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 case titled Firm Gulam Hussain Haji Yakub & Sons versus State of Rajasthan, the matter was heard by the Supreme Court of India on 19 April 1962. The judgment was authored by Justice P.B. Gajendragadkar, with the bench comprising Justice P.B. Gajendragadkar, Justice Bhuvneshwar P. Sinha, Justice K.N. Wanchoo, and Justice N. Rajagopala Ayyangar. The parties were identified as the appellant firm, Firm Gulam Hussain Haji Yakub & Sons, and the respondent, the State of Rajasthan. The citation for this decision is reported as 1963 AIR 379 and 1963 SCR (2) 255. The principal statutory reference involved the Custom Duty–Export of Charcoal, the validity of a State Council order imposing liability, the Regency Act for the Sirohi Minority Administration of 1947, section 9, and the Rajasthan Ordinance No. 16 of 1949, section 4(2).

The appellant firm contended that it had been made liable to pay a sum of Rs 24,395 as customs duty for exporting charcoal from the Sirohi State. Because the amount remained unpaid, the Collector of Sirohi, acting on a requisition from the customs authorities, issued a notice for recovery of the sum under the Public Demands Recovery Act. The firm consequently filed a petition before the Rajasthan High Court under Article 226 of the Constitution, challenging the order of the Sirohi State Council that imposed a customs duty on the export of charcoal at the rate of 1‑81‑ per maund wag, asserting that the order was invalid and beyond the council’s authority. The respondent maintained that the duty had been lawfully levied by virtue of a resolution passed by the State Council and subsequently approved by the Rajmata. The High Court, however, upheld the respondent’s position, dismissed the petition, and affirmed the collector’s notice.

The Supreme Court was called upon to determine whether the order dated 31 May 1948, purportedly issued pursuant to the Council resolution of 15 May 1948 that imposed, for the first time, a customs duty on charcoal exports, was validly issued. The Court held that the State Council did not possess legislative power; following the enactment of the Regency Act for the Sirohi Minority Administration of 1947, any law could be enacted only with the approval of the Board of Regency, of which the Rajmata Saheba served as President. No evidence was found that the Board had approved the order, rendering the order invalid. The Court clarified that the Rajmata could not act independently of the Board; only the Board as a collective could legislate or issue executive orders. Consequently, the High Court’s view that the Rajmata could be treated as the de facto ruler of the State was erroneous. Moreover, the Court found that the levy could not be sustained under the relevant provisions of the Rajasthan Ordinance No. 16 of 1949, as that Ordinance was inapplicable to the present circumstances.

The matter proceeded on civil appellate jurisdiction as Civil Appeal No. 300 of 1960, arising from the judgment and order dated 13 November 1958 of the Rajasthan High Court in D.B.C. Writ Application No. 58 of 1957. Counsel for the appellant appeared, as did counsel for the respondent. The judgment was delivered on 19 April 1962, concluding the Court’s analysis of the legislative competence of the Sirohi State Council and affirming that the customs duty imposed on the appellant firm was invalid.

The appellant, Firm Ghulam Hussain Haji Yakoob & Sons, filed a petition before the Rajasthan High Court invoking Article 226 of the Constitution. The petition sought a writ of prohibition or any other appropriate order, contending that the appellant was not liable to pay the customs duty that the Controller of Sirohi had attempted to levy by his order dated 9 February 1956. According to the factual background, a person named Mohammad Sagir had entered into a contract on 12 July 1946 for cutting forest in Haranj Amrapura on behalf of the Thakur of Nibaj. The contract, which was intended to last five years, aimed to enable the contractor to produce charcoal. On 13 September 1948, Sagir transferred this contract to the appellant. Subsequently, the Thakur of Nibaj extended the contract for an additional two years, and an endorsement reflecting this extension was made on 15 April 1950. Under the terms of the contract, the appellant produced charcoal and exported it from the State of Sirohi. The Assistant Commissioner of Customs and Excise, Sirohi, examined the export and concluded that the appellant was liable to pay customs duty at the rate of eight annas per maund on the quantity of charcoal exported. The Assistant Commissioner determined that the appellant had exported 27,003 maunds of charcoal and reported this finding 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 stating that the appellant had exported charcoal without having paid the duty. The Deputy Commissioner calculated that the appellant had exported 48,650 maunds of charcoal after 30 November 1948 and accordingly demanded payment of Rs 24,325 as duty on charcoal at eight annas per maund. The appellant contested the correctness of this order by filing an appeal to the Government, which was dismissed on 24 May 1956. The appellant became aware of the demand on 5 April 1957, when the Tehsildar asked it to deposit the assessed duty together with interest. Because the appellant failed to make the deposit, the customs authorities requisitioned the Collector of Sirohi for recovery of the amount, and the Collector issued a notice under the Public Demand Recovery Act on 9 February 1956. The appellant challenged the validity of this notice through the present writ petition.

The appellant argued that the order purportedly passed by the State Council of Sirohi, which imposed customs duty of eight annas per maund on charcoal, was invalid and beyond the powers of the council. Consequently, the appellant contended that the customs authorities lacked authority to levy any duty on the exported charcoal and that the Collector was not empowered to issue a demand notice for recovery of such duty under the Public Demand Recovery Act.

The appellant contended that the State Council of Sirohi had no authority to impose a customs duty of eight annas per maund on the charcoal it exported, and consequently the Collector of Sirohi lacked power to issue a recovery notice under the Public Demand Recovery Act. The respondent, the State of Rajasthan, rejected this allegation and argued that the duty had been lawfully levied by a resolution of the State Council that received the approval of Her Highness Shri Rajmata Saheba. Because the resolution had been passed by a competent authority, the respondent maintained that the duty was valid and that the Collector was justified in serving a demand notice under the Public Demand Recovery Act. The High Court accepted the respondent’s position, dismissed the appellant’s writ petition and ordered the appellant to pay costs. After obtaining a certificate from the High Court, the appellant brought the matter before this Court by filing the present appeal. The customs tariff applicable in the State of Sirohi was established by the Sirohi Customs Act of 1944. Section 14 of that Act stipulated, “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.” This provision indicated that customs duties could be imposed only on goods listed in the tariff and only at the rates specified therein. Section 15 of the same Act granted the Darbar the authority to fix and alter tariff rates. It stated that the Darbar could, from time to time, by notification in the Sirohi State Gazette—except in emergency cases—alter the rates prescribed in the tariff, with the altered rates taking effect on the date mentioned in the notification or, if the notice failed to reach a customs post, on a later date. The effect of Section 15 was therefore to give the Darbar the power to modify rates, subject to the usual requirement of publishing a notification. The High Court, having read Sections 14 and 15 together, concluded that the Darbar could not only change the rates at which customs were levied but also add new items to the list of taxable articles in the tariff. The present Court found that interpretation to be plainly erroneous.

The Court observed that the authority conferred by Section 15 was limited to fixing and altering tariff rates and did not extend to expanding the list of commodities subject to duty. No power was granted to the Darbar to insert additional items into the tariff schedule itself. The commodities on which customs duties could be imposed were fixed by the tariff annexed to the Act, and the Darbar could not change that list merely by invoking the power under Section 15. Accordingly, the view adopted by the High Court—that the Darbar might add new taxable items to the tariff—was rejected as a misreading of the statutory provisions. The Court therefore concluded that the duty imposed on the appellant’s exported charcoal could not be upheld on the basis of a resolution that attempted to extend the tariff beyond the commodities expressly listed. The Court’s analysis set the stage for the subsequent discussion of the statutory framework governing the inclusion of charcoal as an exportable commodity subject to duty.

The Court explained that section 15 gave the Darbar only the authority to fix and alter the rates specified in the tariff. No authority was granted to the Darbar to add new items to the list of taxable commodities contained in the tariff. The tariff attached to the Act identified the goods on which customs duties could be levied, and the Darbar could not, by virtue of section 15, modify that list. This principle was stated as being beyond doubt. The Court then noted that, under the tariff prescribed by the 1944 Act, charcoal was included among the commodities whose import attracted customs duty, but it was not listed among the commodities whose export attracted customs duty. This factual situation 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 created such liability. The Court observed that, in 1940, the Ruler of the Sirohi State established a Council of State and published its functions, duties, and rights in the State Gazette. The Council, styled the Council of State, Sirohi, was to consist of His Highness as President, the Chief Minister as Vice‑President, and such other members as His Highness might appoint from time to time. The Court described that the President, who controlled the general working of the Council, was empowered by rule 9 to act on behalf of the Council in urgent matters, provided that the Council was informed of the President’s action as soon as possible. Rule 11 of the notification required that all matters enumerated in Schedule I be referred to the Council for decision before any final orders were issued, except where rule 9 applied. Schedule I listed, in entry 7, any new taxation, alteration, or abolition of taxation. Accordingly, the Court concluded that the Council was competent to consider proposals concerning any new tax or alteration thereof under rule 11, and that the Ruler would issue the final orders to give effect to the Council’s decision. The Court emphasized that the power of the Council with respect to the matters in Schedule I was merely advisory, and that ultimate authority to pass final orders rested with the Ruler.

It was established that the Council could only advise on matters that were referred to it, and that final orders on those matters had to be issued by the Ruler. In 1947 the Ruler of the State, His Highness Maharajadhiraja Maharao Taj Singhji Bahadur, was still a minor. Consequently His Excellency the Crown Representative sanctioned the Regency Act for the Sirohi Minority Administration on 14 August 1947. The Act was made effective on the same day and remained in force until the Ruler reached the age of eighteen. Section 3 of the Act defined the term “Ruler” in the Constitution of Sirohi to be taken as the Board of Regency for all purposes. Section 4 set out the composition of the Board, naming Her Highness the Dowager Maharani Saheba of Sirohi, Maharana Shri Sir Bhawani Singhji Bahadur of Danta and Raj Saheban Shri Bhopalsinghji of Mandar as members. Section 6 declared that the Board of Regency would act as the legal guardian of the Ruler. After the enactment, the Board discharged all functions ordinarily performed by the Ruler, and for constitutional and legal purposes it represented the Ruler throughout his minority. A notification issued under the Act formally constituted the Board of Regency. Accordingly, when the order that imposed a duty on coal was issued on 31 May 1948, the constitutional reality was that the State was being administered by the Board of Regency, and the State Council, which had been created by the former Ruler in 1940, operated under the Board’s authority.

On 31 May 1948 an order was promulgated purporting to implement the resolution of the State Council dated 15 May 1948. The order claimed that approval for the resolution had been obtained from Her Highness Shri Raj Mata Saheba. The effect of the order was to raise the duties specified in the tariff attached to the earlier Act with respect to bones, wool, timber and fire‑wood, and to introduce a new duty on the export of charcoal calculated at As. /8/ per maund. It was common ground that the tariff prescribed by the Act of 1944 did not list charcoal among the articles that were liable to customs duty on export. The essential question presented for determination was whether the order imposing the charcoal duty was valid, and that determination depended on whether the customs duty had been levied by an authority possessing the requisite legislative competence.

The Court examined whether the order imposing the customs duty had been issued by an authority that possessed legislative competence. It held that if the State Council alone had ordered the levy without the endorsement of the Board of Regency, the order would be invalid because the State Council did not have the power to enact a law. The Court explained that while the State Council could consider the question of imposing a customs duty on a new article, any decision it reached required the approval and acceptance of the Board of Regency, which alone held the necessary legislative authority. Consequently, the order could be regarded as valid only if it could be demonstrated that it had been passed with the approval of the Board of Regency, whose President was Shri Raj Mata Saheba. In assessing this point, the Court noted that the order did not expressly state that Shri Raj Mata Saheba had approved it in her capacity as President of the Board of Regency. The order had been 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 at all to the Board of Regency and did not indicate that Shri Raj Mata Saheba, when giving her approval, was acting on behalf of the Board. The Court observed that if the order had been formally presented as having been issued on behalf of the Board of Regency, the respondent could have argued that a presumption existed that it had been duly passed by the Board and promulgated according to the Board’s prescribed procedures. However, because the order did not purport to be issued either on behalf of the Board of Regency or by Shri Raj Mata Saheba acting for the Board, the Court found it necessary to inquire whether the Board of Regency had in fact approved the order. The Court further noted that the respondent had not placed any material before the Court that would enable it to conclude in favour of the order’s validity.

The Court then turned to the respondent’s contentions. The respondent disputed the correctness of the appellant’s claim before the High Court and asserted that Shri Raj Mata Saheba, as President of the Board of Regency, always acted on behalf of the Board and was required to seek counsel from the other Board members. On that basis, the respondent urged that a presumption should arise that Shri Raj Mata Saheba had passed the order after consulting the Board, unless evidence proved otherwise. The Court observed that this plea rested on the assumption that Shri Raj Mata Saheba had the discretion to either consult the Board of Regency or act without such consultation. The respondent’s case appeared to contend that the President of the Board of Regency could act independently, both executively and legislatively, and could decide whether to involve the other Board members. The argument was not that the President was bound to obtain the Board’s advice before acting, but rather that she could act on her own authority. Accordingly, the Court found it difficult to accept the respondent’s suggestion that the approval mentioned in the impugned order could safely be construed as having been given after consultation with the Board. The Court reiterated that the Sirohi Regency Act had vested the governance of the State in the hands of the Board of Regency, underscoring the necessity of Board approval for any legislative action.

The judgment observed that the respondent contended the President of the Board of Regency possessed the authority to act independently in matters concerning the governance of the State, whether executive or legislative, and that she alone could decide whether to seek the advice of other Board members. The argument presented by the respondent did not assert that the President, identified as Shri Raj Mata, habitually consulted the Board before exercising powers on its behalf. On the contrary, the pleading suggested that the President was under no obligation to obtain the Board’s concurrence and could, in fact, issue executive or legislative orders without such consultation. In light of this position, the Court found it difficult to accept that the reference to the President’s approval in the impugned order necessarily implied that she had acted after consulting the Board. The Court noted that, pursuant to the Sirohi Regency Act, the governance of the State was vested exclusively in the Board of Regency, which, acting collectively, possessed the sole authority to legislate or issue executive directives. Consequently, any assertion by the President that she could unilaterally exercise such powers conflicted with the explicit provisions of the Act. The Court therefore declined to adopt the High Court’s conclusion that the impugned order could be deemed the product of a Board decision, emphasizing that only the Board, as a whole, held the requisite legislative competence. Absent a resolution passed by the Board, no order could attain the status of law within Sirohi. Moreover, the President’s endorsement of a resolution adopted by the State Council could not remedy the defect arising from the Council’s lack of legislative authority. The Court also rejected the High Court’s reasoning that, by entering into the merger agreement, the President could be treated as the de facto ruler of the State and thus competent to exercise legislative powers. While the merger document was indeed signed by the President who described herself as the President of the Board of Regency, the High Court had inferred that her unilateral signature, without the Board’s signature, rendered her a de facto ruler. The judgment found this inference erroneous. As the President of the Board, she was duly empowered to sign the document on the Board’s behalf, a act premised on the fact that she had consulted the Board and was acting pursuant to the Board’s collective decision.

Having consulted the Board of Regency, the Raj Mata proceeded to execute the merger document and signed it in her capacity as President of the Board. Consequently, there is no merit in the allegation that the Raj Mata, acting alone and without the Board’s concurrence, could lawfully sanction the issuance of the order that is now being challenged. In view of this conclusion, the Court must hold that the impugned order was not validly passed and that no customs duty may lawfully be imposed on the appellant for the charcoal it exported from the State of Sirohi. The respondent, however, contended that the duty imposed 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 a revised tariff, and on 10 August 1949 the Government of Rajasthan exercised this power by issuing Notification No. 211/SRD, which introduced a revised tariff and directed that customs duties be levied and collected in accordance with the new schedule. Item 367 of the revised tariff stipulated an export duty on charcoal at the rate of eight annas per maund. The respondent argued that when Sirohi became part of Rajasthan, the Ordinance automatically applied to Sirohi, thereby justifying the claim for customs duty against the appellant under the relevant provisions of the Ordinance, which had come into force on 4 August 1949. The Court finds this argument untenable. While Ordinance XVI, upon its passage and coming into effect, applied to the whole of Rajasthan as it existed then, the State of Sirohi was not at that time a part of Rajasthan; it only merged with Rajasthan effective 25 January 1950. A notification dated 24 January 1950 issued by the Ministry of States, exercised under subsection (2) of section 3 of the Extra‑Provincial Jurisdiction Act, 1947 (Act 47 of 1947), delegated to the Government of the United States of Rajasthan the extra‑provincial jurisdiction, including the authority conferred by section 4 of that Act to issue orders for the effective exercise of such jurisdiction. Accordingly, until 25 January 1950, Sirohi remained outside the territorial ambit of Rajasthan and was not subject to the Ordinance in question. The respondent’s suggestion that the Ordinance became applicable to Sirohi immediately upon the merger is manifestly incorrect. When Sirohi joined Rajasthan, the pre‑existing laws of Rajasthan could be extended to Sirohi only after a specific legislative measure was enacted to that effect. Indeed, such a step was taken later, in 1953, by the passage of the Rajasthan Laws (Application to Sirohi) Act (No. III of 1953).

In 1953 the Rajasthan Laws (Application to Sirohi) Act (No III of 1953) was enacted to declare that certain statutes of Rajasthan would be applicable to the former State of Sirohi. Section 3 of that Act stipulates that the Rajasthan laws listed in the Schedule to the Act shall, to the extent that they pertain to matters enumerated in Lists II and III of the Seventh Schedule to the Constitution of India, be deemed to apply to Sirohi from the appointed date. The provision further states that such deemed application shall operate notwithstanding any contrary provision contained in the Sirohi Administration Order of 1948 or any other law or instrument. The Court noted that a proviso attached to this section existed, but it was irrelevant for the purpose of the present appeal. The Ordinance that is the subject of the dispute is not included in the Schedule of the 1953 Act, and consequently the Court found that the Ordinance was never intended to extend to Sirohi. Moreover, the Court observed that there is no suggestion that any other legislation passed by the State of Rajasthan or any other instrument executed for that purpose made the Ordinance applicable to Sirohi. On that basis, the Court was satisfied that the respondent could not rely on the provisions of the Rajasthan Ordinance of 1949 to justify a demand for customs duty against the State of Sirohi. Accordingly, the Court held that the appeal must succeed. The writ was issued in favour of the appellant, declaring that the appellant is not liable to pay the customs duty in question. In addition, 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 at the request of the excise authorities were set aside. The appellant was awarded costs throughout the proceedings. The appeal was thus allowed.