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SUPREME COURT OF INDIA
27th November, 1962.
S.K. DAS, J.L. KAPUR, A.K SARKAR, M. HIDAYATULLAH AND RAGHUBAR DAYAL, JJ.
Maharaja Shree Umaid Mills Ltd. (In both the appeals) Appellants;
Versus
Union of India and others, (In both the Appeals) Respondents.
Civil Appeal No. 214 of 1956 with Civil Appeal No. 399 of 1960.
Advocates appeared
Mr. G. S. Pathak, Senior Advocate, (M/s. Rameshwar Nath, S. N. Andley and P. L. Vohra, Advocates of M/s. Rajinder Narain and Co. with him), for Appellants (In both the Appeals); Mr. M. C. Setlvad, Attorney General for India, Mr. H. N. Sanyal. Ad. Solicitor General of India and Mr. K N. Rajagopal Sastri, Senior Advocate, Mr. R. N. Sachthey, Advocate, with them), for Respondents. (In C A. No. 214 of 1956 and Respondents Nos. 1, 3 and 4 (In C. A. No. 399 of 1960); Mr. G. C. Kasliwal, Advocate General for the State of Rajasthan and Mr. M. M. Tiwari Senior Advocate, (Mrs. S. K Kapur, Kan Singh, S. Venkatakrishnan and K. K. Jain. Advocates, with them), for Respondent No. 2 {In C. A. No. 399 of 1960)
CONSTITUTIONAL LAW - Agreement between Jodhpur Ruler and Appellant for exemption from excise duty and income tax - Whether agreement has the force of law - Whether agreement continued in force after merger of Jodhpur into United State of Rajasthan and after coming into force of the Constitution - Whether agreement is binding on the Union Government and its officers - Whether appellant is entitled to refund of duty or tax paid by it to the Union Government from the State of Rajasthan.
Fact of the Case:
The appellant, Maharaja Shree Umaid Mills Ltd., entered into an agreement with the then Ruler of Jodhpur in 1941, whereby the State agreed to exempt the appellant from excise duty and income tax. The agreement was acted upon by the State of Jodhpur and the appellant enjoyed an immunity from excise duty and income tax. Jodhpur was integrated into the United State of Rajasthan in 1949 and the Constitution of India came into force in 1950. The appellant claimed that the agreement was binding on the Union Government and its officers and that it was entitled to a refund of the duty or tax paid by it to the Union Government from the State of Rajasthan.
Finding of the Court:
The Court held that the agreement of April 17, 1941 was not law, but was purely contractual in nature. It further held that the agreement did not continue in force after the merger of Jodhpur into the United State of Rajasthan and after the coming into force of the Constitution. The Court also held that the agreement was not binding on the Union Government and its officers and that the appellant was not entitled to a refund of the duty or tax paid by it to the Union Government from the State of Rajasthan.
Issues: 1. Whether the agreement between the Jodhpur Ruler and the appellant had the force of law. 2. Whether the agreement continued in force after the merger of Jodhpur into the United State of Rajasthan and after the coming into force of the Constitution. 3. Whether the agreement was binding on the Union Government and its officers. 4. Whether the appellant was entitled to a refund of the duty or tax paid by it to the Union Government from the State of Rajasthan.
Ratio Decidendi: 1. The Court held that the agreement did not have the force of law because it was purely contractual in nature and did not have the characteristics of law, such as a binding rule of conduct deriving its sanction from the sovereign authority. 2. The Court held that the agreement did not continue in force after the merger of Jodhpur into the United State of Rajasthan and after the coming into force of the Constitution because the agreement was not law and therefore could not be continued in force by Article 372 of the Constitution. 3. The Court held that the agreement was not binding on the Union Government and its officers because the agreement did not contain any term or undertaking as to exemption from excise duty or income tax to be imposed by the Union Legislature in future. 4. The Court held that the appellant was not entitled to a refund of the duty or tax paid by it to the Union Government from the State of Rajasthan because the agreement did not give rise to any right or obligation in favour of the appellant against the State of Rajasthan.
Final Decision: The Court dismissed the appeals.
Judgment
S. K DAS, J. : These two appeals on certificates granted by the High Court of Rajasthan have been heard together, because they raise common questions of law and fact and this judgment will govern them both.
2. Shortly put, the main question in C. A. No. 399 of 1960 is whether the appellant, the Maharaja Shree Umaid Mills Ltd; is liable to pay excise duty on the cloth and yarn manufactured and produced by it, in accordance with the provisions of the Central Excises and Salt Act. 1944, which provisions were extended to the territory of the State of Rajasthan on April 1,1950. The main question in C. A. No. 214/1956 is whether the same appellant is liable to pay income tax in accordance with the provisions of the Indian Income-tax Act 1922, from the date on which those provisions were extended to the territory of the State of Rajasthan. C. A. No. 399 of 1960 arises out of a suit which the appellant had filed in the court of the District Judge, Jodhpur. That suit was dismissed by the learned District Judge. Then there was an appeal to the High Court of Rajasthan. The High Court of Rajasthan dismissed the appeal. The High Court was then moved for a certificate under Arts. 132 (1) and 133 (1) of the Constitution. Such certificate having been granted by the High Court, the appeal has been preferred to this Court. C. A. No. 214 of 1956 arises out of a writ petition which the appellant had filed for the issue of a writ of mandamus of any other appropriate writ, restraining the respondents from assessing or recovering income tax from the appellant. This writ petition was dismissed by the High Court on the preliminary ground that the appellant had another remedy open to it under the provisions of the Income-tax Act, 1922. The appellant moved the High Court and obtained a certificate in pursuance of which it has filed C. A. No. 214 of 1956. As we are deciding both the appeals on merits, it is unnecessary to deal with the preliminary ground on which the High Court dismissed the writ petition.
3. We have already stated that in both the appeals the Maharaja Shri Umaid Mills Ltd. Pali, is the appellant. In C. A. No. 399 of 1960 the respondents are the Union of India, the State of Rajasthan, the Col. of Central Excise, New Delhi and the Superintendent, Central Excise, Jodhpur. In C. A. No. 214 of 1956 the respondents are the Union of India, the State of Rajasthan, the Commissioner of Income-tax, Delhi and the Income-tax officer, Jodhpur.
4. We may now state the facts which are relevant to these two appeals. The appellant was incorporated under the Marwar Companies Act, 1923 and has its registered office at Pali in the present State of Rajasthan. It has been manufacturing cloth and yarn since 1941. The case of the appellant was that the then Ruler of the State of Jodhpur was earnestly desirous of having a cotton mills started at Pali and for that purpose agreed to give certain concessions by way of immunity from payment of taxes and duties then in force in the Jodhpur State or likely to come into force in view of the contemplated federation of the Indian State and Provinces under the Government of India Act, 1935. There were negotiations and correspondence about the concessions which were to be granted and finally a formal deed of agreement incorporating the concessions and immunities granted was executed between the Government of His Highness the Maharaja of Jodhpur on one side and the appellant on the other on April 17,1941. Clause 6 of this agreement, in so far as it is relevant for our purpose, said:
The State will exempt or remit the following duties and royalties:
(a) XX XX
(b) XX XX
(c) XX XX
(d) XX XX
(e) State or Federal Excise duty on goods manufactured in the mill premises. If any such duty has to be paid by the Company the State will refund the same wholly to the Company.
(f) State or Federal Income-tax or Super-tax or Surcharge or any other tax on income. If any such tax has to be paid by the company the State will refund the same who
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