Taxing Statutes and Sub Delegation | Administrative Law - CLAT PG PDF Download

Constitutionality of Delegation of Taxing Power

The power to tax is a fundamental authority of the state, essential for legislative functions. It serves not only to generate revenue but also to regulate the nation's social, economic, and political framework. Therefore, the delegation of taxing power by the legislature is crucial and needs careful scrutiny. The limits of valid legislative delegation in taxing power can be understood through various Supreme Court decisions.

Orient Wvg. Mills Private Ltd. v. Union of India (AIR 1963 SC)

• The Supreme Court upheld the constitutionality of delegating power to the government to exempt certain items from duty.

Banarasi Das Bhanot v. State of M. P. (AIR 1958 SC)

• Delegation of power to the government for specific sale transactions under the Central Provinces and Berar Sales Tax Act, 1947 was upheld against excessive delegation challenges.

Devi Das v. State of Punjab (1967 SC)

• The court upheld the delegation of power to the executive to set tax rates within limits specified by the enabling Act.
• In the Terminal Tax on Railway Passengers Act, 1958, the executive was authorized to impose sales tax at rates between 1% and 2%. The court found the discretion in fixing the tax rate to be within reasonable limits, not constituting excessive delegation.

MCD v. Birla Cotton Spinning and Weaving Mills (AIR 1968 SC)

• Delegating power to the corporation to impose electricity tax without a maximum limit was upheld.
• The court reasoned that the corporation, being a representative body, would prevent misuse of power.

Corporation of Calcutta v. Liberty Cinema (AIR 1965 SC)

• Delegation of power to the corporation to levy a license fee on cinemas at prescribed rates was upheld.

Cantonment Board v. Western Indian Theatres Ltd. (AIR 1954)

• The power given to the Pune corporation to levy "any other tax" was examined regarding abdication of legislative function.
• The court rejected this argument, emphasizing the limitations set by "for the purpose of the Act," providing adequate guidelines for tax imposition.

Jullunder Rubber Goods Manufacturers Association v. Union of India (1969 SCC)

• The court upheld Section 12 of the Rubber Act, 1947, allowing the rubber board to levy excise duty on rubber producers or manufacturers of rubber goods.
• The challenge of excessive delegation was dismissed due to inherent checks on power exercise, such as the board's representative nature and Central Government control.
• Tax levies were subject to government-made rules and procedural laying.

Darshan Lal Mehra v. Union of India (1992 SCC)

• The Supreme Court upheld Section 172 (2) of the UP Nagar Mahapalika Adhiniyam, 1959, as constitutional.
• This section allowed municipalities to impose taxes mentioned in the Act "for the purpose of the Act."
• The court determined that "for the purpose of the Act" provided adequate policy guidelines for tax imposition by municipalities.
• As long as the tax is reasonably related to the Act's purpose, it does not constitute excessive delegation.

Well-Settled Principles Regarding Delegation in Taxing Legislation

• The authority to impose a tax is fundamentally a legislative function. Article 265 of the Constitution states that no tax can be levied or collected except by the authority of law. Here, "law" refers to legislation enacted by a competent legislature, not by the executive.
• Consequently, the legislature cannot delegate the essential legislative function of tax imposition to an executive authority.
• However, within this framework, the government can be empowered to exempt specific commodities from tax or to include certain commodities under tax liability.
• While the power to determine tax rates is a legislative function, it can be delegated to the executive if the legislative policy is clearly defined.
• The legislature or executive has the flexibility to set different tax rates for various commodities.
• Nonetheless, commodities within the same category should not be subjected to varying and arbitrary rates without a rational basis.
• The requirements of the taxing authority (such as panchayats, municipalities, corporations, etc.) do not serve as a criterion for evaluating the guidelines provided by the legislature in exercising tax authority.
• The fact that the affairs of the taxing authority are managed by elected representatives accountable to the public is irrelevant in assessing whether the delegation of legislative power is excessive.
• Taxing statutes should be interpreted strictly. In cases of ambiguity, interpretations favoring the assessees should be preferred.
• However, a distinction must be made between charging provisions and machinery provisions. Machinery provisions should be interpreted liberally to ensure the effectiveness and practicality of charging provisions.
• General principles of delegated legislation are applicable to taxing statutes as well.

Sub-Delegation

• Definition: Sub-delegation occurs when a statute grants legislative powers to an executive authority, which then further delegates those powers to a subordinate authority or agency.
• Rule-Making Authority: The rule-making authority can delegate powers to itself or subordinate authorities for issuing rules. This process of sub-delegation can involve multiple stages.
• Delegation of Power: Rule-making authority cannot delegate power unless authorized by the enabling Act, either expressly or by necessary implication.
• Maxim 'delegatus non potest delegare': This maxim suggests that sub-delegation is generally not permissible, although the legislature can provide for it.
• Control Over Delegated Power: If the authority retains substantial control over the sub-delegation, it does not constitute a violation of the maxim.
• Illustration: The Essential Commodities Act, 1955, exemplifies sub-delegation through the delegation of powers from the Central Government to State Governments and their officers.
• Necessity of Sub-Delegation: Sub-delegation is considered necessary as it is inherent to delegated legislation and ensures the authority delegated by the legislature is upheld.
• Express or Implied Conferral: Sub-delegation of legislative power is permissible when expressly conferred by statute or implied by necessary implication.

Express Power

• When a statute explicitly allows an administrative authority to sub-delegate its powers, there is no issue regarding its validity, as such sub-delegation falls within the statute's provisions. For instance, in the case of Central Talkies Ltd. v. Dwarka Prasad, the U.P. (Temporary) Control of Rent and Eviction Act, 1947 stipulated that no eviction suit could be filed without the permission of a District Magistrate or an authorized officer. The court upheld the validity of an order granting permission by an Additional District Magistrate to whom powers were delegated.
• However, in Allingham v. Minister of Agriculture and Fisheries, the court ruled against the sub-delegation of powers by a committee empowered by the Ministry of Agriculture. The committee's decision to delegate its powers to a subordinate officer was deemed impermissible, rendering the direction issued by the subordinate officer ultra vires.
• Similarly, in Ganpati Singhji v. State of Ajmer, the Supreme Court declared rules made by the Chief Commissioner ultra vires when they empowered the District Magistrate to devise his own system of conservancy and sanitation at fairs. The parent Act conferred power solely on the Chief Commissioner, making the sub-delegation invalid.
• In A K Roy v. State of Punjab, the Supreme Court invalidated the sub-delegation of prosecutorial powers under the Prevention of Food Adulteration Act, 1954, from the State Government to the Food Authority and then to the Food Inspector. The court emphasized that sub-delegation must adhere to the specified manner outlined in the statute.
• In cases like Ajaib Singh v. Gurbachan Singh and Barium Chemicals Limited v. Company Law Board, the courts addressed the validity of sub-delegation based on the specified mode and manner of exercising power. The courts emphasized the importance of adhering to the prescribed methods of sub-delegation to ensure legality and accountability.

Implied Power

• In situations where a statute does not explicitly permit sub-delegation, the question of its validity becomes uncertain. In Jackson v. Butterworth, the court acknowledged the convenience of sub-delegating power but noted the absence of explicit authority for such action. Conversely, some legal perspectives argue that the power to sub-delegate may be inferred by necessary implication even in the absence of a specific provision.
• For instance, in United States v. Bareno, the court upheld the validity of multiple tiers of sub-delegation, emphasizing that the parent Act's broad wording allowed for such delegation to create specialized rules for action.

Criticisms

• Sub-delegation is criticized for diluting accountability and weakening safeguards by transferring power to lower authorities.
• Publication of sub-delegated legislation is challenging as it lacks the publicity requirements of legislative Acts.
• Sub-delegation at multiple levels makes it difficult for the public to know the acting authority's scope.
• Delegation of legislative power is essential due to legislative complexities, but essential functions cannot be delegated.
• Delegated legislation must align with the parent Act and not exceed the delegator's powers.
• Sub-delegation is valid only if expressly authorized by the parent Act.
• Delegated legislation should not be unreasonable and must adhere to procedural safeguards.
• The motive behind delegated legislation is not considered if within the authority's competence.
• Delegation of administrative power to subordinates does not strip the superior officer of all powers.
• Context and background of rule-making are relevant in assessing delegated legislation's constitutionality.
• The principle of "proportionality" is applied in cases of serious public interest violations.
• Notifications under repealed parent Acts are also repealed unless saved by the repealing Act.
• Valid rules and regulations made by administrative authorities become part of the parent Act.
• Changing rules cannot nullify court decisions, as it constitutes contempt of court.
• Delegation of power to repeal and amend in essential respects is not allowed.