Maharaja Shree Umaid Mills Ltd. v. Union of India

Das. J. an immunity from excise duty and inccime·tax. The

_Indian Independence Act, 1947 brought into exis· tence as from August 15, 194 7, a Dominion of India. The Ruler ofJodhpur acceded to the Dominion of India by means of an Instrument of Accession in.the form referred to in Appendix VII at pages 165 to 168 ofthe White Paper on Indian States. Jodhpur was one of the Rajputana States .. _ The integration of these States was completed ·in three stages. Firstly, a Rajasthan Union-was formed by a number_ of smaller Rajaputana States situated in the south-east of .that region. Later, there was formed the United State of Rajasthan. The Ruler of Jodhpur joined the United State _of Rajasthan and on April 7, 1949, made over the administration of his State to the Rajpramukh of the United State· of Rajasthan. The Covenant by which this was done is Appendix XL at pages 274 to 282 of the \Vhite Paper. On the same day was promulgated the Rajasthan Administration Ordinance, 194!) (Ordi-. nance No. I of l!l49), s. 3 whereof continued all the laws in force in any Covenanting· State until altered or repealed or amended by a competent legislature or · -other competent authority, etc. There was a fresh

Instrument of Accession on April 15, 1949, on behalf of the United State ofRajasthan by which the United State _of Rajasthan accepted all matters enumerated in List I and List III of the Seventh Schedule to the Government of India Act, 1935 a~ matters in respect of which the Dominion Legislature might make laws for the United State of Rajasthan, there was a proviso, however, which· said that nothing _in the said Lists shall be deemed to empower the Dominion Legislature to impose any tax.or duty in the territor-ies of the United . State of Rajasthan or to prohibit . . 52i

2 S.C.R. SUPREME . COURT REPORTS .

the imposition of any duty or tax by the legislature 1962 of the United State of Rajasthan in the said terri-J.!ahaiOJ~ Shr1' tories. On September 5, l!J4!), was. promulgated the Umaid Mills Lii. Rajasthan Excise Duties Ordinance, 1!)4!) (Ordinance v. Union o/ l"dia No. XXV of 1!)4!:1). This Ordinance was published on September ID; 1!)4!), and s. 30 thereof said that. Das, J. all laws dealing _with .. matters covered by . the Ordinance in force at its commencement in any part of Rajasthan were repealed. Orie of the questions before us is whether this section had the effect of abrogating the· agreement dated April 17, 1!)41, in.

case that agreement had the force of law in the State of JodhJ>ur. On November 23,. 1!:149, the United State of Rajasthan made a prodamation to the effect:

that the Constitution of India. shortly to be adopted by the Constituent Assembly of India shall be the Constitution for the Rajasthan State. The Constitu· tion of India came into force on January 26, 1!)50, and as from that date Rajasthan became: a Part B State.

. For the purpose of these two appeals, we have to notice the three stages ·of evolution in the constitu· tional position. First, we have the State of Jodhpur whose Ruler had full sovereignty and combined in'

himself all functions, legislative, executive and judicial. Then we have the United State of Rajasthan into whichJodhpur was integrated as from April 7, 1949, by the Covenant, Appendix XL at pages 274 to 282 of the White Paper. Lastly, we have the Bart B State of Rajasthan within the framework of the Constitution of India which came· into force on January 26, · 1950. Jodhpur then became a part of the Part B State of Rajasthan.

Both duties of excise (except alcoholic liquors etc.) and taxes on income other than agricultural income fall. within List I of By the Seventh Schedule of the_Constitution of India. s. 11 of the Finance Act 1950, the provisions ·of. the Central Excises and 1952 Salt Act, 1944 : and all rule3 and orders rriadethere' : A!ah3rafa Shrt1 under were extended to the territory of Rajasthan as·. Umaid 4\fills LIJ. from April 1, 1950. The Excise officers of the Union .

v. of India recovered a sum of Rs. 4,05,014-12·0 as' Uniun '1f India

excise .duty for the goods manufactured and produced Das.J. by the appellant, for the period from April 1, 1950,

to !\farch 31, 1952, ·from the appellant. The appel-.. lant said that it paid the amount under protest. ·. Ori April 16, 1952, the· appellant ii:istituted a suit by means of a plaint filed in the court.of the District Judge, Jodhpur. In the plaint the appellant made several averments on the basis of which it claimed that the respondents· were not· ·entitled to · realise excise duty from the appellant by reason of the agree: ment dated April 17, 1941.. The appellant asked for the following reliefs : • · . . . . • . · . . ' ' (a) a declaration that the agreement dated April 17, 1941, is binding on all the respon; (b) that the amount of exdse duty already · · · · realised be refunded with interest at 6% per. annum;:--· - · ', · (c) that the Union of India and the State of Rajasthan and their· servants, agents and : . officers be permanently restrained by means o( an injunction from realising any excise duty fro~ the appellant;· and · . · · · (d) that the State of Rajasthan be directed . to refund from time to time as and when the appellant is to pay excise duty to the Uriion of India, by reason . of the indemnity clause in the agreement of April 17, 1941. · . - - : .. ' .,. Several· issues were framed by the learned District Judge who on a trial of those iss'ues substan: tially held that the agreement of April 17, 1941; wa.oi not binding on the respondents. He further held that ··- 1962 the agreement itself stood frustrated by reason of 1.\liharaja Shr1i subsequent events which happened and. was therefore Umaid .Mills Ltd. unenforceable. ·There. was an appeal to the High v. Union ---- of l•dia Court which affirmed the · main . findings of the learned District Judge. · Dtz3, J. ~; -- The facts in C.A. No. 214 of 1956 are the same as those given ·above, ·the . only· point of distinction being that this appeal relates to income:tax while the other relates to excise duty. Here again the appe-llant bases . its claim on the · agreement dated April 17, 1941, and contends that the agreement is binding on the respondents and the appellant cannot ·be .. asked to pay· incomectax ·by. reason of the

provisions of the Indian lncome·tax Act, 1922 which .

were extended· to the whole· of India ·· except the State of Jammu and Kashmir as a result of certain amendments inserted in the said Act by the Finance Act, 1950.

· On ·behalf of the appellant two main lines of argument have been· presented before us in support of the ·contention . ,that the agreement dated Aprill7, 1941, is binding on the respondents and the finding to the contrary by the courts below is incorrect.

The ·first . line of argument is that agreement of April 17, 1941, is itself law, being the command of the Ruler of Jodhpur who was a sovereign Ruler at that time . and combined in himself all legislative, executive and judicial functions. This law, or legis-Jative contract as learned counsel for the appellant has put it,i continued in· force whenJodhpur merged into the United. State of Rajasthan, · by reason of s. 3 of the Rajasthan Administration Ordinance, 1949 which continued all existing laws in any covenanting State in force.immediately before the commencement of the . Ordinance. It is pointed out tliat for the purpose of s. 3 aforesaid, "law" means any rule, order or bye-law which having been made by a ----~-- •\ 524 SUPREME: COURT REl>ORtS [i963]SlJPi>. · 1962 competent authority in a covenanting State has the·. ~faM-raja .. Slirte force of law in that State. The agreement of Umaid llJills Lid . April 17, I !J41, it is argued, was sanctioned by the

Unfun of lndi:J Ruler and was his order; therefore, it had the force

of a special law in Jodhpur and this law continued .f!as, J. to be in force by reason of s. 3 of the Ordinance

referred to above. When the Rajpramukh of the United State ofRajasthan promulgated the Rajasthan Excise Duties Ordinance, 1949 (Ordinance No. XXV of 1949), s. 30 thereof did not abrogate the special"law embodied in the agreement. On the coming into force ·or the Constitution on January 26, 1950, when Rajasthan became·. a . Part B State, Art. 372 of the Constitution applied and the special law continued in force. The finance Act, 1950 did not abrogate the special law. · Therefore, the special law still continues in force and binds the respondents. This is the first line of argument.

The second line of argument proceeds on the footing that the agreement of April 17, 1941, is purely contractual in nature and is not law. Even on that . footing, learned. counsel for the appellant argues, the contract in question gives rise to rights in one party and obligations on the other. These rights and obligations, it is stated, were accepted by each succeeding sovereign, (1) Jodhpur State (2) United State of Rajasthan and (3) the Part B State of Rajasthan. It is contended that the finding to the contrary by the courts below is wrong. As the rights and obligations were accepted by each succeed-ing Sovereign, Art. 295 (i) (b) of the Constitution came into play as from January 26, 1950, and the rights and liabilities of the Jodhpur State or of the United State of Rajasthan became the rights far and liabilities of the Government of India in so as these rights and liabilities were for the pur:- poses of the Government of India relating 'to any of the matters enumerated in the Union List.· Learned counsel for the appellant argues that Art.295 is of the nature of a constitutional gnarantee and any 1962 law made in violation thereof must be void to the Mahaiaja Shf11 extent that it violates the Article. Umaid Mills Ltd v. Union of lntlia Apart from the aforesaid two main lines of argument, learned counsel for the appellant has also Das. ·1. submitted that the contract in question being a right to property, the appellant could not be deprived of it in violation of its guaranteed rights under Arts. 19 and 31 of the Constitution; that there was no frustra-tion of the contract as found by the learned Distric:t Judge; and that in any view the appellant is entitled to a refund of the duty or tax paid by it to the Union Government from the State of Rajasthan by reason of clause 6 of the agreement. · - - ~ · · · -- . . .

\Ve proceed now to deal with these_ arguments in the order in which we have stated them. As to the first line of argument we have come to the con-clusion that the agreement of April 17, 1941, rests solely on. the consent of the parties; it is entirely con-tractual in nature and is not law, because it has none of the characteristics of law. Learned counsel for the appellant has relied on the decisions of this court in Ameer-un-nissa Begum v. JJI ahboob Begum ('), Director of Endowments, Govt. of Hyderabad v.

Akram AU ('), .~Iadhaorao Phalke v. The State of JJ!adhya Bharat (') and Promod Chandra Deb v. The State of Orissa ('). \Ve do not think that these desi-sions help the appellant. It was pointed out in· 1lladhaorao Phalke's case (3) that in determining the question whether a particular order of a sovereign Ruler in whom was combined all legislative, execu-tive and judicial functions, it would be necessary to consider the character of the orders passed. Their Lordships then examined the Kalambandi under consideration before them and pointed out that "the nature of the provisions contained in this document unambiguously impresses upon it the character of a statute or a regulation having the force of a statute."

(I) A.t.R. (1955) S.C. 352. (2) A.I.R. (1936) S.C. GO;

- 1962 Same was the position in Ameer-un-niaaa's case (') Md,,raja SAm and the case of the Director of Endowments, Govt. Umai4 Mills Lii. of Hyderabad (') where this court had to deal with

v. the effect of Firmans issued by the Nizam who was Union •f lndi•

at the time an absolute Ruler. It was held that such Das, J. Firmans had the effect of law because in all

domestic matters, the Nizam issued Firmans to deter-mine the rights of his subjects. The Firmans were not based on consent, but derived their authority from the command of the Sovereign viz., the Nizam, expressing his sovereign will. For example, in Ameer-un-nissa's c.ase, (') the Firman set aside the decision of a Special Commission in respect of certain claimants and though a subsequent Firman revoked the earlier Firman, it did not restore the decision of the Special Commission. It was in these circum-stances that this· court observed :

"The determination of all these questions depends primarily upon the meaning and effect to be given to the various 'Firmans' of the Nizam which we have set out already. It cannot be disputed that prior to the integration of Hyderabad State with the Indian Union and the coming into force of the Indian Constitu-tion, the Nizam of Hyderabad enjoyed uncontrolled sovereign powers. He was the supreme lt-gislature, the supreme judiciary and the supreme head of the executive, and there were no constitutional limitations upon his au-thority to act in any of these capacities. The 'Firmans' were expressions of the sovereign will of the Nizam and they were binding in the same way as a11y other law; ...... nay, they would override all other laws which were in conflict with them. So long as a particular 'Firman' held the field, that alone would govern or regulate the rights of the parties concerned, though it could be annulled or

(I) A.I.Ro !1955) S,C, 952. (2) A.I.R; (1"6) S.C. 601

. ' ; Jt J\ J ' --- .

modified by a later 'Firman' at any time that 1952 the Nizam willed." · . · '"' Maliaraja Sii.rte Umaid Mills Ltd. These observations do not support the extreme view v. Union of India that any_ and every order of.a sovereign Ruler is law.

In Pronwa Ghanara (1) the Khorposh _ D .. :11 !. Deb's. case grants ·were considered in the context of the rules laid down in Order 31 of the Rules, Regulations and Privileges ofKhajnadars which were accepted by the Ruler of the State as the law governing the rights of Khorposhdars. It was Jn these circumstances held · that the rules continued in force till they were changed by a competent authority, and the grants made in accordance with those rules continued to be ~hl. .

In our view, · none of the· aforesaid decisions go the extent of laying down that any and every order of a Sovereign Ruler who combines in himself all functions must be treated as law irrespective of the nature or character of the order passed. -We think that the true nature of the order must be taken into consideration, and the order to be law must have the characteristics of law, that is, of a binding rule of conduct as the expression of the will of the sovereign, · which does not derive its authority from mere con-sensus of mind of two parties entering into a bargain. · It is not necessary for this purpose to go into theories of legal philosophy or to define law. However law may be defined, be it the command of the supreme legislature as some jurists have put it or be it a "body of rules laid down for the determination of . legal rights and duties which courts recognise", there is an appreciable distinction between an agreement which is based solely on consent of parties and a law which derives its sanction from the will of the Sovereign .

A contract is essentially a compact between two or more · parties; a law is not an agreement between parties but is a binding rule of conduct deriving its '

sanction pl . from the sovereign authority.· Frorp. th~

[1962) Supp• I S,C,R, 40?, . . .

1962 \ • point of ~iew, there is a valid distinction between a AfahtVaja Sh"' particular agreement between two or more parties Umaid Mi//1 Lti. even if one of the parties is the sovereign Ruler, and

v. the law relating generally to agreements. The former Union of India

rests on consensus of mind, and the latter expresses Das, J. the will of the Sovereign. If one bears in mind this

distinction, it seems clear enough that the agreement of April 17, 1941, even though sanctioned . by the Ruler and-purporting to be on his behalf, rests really on consent. \Ve have been taken through the corres-pondence which resulted in the agreement and our attention was particularly drawn to a letter dated April 22, 1938, in which the Ruler was stated to have sanctioned the terms and concessions decided upon by his Ministers in their meeting of February 25, 1938. \Ve do not think that the correspondence to which we have been referred advances the case of the appellant. On the contrary, the correspondence shows that there were prolonged negotiations, pro-posals and counter-proposals, offer and acceptance of . terms ... all indicating that the matter-was treated even by the ·Ruler as a contract between his Government and the appellant. That is why in the letter dated April 22, 1938, it was stated that Messrs Crawford Bailey & Co. Solicitors, would draw up a formal agree-ment embodying the terms agreed to by the parties. This resulted ultimately in the execution of the agree-ment dated April 17, 1941. To call such an agreement as law is in our opinion to misuse the term 'law'. . It is also worthy of note in this connection that clause 6 of the agreement purports to give the appel-lant exemption not only from State Excise duty, but also. from Federal Excise duty; similarly not only from State Income-tax, but from Federal Income-tax or Super-tax or Surcharge. It is difficult to see what authority theJodhpur Ruler had to give exemption from Federal Excise duty or Federal Income·tax. Such an exemption, if it were to be treated as law, would be beyond the competence of the Rul~r! ·· !1t Ruler can make a law within his own competence 1961 and jurisdiction. He cannot make a law for some Maharaj• Sh,,, other sovereign. Such an exemption would be a dead Umoid Milli Lid. letter and cannot have the force of law. Learned y, Unimi of. Indio counsel for the appellant suggested somewhat naively that the Ruler might . exercise his influence on the Da1, I. other Sovereign (if and when Federation came into existence) so as to secure an exemption from Federal tax for the appellant. Surely, an assurance of this kind to exercise influence on another sovereign authority, assuming that the effect of the relevant clause is what learned counsel has submitted, as to which we have great doubt, will at once show that it has not the characteristics of a binding ·rule of con· duct. It is doubtful if such an assurance to exercise influence on another sovereign authority can be enforced even as a contract not to speak of law.

Learned counsel for the respondents referred us to several other clauses of the agreement which in his opinion showed that the agreement read as a whole could not be treated as law, because some of the clauses merely gave an assurance that the State would take some action in future; as for example, clause 8 which gave an assurance to amend the law in future.

He contended that an assurance to amend the law in future cannot be treated as present law .. There is, we think, much force in this contention. When these difficulties were pointed out to learned counsel for the appellant, he suggested that we should separate the various clauses of the agreement and treat only those clauses as law which gave the appellant a present right. We do not see how we can dissect the agreement in the manner suggested and treat as law one part of a clause and treat the rest as an agreement only.

We should notice here that clause 6 of the.agree-ment does not refer to excise duty qr income-tax to be imposed by the Union of I11dia. A• a matter of

--.:-"ri ·,..,---.~ ·_-.., .

~· \ '.

530: SUPREl\1E COURT REPORTS [l!l63] SUPP. <.

1962 fact, nobody could envisage in 1941 the constitu-A!~h•raj• Shrt• tional developments which took place in 1947·1950, Um•ii Mills Ltd. and when the parties talked of Federal excise duty

v. ·and Federal income·tax, they had in mind the scheme Union of l11di2

of Federation envisaged by the Government of India Das, J. - -· Act,-1935 ... which scheme never came into operation.

It is difficult to see how the ·agreement in any view of the matter .. can be treated as law in respect of a tax or duty imposed by the Union Government when there is no mention of it therein.

The argument if carried to a reductio ad nbsurdum would come to · this that every order of the Ruler would have to be carried out by the succeeding Sovereign. That order may be almost of any kind, as for example, an order to thrash a servant. \Ve have no doubt in our minds that the nature of the order must be considered for determining whether it has the force of law. Art. 372 of the Constitution which continues existing law must be construed as embracing those orders only which have the force of Jaw .. .law as understood ,. at the time.

There .has been a lot of argument before us as to what learned_' counsel for the appellant has characterised as 'legislative contracts,' an expression med mostly in American decisions relating ·to the limitation placed by the 'contract clause' in the American Constitution upon action taken by the State legislature in respect of pre-existing contracts (see l'iljUU Eranch of the ·Slate Bani~ of Ohio v. Jncob Knoop (')).' \Ve do not think those decisions have any bearing· on the· question before us, which is simply this : does a compact between two or more parties, purely contractual in nature, become law because one of the parties to the contract is the Sovereign Ruler ? The American decisions throw no light on this que$tion. Learned counsel also referred us to the statement of the law in Halsbury's Laws of England, Vol.8, Third Edition,· paragraph 252 at page I Hi relating to statutory confirmation of void 1962 contracts by means of a local and personal Act of Parliament : the effect of such a statute is to make Mallaraja Shr1• Umaid Mills Ltd. the agreement valid in toto. The principle is that y, where an Act of Parliament confirms a scheduled Union of lttdia agreement, the agreement becomes a statutory obliga-Das, J. tion and is to be read as if its provisions were contain-ed in a section of the Act (see lntrrnatioruil Railway Company v. N. 1'. C'omm·i88ion (')). We fail to see how this principle has any application in the present case. There is nothing to show that the agreement in the present case was confirmed as a law by the R11ler; on the contrary, we have shown earlier that it was always treated as a contract between two parties. There is no magic in the expression 'legis-lative contract'. A contract is a compact between two or more parties and is either executory or cxecut-r'.d. If a statute adopts or conlirms it, it becomes law and is no longer a mere contract. That is all that a 'legislative contract' means. In the_ rases before us there is no 'legislative contract".

In view of our conclusion that the agreement of April l 7, 1941, is not law, it is perhaps unnecessary to decide the further question as to whether s.3 of the Rajasthan Ordinance, 1 !i+!J (Ordinance I of 1949) wminuec\ it or whet her s.:IO of the Rajasthan Excise Duties Ordinan< e, I !l+!I (Ordinance XXV ·of I !H!I) repealed it. We may merely say that with regard 1.0 the dTect of s.:111, learned coumcl for the appellant relied on the principle that. the prcsurnptiou is that a subsequent enactment of a purely general character is not intended to interfere with an earlier special provision for a particular case, unless it appears from a consideration of the general enactment that the intention of 1he legislature was to establish a r~le of univcroal application in which case the special provision must give way to the general (see paragraph 711, page 4117 of Vol. 31l, Halsbury's Laws of England, Third Edition, and Williams v. Pritchard(');

Eddington v. Borman (1)).

532 SUPRE.ll.IE COURT REPORTS [19G3] SUPP.

1962 On behalf of the respondents it was submitted Afllharaja Sh111 that s. 30 of the Rajasthan Excise Duties Ordina-Umaid Mills Ltd •. nce, l!J49, in -express terms, repealed all laws dealing

v. with matters covered by the ordinance, and s. 3 thereof Union of India

dealt with . excise duties on goods produced or Das, J. -- manufactured in Rajasthan ; therefore, there was no

room for the application of the maxim yenernli11 specialibiis non deroyant and · s. 30 clearly repealed all earlier -l:iws -.in the matter of excise duties or exemption therefrom. It is perhaps unnecessary to decide this question ; because ·we have already held that the agreement of April 17, 1941, was neither law nor had the force of!aw. We may merely point out that the-question is really one of finding out the intention · of the legislature, and in· view of the very dear words of s. 30 of the Rajasthan Excise Duties Ordinance, 1949 and of the repealing provisions in the Finance Act, 1950 it would be difficult to hold that the earlier special law on the \ subject still continued in force. . · · . \Ve proceed now to consider the second line of argument pressed on behalf of the appellant. So far as the Union Government and its officers are concerned, there is, we think, a very short but convincing answer to the argument. The agreement in question contains no term and no undertaking as to exemption from excise duty or income-tax to be imposed by the Union Legislature in future. \Ve have pointed out earlier that the undertaking, such as it was, referred to Federal excise duty and Federal income-tax . and . we have further stated that the Federation contemplated by the Government of India Act, . 1935 never came into existence. The Union which came into existence under the Consti-tution of 1950 is fundamentallv different from the Federation contemplated under ·the Government of India Act, 1935, Therefore, in the absence of any term as to exemption from excise duty or income-tax · to be imposed by the Union Legislature, the questiOn 2 s.c.R. SUPRE.ME COURT REl'ORTS 533 of succeeding sovereigns accepting such a term and . 1962 an obligation arising therefrom on January 26, 1950, Ma llarojll Shrtt by means of Art. 295 (i) (b) of the Constitution Um1.itl Al1l.s Lt/. cannot at all arise. Surely, a term or undertaking v. Union of India which is non-existent cannot give rise to a right or obli· gation in favour of or against any party. On this Das J. short ground_ only, the claim of the appellant should be rejected· against ·-the respondents in so far as the levy of excise duty or tax by the Union· is concerned, apart altogether from any question whether the Ruler . of Jodhpur or even the United State of Raj asthan could legally bind the future. action of the Union Legislature.

--- It is now well . settled by a number of decisions of this court that an act of State is the taking over_ of sovereign powers by a State in respect of territory · which was not till then a part of it, by conquest, treaty, cession or otherwisr, and the municipal courts recognised by the new Sovereign have the power and jurisdiction to investigate . and ascertain only such rights as the new sovereign has chosen to recognise or acknowledge by legislation, agreement or other-wise ; and that such recognition may be express or may be implied from circumstances. The right which the appellant claim5 stem5 from the agreement entered into by the Ruler of Jodhpur. The first question is, did the succeeding sovereign, the United State of Rajasthan, recognise the right which the appellant is now claiming? The ·.second question is, did -the next succeeding sovereign, the State of Rajasthan, recognise the right ? As against the State of Rajasthan the main claim of the appellant is based on that part of cl. 0 which says that if any such duty (or tax) has to be paid by the company,.

the state will refund the same to tl1e company. The appellant claims as against respondent Nu. 2 a refund of the duty or tax as and when it is paid to the.Union· Government by the appellant.

534; st.Ji>REl\1E COURT REPORTS[l!lu3}SUPP. 1962 The learned District Judge found that the_ Maharaj• Shr11 Ruler of Jodhpur acted upon the agreement in the Um•id Mills Ltd. matter of c!lstoms concessions granted to the appellant

Unio.V;, tnJia and accepted the royalty as per cl. 12 of the

. ~ agreement ; but the question relating to excise duty Das, J. never came before theJodhpur State as nn such·duty

·was leviable in the State. In the High Court Jagat · Narayan; j;; dealt. with the evidence on die point

and gave. a list of documents bearing on it .. He pointed out that the Director of Industries of the United State of Rajasthan no doubt made dr.mands for the payment of royalty not only for the period since ·the formation of the United State of Rajasthan, but also for arrears of royalty for the period prior to the formation of that State. He found however that as to exemption from excise duty or the claim of refund, the United State of Rajasthan had in no way affirmed· the agreement. ·The learned .Judge said : · "What has to be determined is whether on the facts and circumstances appearing from the evidence .on record it can be said that the United. State of Rajasthan affirmed the agree-ment:/ I am firinly of the opinion that no such inference can be . drawn. . The state did not make up its mind whether or not to abide by the agreement . and pending final decision the agreement was.acted upon provisiOnal\y."

So far as the Part B State of Rajasthan is concerned, there is nothing in the record to show that it had affirmed the agreement. l\Ir. JustiCe Bapna agreed with his learned colleague on the Bench and referred specially to a letter dated January 20, 1950, which was a letter from · the, Commissioner of Excise Jodhpur, to the appellant. In that letter the appe-llant was informed that it was liable to pay excise duty in accordance. with the Rajasthan Excise· Duties Ordinance, I !J49. · The appellant sent a reply in which it stated that excise duty was not Ieviable Ly 2 S.C.it. SUPREME cotJ1t1' - illil'ORTS __ 535 __ '. - ...-· __ - - ..

;. ~ ~ reason of the agreement dated April 17, 1941.

Further correspondence followed and finally a reply Alahar11j• Shrt• was given on May 10, .1952, in which the Govern-Um•ii Milu Lld. ment of the State of Rajasthan said that v. . U11io• of lndi~ "the rights and concessions granted. to the Das, J. company and the liabilities and obligations accepted by the former Jodhpur State under the agreement· are extraordinary, unconscion-able and disproportionate to the public interest."

_The ' letter ended by saying that the claim of the appellant , to exemption . could not be accepted.

Another letter on which the appellant ··relied was·- dated May 1, 1950 .. In this letter the Government of Rajasthan said that the burden of exdse duty on cloth produced by the appellant fell on the consumers who purchased the cloth; therefore the Government of Rajasthan did not consider it necessary to exempt the appellant from payment of excise·· duty. - It is worthy of note that all this correspondence started within a very short time· of the promulgation of the Rajasthan Excise Duties Ordinance, 1949. From this correspondence Bapna, J ., came to the conclusion that neither the United State of Rajasthan nor the State of Rajasthan affirmed the agreement. We see no reasons to take a different view of the correspon-dence to.which our attention has been drawn.

'Vhat then is the position ? ·If the new Sove-reign, namely, the United State of Rajasthan or the Part B State of Rajasthan, did not affirm ihe agree-ment so far as exemption from excise duty or income-tax was concerned, the appellant is clearly · out of court. Learned counsel for the appellant has relied· on Art. 295 (1) (b) of the Constitution. That Article is in these terms :- . · ·

"2!l5_. (1) As from the commencement of this

r~;.f-i'./~';,. ,_. ',\, . \ ..

I • - l < ' • ' ' • '• ' " 1 ''' "

· 536 SUP~1'IE COURT REPORTS [l!J63] SUPP.

Constitution :- Alaluuoj!J Shr1• . (a) all property and assets which imme-Umaid_ Mills Lld,. diately before such commencement were vested

v.

Union of India · · in any Indian State corresponding to a State specified in · Part B of the First Schedule shall Das, J. vest in the Union, if the purposes for which such property and assets were held immediate I y before such-commencement will thereafter be purposes of the Union relating· to any of the matters enumerated in the. Union List, and (b) all rights, liabilities and obligations of the Government of any Indian State corres-ponding to a State specified in Part B of the First Schedule, whether arising out of any con-tract or otherwise, shall be the rights, liabilities and obligations of the Government of India, if the purposes for which such rights were acquired or liabilities or obligations were incurred before such commencement will there-after be purposes of the Government of India relating to any of the matters enumerated in the Union List, subject to any agreement entered into in that behalf by the Government of India with the Government of that State. · (2) . Subject as aforesaid, the Government of each State specified· in Part B of the First Schedule shall, as from the commencement of this Constitu-tion, be . the successor of the Government · of the corresponding . Indian State as regards all property and assets and all ............... rights, liabilities and obligations, whether arising out of any contract or otherwise, other than those referred to in clause (1)."_ ·The argument is that the Article provides a constitutional guarantee in the matter of rights, liabilities and obligations referred to iu cl. (b) and no law can be made altering· those rights, liabilities 2 s.c.R.. SUPREME couR.i" REPORTs-~537-- and obligations. In support of this argument our - 1962 attention has been drawn to Art. 245 which says AfJharqja Shr11 that subject to ·the provisions of the Constitution u,,,.;d Mills Lid. Parliament may make laws for the whole or any v. part of the territory of India etc. The· contention Unim of lntiia is that the power of Parliament to make laws being subject to the provisions of the Constitution, Art. 295 which is one of the provisions of the Constitution controls the power .· of Parliament to make laws in respect of rights, liabilities, obligations etc. referred to in Art. 205 (1). (b), and therefore Parliament cannot pass any law altering those rights, liabilities and obligations. . · · · . ·

\Ve do not think that this is a correct inter~ · pretation of Art. 205 of the Constitution. But before going into the question of interpretation of Art. 295 it may be pointed out that if the United State of Rajasthan did not affirm the agreement, then the appellant had no enforceable right against either the United State of Rajasthan or the Part B State of Rajasthan. Under Art. 295 (1) (b) there must be a right or liability on an Indian State corresponding to a State specified in Part B of the First Schedule which can become the . right or liability of the Government of India etc. If the right itself did not exist before the commencement of the Con· stitution and could not be enforced against any Government, the question of its vesting in another Government under Art. 205(1) (b) can hardly arise.

· The scheme of Art. 205 appears to be this, It relates to succession to property, assets, rights, liabilities and obligations. Clause {a) states that from the commencement of the Constitution all property and assets which immediately before such commencement were vested in an Indian State corres· ponding to a State specified in Part B of the First ::ichedule shall vest in the Union, if the purposes for which such property and assets were held_ be· purposes

538: Sl!Pl{EivIE COURT. REPORTS [1003] SlJPi'. ' - - - < 1962 of the Union. Clause (b) states that all rights, liabili-A!Ah.i•ja Shre1 ties and obligations of the Govemmenf of any Indian UmtJii Jifills Lit!. State corresponding to a State speCified i!I Part B of

v.

~nio1f. of India the First Schedule, whether arising out of any con-

-na.s. tract or otherwise shall be the rights, liabilities ·anCI

J. obligations 'of the Government of India if the purposes

for which such rights were acquired or liabilities and obligations were incurred be purposes of the Govern-ment of India.- There is nothing in the Article to show that it fetters for all time to come, the power of the Union Legislature to make modifications . or c]langes in the rights, liabilities etc. which have vested in the Government of India. The express provisions of Art. 295 (10) deal . with_ only two matters, .namely, (1) vesting . of certain ·property and assets in _the. Government of India, and (2) . the arising of certain rights, liabilities and obligations on the Government of India. Any legislation altering the course of vesting. or succession as laid down. in Art. 295 will no doubt be bad on the ground that it conflicts with Article. But there is nothing in the Article which prohibits Parliament from enacting a law altering the terms and conditions of a contract -or of a-· grant . under which the liability of the Government of India arises. The legislative com pc- . tence of the Union Legislature. or even of the State Legislature can only be circumscribed by. express prohibition contained in the Constitution itself and unless and until there is any provision in the Consti· tion expressly prohibiting legislation on the subject either absolutely or conditionally, there is no fetter or limitation on the plenary powers which the legislature enjoys to legislate on the topics enumerated in the . relevant Lists lJiaharaj Umeg Singh v. State. of Bombay (1). In our opinion, there is nothing in : A.rt. 295 which expressly prohibits Parliament from enacting a law as to incorile-tax or excise duty· in territories which . became .. Part B. States, and . which were . formerly· India'n _States,' and . such 'a prohibition cannot be read into Art. 205 by viriue of . ' - ' '

(I) A.I.R, (1955) S,C. 540.

2 s.c.:R. st.H:>REME COURT REPORTS- : 539 - ~ some contract that might have been made by the -IP52 then Ruler of an Indian State_with any person: --_ -_ Maharaj•Shree ' - · Umaid l\liU1 Lid. There is another aspect of this question. The · v. rights, liabilities and-obligations-referred to in Union_•/ 1•.4i• Art. 295 (1) (b) are, by the express language of the _D,,,J. Article, subject to any agreement entered into in that behalf by the Government of India and the Govern-ment of the State.- , Such an agreement was entered ·into· between the President of India and Rajpramukh of Rajasthan on February 25, 1950. It is necessary to explain how this agreement came into existence. A committee known as the Indian States Finances Enquiry Committee was appointed by a resolution of the . Government of India -·dated October 22, 1948, to examine and report upon, among other things, the present structure. of public -finance in Indian States and the desirability and feasibility of integrating _Federal Finance in Indian ·States. This committee submitted its report on October 22, 1949. The agreement between the President of India and the Rajpramukh of Rajasthan said:

"The recommendatiorn of the Indian States Finance Enquiry Committee, 1948-49 (here· after referred to as the Committee) contained in Part I of its Report read with Chapters I, II and III of Part II of its Report, in so far as they apply to the State of Rajasthan (here-after referred to as the State) together with the -recommendations contained in Chapter VIII of Part II of the report, are accepted by the parties hereto, subject to the following modifi· cations." - _ It - is not necessary for our purpose to set -out the modifications in detail. It is enough to say that there is nothing in the modifications which in ariy _ way benefits the appellant. One of the modifica·

tions relates to State-owned and State-operated enter-prises which are to be exempt from income-tax etc • 1962 The appellant is neither a State-owned nor a State-Maltarai-Shrtr operated enterprise. Another· modiffcation states-Umolll Mills Ltd. "State-sponsored Banks or. similar State-

v.

Unim •/ India ponsored enterprises in the State now enjoying

Das, J. any explicit tax exemptions shall be treated as "Industrial Corporations" for purposes of the continuance of the Income tax concessions now enjoyed by them in accordance with paragraph 11 (3) (b) of the Annexure to Part I of the Committee's Report."

Now the appellant is neither a State-sponsored bank nor a State-sponsored enterprise. So far as the appellant is concerned the recommendations of the committee which were accepted in the agreement inter alia said :

"Any special financial privileges and imnm-nities (affecting "federal" revenues) conferred by the State upon other individuals and corpo-rations should ordinarily be continued on the same terms by the Centre, subject to a maximum period of ten (or fifteen) years, and subject also to limiting in other ways any such concessions as may be extravagant against the public interest."

The recommendation quoted above clearly shows that it was open 1!1 the Union to limit in any way it thought fit any concessions as appear to the Union Government to be extravagant and against the public interest. In view of this recommendation which was part of the agreement entered into between the President of India and the Rajpramukh of Rajasthan on February 25, l!l50, the appellant can hardly plead it has a conslitulional guarantee tu claim exemption from excise duty or income-tax. This finishes the second line of argument urged on behalf of the appellant. As to ·the pleas based on Arts. 19 and 31 of the Constitution, it is enough to .;say that on our findings the appellant had. no 1962 · enforceable right either against the State Government

of Rajasthan or the Union Government on M•Mrajo Sllt11 Umaid Mills Lti. January 26, 1950. It is obvious, therefore, that . the v. appellant cannot invoke to its aid either Art. 19 or U.Un •f lndi• Art. 31 of the Constitution. As to the claim of Das, J. refund which the appellant preferred against the State of Rajasthan, the appellant's position is no better. If neither the United State of Rajasthan nor the Part B State of Rajasthan affirmed the agreement of April 17, 1941, the appellant cannot enforce any right against respondent No. 2 on the basis of that agreement.

In the trial court as also in the High Court the question of frustration of the contract was canvassed and gone into. The courts found that the contract was frustrated. In view of the findings at which we ha vc arrived. It is now unnecessary to consider that question. Therefore we do not propose to deal with it.

For the reasons given above, we have come to . the conclusion that the appeals are without any 'merits. We accordingly dismiss them with costs, one hearing fre.

Appeal dismissed.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 214/56.

Appeal from the judgment and order dated October 19, 1953 of the Rajasthan High Court in D. B. Civil Misc. Writ No. 47of1953.

WITH

Civil Appeal No. 399 of 1960.

Appeal from the judgment and decree dated May 7, 1959, of the Rajasthan High Court in D. B. Civil Regular First Appeal No. JO of J955, ---~---.--- 2 s.t:.R. SUPREME;couRT REPORTS . li17

G. S. Pathak, -Rameshu·ar Nath, · S. N. 1962 Andley and P. L. Vohra, for the appellants •. Maharsj• Skri1 I. UmaiJ Mills LU. JI. C. Setalvad, · Attorney-General for India, vc Union of l11iia II. N. Sa-1iyal, ··Additional Solicitor General of India, K. N. Rajayopal Sastri and R. N. Sachthey, for the respondents. (in C. A. No; 214/56) and respondents ·Nos. 1, 3 and .4 (in C. A.· No. 399/60).

. G. C. Kasliwal, . Advocate-General, · Rajasthan, M. M. Tiwari, S. ](.'Kapur, Kan Singh, S. Venkata-krishnan and K; K. Jain, for respondent No. 2 (in C. A. No. 399/60.) · ' ' • ,·· .. · - ·· ..

. .

. , 1962. November 27. The Judgment of the Court was delivered by

. S. K. DAS, J.-· 'These ·two appeals on certi-D.,, J, ficates granted by the 'High Court ofRajasthan have been heard together, because they raise common questions of law and. ·fact,• and• this judgment will govern them both. . · ' ' · · .· . .

'

Shortly put, . the, main question in C. A.

No. 3()!) of 1960 is whether the appellant, the Maha-raj a Shree Umaid 'Mills Ltd.; ·is liable to pay excise duty on.the cloth and yam manufactured and pro-duced 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 I, 1950. The main question in C. A. No. 214il956 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 extend-ed to the territory of the State of Rajasthan. C. A.

No. 3!J!J ofl960 arises out of a suit which the appe· llant 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 . 1962 Court of Rajasthan. The High Court ciL Rajasthan lr!ah•r•ia Shr11 · dismissed the appeal. The High Court was then Um aid Mills Lid. moved for a certificate under Arts.132 (1) and 133(1)

v. of the Constitution. Such certificate having been Uniora of India ·

- granted by the !ligh . Court, the appeal has . been DaJ,, J.· preferred to this coµrt. _ C._ A. -. 214 of l!J56 No:

arises out of a_writ petition which the appellant had filed for the issue-of writ of _mandamus or any other appropriate writ restraining the respondents from assessing or recovering income' tax . from the appe· Hant. 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 apP.ellant moved the High Court and obtained a certificate·- in pur· suance of which it has filed C. A. No. 214of1956; 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. ' - .. _ We have already stated that in both the appeals the l\faharaja Shree Umaid l\fills .Ltd.~· Pali, is the -appellant. In C. A. No. 399 of l!J60 the re8pondents are the Union of India, the State of Rajasthan, the Collector 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 .

. We may now state the facts which are relevant to these iwo appeals. The appellant was incorpora· ted under the Marwar Companies Act, 1923 and has its registered office· at. Pali ·in the -present S tate of Rajasthan. It has been manufacturing cloth and yarn since l!J41. · The case of the appellant was that the then Ruler of the State of Jodhpur .was · earnestly desirous of having a cotton mill started at

Pali and for that llurpose agreed to give_certain

,,.-' '

SUPREME ' , ·, '; , COURT • ' ,. ,, T REPORTS • ', • • > ,,·1 . (.'' 519 •l"" .

2 S.C.R.

concessions by way of immunity from parrnent of'. 1962 taxes and duties_ then .in force in the Jodhptir State · Maharaj• sh;,, or likely to come into force in view of the con.'.' Umaid Mills 'if. Lia. templated. · federation· . of '.the __ · ·Indian ' States. Unidn India and Provinces under the Government of India Act, 1 -- · l!J35. · There were· negotiations and correspondence ' Dai, 1' about the concessions which were to be granted and ' .

finally a formal deed of agreement .incorporating. , · the concessions an~ 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, 194L . Clause !3 of this"'

agreement, ·in so far as it is relevant for our purpose;·· :,; _..

· "The State will exempt or remit .·the · - following duties and royalties : . , · · ; · J . - • (a) xx xx '(b) xx xx (c) xx' xx (d) xx xx. . .._, .\,:

. . . ,· . . 'i · (c) 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 T~x 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 wholly to 'the: ·

(g) xx ' xX._ '' ·.: .

'j., . ; ) , .

In consideration of the concessionsgiven t~e· appel:

lant agreed to pay to the State of Jodhpur, a royalty

.. ' ' : ' t • l :- • • . ' '"' • ' . . - . • ••

520 SUPREME COURT REPORTS[~963] SUPP •

1962 of 7! per cent on the net profits of the company in }.fd&raja Slzre1 . each of its financial years, such payments to be made· Um•id .Milu L14. within three months after the close of each financial

- v. year. This agreement, it was stated, was acted up.on _ U11lo• 11/ India

by the State of Jodhpur and the appellant enjoyed