Delegated Legislation with Specific Reference to Taxation
A Critical Study In The Light Of Supreme Court Judgements
Power of taxation is an inherent and an essential attribute of sovereignty which primarily rests on necessity. Modern constitutions of nations recognise this power by making express provisions therein. The sovereign attribute of taxation is the authority of the sovereign to compulsorily impose burden or charges upon persons or property to raise money as public revenue for public purposes. In a federal constitution the power of taxation is distributed among the federal and the provincial legislatures i.e the central and the state legislatures. Our constitution makes a fine balance in the taxing powers of the Parliament and the state legislatures. However, the distribution is not based on the distinction of direct and indirect unlike other federal constitutions. While the Parliament has the power to levy tax vis. income, excise and customs, service tax etc., the state enjoys the power to levy taxes on sale and purchase of goods, on land and buildings, land revenue and excise duties on alcohol consumption etc. In the modern times, the executive has made more laws in the exercise of their administrative powers than the legislature itself. As is established, the legislature is competent to delegate certain subsidiary legislative powers and functions to the executive. This recognition is founded on the premise that, since the executive is in closer touch with the ground realities and can be more responsive to the exigencies that may arise, it can effectively deal with the implementation of legislative policies.
EVOLUTION OF LAW ON THE SUBJECT As the author has already introduced in the first part of the paper, that, in a democratic system, levying tax is exclusively the function of the Legislature. But, considering the complex procedures in defining each and every minute detail concerning the imposition of tax, delegation has permeated even the tax area which has though not completely taken off the sovereign power yet has undoubtedly caused a dent in the principle. The Supreme Court held in Rajnarain v. Chairman, Patna Administration that the power to tax is essentially a legislative function. Article 265 provides the constitutional mandate to the legislature for
the imposition of taxes. It states as “no tax shall be levied or collected except by the authority of law”. Therefore, in effect, what happens is that the legislature enacts the law or a statute to levy a tax, and leave some elements of taxing power to the executive. No tax, fee or other pecuniary imposition can be levied by subordinate legislation unless it is backed by a statute which specifically authorizes the imposition of tax. A general power simply for carrying out the purposes of the Act shall not amount to granting of the power to impose tax. On the other hand, certain other powers do not fall as under ‘essential legislative function’ and therefore, may be delegated: the power to select the persons on whom the tax is to be laid, the power to amend the schedule of exemptions, the determination of the rates at which it is to be charged in respect of different classes of goods, the choice of particular tax suited to the purposes of the Act and within the competence of the legislature concerned. Thus, three variants emerge of the formulae used to delegate power to impose tax. First is the power of exemption either of a commodity or the persons, second is the power of the government to bring additional transactions, commodities or persons within the purview of a tax and finally the power conferred upon the executive to fix from time to time the rate of tax itself.Any discussion on the legal position of tax laws in India dates back to the Supreme Court’s judgment in the case of Banarasi Das v. State of
Madhya Pradesh. In this case the Supreme Court was confronted with the question as to whether Section 6(2) of Berar Sales Tax Act, 1947 which empowered the State government to amend the schedule of the Act providing either for exemption from sales tax or to bring in other goods within the purview of sales tax, was suffering from the vice of excessive delegation. The Supreme Court speaking through Justice Venkatarama Aiyer held that the impugned provision was not an impermissible delegation of legislative power. The Supreme Court relied on Raj Narain’s Case and held that the executive can determine details relating to the working of taxation laws, such as the selection of persons on whom the tax is to be laid and the rates at which it is to be charged. In the instant case the Court also referred to Powell v. Apollo Candle Co. Ltd. and Syed Mohammed and Co. v. Madras and Hampton Junior and Co. v. US and went on to hold that the power conferred by Section 6(2) was not unconstitutional. Actually, the judicial comprehension of the judgment in Banarasi Das case came to light only after the subsequent judgments like in the case of Corp. of Calcutta v. Liberty Cinema, wherein the court held there was no distinction in principle between delegating a power to fix rates of taxes to be charged on different classes of goods and a power to fix rates simpliciter. Thus, in the instant case the majority upheld the validity of Section 548(2) of the Calcutta Municipal Act, 1951 was not void notwithstanding that no guideline was issued. Two years later in the year 1967 in the case of Devi Das v. State of Punjab, the Supreme Court was confronted with the question as to whether Section 5 of the Punjab General Sales Tax (Amendment) Act, 1948 suffered from the vice of excessive delegation. The provision empowered the executive to levy sales tax at the rate not exceeding 2%. The Court stated that it was alright to confer a reasonable area of discretion on the Government by a fiscal statute, but a large statutory discretion by means of a wide gap between the maximum and the minimum rates and thus enabling the government to fix an arbitrary rate is not sustainable. While over the other provision in the same case which gave a power to the government to impose tax at any rate from time to time was held to be void. Justice Subba Rao, speaking for the constitution bench held that the power conferred on the provincial government to levy every year on the taxable turnover of a dealer a tax at such rates as the said government might direct was an uncontrolled power. He also added that the legislature practically effaced under that section as no guidance could be gathered under that section or any other provisions of the Act. Another landmark in the area of delegated legislation under tax laws was the case of Gwalior Rayon Mills v. Asst. Commissioner of Sales Tax, where a five judge bench heard arguments from the petitioners that Section 8 (2)(b) of the Central Sales Tax Act, 1956 was invalid. The impugned provision was upheld unanimously by the Court and Justice Khanna affirmed the guidelines theory and was of the opinion that enough guidelines were present the legislation. However, J Mathew, gave a different reasoning holding that it is not for the Court to hunt for legislative policy or guidance in the crevice of the Statute. Emphasizing upon the power of the legislature to repeal the provisions of Section 8 (2) (b), he said that the legislature has not abdicated its function and thus has not effaced itself. It is the submission of the researchers here, that the conflict within the majority opinion was apparent which influenced the subsequent cases.
Conclusion The article was an attempt to address the issue of delegated legislation in tax laws. The very concept of delegation is opposing to the idea of rigid separation of powers. A strict adherence to the age old doctrine of separation of powers might do more harm than good. The legislature cannot be logically expected to enact on the plethora of situations dealing with different classes of people. In appropriate cases, there could be delegated legislation in tax laws as well but then the legislature cannot wipe out itself. Thus the direct and immediate effect of delegation should not be to confer uncontrolled power on the executive which might endanger the interests of the subjects. In fact controlling the powers of the executive is the very purpose of the legislative. According to Wade, administrative law is the law relating to the control of powers of the executive authorities. Justice Markandey Katju writes in one of his articles that there was a need to create a body of legal principles to control and to check misuse of these new powers conferred on the State authorities in this new situation in the public interest. But then it will be a mistake to think that administrative law is hostile to efficient government. Wade also pointed out that, “intensive administration will be more tolerable to the citizen, and the Government’s path will be smoother, where the law can enforce high standards of legality, reasonableness and fairness.” As per the comparative study of the delegation of tax laws in India, United States and England, one phenomenon which is common in the three systems is that despite the recognition that there could be a delegation of tax laws by the legislature yet it cannot confer an arbitrary power on the executive. It is submitted that the model is most developed in the United States where the Courts look for several checks on the power conferred on the executive. The author will conclude with this quote by Sir John Donaldson, M.R., in R. v. Lancashire CC, ex p Huddleston on the development of administrative law: “…administrative law has created a new relationship between the courts and those who derive their authority from the public law, one of partnership based on a common aim, namely, the maintenance of the highest standards of public administration.”
Power of taxation is an inherent and an essential attribute of sovereignty which primarily rests on necessity. Modern constitutions of nations recognise this power by making express provisions therein