Firm Gulam Hussain Haji Yakub and Sons vs State of Rajasthan

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: supreme-court

Case Number: Civil Appeal No. 300 of 60

Decision Date: 19 April 1962

Coram: P.B. Gajendragadkar, Bhuvneshwar P. Sinha, K.N. Wanchoo, N. Rajagopala Ayyangar

In the matter titled Firm Gulam Hussain Haji Yakub & Sons versus State of Rajasthan, the Supreme Court of India delivered its judgment on the nineteenth day of April, 1962. The judgment was authored by Justice P. B. Gajendragadkar and was pronounced by a bench that included Justices P. B. Gajendragadkar, Bhuvneshwar P. Sinha, K. N. Wanchoo, and N. Rajagopala Ayyangar. The petitioner in the case was the firm Gulam Hussain Haji Yakub & Sons, while the respondent was the State of Rajasthan. The decision was reported in the 1963 volume of the All India Reporter at page 379 and in the Supreme Court Reports (Second Series) at page 255 of the 1963 volume. The legal issues concerned the imposition of a customs duty on the export of charcoal under a State Council order, the validity of that order in light of the Regency Act for the Sirohi Minority Administration of 1947, section 9, as well as the applicability of Rajasthan Ordinance number 16 of 1949, section 4(2).

The headnote of the report stated that the appellant firm had been assessed a customs duty amounting to twenty‑four thousand three hundred ninety‑five rupees for exporting charcoal from the State of Sirohi. Because the firm failed to deposit the assessed amount, the collector of Sirohi issued a notice for recovery of the sum under the Public Demands Recovery Act, acting on a requisition from the customs authorities. The firm challenged the demand by filing a petition under Article 226 of the Constitution before the High Court of Rajasthan. It argued that the order of the Sirohi State Council levying the duty at the rate of one rupee eighty‑one paisa per maund was invalid and beyond the powers of the Council. The State of Rajasthan contended that the duty had been lawfully imposed by virtue of a resolution passed by the State Council and subsequently approved by the Rajmata. The High Court dismissed the petition and ruled in favour of the State.

The Supreme Court examined whether the impugned order dated thirty‑first May, 1948, which was said to have been issued pursuant to a Council resolution dated fifteenth May, 1948, was validly made. The Court held that the State Council did not possess legislative authority after the Regency Act for the Sirohi Minority Administration, 1947, had come into force. Under that Act, the Council could enact any law only with the approval of the Board of Regency, whose President was the Rajmata Saheba. The Court found no evidence that the Board had sanctioned the order; consequently, the order was declared invalid. The Court further clarified that the Rajmata could not act independently of the Board, and that the Board alone possessed the collective power to legislate or issue executive orders. Accordingly, the High Court’s view that the Rajmata could be treated as a de facto ruler of the State was erroneous. Moreover, the Court ruled that the levy could not be sustained under the relevant provisions of Rajasthan Ordinance number 16 of 1949, as those provisions were inapplicable to the present case.

The civil appeal, numbered three hundred of the year 1960, was filed against the judgment and order dated thirteenth November, 1958, of the Rajasthan High Court in writ application number fifty‑eight of 1957. Counsel for the appellant represented the firm, while counsel for the respondent represented the State of Rajasthan. The judgment was pronounced on the nineteenth of April, 1962.

The Court noted that the appellant, Firm Ghulam Hussain Haji Yakoob & Sons, had filed a petition under Article 226 of the Constitution before the Rajasthan High Court seeking a writ of prohibition or any other appropriate order, asserting that it was not liable to pay the customs duty that the Controller of Sirohi had attempted to impose by an order dated 9 February 1956. The factual background recorded by the Court showed that a person named Mohammad Sagir had entered into a contract on 12 July 1946 for cutting forest in the Haranj Amrapura area belonging to the Thakur of Nibaj; the contract, which was for a period of five years, authorized the contractor to produce charcoal. On 13 September 1948, Sagir transferred the contract to the appellant. Subsequently, the Thakur of Nibaj extended the original agreement by an additional two years, and an endorsement reflecting this extension was made on 15 April 1950. Under the terms of this contract, the appellant manufactured charcoal and exported the product out of the State of Sirohi. The Assistant Commissioner of Customs and Excise, Sirohi, assessed that the appellant was required to pay customs duty at the rate of eight annas per maund on the quantity of charcoal exported. The Assistant Commissioner measured the exported charcoal at 27,003 maunds and reported this figure to the Commissioner on 11 February 1954. The matter was then taken up by the Deputy Commissioner of Customs and Excise, who issued an order on 17 December 1954 declaring that the appellant had exported charcoal without having paid the duty. The Deputy Commissioner determined that the charcoal exported by the appellant after 30 November 1948 amounted to 48,650 maunds and consequently directed the appellant to pay a sum of Rs 24,325 as duty on the export of charcoal calculated at eight annas per maund. The appellant challenged the correctness of this order by filing an appeal to the Government, but the appeal was dismissed on 24 May 1956. The appellant became aware of the dismissal on 5 April 1957 when the Tehsildar demanded that it deposit the assessed duty together with interest. Because the appellant failed to make the deposit, the customs authorities, in the interim, requisitioned the Collector of Sirohi to recover the amount, and the Collector issued a notice to the appellant under the Public Demand Recovery Act on 9 February 1956. The appellant contested the validity of this notice in the present writ petition, arguing that the order purportedly passed by the State Council of Sirohi which imposed a customs duty of eight annas per maund on charcoal was invalid, ultra vires, and therefore the customs authorities lacked jurisdiction to levy any duty on the exported charcoal, and likewise the Collector lacked authority to issue a demand notice for recovery of such duty under the Public Demand Recovery Act.

The appellant argued that the State Council of Sirohi lacked authority to direct the customs officials to impose any duty on the charcoal exported by the appellant and further asserted that the Collector was not authorised to issue a demand notice for recovery of such duty under the Public Demand Recovery Act. Conversely, the State of Rajasthan contested the appellant’s allegation of an illegal levy, maintaining that the duty had been validly imposed by a resolution of the State Council which had received the approval of Her Highness Shri Rajmata Saheba. The respondent contended that, because the resolution had been duly passed by a competent authority, the imposition of the duty on the appellant was lawful and the Collector was justified in issuing the notice of demand under the Public Demand Recovery Act. The High Court concurred with the respondent’s position, dismissing the appellant’s writ petition and ordering costs against the appellant. Following that judgment, the appellant obtained a certificate from the High Court and, relying upon that certificate, filed the present appeal before this Court. The customs tariff applicable in the State of Sirohi was established by the Sirohi Customs Act of 1944. Section 14 of that Act provides that, “except as hereinafter provided, customs duties shall be levied at such rates as are prescribed in the Sirohi Customs Tariff on all goods mentioned therein, at the time of import or export of goods (including those belonging to the State) into or out of Sirohi State by rail, road or air”. Consequently, section 14, which is the charging provision, mandates that customs duties may be levied only on goods that are listed in the tariff and only at the rates specified therein. Section 15 of the same Act confers upon the Darbar the power to fix and alter tariff rates. It states that the Darbar may, from time to time, by notification in the Sirohi State Gazette, save in emergency cases, alter the rates prescribed in the Tariff and such altered rates shall come into force from the date mentioned in the notification or, in the event of the notification not reaching any customs post concerned, on a subsequent date from such date. The effect of section 15 is to vest in the Darbar the authority to modify rates, which ordinarily requires a notification. The High Court, however, interpreted sections 14 and 15 together to hold that the Darbar could not only change the rates at which customs duties were levied but also add new items to the list of taxable articles in the tariff. This interpretation is plainly erroneous.

The Court observed that section 15 only gave the Darbar the authority to fix and alter the rates of duty fixed in the tariff. The Court emphasized that the statute never authorised the Darbar to enlarge the list of articles that were subject to customs duty. The tariff that was annexed to the 1944 Act specified the commodities on which customs duty could be levied, and the Darbar could not, by virtue of section 15, add any new items to that schedule. The Court declared that this position was clear and indisputable. The Court then noted that the tariff issued under the 1944 Act already listed charcoal among the commodities whose import attracted customs duty, but that the same tariff did not place charcoal in the list of goods whose export was liable to duty. The Court recorded that this omission was not contested. Consequently, the Court held that for export of charcoal to become liable to customs duty, the respondent had to rely on a separate legislative enactment that expressly imposed such a duty.

The Court proceeded to examine the constitutional machinery of the Sirohi State as it existed in 1940. It observed that in that year the Ruler created a Council of State and published its functions, duties and powers in the State Gazette. The Council, styled the Council of State, Sirohi, was to be headed by His Highness as President, with the Chief Minister serving as Vice‑President, and with additional members to be appointed by His Highness from time to time. The Court explained that the President exercised control over the Council’s work and, under rule 9, could take urgent action on behalf of the Council provided that the Council was informed of such action as soon as practicable. Rule II of the notification required that all matters enumerated in Schedule I be referred to the Council for a decision before any final orders were issued, except where rule 9 permitted otherwise. Among the matters listed in Schedule I was entry 7, which covered the introduction of any new tax, the alteration of an existing tax, or the abolition of a tax. The Court therefore concluded that the Council was empowered, under rule 11, to consider proposals concerning new taxation, alteration or abolition of taxes, and that the Ruler would subsequently issue the final order to give effect to the Council’s decision. The Court stressed that rule 11 made it clear that although the Council could reach a decision on items falling within entry 7 of Schedule I, the ultimate authority to enact the decision rested with the Ruler. In other words, the Court held that the Council’s role with respect to matters in Schedule I was purely advisory, and that the Ruler retained the exclusive power to determine the final orders to be made.

In this case the Court explained that any orders which relate to matters that have been referred to the Council must be passed in accordance with the powers defined for the Council. The Court then described the constitutional situation that existed in 1947. At that time the ruler of the State, His Highness Maharajadhiraja Maharao Taj Singhji Bahadur, was a minor. Consequently the Crown Representative sanctioned a Regency Act for the Sirohi Minority Administration on 14 August 1947. The Act was made effective on the same day and was to remain in force until the ruler attained the age of eighteen. Section 3 of that Act provided that wherever the word “Ruler” appears in the Constitution, it shall be interpreted as referring to the Board of Regency. Section 4 established the composition of the Board of Regency, which consisted of Her Highness the Dowager Maharani Saheba of Sirohi, Maharana Shri Sir Bhawani Singhji Bahadur of Danta, and Raj Saheban Shri Bhopalsinghji of Mandar. Section 6 declared that the Board of Regency would act as the legal guardian of the ruler. After the enactment of the Regency Act, all functions normally exercised by the ruler were performed by the Board of Regency, which for all constitutional and legal purposes represented the ruler during his minority. A notification issued on the same day gave effect to the constitution of the Board. Therefore, when the impugned order imposing a duty on coal was issued on 31 May 1948, the constitutional reality was that the State was governed by the Board of Regency, and the State Council, which had been constituted by the previous ruler in 1940, operated under the authority of that Board. The Court noted that the validity of the levy must be examined in light of this constitutional arrangement. On 31 May 1948 an order was issued that claimed to have been made pursuant to a Council resolution dated 15 May 1948, for which approval had been obtained from Her Highness Shri Raj Mata Saheba. The order increased the duties on goods listed in the tariff attached to the earlier Act, specifically raising rates on bones, wool, timber and fire‑wood, and additionally introduced a fresh duty on the export of charcoal at a rate of eight annas per maund. It was established as a matter of common ground that the tariff prescribed by the Act of 1944 did not include charcoal among the articles liable to customs duty. The question before the Court was whether the order was valid, and the answer depended on whether the customs duty on charcoal had been imposed by an authority that possessed the requisite legislative competence.

In order to determine whether the order imposing customs duty on charcoal was valid, it was necessary to establish whether it had been issued by an authority that possessed the legislative competence to do so. The Court observed that if the levy had been ordered solely by the State Council without obtaining the approval of the Board of Regency, the order would be invalid because the State Council alone did not have the power to enact such a law. The Court explained that while the State Council could formulate a decision concerning the imposition of customs duty on any newly added article, that decision required the subsequent approval and acceptance of the Board of Regency, which alone held the requisite legislative authority. Consequently, the order could be sustained as valid only if it could be shown that it had been passed with the approval of the Board of Regency, whose President was Shri Raj Mata Saheba.

The Court noted that the order itself did not expressly state that Shri Raj Mata Saheba had approved it in her capacity as President of the Board of Regency. The order was issued by the Secretary of the State Council and did not claim to have been issued by the executive officer of the Board of Regency. Moreover, the order made no reference whatsoever to the Board of Regency and did not indicate that Shri Raj Mata Saheba, when giving her approval, was acting on behalf of that Board. The Court observed that, had the order been formally presented as having been issued on behalf of the Board of Regency, the respondent could have argued that the order should be presumed to have been duly passed by the Board and promulgated in accordance with the Board’s prescribed business rules. Because the order lacked any such formal attribution to the Board of Regency or to Shri Raj Mata Saheba acting for the Board, the Court found it necessary to inquire whether the Board of Regency in fact had approved the order.

In examining the record, the Court found that the respondent had not placed any material before the Court to demonstrate that the Board of Regency had given its approval. The respondent’s plea, which contested the correctness of the appellant’s claim before the High Court, was that Shri Raj Mata Saheba, as President of the Board of Regency, acted on behalf of the Board and was required to seek counsel from the other members. The respondent argued that, in the absence of evidence to the contrary, it should be presumed that Shri Raj Mata Saheba had issued the order after consulting the Board. The Court pointed out that this argument rested on the assumption that Shri Raj Mata Saheba had the discretion either to consult the Board of Regency or not. The respondent’s case therefore appeared to assume that the President could act independently, without a mandatory requirement to obtain the Board’s concurrence, and that any failure to demonstrate such consultation left the validity of the order in doubt.

In this matter, the Court observed that the President of the Board of Regency possessed the authority to act unilaterally in matters concerning the government of the State, whether executive or legislative, and that she could decide at her own discretion whether to seek the advice of the other members of the Board. The respondent did not argue that the President habitually consulted the Board before taking action on its behalf; rather, the respondent contended that the President was not obligated to consult the Board and could issue executive or legislative orders independently. Because the contention was that the President could act alone, the Court found it difficult to accept the proposition that the reference to the President’s approval in the impugned order necessarily implied that she had first obtained the Board’s consent. The Court noted that, under the Sirohi Regency Act, the administration of the State was placed solely in the hands of the Board of Regency, and that only the Board, acting collectively, possessed the power to legislate or to issue executive orders. Consequently, any view held by the President that she could act without consulting the Board was plainly at odds with the express provisions of the Act. For this reason, the Court was not inclined to adopt the High Court’s conclusion that the impugned order resulted from a decision of the Board of Regency, since the Board alone was vested with the requisite legislative authority, and a resolution could not become law in Sirohi unless the Board passed it. The Court further held that the President’s approval of a resolution passed by the State Council could not remedy the defect arising from the fact that the State Council lacked any legislative competence. The High Court had taken the position that, because the President had entered into the merger agreement, she could be regarded as the de facto ruler of the State and therefore competent to exercise the necessary legislative power to enact the impugned order. The Court rejected this view. Although the merger document was signed by the President, who described herself as the President of the Board of Regency, the High Court had reasoned that the absence of a signature by the Board itself allowed the President to be treated as the de facto ruler. The Court found this reasoning untenable. Since the President was the President of the Board, she was fully authorized to sign the document on behalf of the Board, and she did so expressly as the President of the Board, indicating that she had consulted the Board and acted pursuant to its decision.

In this case, the Court observed that the Raj Mata executed the merger document after obtaining the Board’s decision, signing it in her capacity as President of the Board of Regency. Consequently, the contention that the Raj Mata could, by herself and without the Board’s concurrence, have validly sanctioned the impugned order was found to have no substance. The Court therefore held that the impugned order had not been validly passed, and that no customs duty could be legally imposed on the appellant for the charcoal that it exported from the State of Sirohi. The respondent, however, argued that the duty levied on the appellant for the export of charcoal could be sustained under Rajasthan Ordinance No 16 of 1949. Section 4(2) of that Ordinance authorised the Government to issue any revised tariff, and on 10 August 1949 the Government of Rajasthan issued Notification No 211/SRD, which imposed a revised tariff and directed that customs duties be levied and collected in accordance with that tariff. Item 367 of the revised tariff specified an export duty on charcoal at the rate of eight annas per maund. The respondent contended that when Sirohi became part of Rajasthan, the Ordinance applied to Sirohi, thereby justifying the claim for customs duty against the appellant. The Ordinance had come into force on 4 August 1949. The Court found this argument unpersuasive. While Ordinance XVI applied to the whole of Rajasthan as constituted at the time of its enactment, Sirohi was not then a part of Rajasthan; it only merged with Rajasthan on 25 January 1950. A notification dated 24 January 1950, issued by the Ministry of States under subsection (2) of section 3 of the Extra‑Provincial Jurisdiction Act 1947 (47 of 1947), delegated extra‑provincial jurisdiction, including the power conferred by section 4 of that Act, to the Government of the United States of Rajasthan. Thus, until 25 January 1950, Sirohi remained outside the territorial ambit of the Ordinance. The respondent’s suggestion that the Ordinance automatically applied to Sirohi upon its accession was rejected as fallacious. The Court explained that when a territory becomes part of a state, the pre‑existing laws of that state may apply to the newly merged territory only after appropriate legislation is enacted. In fact, the Rajasthan Laws (Application to Sirohi) Act No III of 1953 was later passed to declare that certain Rajasthan laws applied to Sirohi, but the Ordinance in question was not listed in the Schedule of that Act and therefore was not intended to apply to Sirohi. No other law or instrument was found to have extended the Ordinance’s applicability to Sirohi, leading the Court to conclude that the respondent could not rely on the Ordinance to impose the customs duty.

In 1953 the Rajasthan Laws (Application to Sirohi) Act (No III of 1953) was enacted to declare that certain Rajasthan statutes would apply to the territory of Sirohi. Section three of that Act specified that any Rajasthan law listed in the Schedule to the Act would, to the extent that it dealt with matters placed in Lists II or III of the Seventh Schedule of the Constitution of India, be deemed to apply to Sirohi from the appointed day, and that such application would be effective notwithstanding any contrary provision contained in the Sirohi Administration Order of 1948 or in any other law or instrument. The Court noted that there is a proviso to section three, but that proviso was not relevant to the issues presented in the present appeal. The Ordinace whose applicability was contested was not included in the Schedule of the 1953 Act, and consequently the Court concluded that the Ordinace was not intended to extend to Sirohi. Moreover, no other enactment of the Rajasthan State or any other instrument was argued to have brought the Ordinace within the law of Sirohi. On that basis the Court was satisfied that the respondent could not rely upon the provisions of the Rajasthan Ordinance of 1949 to justify a demand for customs duty against the State of Sirohi. Accordingly, the Court allowed the appeal, issued a writ in favour of the appellant declaring that the appellant was not liable to pay the customs duty in question, and set aside the orders issued by the Deputy Commissioner of Customs and Excise, the Minister of Excise and Taxation, and the demand notice issued by the Collector on the recommendation of the excise authorities. The appellant was awarded costs throughout. The appeal was thus allowed.