Wanchoo, C.J.
1. The Maharaja Kishangarh Mills Ltd., Kishangarh, made an application under Article 226 of the Constitution of India. That application came up for hearing before a Division Bench of this Court, and, on 5-11-1951, the following two points were referred to a larger Bench for decision:
1. Whether by virtue of Articles 278, 279 and 295 of the Constitution of India and the agreement entered into between the President of India and the Raj Pramukh of Rajasthan on 25-2-1950, the Union of India is entitled to levy and recover arrears of excise duty on cloth held in stock or manufactured before 1-4-1950, in case, excise duty thereon was payable to the State of Rajasthan under the provisions of the Rajasthan Excise Duties Ordinance 25 of 1949?
2. Whether the publication of the Government notification by which tho Jaipur Excise Rules were adopted under the provisions of the Rajasthan Excise Duties Ordinance was sufficient publication in the meaning of Section 28, Rajasthan Excise Duties Ordinance 25 of 1949, and whether the publication of the aforesaid notification should be deemed to have been properly authenticated by authentication of the publication of the Ordinance. If not, whether want of authentication would have the effect of invalidating the said Excise Rules?
2. Certain facts may be narrated in order to decide the two points which have been referred to this Bench. The Maharaja Kishangarh Mills Ltd., Kishangarh is_ manufacturing cotton cloth at Kishangarh in the State of Rajasthan. The Central Excises and Salt Act, 1944, was extended to the State of Rajasthan by Section 11, Finance Act, 25 of 1950, from 1-4-1950, and the necessary rules under that Act also came into force from the said date. The Superintendent of Central Excise, Jaipur Circle, Jaipur, served a notice of demand on the applicant for payment of excise duty, on 16-2-1951, on cloth manufactured or in stock before 1-4-1950. The contention of the applicant was that the Union of India was not entitled to levy excise duty on cloth manufactured or in stock before 1-4-1950. Therefore, the notice, that was given to the applicant to pay duty on such cloth, was illegal, and unauthorised by any provision of law. Theapplicant, therefore, prayed for a proper direction, order, or writ under Article 226 of the Constitution to be issued to the Union of India, and its officers prohibiting them from levying or collecting any duty or tax by way of excise duty on cloth manufactured by the applicant the Maharaja Kishangarh Mills Ltd., Kishangarh, before 1-4-1950.
3. The applicant was opposed by the opposite parties, and reliance was placed on Articles 278 and 295 of the Constitution of India, and on the agreement entered into between the President of India and the Rajpramukh of Rajasthan on 25-2-1950, as authorising the Union of India to demand excise duty on cloth manufactured before 1-4-1950. The two points which have been referred to this Bench for an answer have arisen in view of the reply of the opposite parties to the case put forward on behalf of the applicant.
4. We shall take the second point first. It appears that certain rules were published in the Hindi Rajasthan Gazette of 12-11-1949, under Section 28 of the Rajasthan Excise Duties Ordinance No. 25 of 1949. By these rules the Jaipur Excise rules with certain modifications were to be the rules under the Rajasthan Ordinance. The Hindi Gazette, however, in which these rules were published, does not contain any authentication of these rules, and does not show by whose authority they were published. We cannot accept the contention on behalf of the opposite parties that the authentication, which appears before the Hindi version of the Act in the Gazette of 12-11-1949, covers these rules also. That authentication is dated 15-9-1949, and appears under the signature of the Law Secretary to the Government of Rajasthan, and merely says that the following Ordinance made and promulgated by the Rajpramukh on 5-9-1949, is being published for general information. The Ordinance referred to is Ordinance 25 of 1949. This authentication, therefore, cannot be said to authenticate the rules which appear on page 170 of the Hindi Gazette, dated Margashirsa Krishna 7 (12-11-1949). The rules, which are published from page 170 onwards begin as follows (Our translation):
'In exercise of the powers conferred under Sections 5 and 26, Rajasthan Excise Duties Ordinance of 1949, the Rajasthan Government orders that till new rules are framed under the said Ordinance, the rules framed under the Jaipur Excise Duties Act of 1945, known as the Jaipur Excise Duties Rules of 1945, will be in force throughout the whole of Rajasthan with necessary modifications, and will be deemed to have been made under the Rajasthan Ordinance,'
Then follows certain additions to the rules. There is no authentication of any kind to these rules which were published in this Gazette. The presumption therefore of Section 3(2), Rajasthan Administration (Amendment) Ordinance No. 5 of 1949 does not apply to thes rules.
5. It was open, however, to the opposite parties to show that these rules were in fact passed by the Rajpramukh of Rajasthan, and that the authentication was left out in the Gazette by oversight. But the opposite parties have not filed any affidavit to show that thesa rules were considered and passed by the Rajpramukh of Rajasthan before they were published at page 170 of the Hindi version of that(Gazette, dated 12-11-1949. The position, therefore, is that the Gazette does not contain any authentication of the rules & the presumption of Section 8(2) of Ordinance 5 of 1949 does not apply, and the opposite parties have failed to prove as a fact that these rules were considered and passed by the Rajpramukh of Rajasthan. Under these circumstances, there is nothing to prove that these rules were duly framed by the authority authorised to frame them by Sections 5 and 26 of the Rajasthan Excise Duties Ordinance No. 25 of 1949. The rules, therefore, which appear at page 170 of the Hindi Gazette of 12-11-1949 not having been proved to have been framed by the authority entitled to frame them, must be held to be invalid and of no effect. In view of this decision, it is not necessary to consider whether under Section 28 of the Rajasthan Excise Duties Ordinance 25 of 1949, it was necessary to publish each and every rule, or whether the publication by reference to the Jaipur Rules of 1945 was sufficient compliance with Section 28. Our answer, therefore, to the second question is that as the rules in question have not been authenticated, and no proof has been led to show that they were made by the authority which had the power to make them they are, invalid and of no effect.
6. We now turn to the first question which is concerned with the title of the Union of India to recover excise duty for a period before 1-4-1950. In the question referred to us Articles 278, 279 and 295 of the Constitution are mentioned. It seems, however, that this is a mistake, because in an earlier part of the order, the reference is to Art, 277 and not to Article 279. It appears that Art, 279 has no relevance to the point before us and it is Article 277 which wa have to consider along with Articles 278 and 295.
7. Before we however consider these Articles, we might dispose of the argument based on the agreement between the President of India and the Rajpramukh of Rajasthan, of 25-2-1950. This agreement does not specifically refer to cotton excise duties. Reliance, however, is placed on that part of the agreement which says that the recommendations of the Indian States Finance Enquiry Committee, 1948-49 contained in Part I of its Report read with Chaps. 1, 2 and 3 of Part II of its Report, in so far as they apply to the State of Rajasthan, together with the recommendations contained in Chap. 8 of Part II of its Report, (hereinafter referred to as the Report) are accepted by the parties to the agreement subject to certain modifications. In Part I of the Report, Central Excise which includes excise duty on cotton cloth produced in India have been enumerated as part of central revenue. In para, 9, Chap. 2 of Part II of the Report, is recommended that the centre will take over all central sources of revenue, and all federal items of expenditure in States, and must also take over all current outstandings including pending assessments, refunds and arrears. The argument is that in view of these recommendations, which were accepted by the agreement, the Union of India must be deemed to have taken over all current outstandings of cotton excise duties on 1-4-1950, when the Finance Act brought the Central Excises and Salt Act of 1944 into operation into Rajasthan. It must, however, be remembered that the Report was .made in 1949 in the shape of recommendations, and the Constitution came into force from 26-1-1950, and the report wastaken into consideration in framing the, financial provisions of the Constitution. It is true that the principles of the report were accepted by the agreement, but this agreement is subject to the provisions in the Constitution itself. We shall, therefore, have to see whether the provisions in the Constitution made any modifications in the recommendations in the report,
8. The relevant provisions that require special consideration are Articles 277 and 295. Article 277 reads as follows:
'Any taxes, duties, cesses or fees which, immediately before the commencement of this Constitution, were being lawfully levied by the Government of any State or by any municipality or other local authority or body for the purposes of the State, municipality, district or other local area may, notwithstanding that those taxes, duties, cesses or fees are mentioned in the Union List, continue to be levied and to be applied to the same purposes until provision to the contrary is made by Parliament by law.'
Under this Article, all taxes, duties, cesses or lees, which were being lawfully levied by the Government of any State for purposes of the State were to continue to be levied and be applied to the same purposes notwithstanding that those taxes, duties, cesses or fees are mentioned in the Union list, until provision to the contrary is made by Parliament or law. This Article obviously, therefore, modified the recommendation of the report that all federal sources of revenue with current outstandings will be taken over by the Union Government. It clearly allowed, till such time as the Union Parliament made provision to the contrary, the State to continue to levy duties which came within the Union List (like the cotton excise duties), and to use the income for its own purposes. It follows, therefore, that merely because an agreement was made between the President of India and the Rajpramukh of Rajasthan on 25-2-1950, by which the principles in the Report were accepted by the parties, the excise duties, which were being levied in Rajasthan before the Constitution came into force, could not be automatically levied and collected by the Union till the Parliament made provision to the contrary. It is admitted that Parliament made provision in this case from 1-4-1950, and till that date the State of Rajasthan was entitled under Art, 277 to levy and collect, and to apply to its own use, cotton excise duties which were leviable under Ordinance 25 of 1949. The question then is whether the (outstandings on 1-4-1950, would be transferred to the Union Government after the Finance Act of 1950 came into force on the 1st April. There is nothing in the Finance Act of 1950, which specifically transfers the arrears due up to 1-4-1950, to the Union Government.
9. Reliance in this connection is, however, placed on Article 295(1) of the Constitution which runs as follows:
'As from the commencement of this Constitution-
(a) all property and assets which immediately before such commencement were vested in any Indian State corresponding to a State specified in Part B of Schedule 1 shall vest in the Union, if the purposes for which such property and assets were held immediately before such commencement will thereafter be purposes of the Union relating to any ofthe matters enumerated in the Union List, and
(b) all rights, liabilities and obligations of the Government of any Indian State corresponding to a State specified in Part B of Schedule 1, whether arising out of any contract 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 thereafter be the 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.'
It is urged that these arrears were assets which were vested in what corresponded to the State of Rajasthan before 26-1-1950, and they became vested in the Union, as the purposes, for which such assets were held before 26-1-1950, thereafter became purposes of the Union relating to matters enumerated in the Union List. It is true that after 26-1-1950, excise duties on cotton cloth appear in the Union List, and the income thereof was to be utilised for purposes of the Union. But Article 295, in our opinion has to be read along with Article 277. As Article 277 allows duties to be levied for purposes of the State even though such duties may be mentioned in the Union List till such time as Parliament provides to the contrary, the cotton excise duties continue to be levied by the State of Rajasthan for its own purposes up to 31-3-1950. Therefore, if there were any arrears of these duties due to the State of Rajasthan for a period before 1-4-1950, those arrears were for purposes of the State of Rajasthan, even after the commencement of the Constitution and up to 31-3-1950. It cannot in consequence be said that they became assets under Article 295(1)(a) which could be taken over by the Union Govt., as after the 26th January they could only be used for purposes of the Union. In the peculiar circumstances created in Part B States by Article 277, and in view of the fact that Parliament provided otherwise only from 1-4-1950, arrears of cotton excise duties must be deemed to be held for purposes of the State up to 31-3-1950, and therefore Article 295(l)(a) will not apply because even if these arrears were assets held by the State, they could not be said to be held between 26-1-1950, and 1-4-1950, for purposes of the Union.
10. A similar argument is addressed on Article 295(l)(b), and it is urged that these arrears can also be treated as rights of the State against the Mills manufacturing cotton cloth, and they became vested in the Union of India after 26-1, 1950. The reply to this argument is the same as in the case of assets, for these rights became vested in the Government of India if the purposes for which they were acquired were the purposes of the Government of India. In this case, we have already shown that these arrears were not for purposes of the Government of India between 26-1-1950 and 1-4-1950, as under Article 277 they could be held and were held for purposes of the State.
11. It was urged on behalf of the applicant that Article 295 had no application to these arrears at all because they could not be called assetsor rights within the meaning of that Article. It was pointed out that Article 295 is in Chap. 3 of Part XII of the Constitution, which deals with property, contracts, rights, liabilities, obligations and suits, while matters relating to taxation are in Chap. 1 from Articles 264 to 291. It is consequently urged that these being arrears of taxation, we must look only to the provisions in Chap. 1 of Part XII, and that Chap. 3 of that Part, in which Article 295 appears, does not apply. We do not think it necessary to decide this point finally in view of our decision that even if these arrears can be called assets or rights within the meaning of Article 295, they did not become vested in the Government of India by virtue of Article 295, though there seems to be a good deal of force in the argument of learned counsel for the applicant in this connection.
12. It only remains now to deal with the argument that by virtue of Article 278, and the agreement between the President of India and the Rajpramukh of Rajasthan, these arrears become vested in the Government of India. Article 278(1) reads as follows:
'Notwithstanding anything in this Constitution, the Government of India may, subject to the provisions of Clause (2), enter into an agreement with the Government of a State specified in Part B of Sch. 1 with respect to
(a) the levy and collection of any tax or duty leviable by the Government of India in such State and for the distribution of the proceeds thereof otherwise than in accordance with the provisions of this Chapter;
(b) the grant of any financial assistance by the Government of India to such State in consequence of the loss of any revenue which that State used to derive from any tax or duty leviable under this Constitution by the Government of India or from any other sources;
(c) the contribution by such State in respect of any payment made by the Government of India under Clause (1) of Article 291,
and, when an agreement is so entered into, the provisions of this Chapter shall in relation to such State have effect subject to the terms of such agreement.'
Stress is laid on Clause (a) which provides that an agreement may be made between the Government of India and the Government of a Part B State with respect to the levy and collection of any tax or duty leviable by the Government of India in such State, and for the distribution of the proceeds thereof otherwise than in accordance with the provisions of this Chapter. It is urged that cotton excise duties are leviable by the Government of India, and therefore it was open to the Government of India to enter into an agreement with the State of Rajasthan, as was done on 25-2-1950, for the levy and collection of these duties. In the first place, it must be pointed out that the agreement of 25-2-1950, does not contain any specific provision about levy and collection of cotton excise duty in Rajasthan. We have already pointed out that mere approval in that agreement of the principles in the Report is not enough because of Article 277 which made a distinctly different provision from that contemplated in the Report. Further, the agreement, which can be entered into under Article 278, is with respect to a dutywhich was leviable by the Government of India. Now it is clear that in view of Article 277 cotton excise duty was actually leviable by the State of Rajasthan up to 31-3-1950, because Parliament made the contrary provision only from 1-4-1950. Therefore, for the period before 1-4-1950, cotton excise duty cannot be said to be a duty leviable by the Government of India so far as the State of Rajasthan is concerned, and therefore Article 278 can have no application with respect to a duty which was leviable by the State of Rajasthan up to 31-3-1950. We are, therefore of opinion that the right to collect these arrears cannot be said to have been transferred to the Union of India by virtue of Article 278 read with the agreement of 25-2-1950. We are clearly of the view that Article 277 is a complete answer to the claim of the Government of India to collect these arrears for a period before 1-4-1950.
13. In this connection, we may contrast the provisions contained in Section 173(4), Government of India Act, 1935 which are as follows: 'Arrears of any taxes outstanding immediately before the commencement of Part III of this Act shall be deemed to be due to and may be recovered by the Federal Government or a Provincial Government according as the proceeds of any such tax imposed after the commencement of Part III of this Act would be due to and recoverable by the Federal Government or the Provincial Government.' Under this provision, arrears of taxes, which became central sources of revenue under the Government of India Act, were recoverable by the Government of India, and those which remained provincial sources of revenue were recoverable by the Provincial Government. If it was the intention of the Constitution makers that arrears of taxes, which became recoverable by the Union Government after 26-1-1950, should be collected only by the Union Government, we should have found a clear provision similar to Section 173(4), Government of India Act, 1935. There is, however, no such clear provision in the Constitution, On the other hand, there is a provision which is distinctly against it, namely Article 277.
14. In whatever way, we look at the matter, we are satisfied that these arrears did not vest in the Union Government by virtue either of Articles 278 and 295 of the Constitution, or the agreement entered into between the President of India and the Rajpramukh of Rajasthan, on 25-2-1950.
15. The first question put to us assumes that the cotton excise duty was payable to the State of Rajasthan under the provisions of the Rajasthan Excise Duties Ordinance No. 25 of 1949. An argument was addressed to us that in view of the fact that no valid rules can be said to have been framed under Ordinance No. 25 of 1949, the State of Rajasthan could not recover cotton excise duties from the applicant. That is a question on which we need not express any opinion while answering the first question put to us, as we take it that the question assumes that the duty was payable to the State of Rajasthan.
16. Our answer, therefore-, to the first question addressed to us is that the Union of India is not entitled to levy and recover arrears of excise duty on cotton cloth held in stock or manufactured before 1-4-1950, by the applicant, by virtue of Articles 278 and 295 of the Constitution of India, and the agreement entered into between the President of India and the Rajpramukh of Rajasthan. Let these answers be returned to the Bench concerned.