judgement:
l Appeals Nos. 1752 to 1769 of 1970 From the Judgment and Order dated the 24th April, 1970 of the Mardas High Court in Writ Petitions Nos. 239, 346, 999, 1000, 1007, 1030, 1071, 1101, 1102, 1223, 1242, 1270, 1271, 1724, 1725, 1748, 2640 and 3252 of 1969.
Y. section Chitle, V. M. Ganpule, K. R. Choudhury and K. Rajendra Choudhury, for the appellants.
L. N. Sinha, Solicitor General of India, section P. Nayar, and M. N. Shroff, for the respondents.
The Judgment of the Court was delivered by KRISHNA IYER, J.
The core of the contention urged by the appellants in these various appeals filed by certificate under article 133(1)(a) & (c) of the Constitution is that the excise duty on matches sought to be levied on these medium sized manufacturers of Shivakashi wears the mask of equality but in its true face bears the marks of unequal justice violative of article 14 of the Constitution of India.
Shri Chitale, learned counsel for the appellants, has focused his arguments on one grievance only and, we think, with good reason that the discriminatory fiscal treatment of his clients is unconstitutional, the vice being treatment of dissimilar categories similarly.
To compress his whole argument in a single sentence, it is that the appellants, small manufacturers of matches, have been subjected by the impugned notification to excise duty at the same onerus rate as has been applied to larger producers, wilfully indifferent to a historically well recognised classification between the smaller and the larger group of, match manufacturers, and the injury sustained flows from this failure to classify and deal differentially with sets of producers who are unequal in their economic capabilities in the matter of production and marketing a sort of traumatic egality.
In brief, equal treatment of unequal groups may spell invisible yet substantial discrimination with consequences of unconstitutionality.
That dissimilar things Should not be treated similarly in the name of equal justice is of Aristotelian vintage and has been, by implication, enshrined in our Constitution.
The facts which unfold the case of the appellants may now be set out.
The match industry in India has grown over the decades and Shivakashi occupies an important place in the production geography of matches.
From the point of view of manufacturing techniques, the safety match industry in our country comprises two distinct categories the mechanised sector occupied by a few big whales and the non 123 mechanised sector comprising varying sizes of production units ranging from the small fry organised on a cottage industry basis to considerable producers who have developed manufacturing and marketing muscles sufficient to compete with the power using big four the WIMCO, the AMCO, the ESAVI, and the Pioneer.
The Tariff commission, Report on this industry has stated "Unlike units in the mechanised sector which have powerdriven equipment for carrying out all the important operations including manufacture of splints and veneers, frame filling dipping, box making, etc.
, those in categories 'B ' and 'C ' follow almost identical manufacturing process, obtaining their splints and veneers from outside suppliers and getting such important.
operations as box making and frame filling done by outside domestic labour on piece rate basis.
Only such of the processes, as dipping, box filling, banderolling and packing which under Excise or Explosive Act regulations cannot be entrusted to outside labour are carried out in the factory sheds of the units and the workers employed for these also are mostly paid on piece rate basis.
All the operations, whether, undertaken in the factory premises or passed on to outside piece work labour to be carried out in the homes of the latter conjointly with other members of the family, are done by manual process.
The same system is followed by 'D ' category units as well, except those sponsored by K. & V. 1.
C. some of which manufacture their own splints and veneers," Classified on the basis of quantity turn out and other germane factors, a fourfold categorisation into 'A ', 'B ', 'C ' and 'D ' was extent in the industry roughly corresponding to the techniques of production and the use of power adopted by each.
The Tariff Commission explained this aspect and reported on the operation of the differential excise levy system on production and trade practices.
Counsel for the appellants has rested his case of discrimination by subversive equality or rather non discrimination where a deserving differentiation is the desideratum, on the findings of the Tariff Commission report.
We might as well give copious but relevant excerpts from it to discern the foundation.
of the argument.
The Report runs on to state "As indicated in Appendix 11, according to the excise tariff classification units in the match industry now stand grouped into four classes, namely 'X, 'B ', 'C 'and 'D ' not on any tech nological differentiation but on the basis of output 'A ' class comprising factories whose annual output exceeds 4,000 million match sticks, 'B ' class comprising factories whose annual output exceeds 500 million match sticks but does not exceed 4,000 million match sticks, 'C ' class comprising factories whose annual output exceeds 50 million match sticks but does not exceed 500 million match sticks and 'D ' class comprising factories whose arm, all output does not exceed 50 million match sticks.
According to this classification the factories belonging to WIMCO, AMCO and ESAVI fall under category 'A, the rest comprising the units 124 in the non mechanised sector fall under the other three categories, namely 'B ', 'C ', and 'D ', . . . . . . "selling system (iv) Small producers.
The system of selling adopted by these manufacturers varied according to their status and financial resources.
The system almost universally followed by such producers is to make outright sales, without any discount or commission to wholesalers, both out station and local.
The bigger, among such producers belonging to category 'B ' are reported in some case s to sell as well through dealers and sole selling agents.
Many of them have also got their own depots and regular stockists in a limited number of out station centres.
As regards 'C ' and 'B ' class producers, the system of sales covert the following variants according to facilities available to them : (i) outright ,sales to wholesale merchants, local or out station; (ii) sales through joints schemes of depots which stock different brands from several producers; (iii) sales by sending goods in their own vans in bulk to distributors and dealers in nearby states; and (iv) .sales through their own salesman who deliver goods in local markets on the shopkeepers on bicycles (a special feature of 'D ' class units).
From the replies received by us from units in the small scale sector it would appear that those in category 'B ' situated in the Shivakasi/Sattur/Kovilpatti area have over some years in the past established contacts and developed a fairly wide selling system enabling them to cater to the markets in distant States including West Benga l, U.P., Delhi, Gujarat and practically all the States in the South.
The size of their operations has all along ,enabled them to undertake supply in wagon loads at the concessional rates, which is an important consideration for developing distant markets to be served by rail transport." "Although they are not comparable to WIMCO in having a country wide distributive Organisation, these units evinced till recently all the symptoms of a steady and healthy development, some of them having reached the maximum limit (4,000 million sticks) of Category 'D ' with a reputation for their brands in far off markets.
They had the resources to support this progressive development and a few of them have represented that with an improvement of the climate of the trade which has been completely vitiated by the slab system of excise duties (see para graph 11) and given necessary facilities they would be able to reestablish the markets they had assiduously built up and even initiate a scheme of gradual mechanisation of important processes in their factories for the betterment of the quality of their products.
In the present context, it is worth taking note of the fact that the credit for an expanding market for matches produced in the non mechanised sector is attributable largely to the sales endeavours of factories which had grown to be 'B 'class units that had necessary resources for the purpose and were able the maintain quality.
" * * * * 125 "In contrast to the 'B ' class units, the selling system of those in category 'C ' betokens a position of serious weakness.
Except the C ' class units which have been brought into existence by fragmentation of bigger units and still operate under the protecting wing of the sponsor (see paragraph 11), the new comers in this class who have no tradition, functions mostly with meagre financial resources and have no comparable advantage.
Unable to sell their output in wagon loads they are compelled to dispose of it to local financing cum trading agencies at rock bottom prices dictated by the latter for what has now come to be called consignments of "assorted labels".
This, in effect, involves a complete surrender by the 'C ' class producers to the benefit of differential excise rebate allowed to them to the detriment of others as well.
The low purchase prices of the goods enable such agencies to send consignments of mixed brands to distant places in wagon loads and find a market by of fering to the wholesalers there extremely competitive rates vis a vis the usual rates charged by 'B 'class units, the retail selling prices being the same for both.
Our examination of the problem of the small scale units in category 'C ' indicates that basically their problem is not different from other small industries suffering similar exploitation by middlemen.
As in other cases they can best be extricated from the grip of the middlemen by the establishment of suitable sales co operatives.
We draw the attention of the State Governments to this problem for initiating necessary measures for the purpose, particularly of the Government of Madras, as the concentration of such units is in that State where the problem presents itself in the most acute form, but offers favourable prospects for the establishment of several full fledged sales cooperatives with adequate membership." * * * * "There is sufficient evidence to indicate that the effects have been quite widespread and recourse has been taken to fragmentation on a fairly extensive scale." * * * * The Sivakasi Chamber has stated as follows "In the face of such unhealthy competition from 'C ' factories and the disadvantages over 'A ', the 'B ' is unable to market its production resulting in heavy accumulation of stocks.
It is now felt by 'B ' class factories that there is no other salvation for them except to convert 'B ' into 'C ' class factories in benami names, as few have since done.
It may be pointed out that 16 long established 'B ' factories have reduced themselves to 'C ' class with effect from 1st April, 1963 in this Division alone in addition to the numerous factories who have already converted from 'B 'to 'C '."As regards similar fragmentation of the larger units in category 'C ' almost identical views have been expressed by the Tirunelevely Match Association, representing 150 'C ' class match factories,in the following words : "In view of the vast difference of excise duty between.
1st and 3rd slab of excise duty in 'C '.Class there is a tendency and practice among the manufacturers to work in the first slab only and to stop therewith.
In this way starting of small new units with the motive to enjoy rebate in the first slab 126 of excise duty has become common and this has clearly resulted in loss of revenue, as well as working of units in less than the permitted Capacity.
It has been brought to our.
notice that the situation has deteriorated to such an extent as a result of the slab system that some erstwhile 'B ' units have suspended their manufacturing activities altogether and instead found it more profitable to patronise a number of newly established 'C ' class units.
Their taking over the products of the latter in their new role as a trading cum financing agency has been facilitated by their established market connections and resourcefulness.
Instances of 'B ' category units owned by individual proprietors downgrading themselves into category 'C ' and having a number of 'C ' class units set up in the name of near relations have also been noticed by us in the course of our visits to factories in the Sivakasi/Sattur/ Kovilpatti area.
The allegations about extensive fragmentation were not denied by anybody at the public inquiry.
" * * * * * "The volume of evidence, both direct and indirect, that we have received in this connection fully testifies to the fact that 'large scale fragmentation of 'B ' and 'C ' class units has taken place directly as a result of the slab system all motivated by the attraction offered by the large duty differential of 65 np for the lowest slab rate under category 'C" '.
* * * * * "From the evidence received by us "B" and "C" class units 'have to offer their match boxes generally at a discount of Rs. 2 to Rs. 3 per bundle of 5 gross boxes, i.e. at about 40 to 60 nP. per gross less than the price charged by WIMCO.
While the quality of matches produced by 'B ' class manufacturers has the reputation of being generally good and comparable to WIMCO 's matches, the 'C ' class units do not have such reputation in the market.
The 'C ' class manufacturers are handicapped by a further disadvantage on account of the lower scale of their produc tion, inasmuch as they cannot usually offer a wagon load of matches at a time for despatch to the upcountry markets for sale and have generally to bear the central sales tax.
After carefully considering all aspects of the case including estimates of costs of the manufacturers, we are of opinion that a differential of 20 nP. in the rates of excise duty per gross of match boxes between 'A ' and 'B ' class units and a differential of 30 nP. between 'B ' and 'C ' class manufacturers would be quite adequate to safeguard their respective interests.
On similar considerations a differential of 35 nP. between 'C ' and 'D ' class units would also be justified.
For reasons stated in paragraph 11 and as stressed therein, we are definitely against continuance of the slabs introduced in classes 'A ' 'B ' and 'C ' carrying dif ferential rates of excise duty, which have entailed serious repressions on the entire industry.
We, therefore, recommend the following scales of excise duty to be levied for the four classes respectively : 'For 'A ' class. . .
Rs 4.60 per gross boxes 'For 'B ' class. . .
Rs.4.40 per gross boxes For 'C ' class. . . .Rs.4.10 per gross boxes 'For 'D ' class. . .
Rs.3.75 per gross boxes 127 The Tariff Commission recommended the abolition of sub classification for the purposes of excise duty and suggested separate scales of excise duty to be levied for the four classes of units, namely, 'A ', 'B ' ' C ' and 'D '.
Based on these recommendations, the slab system of excise duty was abandoned by Government and the category wise rate was adopted.
The impact on production of the differential duty scheme was a process of splintering of the 'B ' group to inhale the advantages offered to the 'C ' group resulting in a reduction in total production, thanks to the thinning tendency in the 'B ' group.
Indeed, the fiscal misdirection, by showing concessional rates to the 'C ' category as against 'B ' category, generated pseudo 'C ' category producers from out of the erstwhile 'B ' category so that the bona fide small scale manufacturers falling in the C ' category were flooded out.
Moreover, the genuine C ' category manufacturers were exploited by the middlemen who snapped up the margin of tax concession for themselves, defeating the object of concessional duty for the small producer.
This dilemma induced Government to revise its fiscal thinking and led to the impugned notification which withdrew the tax concession to the C ' category and equated it with the 'B ' category.
Section 3 of the Central Excise and salt Act, 1944 empowers the levy and collection of duties on goods produced or manufactured in the State, the rate being set forth in the First schedule to the Act.
Item 38 in the First Schedule relates to matches.
Section 37 contains the rulemaking power and section 37(1) confers power on the Central Government by rules to exempt any goods from the whole or any part of the duty imposed by the Act.
Under this power the Central Government issued a notification adopting a "classification" approach for extending concessional rates.
Originally, a broad classification was made as between matches manufactured by use of machinery and those by other means.
Among the second category a sub classification was made as 'B ', C ' and ID ' for the purposes of concessional rates.
In 1966, a uniform leavy of Rs. 4.15 per gross of match boxes was made doing away with 'B ' to ID ' classes.
In 1967 this position was revised by notification No. 162 of 1967, which is challenged before us.
It reads "In exercise of the powers conferred by sub rule (1) of rule 8 of the Central Excise Rules, 1955, and in supersession of the Notification of the Government of India in the Ministry of Finance (Department of Rev enue and Insurance) No. 115/67 Central Excise, dated the 8th June, 1967, the Central Government hereby exempts matches specified in column (2) of the Table below, falling "under Item No. 38 of the First Schedule to the Central Excise and Salt Act, 1944 (1 of 1944) and cleared by any manufacturer for home consumption, from so much of the duty of excise leviable thereon as is in excess of the rate specified in the corresponding entry in column (3) of the said table: 128 TABLE Category Description of matches Rate (Rs per gross of boxes 50 mat ches each) 1.
Matches in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power . 4 .60 2.
Matches in or in relation to the manufacture of which no process is ordinarily carried on with the aid of power . 4 .30
Provided that (1) Matches referred to in category 2 and cleared for home consumption during the financial year from a factory from which the total clearance of matches during that year is not, as per declaration made by the manufacturer under this notification ' estimated to exceed 75 million matches, shall be allowed to be cleared at the rate of Rs. 3.75 per gross of boxes 5O matches each, upto 75 million matches and the quantity of matches, if any, cleared in excess, and upto 100 million matches shall be allowed to be cleared at the rate of Rs. 4.30 per gross of boxes of 50 matches each; and if the clearance in such factory exceeds 100 million matches during the financial year, the manufacturer shall be required to pay at the rate of Rs. 4 30 per gross of boxes of 50 matches each, on the entire quantity cleared during the financial year. . " The upshot of this system of duty is that 'B ' and 'C ' categories of old will now be treated equally and the grievance of the petitioners, who are 'C ' category manufacturers is that clubbing them together with the far stronger 'B ' type manufacturers is virtually condemning them to gradual extinction.
Treating unequals as equals and compelling both to bear equal burdens is to show the 'C ' type manufacturers the way out.
It is urged that the test of capacity of each group in the industry to bear the levy, recognised in the past and approved in the Tariff Commission Report, is given the go bye now.
The contention, in reply, by the State is that at present the classification of the manufacturers is based on the use of power which in turn has a rational relation to the techniques and processes of production and their ability to bear the burden of the levy.
It is further argued that the Government did give effect to the recommendations of the Tariff Commission regarding the four fold classification but, finding certain evils developing, the Central Excise Re organisation Committee went into the subject and suggested methods to re orient the scale and scope of excise duty.
This Committee 's report led to the current noti fication and the dichotomy between mechanised and non mechanised industry proceeds on a rational differentia which has a substantial relation to the legislative end.
There is no doubt that in the past among the non mechanised manufacturers of matches a further classification based on viability 129 had been made.
It is also true that the financial resources, the capacity to command a market on their own without depending on intermediaries, etc., marked off the 'B ' category from the 'C ' category.
But then experience gathered subsequently disclosed certain evils which the State took note of and endeavoured to set right.
Ulitmately the present notification was issued obliterating the distinction which gave a concessional edge to the 'C ' group over the 'B ' group.
The learned counsel for the appellants persuasively pleaded that this unsocialistic step has left the small producers like his clients in the cold and virtually compelled them to retire from the industry.
May be, there is force in this grievance.
Instead of protecting the tiny manufacturer from the injurious intermediary and inhibiting the larger pro ducer from resorting to the device of self division and other make believe tactics, the State has resorted to a policy of equal levy from both which, according to the counsel, hits the poor and helps the better off.
This is a criticism of legislative judgment, not a ground of judicial review.
We agree that bare equality of treatment regardless of the inequality of realities is neither justice nor homage to the constitutional principle.
Anatole France 's cynical statement comes to our mind in this context "The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread.
" The forensic focus turns on unconstitutional non classification of the 'B ' and 'C ' categories and the vice of lugging all non mechanised 'Producers together into one mass.
The Court is being invited to compel the legislative and executive wings to classify, but we feel that from the judicial inspection tower the Court may only search for arbitrary and irrational classification and its obverse, namely, capricious uniformity of treatment where a crying dissimilarity exists in reality.
Right at the threshold we must warn ourselves of the limitations of judicial power in this jurisdiction.
Mr. Justice Stone of the Supreme Court of the United States has delineated these limitations in United States vs Butler(1) thus : "The power of courts to declare a statute unconstitutional is subject to two guiding principles of decision which ought never to be absent from judicial consciousness.
One is that courts are concerned only with the power to enact statutes, not with their wisdom.
The other is that while unconstitutional exercise of power by the executive and legislative branches of the government is subject to judicial restraint, the only check upon our exercise of power is our own sense of self restraint For the removal of unwise laws from the statute books appeal lies not to the courts but to the bellot and to the processes of democratic government.
" In short, unconstitutionality and not unwisdom of a legislation is the narrow area of judicial review.
In the present case unconstitu (1) ; Sup.
Ct.312=80 L. ed.477 (1936)=American Constitutional Law hird edn.
by Tresolini and Shapiro.
130 tionality is alleged as springing from.
lugging together two dissimilar categories of match manufacturers into one compartment for like treatment.
Certain principles which bear upon classification may be mentioned here.
It is true that a State may classify persons and objects for the purpose of legislation and pass laws for the purpose of obtaining revenue or other objects.
Every differentiation is not a discrimination.
But classification can be sustained only if it is founded on pertinent and real differences as distinguished from irrelevent and artificial ones.
The constitutional standard by which the sufficiency of the differentia which form a valid basis for classification may be measured, has been repeatedly stated by the courts.
If it rests on a difference which bears a fair and just relation to the object for which it is proposed, it is constitutional.
To put it differently, the means must have nexus with the ends.
Even So, a. large latitude is allowed to the State for classification upon a reasonable basis and what is reasonable is a question of practical details and a variety of factors which the court will be reluctant and perhaps ill equipped to investigate.
In this imperfect world perfection even in grouping is an ambition hardly ever accomplished.
In this contest, we have to remember the relationship between the legislative and judicial departments of government in the determination of the validity of classification.
Of course, in the last analysis courts possess the power to pronounce on the constitutionality of the acts of the other branches whether a classification is based upon substantial differences or is arbitrary, fanciful and consequently illegal, At the same time, the question of classification is primarily for legislative judgment .and ordinarily does not become a judicial question.
A power to classify being extremely broad and based on diverse considerations of executive pragmatism, the judicature cannot rush in where even the legislature warily treads.
All these operational restraints on judicial power must weigh more emphatically where the subject is taxation.
One facet of the equal protection clause, upheld by the Indian Courts and relevant to the present case, is that while similar things must be treated similarly, dissimilar things should not be treated similarly.
There can be hostile discrimination while maintaining a facede of equality.
Procrustean cruelty cannot be equated with guarantee of constitutional equality, and we have to examine whether such is the lot of the appellants.
This Court has in several rulings highlighted this sensitive under side of equal protection.
Indeed, the complaint of the petitioners is that by abolition of the difference in fiscal burden between categories 'B ' and 'C ' an insidious subversion of equal treatment has been effected.
Another proposition which is equally settled is that merely because there is room for classification it does not follow that legislation without classification is always unconstitutional.
The court cannot strike down a law because it has not made the classification which commends to the court as proper.
Nor can the legislative power be said to have been unconstitutionally exercised because within the class a sub classification was reasonable but has not been made.
131 It is well established that the modern State, in exercising its sovereign power of taxation, has to deal with complex factors relating to the objects to be taxed, the quantum to be levied, the conditions subject to which the levy has to be made, the social and economic policies which the tax is designed to subserve, and what not.
In the famous words of Holmes, J., in Bain Peanut Co. vs Pinson(1) : "We must remember that the machinery of Government would not work if it were not allowed a little play in its joints." In the present case, a pertinent principle of differentiation, which is visibly linked to productive prowess, has been adopted in the broad classification of power users and manual manufacturers.
It is irrational to castigate this basis as unreal.
Indeed, the soundness of this distinction is not denied.
The challenge is founded on the failure to miniclassify between large and small sections of manual match manufacturers.
But ours is not to reason why, that being a policy decision of Government dependent on pragmatic wisdom playing on imponderable forces at work.
Our jurisdiction halts where the constitutional touchstone of a rational differentia having a just relation to the legislative and of revenue raising is satisfied.
Gratuitous judicial advice on the socialistic direction of fiscal policy is de trop.
We desist from that enterprise and leave the petitioners and men of his ilk to seek other democratic remedies in that behalf, it being beyond our area normally to demolish the tax structure because micro classification among a large group has not been done by the State.
Absolute justice to every producer is a self defeating adventure for any administration and genera I direction, not minute classification, is all that can be attempted.
For these reasons we find ourselves in agreement with the High Court in its refusal to strike down the notification under section 3 of the Central Excise and Salt Act, 1944.
Before concluding we may make a passing reference to the few decisions cited by appellants ' counsel.
In K. T. Moopil Nair vs State of Kerala(2), Sinha, C.J., emphasized that article 14 may be violated even though the law may, on the face, be equal if in substance unequal things are treated equally.
In State of Kerala vs Haji K. Haji Kutty Nahia(3), Shah J., observed : "There objects, persons or transactions essentially dissimilar are treated by the imposition of a uniform tax, discrimination may result, for, in our view, refusal to make a rational classification may itself in some cases operate as denial of equality.
A similar view has been taken in Khandige Sham Bhat vs The Agricultural Income Tax Officer (4).
it is sound law that refusal to make rational classification where grossly dissimilar subjects are treated by the law violates the mandate of article 14.
Even so, where the limited classification adopted in the present case is based upon a relevent differentia which has a nexus to the (1) ; ; 501.
(2) ; (3) C.As.
1052 etc.
of 1968; judgment dated August 13, 1968.
(4) ; ,817.
132 legislative and of taxation, the. court cannot strike down the law on the score that there is room for further classification.
Refusal to classify is one thing and it bears on constitutionality, not launching on micro classification to work out perfect justice is left to executive expediency and legislative judgment and not for forensic wisdom.
"The relationship between the legislative and judicial departments of government in the.
determination of the validity of classification is wellsettled. the authorities state with unanimity that the question of classification is primarily for the legislature and that it can never become a judicial question except for the purpose of determining, in any given situation, whether the legislative action is clearly unreasonable.
The legislative classification is subject to judicial revision only to the extent of seeing that it is founded on real distinctions the subjects classified, and not on artificial or irrelevant ones used for the purpose of evading the constitutional prohibition." (American Jurisprudence 2d : vol. 16; para 496).
"In a classification for governmental purposes there cannot be an exact exclusion or inclusion of persons and things.
The constitutional command for a state to afford equal protection of the law sets a goal not attainable by the invention and application of a precise formula.
Classification in law as in the other departments of knowledge or practice, is the grouping of things in speculation or practice because they agree with one another in certain particulars, and differ from other things in those particulars.
It is almost impossible in some matters to foresee and provide for every imaginable and exceptional case, and a legislature ought not to be required to do so at the risk of having its legislation declared void, although appropriate and proper upon the general subject upon which such legislation is to act, so long as there is no substantial and fair ground to say that the statute makes an unreasonable and unfounded general classification, and thereby denies to any person the equal protection of the laws.
Hence, a large latitude is allowed to the states for classification upon any reasonable basis, and what is reasonable is a question of practical details into which fiction cannot enter." (ibid para 504).
We have said enough to delineate the finer frontiers of the jurisdiction of the court and the legislature.
Having sensitive regard to the obligation of the State to bring the law, including the tax law, into pulsing relationship with life, including the life of the country 's economy, we see nothing so grossly unfair as to attract the lethal power of the court to strike down the notification under challenge.
We dismiss the appeals but in the circumstances without costs to the respondents.

summary/full:
The match industry in India has grown over the decades.
From the point of view of manufacturing techniques the safety match industry comprises of two distinct categories: the machanised sector occupied by a few big manufacturers and the non mechanised sector comprising varying sizes of production units.
The Government classified the safety match manufacturers into four categories depending on the quantity turn out and other relevant factors.
But the Tariff commission recommended the abolition of sub classification for the purpose of levying excise duty and suggested separate scales of excise duty to be levied for four classes of units, namely, A, D, C and D. Based on these recommendations the slab system of excise duty was abandoned by the Government and the category wise rate was adopted.
As a result of the adoption of the differential duty scheme the advantages offered to the 'C ' group went to the 'B ' group which in turn resulted in fall in production.
It also generated pseudo C category producers from out of the erstwhile B category which ultimately eliminated C category producers.
The Government, therefore, withdrew the tax concession to C category and equated it with B category.
The Government of India had from time to time issued notifications under section 37 of the Central Excise and Salt Act, 1944.
The notification issued in 1967 levied excise duty on the basis of manufacture of matches of which "any process is ordinarily carried on with the aid of power".
As a result of this notification the B and C categories of old were now treated equally.
The change in classification of the manufacturers was based on the use of power which in turn had a rational relation to the techniques and processes of production and their ability to bear the burden of the levy.
This was done on the basis of recommendations of the Central Excise Re organisation Committee.
The High Court refused to strike down the notification.
it was contended in this Court that this unsocialistic step had left the small producers in the cold and virtually compelled them to retire from the industry and is thus discriminatory.
Dismissing the appeals to this Court, HELD This is a criticism of legislative judgment, not a ground of judicial review.
The Court is being invited to compel the legislative and executive wings to classify but from the judicial inspection tower the court may only search for arbitrary and irrational classification and its obverse, namely, capricious uniformity of treatment where a crying dissimilarity exists in reality.
Unconstitutionality and not unwisdom of a legislation is the narrow area of judicial review.
[129 E] The question of classification is primarily for legislative judgment and ordinarily does not become a judicial question.
The power to classify being extremely broad and based on diverse considerations of executive pragmatism the judicature cannot rush in where even the legislature warily treads.
All these operational restraints on judicial power must weigh more emphatically where the subject is taxation.
[130 E] It is equally well settled that merely because there is room for classification it does not follow that legislation without classification is always unconstitutional.
The court cannot strike down a law because it has not made the classification which commends to the court as proper.
Nor can the legislative power be said to have been unconstitutionally exercised because within the class a sub classification was reasonable but has not been made.
[130 H] 122 In the present cage, a pertinent principle of differentiation, which is visibly linked to production prowess, has been adopted in the broad classification of power users .and manual manufacturers.
It is irrational to castigate this basis as unreal.
[131 C] K.T. Moopil Nair vs State of Kerala, ; , State of Kerala vs Haji K. Hail Kutty Naha.
As Nos 1052 etc.
of 1968; judgment dated August 13, 1968 and Khandige Sham Bhat vs The Agricultural Income Tax Officer, ; , 817, followed.


judgement:
n Nos. 1679, 1662 and 1681 of 1973.
(Under Article 32 of the Constitution for issue of a writ in the nature of Habeas Corpus.) R. K. Jain, amicus curiae for the Petitioner.
M. M. Kshatriya and G. section Chatterjee for the Respondent.
The Judgment of the Court was delivered by SARKARIA J.
This judgment will dispose of all the three petitions above mentioned under Article 32 of the Constitution of India.
It will be convenient to first take up Writ Petition No. 1679 of 1973.
The petitioner Shaik Hanif, aged 40 years, was arrested on February 23, 1973 in pursuance of a detention order, dated February 19, 1973, passed by the District Magistrate, West Dinajpur in West Bengal under sub section
(1) read with sub section
(2) of s.3 of the (for short, 'the Act ').
On February 19, 1973, the District Magistrate reported about his detention to the State Govern ment which approved it on March 1, 1973.
The detenu made a representation which was rejected by the State Government on April 5, 1973 and forwarded to the Advisory Board for consideration.
The Board reported to the State Government on April 24.
1973 that there was sufficient cause for the detention.
Thereupon the Government confirmed the order of detention under s.12(1) of the Act and directed that the detention of the petitioner would continue "till the expiration of 12 months from the date of his detention or until the expiry of Defence of India Act of 1971 whichever is later.
" The grounds of detention as conveyed to the detenu under P. 8(1), read as under : 260 "You are being detained in pursuance of a detention order on the ground that you have been acting in a manner prejudicial to the maintenance of supplies and services essential to the community, as evidenced by the particulars given below : On 3 7 72 at dead of night you along with your associates kept concealed 20 bundles, of Telegraph copper wire weighing 2 qutls.
60 kgs.
in your court yard under earth with a view to dispose of the same in opportune moment.
The said Telegraph copper wire were recovered on 3 7 72 on the basis of the confession of your associates.
The police seized those copper wire and arrested your associate but you evaded arrest.
This activity of yours seriously affected one of the essential services to the community by disrupting Telegraph facilities to the public and thus you acted in a manner prejudicial to the maintenance of supplies and services essential to the community.
You are hereby informed that you may make a representation to the State Government against the detention order your case shall be placed before the Advisory Board within thirty days from the ' date of your detention under the order.
You are also informed that under Section 11 (Act 26 of 1971) the Advisory Board, shall if you desire to be heard, hear you in person.
Sd/ K. L. Gupta 19 2 73.
District Magistrate, West Dinajpur, Balurghat".
In answer to the Rule Nisi issued by this Court, Shri Sukuniar Sen, Deputy Secretary, Home (Special) Department, Government of West Bengal filed the counter affidavit, explaining that the district Magistrate who passed the order of detention "is at present not available for affirming the affidavit as he has been transferred from the said District".
In para 4 of the affidavit, it is stated : "It appears from the records that after receiving reliable information relating to the illegal anti social and prejudicial activities of the above named detenu petitioner relating to the maintenance of supplies and services essential to the community, the said District Magistrate of West Dinajpur passed order of detention against him under the provisions of the said Act." In para 7, it is averred "I further state that it appears from the record that the petitioner is a veteran copper wire stealer.
It was found on 3 7 72 that the petitioner and his associates kept concealed about 20 bundles of telegraph cable wire underground in the court yard of his house with a view to dispose the same at opportune moment.
The said removal of copper wire from 261 the telegraph lines resulted in disruption of telegraph service and he was detained under the said Act".
In paragraph 9 of the affidavit it is inter alia stated that the "statements made in paragraphs 3, 4, 5, 6 and 7 are based on information derived from the records kept in the office of the State Government in its Home Department (Special Section), which I verily believe to be true." Mr. R. K. Jain, who assisted the Court as amicus curiae advanced these contentions in support of the petition : (1) After the issue of Rule Nisi by this Court, it was incumbent upon the Respondent State to satisfy the Court about the legality of the detention by producing the affidavit of the District Magistrate who had.
passed the detention order.
The counter affidavit of the Deputy Secretary who did not personally deal with the case at any stage, is no substitute for the affidavit of the District Magistrate on the basis of whose subjective, satisfaction, the detention has been effected.
The omission to file the counter affidavit of the District Magistrate coupled with the other circumstances of the case, shows that the detention order was passed in an utterly casual way, without application of mind and it was therefore, illegal; (2) From the counter affidavit of the Deputy Secretary, it appears that there were "reliable information" and material (other than the solitary ground of detention communicated to the detenu) before the detaining authority on the basis of which it was satisfied that the petitioner was a "veteran copper wire stealer" and had been indulging in "illegal anti social activities prejudicial to the maintenance of supplies and services essential to the community".
Since the, nondisclosure of that information or material lo the detenu is not sought to be justified under clause (6) of Article 22, on the ground of its being facts which the detaining authority considers to be against the public interest to disclose, it was incumbent upon the authority to communicate the detenu that information and material in full.
Since this was not done, the detenu was unable to make an :effective representation.
The detention order was thus violative of the mandate of clause (5) of Article 22, and liable to be struck down on that score; (3) The Act is violative of Articles 19 and 21 of the Constitution because its : (a) Section 3 makes no provision for an objective determination of the truth of the allegations that form the basis of action under that section; (b) Section 8 does not provide for consideration of the representation of the detenu by an impartial body in accordance with the principles of natural justice; (c) Section It enables the Advisory Board to base its report on the material received by the Board from the Officer passing the order of detention without the said report being disclosed to the detenu and without affording him an opportunity to controvert the contents of the said report; 262 (d) Sections 11 and 12 empower the Advisory Board and the State Government, as the.
case may be,.
to take, into consideration materials and information without giving the detenu an opportunity to make his submissions with regard to those materials or to adduce evidence to disprove the allegations levelled against him.
(4) (a) The continuance of Emergency in as much as it suspends Fundamental Rights, indefinitely under an executive fiat is unconstitutional.
What the Parliament cannot destroy in exercise of its amendatory powers under Article 368, a fortiori, the President cannot bury by embalming and encasing the same in a Proclamation of Emergency.
Fundamental Rights guaranteed under Article 19 are essential features of the, Constitution and their indefinite suspension under the cloak of Emergency, amounts to their destruction; (b) In forming in opinion as to the necessity of proclaiming Emergency under Article 352 of the Constitution, the President has to act on certain objective facts open to judicial scrutiny.
The war having ended more than two years ago, there is no justification for continuing the Proclamation of Emergency.
We will take up contentions (1) and (2) together.
As was pointed out by this Court in Natarajan Singh vs State of Madhya Pradesh,(1) where in a habeas corpus petition a Rule Nisi is issued, it is incumbent upon the State to satisfy the Court that the detention of the petitioner was legal and in conformity not only with the mandatory provisions of the Act, but is also in accord with the requirements implicit in clause (5) of Article 22 of the Constitution.
Since the Court is precluded from testing the subjective satisfaction of the detaining authority by objective standards, it is all the more desirable that in response to the Rule Nisi the counter affidavit on behalf of the State should be sworn to by the District Magistrate or the authority on whose subjective satisfaction the detention order under s.3 was passed.
If for sufficient reason shown to the satisfaction of the Court, the affidavit of the person who passed the order of detention under s.3 cannot be furnished, the counter affidavit should be sworn by some responsible officer who personally dealt with or processed the case in the Government Secretariat or submitted it to the Minister or other Officer duly authorised under the rules of business framed by the Governor under Article 166 of the Constitution to pass orders on behalf of the Government in such matters.
In the instant case, the counter affidavit of Shri Sukumar Sen Deputy Secretary, Home, suffers from two infirmities.
Firstly, the deponent does not swear that he had at any relevant time personally dealt with the case of the detenu.
He has verified the correctness of the averments in his affidavit on the basis of facts gathered from tile official records.
Secondly, the explanation given for not furnishing the affidavit of the District Magistrate who had passed the detention order, is that the Magistrate has been transferred from that District.
The explanation is far from being satisfactory.
(1) A. I. R. 263 In Ranjit Dam vs State of West Bengal,(1) the reason given for not ' making the counter affidavit by the Magistrate himself, who had passed the detention order, was that he had since then been appointed as Secretary of the State Electricity Board.
It was held that the reason, given was not satisfactory.
"Shri Sukumar Sen is incharge of a specially created cell in the Government Secretariat of West Bengal, which maintains the records of all persons detained under the Act.
It is true that a similar reason given for not furnishing the affidavit of the Magistrate who passed the impugned order, was accepted by this Court in J. N. Roy vs State of West Bengal,(2) and instead, the counter affidavit of the Secretariat official specially entrusted with detention cases was deemed sufficient.
But that was so because nothing turnedon it.
Nevertheless, the failure to furnish the counter affidavit of theMagistrate who passed the order of detention, is an impropriety.
In most cases, it may not be of much consequence but in a few cases, for instance, where mala fides or extraneous considerations are attributed: to the Magistrate or the detaining authority, it may, taken in conjunction with other circumstances, assume the shape of a serious infirmity, leading the Court to declare the detention illegal.
In the present case, too, the mere omission to file the affidavit of the District Magistrate does not vitiate the detention orders.
But it is a circumstance, among others, in the light of which contention (2) is to be appreciated.
The Act restricts citizens ' personal liberty which is a fundamental ' right under the Constitution.
It has therefore to be construed strictly, as far as possible, in favour of the citizen and in a manner that does not restrict that right to an extent greater than is necessary to effectuate that object.
The provisions of the Act have, therefore, to be applied with watchful care and circumspection.
It is the duty of the.
court tosee that the efficacy of the limited yet crucial, safeguards provided in the law of preventive detention is not lost in mechanical routine, dull casualness and chill indifference on the part of the authorities entrusted with their application.
Let us therefore see, whether there has been sucha careful and strict compliance with the legal procedure in the instant case.
In the counter affidavit, the Deputy Secretary has inter alia, stated that the petitioner is a "veteran copper wire stealer" and there were "reliable informations" before the District Magistrate about his antisocial activities prejudicial to the maintenance of supplies and services essential to the community.
"Veteran copper wire stealer" implies a long course of repetitive thievery of copper wire.
No one is born a knave: it takes time for one to become so.
It is manifest that but forthose "reliable informations" showing that the detenu was repeatedly and habitually stealing copper wire, the District Magistrate, night not have passed the detention order in question.
Those "reliable information" were withheld.
No privilege under clause (6) of Article 22 has been claimed in respect of them.
Even the main ground viz. that the petitioner is a "veteran copper wire stealer" was not, as such,, (1) A. 1.
R. (2) A.I.R. 1972 S.C. 2143. 264 communicated to the detenu.
The ground intimated was that "you have been acting in a manner prejudicial to the Maintenance of Supplies and Services essential to the community".
Only one solitary instance of the recovery of stolen copper wire from the petitioner 's house on 3 7 1972 was conveyed to the detenu.
Learned Counsel for the State has been fair enough to collect and place before us what the Deputy Secretary in his counter affidavit called "reliable information" on the basis of which the District Magistrate ordered the detention.
In this, under the caption "Criminal Biography", is mentioned inter alia, how the petitioner with his associates organised a gang to steal telegraph copper wire systematically.
From what has been said above, it is clear as day light that all material particulars of the ground of detention which were necessary ,to enable the detenu to make an effective representation, were not communicated to him.
The impugned order of detention is thus ,violative of Article 22(5) of the Constitution, and is liable to be quashed on that score alone.
In view of the above finding, it is not necessary to decide the.
.remaining contentions canvassed by Mr. Jain.
Now we take up Writ Petition No. 1662 of 1973.
In this case also, Shri Sukumar Sen, Deputy Secretary in his counter affidavit .averred that the detenu was a "veteran copper wire stealer" and that the District Magistrate, Burdwan, had passed the order of the petitioner 's detention on receipt of reliable information about the illegal, anti .social and prejudicial activities of the petitioner.
Here also, all the 'material information ' showing or even alleging how the petitioner was a "veteran copper wire stealer" was not communicated to him.
Only two instances of theft of electric copper wire which took place on November 6, 1971 and November 25, 1971 were intimated to him.
Learned Counsel for the State has placed for our perusal a copy of History Sheet of the detenu on receiving which, the District Magistrate had passed the impugned order of detention.
Among other facts, it is mentioned therein that on November 3, 1973, also, the petitioner alongwith his two associates had committed theft of, electric copper wire measuring 125 ft. from the electric poles near Hatgarui and a case under section 379, Penal Code was registered in Police Station Asansol on the same date, relating to this theft.
It is further stated that "from his boyhood the petitioner started mixing up with anti social elements, wagon breakers and in course of time, he along with his associates, indulged in thefts of iron materials, copper wire and other forms of crime".
All this matter including that concerning the theft dated November 3, 1973, was admittedly not communicated to the detenu.
Its non to the detenu is not being justified as privileged under Article 22(6).
Thus in this case also, all the material or adequate particulars relatable to the ground intimated, were not conveyed to the detenu.
It is not possible to predicate how far the mind of the ,detaining authority was influenced in passing the order of detention by the uncommunicative material.
By this omission, the petitioner 's 265.
constitutional right of making an effective representation was seriously.
jeopardised.
In the result the detention of the petitioner (Gudma Majhi) must be held to be illegal.
In Writ Petition No. 1681 of 1973, the ground of detention as communicated to the petitioner, Kamal Saha, ran as under : "That on 10 12 1972 at about 19 30 hrs.
you and your associates being armed with daggers put all the passengers to fear of death of a IInd Class Compartment of 162 Dn. train at New Barrackpore R.S. and committed robbery in respect of one bundle of woollen Shawl containing 90 pieces valued at Rs. 9500/ from Golam Kadar Kashmiri of 96 Ripon Street Calcutta 16, you were subsequently arrested.
44 pieces of shawl valued a Rs. 4500/ were recovered later on.
Your action caused panic, confusion and disturbed public order then and there, you have thus acted in a. manner prejudicial to the maintenance of public order".
In Para 7 of counter affidavit, Shri Sukumar Sen, Deputy Secretary, stated "that it appears from the records that the petitioner is a veteran Railway Criminal and was indulging in committing robbery in running sub urban trains.
It appears that on 10 12 1972 at about 19 30 hours the petitioner and his associates armed with daggers, committed robbery in a III class Railway Compartment. " The history sheet communicated by the Superintendent of Police to,, the detaining authority states that "he formed and organised a gang and started committing robbery in Sealdah Bongaon Railway Section.
, This gang is so desperate that nor body of the locality resists them,.
even if they commit robbery and other offences even in their very presence.
They always move with deadly weapons such as pype guns, daggers, bombs etc.
by which they intimidate the local people." Thereafter, instances of two robberies committed by him along with his associates, on January 30, 197Z and August 1, 1972, are, mentioned.
The particulars of any past crime committed by him, which were necessary for showing how he was a veteran railway criminal, were not communicated to the detenu.
In respect of the uncommunicative material, nor privilege under article 22(6) was claimed '.
266 In the absence of those material particulars, the detenu could not ,exercise his constitutional right of making an effective representation.
In other words, the grounds communicated to the petitioner suffered .from vagueness.
For the reasons aforesaid, all the three petitions are allowed and the petitioner in each of them is directed to be set at liberty forthwith.
Nothing in this judgment, however shall preclude, the State Government /District Magistrate, if so advised, from passing fresh orders of the detention of the petitioners or any of them, after full and meticulous 'compliance with the procedure prescribed by law.
S.C. Petitions allowed.

dataset_name: IN-Abs

summary/full:
Since the matters are similar, the facts of W.P. No. 1679 of 1973 are as follows: The petitioner was arrested section 3, sub section (1) and (2) of the .
The grounds of detention were that the petitioner, on 3 7 72, alongwith his associates kept concealed 20 bundles of Telegraph copper wire in his court yard under ground with a view to dispose the same at an opportune moment.
The said telegraph wire were recovered on 3 7 72 on the basis of the confession made by his associates.
The petitioner was, therefore, arrested because he was acting in a manner prejudicial to the maintenance of supplies and services essential to the community.
The detention order was challenged on various grounds : (i) That the counter affidavit on behalf of the State of West Bengal was sworn by the Deputy Secretary and not by the District Magistrate, on the basis of whose subjective satisfaction the detention order was made and therefore, it was illegal.
(ii)From the counter affidavit, it was clear that there were "reliable informations" and material other than the solitary ground of detention communicated to the detenu and so, the detenu was unable to make an.
effective representation.
Therefore, the detention order was violative of clause (5) of article "I of the Constitution of India etc.
Allowing the petitions, HELD : (1) When a Rule Nisi is issued in a habeas corpus petition, it is incumbent upon the State to satisfy the court that the detention of the petitioner was legal and in conformity not only with the mandatory provisions of .he Act, but is also in accord with the requirements of Cl.
(5) of article 22 of the Constitution.
[262 EJ Niranjan Singh vs State of Madhya Pradesh A.I.R. 1972 S.C. 2215, referred to.
(2)Since the Court is precluded from testing the subjective satisfaction of the detaining authority by objective standards, it is all the more desirable that in response to the Rule Nisi, the counter affidavit on behalf of the State should be sworn to by the District Magistrate or the authority on whose subjective satisfaction the detention order was made.
If for sufficient reason shown to the satisfaction of the Court that the affidavit of the person who passed the detention order could not be furnished, the counter affidavit should be sworn by some responsible officer who personally dealt with the case in the Govt.
Secretariat etc.
[262 E F] In the present case, the deponent did not swear that he had at any relevant time personally dealt with the case of the detenu and secondly, the explanation given for not furnishing the affidavit of the District Magistrate due to his transfer from that District, was far from satisfactory.
Ranjit Dam vs State of West Bengal A.I.R. 1972 S.C. 1753 and J. N. Roy vs State of West Bengal A.I.R. 1972 S.C. 2143 referred to.
259 (3)The failure to furnish the counter affidavit of the Magistrate who passedthe order of detention is an impropriety.
However, in most cases, it mayDot be of much consequence; but in a few cases, for instance.
where mala fides or extraneous considerations are attributed to the detaining authority, it may, taken in conjunction with other circumstances, assume the shape of a serious infirmity.
[263 C] (4)In the counter affidavit, it was mentioned that the detenu was a "veteran copper wire stealer" and there were "reliable information" before the District Magistrate.
Those reliable information were withheld.
The words . veteran copper wire stealer" also implied a long course of repetitive, thievery of copper wire, it is manifest that but for those "reliable information" showing that the detenu was repeatedly and habitually stealing copper wire, the District Magistrate might not have passed the detention order in question.
Further, from the 'Criminal Biography, supplied by the State, it was clear that all material particulars of the ground of detention necessary to enable the detenu to make an effective representation were not communicated to the detenu.
Hence, the impugned order of detention is violative of article 22(5) of the Constitution and therefore, liable to be quashed.
Similarly, the other two petitions were also allowed on the ground that material particulars were not communicated to the detenues and therefore, the detentions were illegal.
[263 G 264 C]


judgement:
Appeal No. 1626 of 1967.
Appeal by Special Leave from the Judgment and Decree dated the 14th October, 1966 of the High Court of Mysore at Bangalore in Misc.
First Appeal No. 124 of 1966.
M. Natesan and Saroja Gopalkrishnan, for the appellant Gobind Das and section P. Nayar, for the respondent.
The Judgment of the Court was delivered by GOSAMI, J.
The appellant and his brother, Srinivasamurthy are partners of a firm carrying on the business of manufacturing and exporting of polished granite memorial stones in the name and style of Messrs Narayanaswami & Sons.
The firm is admittedly a factory both under the Factories Act as well as under the Employees ' State Insurance Act (briefly the Act).
The appellant claims to directly employ about 35 persons in his factory and has been paying contri bution under the Act on their account.
It is stated that adjacent to his own factory there is another factory situated on the appellant 's land leased out by him to two persons, Chidambarchari and Shankarsubbachari (hereinafter referred to as the contractors).
The contractors employ about 50 workers in their factory for purposes of cutting and dressing the granite stones.
The lorry drivers bring granite from the surrounding areas and unload them outside the factory ' The contractors get these to their portion of the leased land for cutting them.
After cutting these are sent back to the appellant 's factory where these are designed and polished and thereafter exported.
The Employees State Insurance Corporation (briefly the Corporation) applied to the Employees ' State Insurance Court at Bangalore (briefly the Court) for recovery of an amount of Rs. 8893/ being the employees ' contribution payable by the appellant for the period commencing from 27 7 1958 to 31 1 1964 on account of the workers employed by the two contractors described as 'immediate employers ' tinder the Act.
The court decided against the Corporation holding .that the contractors were not 'immediate employers ' within the meaning of section 2 (13) of the Act and they were independent con tractors and hence the appellant was not the principal employer in respect of the employees working under the contractors.
The Corporation appealed to the High Court of Mysore against the aforesaid order under section 82(2) of the Act.
The High Court held that the appellant was the principal employer an the contractors were the immediate employers under the Act.
The High Court further held that the workers under the contractors were employees within the meaning of section 2 (9) (ii) of the Act.
The High Court thus accepted the appeal of the Corporation.
Hence this appeal by special leave.
Before the court evidence was given by both sides and the following findings of the court are adverted to by the High Court 144 .lm15 "All that can be said to have been proved by the applicant corporation in this case is that RWs 2 and 3 (the con tractors) work at a place belonging to the respondent and execute part of the work which is necessary to manufacture the final finished product for sale.
All that can be said to have been proved in this case is that the contractors are doing some work which would be the foundation for the work that is finally done by the respondent".
After examining the evidence the High.
Court also found as follows "There is evidence to show that these employees (under ,the contractors) are employed in connection with the work of the respondent facory".
The respondent in the High Court 's judgment refers to the appellant herein.
As stated earlier, the High Court answered both the questions in favour of the Corporation.
The same points are raised for consideration in this appeal and Mr. Natesan on behalf of the appellant submits that the contractors owned a separate factory and are independent contractors and cannot be held to be 'immediate employers ' within the meaning of section 2(13) of the Act and hence the appellant is not liable as principal employer to pay the contribution on account of the persons working under the contractors.
Before we deal with the questions of law raised in this appeal, it will be appropriate to refer to the material provisions of the Act.
The Act, as it appears from the preamble, is passed "to provide for certain benefits to employees in case of sickness, maternity and employment injury and to make provision for certain other matters in relation thereto".
Section 2 contains the definitions.
By section 2 (4) "contribution" means the sum of money payable to the Cor poration by the principal employer in respect of an employee and includes any amount payable by or on behalf of the employee in accordance with the provisions of this Act.
" By section 2 (9) "employee" means any person employed for wages in or in connection with the work of a factory or establishment to which this Act applies and (i) who is directly employed by the principal employer on any work of, or incidental or preliminary to or connected with the work of , the factory or establishment, whether such work is done by the employee in the factory or establishment or elsewhere; or (ii) who is employed by or through an immediate employer on the premises of the factory or establishment or under the supervision of the principal employer or his agent on work which is ordinarily part of the work of the factory or establishment or which is preliminary to the work carried on in or incidental to the purpose of the factory or establishment; * * * * 145 By section 2(12)"factory "means any premises including the precincts thereof whereon twenty or more persons are employed or were employed for wages on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on with the aid of power or is ordinarily so carried on.
But does not include a mine subject to the operation of the or a railway running shed".
* * * * * By section 2(13) "immediate employer", in relation to employees employed by or through aim, means a person who has undertaken the execution, on the premises of a factory or an establishment to which this Act, applies or under the supervision of the principal employer or his agent, of the whole or any part of any work which is ordinarily part of the work of the factory or establishment of the principal employer or is preliminary to the work carried on in, or incidental to the purpose of, any such factory or establishment.
, and includes a person by whom the services of an employee who has entered into a contract of service with him are temporarily tent or let on hire to the principal employer".
By section 2(14) "insured person" means a person who is or was an employee in respect of whom contributions are or were payable under this Act and who is, by reason thereof, entitled to any of the benefits provided by this Act".
By section 2(17) "principal employer" means (1) in a factory, the owner or occupier of the factory and includes the managing agent of such owner or occupier, the legal representative of a deceased owner or occupier, and where a person has been named as the manager of the factory under the factories Act, 1948, the person so named".
* * * * * * Chapter IV deals with contributions.
The opening section 38 provides that "subject to.
the provisions of this Act, all employees in factories, or establishments to which this Act applies shall be insured in the manner provided by this Act." * * * * * * By Section 39(1) "the contribution payable under this Act in respect of an employee shall comprise contribution payable by the employer (hereinafter referred to as the employer 's contribution) and contribution payable by the employee (hereinafter referred to as the employee 's contribution) and shall be paid to the Corporation".
By section 40 (1) "the principal employer shall pay in respect of every employee, whether directly employed by him or by or through an immediate employer, both the employer 's contribution and the employee 's contribution".
146 By section 42(2) "Contribution (both the employer 's contribution and the employee 's contribution), shall be payable by the principal employer for each week in respect of the whole or part of which wages are payable to the employee and not otherwise".
Section 43 and section 97 empower the Corporation to make regulations.
Under section 44 every principal and immediate employer has to submit returns, to the Corporation and maintain registers and records.
Section 68 provides for Corporation 's rights where a principal employer fails or neglects to pay any contribution.
By section 72 an employer is barred from reducing wages by reason only of his liability to pay contribution.
Chapter VA provides for certain transitory provisions.
The opening section 73A provides for employer 's special contribution.
Chapter VI deals with adjudication of disputes and claims.
Under section 74 (1) Employee 's Insurance Court is constituted.
Inter alia under section 75 (1) "If any question or dispute arises as to (a) whether any person is an employee within the meaning of this Act or whether he is liable to pay the employees ' contribution, or * * * * * * (d) the person who is or was the principal employer in respect of any employee; * * * * * * such question or dispute. shall be decided by the Employees ' Insurance Court in accordance with the provisions of this Act." Under section 75(1) (g), inter alia, any dispute between a principal employer and an immediate employer shall also be decided by the court.
Under section 75 (2) (b) any claim by principal employer to recover contributions from any immediate employer shall also be decided by the Employees ' Insurance Court.
By section 75 (3) jurisdiction of a civil court is barred regarding, amongst others, any question or dispute as specified in the section.
Section 82 provides for appeals and under sub section (2) thereof an appeal shall lie to the High Court from an order of the Employees ' Insurance Court if it involves a substantial question of law.
Chapter VII provides for different penalties.
Under Chapter VIII (Miscellaneous), section 94 provides, interalia, that contributions due to the Corporation shall have priority over all other debts.
The Act is thus a beneficial piece of social security legislation in the interest of labour in factories at the first instance and with power to extend to other establishments.
Provisions of the Act will have to be construed with that end in view to promote the schemes and avoid 147 the mischief.
From some of the material provisions set out above, the underlying aim of the Act is to insure the employees against various risks to their life, health and well being and the charge is upon the principal employer even though he may get his usual work done through an intermediary, who is described in the Act as 'immediate employer.
Any dispute between the principal employer and the immediate employer is to be settled between themselves, de hors, the employees and the Act charges the principal employer with the liability to pay the contribution not only of its own but also that of the employees subject to his right to deduct the employees ' contribution.
from their wages under section 40 (2) of the Act.
There is a quicker mode of recovery as arrears of land revenue under section 45B and 73D.
Chapter VA provides for transitory provisions and by section 73A every principal employer shall have to pay a special contribution in lieu of the employer 's contribution payable under Chapter IV.
Adjudication of all kinds of specified disputes are also intended to be ex peditiously disposed of by the court constituted under section 74.
Such disputes include a dispute between a principal employer and an immediate employer as noticed earlier.
Civil courts ' jurisdiction is barred in respect of matters specified in the Act.
There is only one special type of appeal to the High Court and that also in a restricted form.
The Act insists on compliance with its provisions on pain of penalties and the contributions due to the corporation have priority over other debts.
Keeping in view the scheme and the principal object of the Act, we will now examine the questions of law raised in this appeal.
The definition of the 'immediate employer ' under section 2 (13), omitting what is not necessary for our purpose, is as follows: " 'immediate employer ', in relation to employees employed by or through him, means a person who his undertaken the execution, on the premises of a factory to which this Act applies of the whole or any part of any work which is ordinarily part of the work of the factory or establishment of the principal employer or is preliminary to the work carried on in, or incidental to the purpose of, any such factory. . . ." That the appellant,, who is the principal employer has a factory where granite memorial stones are manufactured for export is beyond question.
The finished articles are the dressed and polished granite stones.
The raw material is the stone from the quarry brought therefrom, cut to sizes, dressed, polished and then exported.
The other factory of the contractors on the leased land of the principal employer, adjoining the latter 's factory.
is registered under the Fac tories Act in the year 1963.
Although admittedly a factory, there is no evidence on the record that the contractors pay any contribution under the Act or have been even charged separately as principal employers so far as their so called direct employees are concerned.
The principal employer, the appellant, is making a claim which, if correct, will make the contractors also, principal employers liable under the Act.
But it is easy for the appellant to make such 148 a claim to avoid his personal liability which, in all fairness to labour, should have been settled by impleading the contractors as parties in order to make the entire position clear.
It is not necessary for us to examine whether this is a mere device of the principal employer to avoid his liability under the Act.
We agree with the High Court that on the findings of fact the work undertaken by the contractors in the adjoining vicinity, even though their factory may have been subsequently registered under the factories Act, is preliminary or incidental to the work in the principal employer factory turning out the finished product for export.
The work in the two places has an intimate correlation and is a piece of an integrated whole and the said work by the contractors through their labour is ordinarily part of the work of the principal factory undertaken by the contractors.
Their factory is situated in the premises of the appellant 's factory which according to the definition clause includes the precincts thereof.
It, therefore, follows that the two contractors are 'immediate employers ' within the meaning of section 2 (13) and the workers employed for cutting and dressing the granite stones by the immediate employers are employees within section 2 (9) (ii) of the Act, being employed through the immediate employers on the premises of the factory including the precincts thereof.
The fact that in 1963 the contractors ' factory was separately registered under the Factories Act or that, after meeting the prior requirements of the principal employer, work of some other parties was also permissible, does not, in our opinion, militate against the predominant purposes of the work of the contractors being part and parcel of the main work of the principal employer factory for which the contractors mainly work.
A good deal of argument is advanced with regard to the expression on the premises of a factory" in the definition clause of "immediate employer" under section 2 (13).
The word "premises" according to the dictionary means house or building with its ground or other apurtenances.
The premises include under section 2 (13) the precints thereof The word "precincts" means the environs.
This Court in Ardeshir H. Bhiwandiwala vs The State of Bombay(1) dealt with the term "Premises" in the definition of factory under section 2(m) of the Factories Act and after noticing its meaning in various Law Lexicons and dictionaries observed: "The word "premises" has now come to refer to either land or buildings or to both, depending on the context. .
It is therefore clear that the word "premises" is a generic term meaning open land or land with buildings or buildings alone." The contention in that 'case that the word "premises" must be restricted to mean buildings and not taken to cover I open lands as well was repelled.
In the instant case, on an examination of the site plan (Ext.
P 1) and the evidence, it is evident there is a definite environmental as well as functional unity between the two portions, namely, the main (1) 149 factory (Portion A) and the contractors ' factory with the precincts (Portion B) even though separated by a wall in which there was a door which sometimes was closed.
The work undertaken by the contractors and carried on in their portion of the area is surely componental to make it a part of the complex whole.
The principal requirement of the definition, namely, that the work or the construction is undertaken on the premises of the factory and about which both sides join issue, is satisfied in the present case on the evidence on records and we hold accordingly.
We are also satisfied that the workers under the contractors are employees employed by the principal employer through the 'immediate employers ' on the premises of the factory in work which is ordinarily the normal work of the factory or is, at any rate, preliminary to the work or which is certainly incidental to the purpose of the main factory of the appellant.
Mr. Natesan laid great stress upon the requirement of a unity of control of the principal employer over the manufacturing process of the work undertaken by the contractors, but it will be obvious from the facts found and the evidence noted below that the work is done on the premises of the factory.
We need not examine this aspect in detail in view of the uncontradicted evidence of PW 1 as follows: "The work done in the Factory consisted of manufacture of granite stones for export.
I found raw stones lying all over the surrounding area.
I found that raw stones were moved to the premises marked B in exhibit P. 1.
I found that about 50 persons working at the spot.
I learnt from the partners those 50 persons had been employed by two or three con tractors.
Cutting and dressing of the stones were done by those fifty men.
There were (1) sand blasting machine belonging to the partners and (2) Electric blower.
Power was used in these machines.
After the stones are cut and dressed, they are removed to p remises A for designing and polishing.
Final touches are then given to them in the premises B. They are again brought back to premises A for packing and despatching.
The premises A and B belong to the partners.
Only a wall separated the two premises.
There was a connecting door which appeared to have been closed".
Again RW 2 also deposed that "it is since last three years that, I undertook the work of the second party" i.e. the appellant.
R W 1 (partner of the appellant) stated as follows in cross examination: "exhibit P. 4 is the copy of the letter dated 19 3 63 written by P.W. 1 to me for copy of the agreement and plan.
exhibit P. 5 is my interim reply,. . .
By Factory premises in exhibit P. 5, 1 meant both the portions A and B in exhibit p. 1".
Mr. Natesan has referred to a decision of the Bombay High Court in Employees ' State Insurance Corporation, Bombay vs Raman (Chittur Harihar Iyer)(1) but the High Court dealt in that case with the definition of "employee" prior to the amendment of the Act in 1966 and is of no (1) (1957) I L.L.J. 267.
150 aid to counsel.
This case was also distinguished by this Court in Nagpur Electric Light & Power Co. Ltd. vs Regional Director Employees State Corporation, Etc.(1) Counsel also relied upon a decision of the Delhi High Court in Employees ' State Insurance Corporation vs Peter Sewing Machine Co. etc.(2), dealing with the definition of 'factory ' under section 2 (12) of the Act.
The High Court, inter alia, was posing a question in that case as to whether the whole or any part of the work of the contractors there consisted of any work which was ordinarily a part of the work of the factory or establishment of the principal employer and answered it in the negative on the finding of facts in that case "that the contractors, manufacture their goods independently and not as a part of the goods manufactured by the Peter Sewing Machine Company".
On the facts of this case that question does not arise and we express no opinion thereon.
The decision is therefore, of no aid to the appellant in this case.
The learned counsel further draws our attention to M/s Hindustan Construction Co. Ltd. vs Employees ' State Insurance Corporation(3) in which case the High Court remanded the matter to find out "whether the work done at the site can be regarded as a manufacturing process. .
We, however, do not fail to notice that the judgment did not take note of the complete definition of " employee" under section 2 (9), the first part of which is joined by a conjunctive 'and ' with two clauses.
Further the High Court is not correct in thinking that the definition of the word "factory" under the Factories Act "is same" as that of "factory" under the Employees ' State Insurance Act which is of wider amplitude with an expanding horizon of objectives in the latter Act.
It is not necessary, however, to consider.
in this case if these factors may have affected the decision in the above case.
At any rate, the appellant does not derive any aid from this decision.
The next decision in Nagpur Electric Light & Power Co., Ltd. (supra), relied upon by the appellant for the construction of the definition of "employee" under section 2 (9) (i) of the Act is not of assistance to him since we are dealing with a case under section 2(9) (ii).
We, of course, notice that the High Court in this case held as follows at page 20 of the judgment : "From the foregoing, it is clear that the contractors have been executing the work which is ordinarily part of the work of the factory and that within the premises of the respondent factory".
The definition clauses of "immediate employer" [section 2 (13)] and "employee" [section 2 (9) (11)], contain the expression "on the premises of a factory" and not within it.
Even so, as detailed above after examining the evidence ourselves, we are clearly of opinion (1) (2) AIR 1970 Delhi 182.
(3) Assam & Nagaland 87.
151 that the work of the contractors was undertaken by them on the premises of the factory which may not be the same thing as in or within the factory.
We are further of the view that the entire site of the factory is a composite one containing portions A as well as B and there is no doubt that the contractors are the 'immediate employers ' within the meaning of section 2 (13) of the Act and the workers employed by them are "employees" under the Act.
In the result, the appeal fails and is dismissed with costs.
P.B.R. Appeal dismissed.

summary/full:
The appellants firm was carrying on the business of manufacturing and exporting polished granite memorial stones.
The firm was a factory both under the Factories Act as well as under the Employees ' State Insurance Act.
Adjacent to this factory was another factory situated on the appellant 's land leased out to two contractors who employed 50 workers in their factory for the purposes of cutting and dressing the granite stones.
The granite stones unloaded outside the factory by the lorries were brought on the portion of the leased land and after cutting them they were sent back to the appellant 's factory where they were designed and polished.
The Employees ' State Insurance Corporation claimed from the appellant a certain sum as the firms contribution on account of the workers employed by the two contractors described as 'immediate employers ' under the Act.
The Employees ' State Insurance Court held that the contractors were not 'immediate employers ' within the meaning of section 2(13) of the Employees ' State Insurance Act and that they were independent contractors.
On appeal the High Court held that the appellant was a principal employer and the contractors were the immediate employers under the Act.
The High Court also held that the workers tinder the contractors were employees within the meaning of section 2(9)(ii) of the Act.
Dismissing the appeal, to this Court, HELD : (1) The underlying aim of the Act is to insure the employees against ,various risks to their life, health and well being and the charge is upon the principal employer even though he may get his usual work done through an intermediary who is described in the Act as 'immediate employer '.
Any dispute between the principal employer and the immediate employer has to be settled between themselves de hors, the employees and the Act charges the principal employer with the liability to pay the contribution not only of its own but also that of the employees subject to his right to deduct the employees ' contribution from their wages under section 40(2) Of the Act.
[147A] (2) On the findings of fact the work undertaken by the contractor 's in the adjoining vicinity is preliminary or incidental to the work in the principal employer factory turning out the finished product for export.
The work in the two places has intimate correlation and is a niece of an integrated whole and the said work by the contractors through their labour is ordinarily part of the work of the principal factory undertaken by the contractors.
Their factory is situated in the premises of the appellant 's factory which, according to the definition clause, includes the precincts thereof.
In the instant case on an examination of the site plan and the evidence it is evident that there is a definite environmental as well as functional unity between the two portions, namely, the main factory and the contractors ' factory with the precincts even though separated by a wall in which there was a door which sometimes was closed.
The work undertaken by the contractors and carried on in their portion of the area is surely componental to make it a part of the complex whole.
The principal requirement of the definition namely, that the work or the ,construction is undertaken on the premises of the factory is satisfied in the present ,case.
It therefore follows that the two contractors are 'immediate employers within the meaning of section 2(13) and the workers employed for cutting and dressing the granite stones by the immediate employers are employees within section 2(9)(ii) of the Act.
[148B] Employees ' State Insurance Corporation.
Bombay vs Raman (Chittur Harihar Iyer),[1957] 1 L.L.J.267,Nagpur Electric Light and Power Co.Ltd.
vs Regional Director Employees State Insurancea Corporation, Etc. , Employees '.
143 State Insurance Corporation, vs Peter Sewing Machine Co. etc.
A.I.R. 1970 Delhi 182, and M/s Hindustan Construction Co. Ltd. vs Employees ' State Insurance Corporation, Assam & Nagaland 87, referred to.