was therefore ''ultra vires'' and invalid. The citation from (1933) 78 Law Ed. 1141 (D) 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 bat! 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 Section 3(6) and on Section 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, it 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 u/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.