(1) This petition raises the question of the constitutional validity of sub-sections (1) and (2) of S. 3 and clauses (a) and (b) of sub-section (2) of S. 9 of the Travancore Cochin Electricity Duty Act, 1950 and of sub-rule (i) of Rule 3 of the Travancore Cochin Electricity Duty Act 1950. A further question also is raised that the vires of the said sub-rule is covered by a judgment of the District Court, Trivandrum in O.S. 104 of 1955 on its file, in which the petitioner was the plaintiff and the Travancore-Cochin State was the defendant, and that the judgment operates as res judicata and is binding on the State of Madras.
(2) The petitioner was a licencee for distribution of electricity in Shencottah taluk under a licence initially issued by the then Travancore-Cochin Government in 1114 M.E. and has been distributing electricity in that taluk under a licence, subsequently issued by the Travancore-Cochin Government under S. 3(3) of the Travancore-Cochin Electricity Duty Act, 1950. The petitioner was then functioning under the name and style of Shencottah Electric Supply Agency. The licence covered also the distribution system over the Punaloor area which was however taken over by the Travancore-Cochin Government in 1951 leaving the petitioner only the distribution of electricity in the Shencottah area.
(3) As a result of the State Reorganisation Act, 1956, Shencottah taluk merged in the territory of the State of Madras with effect from 1-11-1956. The Madras Government, through its officers, made several demands on the petitioner for payment of electricity duty to which he had been assessed under S. 3(1) of the said Act which, by adaptation of laws, continued to be in force in that Taluk until 31-3-1961. The petitioner having defaulted, coercive steps were taken in April 1961, demanding payment, within a specified time, of Rs. 51,882-29 as arrears of revenue due from him for the period from 1-11-1956 to 31-3-1961 towards electricity duty. The coercive steps included also the attachment of the petitioner's properties presumably under the provisions of the Madras Revenue Recovery Act treating the dues as if they were arrears of land revenue for the purpose of collection. The petitioner has come to this court under Art. 226 of the Constitution asking for a direction restraining the respondents from collecting the amount as electricity duty from the petitioner.
(4) The contention for the petitioner is that sub-sections (1) and (2) of S. 3 and clauses (a) and (b) of sub-section (2) of S. 9 of the Act made excessive delegation of legislative power, without indicating any standard or guiding principle and are therefore void, so that the demand made on the petitioner is without any authority of law and cannot be enforced, in view of Art. 265 of the Constitution. The Travancore-Cochin Electricity Duty Act 1950 which was enacted with the avowed purpose of levying a duty on certain sales of electrical energy effected by licencees in the State of Travancore-Cochin contains nine sections of which S. 2 relates to definition, S. 3 is the charging section, the fourth requires the licencee to keep certain books of accounts in the prescribed form, the fifth confers powers on the Government to appoint inspecting officers, the sixth provides for recovery of duty due under the Act as if it was an arrear of land revenue, the seventh provides for the licencee to reimburse himself from consumer in certain cases, the eighth contains penalties and the ninth confers on the Government to make rules to carry out the purpose of the Act. Sub-sections (1) and (2) of S. 3 read:
"3. Levy of a duty on certain sales of electrical energy: (1) Save as otherwise provided in sub-section (2) every licencee in the State of Travancore-Cochin shall pay every month to the Government in the prescribed manner, a duty calculated at the prescribed rate on and in respect of all sales of energy effected by the licencee during the previous month at a price of more than two annas per unit;
(2) A licencee shall be exempt from duty under sub-section (1) in any month if the total sales of energy effected by him at a price of more than two annas per unit in the previous months, did not exceed the prescribed limits:"
There is a proviso to sub-section (2) but it need not be set out, as it is not important and no arguments were addressed to me bases on it. The word 'prescribed' is defined by S. 2 to mean prescribed by rules made under the Act. A duty is levied by S. 3(1) on sales of electrical energy at a price of more than two annas per unit effected in the previous month, but the rate at which the duty is to be imposed on such sales is left to the rule-making authority. So too the manner of payment of the duty by the licencee every month shall be as prescribed by rules. The limit above which the total sales of energy at a price of more than two annas per unit in the previous month will attract electricity duty is left by sub-section (2) of S. 3 to rules to be made under the Act. In other words, the rule-making authority is to fix the limit of total sales of energy for exemption from electricity duty. The corresponding power to make rules is conferred by sub-section (2) of S. 9, and by clause (a) the rules may provide for the time and the manner of payment of duty and also the rules thereof under S. 3(1) and by clause (b), the limit for the sales of energy at a price of more than two annas per unit above which the duty will become payable.
In exercise of this rule-making power, the Travancore-Cochin Government made the Travancore Cochin Electricity Duty Rules 1950. Sub-rule (i) of Rule 3 provides that the duty referred to in S. 3(1) of the Act shall be paid at the rate of nine pies per unit of energy sold at a price of more than two annas per unit. The same sub-rule further provides that a licencee shall be exempt from duty in any month if the total sales of energy effected by him in the previous month at a price of more than two annas per unit did not exceed 8333 units. A proviso to this sub-rule states that, if at the end of any financial year, it is found that the total sales of energy effected by the licencee in such year at a price of more than two annas per unit were not less than 1,00,000 units, the licencee shall pay the duty in respect of any month or months comprised in such year in which the sales of energy effected by him did not exceed 8333 units. Power also is reserved under this sub-rule for the Government to change the rules and the prescribed limits attracting duty. Sub-rule (ii) of Rule 3 prescribes the time and manner of payment of electricity duty.
In effect, what the Act does is to direct that a duty on sales of electrical energy at more than two annas per unit shall be levied and that the Government shall determine the rate of duty, the manner of its payment by a licencee and the exemption limit of total sales attracting duty and confer the corresponding rule-making power. There is no indication whatever in the Act as to how the Government is to determine and fix the quantum of the rate of duty. That is entirely left to the discretion of the Government which can exercise it as it pleases and without any restriction. Likewise, the limit of total sales of energy exempt from duty is left to the will and pleasure of the rule-making power of the executive. The preamble to the Act merely announces the policy of the legislature to levy a duty on certain sales of electrical energy effected by licencees in the State of Travancore-Cochin and contains no further guidance at all to the executive. One cannot gather from the sections read individually, or as a whole, any principle or limits with reference to which, or subject to which, the Government is to fix the quantum of the rate of duty to be levied and lay down the exemption limit of sales for levy of duty. The discretion so vested in the Government by S. 3(1) and (2) as well as S. 9(2)(a) and (b) is thus totally uncontrolled, unguided and unlimited.
(5) The Legislature is certainly entitled to delegate its power to the executive and its officers but this it can do only subject to certain conditions, limitations and restrictions. The legislature is not competent to totally abdicate its legislative functions in favour of the Executive under the Constitution. Our Constitution is based on separation of powers as between the Judiciary, the Legislature and the Executive and each of these bodies is entrusted with specific powers for their exclusive exercise and none of them is free to abdicate its powers in favour of any of the others. But this is not to say that the Legislature cannot delegate its powers at all. Before it can validly do so, it must indicate its policy, the principles and limits subject to which alone it can ask the Executive to carry out its purpose by making appropriate rules. Any delegation by the Legislature of its power in disregard of these requisites will be in excess of its competence and will be invalid. Once the policy is indicated by the legislature and it lays down the principles for carrying it out, it may well leave it to the Executive to fill up the details, fashion and bring into being the machinery essential to effectuate the purpose of the legislation. For that purpose, discretion may be properly left to the Executive to make rules but the discretion so left, should be such as is guided, controlled and limited by the legislature
(6) To levy a tax is a matter of policy and peculiarly a legislative function; and so too fixation of the rate or quantum of tax to be levied and the subject of taxation. The quantum or rate of tax is necessarily connected with the levy of tax and it is the function of the Legislature to legislate in respect of both of them. Neither of them can be left to the Executive for determination. But once the Legislature provides for levy of tax and prescribes itself the rate or quantum of tax or the limits within which the quantum of tax or duty may vary in the light of the principles indicated by the Legislature, there is no objection to the Legislature leaving it to the executive, the manner of levy and collection, and the machinery for collection by making suitable rules therefor. But that is not what the Act here in question had done. All that is stated was that there shall be a duty on sales of energy. The Act stated nothing about the quantum of rate to be charged or the limits within which the Government in exercise of its rule-making power may fix the rate. Nor did the Act lay down the principles or give indications with reference to which the rule-making authority may be guided in the exercise of its powers for fixing the quantum of rate.
(7) In Shanmugha Oil Mills v. Coimbatore Market Committee, which was a case under the Madras Commercial Crops
Market Act, 1933, this court, after observing that the rate of tax like the tax itself is a legislative function, held:
"S. 11(1) does not purport to limit the power of the executive Government to levy cess by way of sales tax at the rates already fixed or to any particular amount but instead, it give uncontrolled powers in the matter of fixation of rate of tax. That is illegal."
This view was in effect upheld on appeal in State of Madras v. Shanmugha Oil Mills, Erode, 75 Mad LW 566, Corporation of Calcutta v. Sarat Chandra, was concerned with the validity of S. 229 of the Calcutta Municipal Act in so far as it left the determination of the rate of tax to the Corporation with the approval of the State Government. Das Gupta C. J. as he then was, who was a member of the Court which decide the case, held:
"To my mind the most important question of policy which the Legislature has to determine in a taxing statute is the question of the rate of tax. To leave the determination of this matter to any other authority without indicating clearly principles for determination cannot be considered to be permissible delegation." Bachawat J., as he then was, who was the other member of the Court, accepted that levy of tax was a legislative function but considered that it might be delegated to a quasi legislative local body. But that is a different question. On the general principle whether a rate of tax can be left to the determination of the Executive without any guiding principles laid down by the legislature I find myself in respectful agreement with the observations of Das Gupta C. J. The legislature itself has to determine the rate of tax or should indicate the principles for fixation of the rate by the Executive. The legislature cannot say that the executive may fix the tax at any rate it may think fit. The Travancore High Court was of the same view. Standard Motor Union v. State of Kerala, .
(8) I have therefore no hesitation holding that sub-section (1) and (2) of S. 3 and clauses (a) and (b) of sub-section (2) of S. 9 of the Act, in so far as they left, to the State Government to determine, the quantum of the rate of duty and the limit of exemption from duty without indicating any policy, limit or principle constituted excessive delegation of legislative power and were, therefore, unconstitutional. It follows that the demand made on the petitioner was without authority and was illegal.
(9) On the view I have taken on the vires of the said provisions in the main Act, it will be unnecessary to consider the other point for the petitioner, relating to res judicata. But briefly the argument is that having regard to certain provisions of the States Reorganisation Act, the State of Madras is a successor State in respect of the Shencottah taluk, becoming part of the territory of this State, and the judgment of the District Court, Trivandrum should be deemed to be binding on it. The petitioner had instituted O.S. 104 of 1955 on the file of that court for a declaration against the Travancore-Cochin State that the order of its Government dated 15-9-1954 assessing him to electricity duty was illegal and void on the ground, among others, that S. 9 of the Act and the rules made thereunder were ultra vires and incompetent. In view of the constitutional question raised, the Travancore High Court withdrew the suit to its file but when it came up for hearing, it would appear that learned counsel for the plaintiff conceded that he would not raise any attack against the statute itself and would confine his contention to the validity of the rules on the ground of excessive delegation of authority in the matter of assessment to the electricity duty under the statute.
In view of this concession, that High Court thought that no longer was the constitutional validity of the statute in controversy and, on that view, sent back the suit to the District Court for disposal on the question, among others, of the validity of the rules framed under the Act. The District Court, however, found that S. 9 gave excessive authority to the Executive and that the rules framed fixing the rate and the limit of exemption were therefore invalid. Section 78 of the States Reorganisation Act provides that the right to recover arrears of any tax or duty on property shall belong to the successor State in which the property is situated. S. 123 is to the effect that where immediately before the appointed day, the existing State was a party to any legal proceeding with respect to any property, rights or liabilities subject to apportionment under the Act, the successor State which succeeded to or acquired a share in that property or those rights or liabilities by virtue of any provision of the Act should be deemed to be substituted for the existing State as a party to those proceedings or added as a party thereto as the case may be and the proceedings might continue accordingly.
Section 125(1) states that every proceeding pending before the appointed day before a court, other than the High Court in any area which, on that day, falls within a State shall, if it is a proceeding relating exclusively to any part of the territories which as from that day are the territories of another State, stand transferred to the corresponding court in the other State. The argument for the petitioner is that since on the appointed day his suit was pending and as the Madras State was entitled to collect the arrears of duty prior to that date under S. 78 in so far as the arrears related to the Shencottah taluk, the State of Madras should be deemed to have been a party to the suit when it was decreed in 1963 and the finding in the suit therefore is binding on it, and I do not think that the argument is valid. As I mentioned, it was conceded for the petitioner before the High Court of Kerala that he would not raise any question of vires of the statute itself and would confine his contention to the validity of the rules under the Act. That High Court while remitting the suit in so many words stated:
"We make it clear that the question of the constitutionality or vires of the statute is not to be considered in these proceedings."
The District Court was aware of its limitations while disposing of the suit and notwithstanding its observations in respect of S. 9 of the Act, it should be taken that its decision was confined to the validity of the rules. Further, the demand in question in this petition relates to arrears of duty accrued subsequent to 1-11-1956, while the arrears covered by the suit related to the period prior to that date. It is doubtful whether the principle of res judicata can be applied to assessment orders pertaining to different periods and based therefore on different causes of action. No doubt the Supreme Court in Amalgamated Coalfields Ltd. v. Janapada Sabha, Chhindwara, pointed out that in considering such a question it
would be necessary to distinguish decisions on questions of law directly and substantially arising in any dispute about the liability for a particular year and the questions of law arising incidentally or in a collateral manner. But on the question whether, where the statute on which the earlier assessment proceeding was based, was held to be valid, the decision would not operate as res judicata against the assessee for a subsequent year, the Supreme Court expressed no definite opinion in that case. But as I said, in view of my finding in favour of the petitioner on the question of the vires of the said provisions of the Act, I do not have to pursue this question of res judicata.
(10) The petition is allowed with costs. Counsel's fee Rs.. 250.
(11) Petition allowed.