Chhotabhai Jethabhai Patel and Co. Vs. The Union of India & ANR [1961] INSC 350 (11 December 1961)
11/12/1961 AYYANGAR, N. RAJAGOPALA AYYANGAR, N. RAJAGOPALA IMAM, SYED JAFFER KAPUR, J.L.
GUPTA, K.C. DAS DAYAL, RAGHUBAR
CITATION: 1962 AIR 1006 1962 SCR Supl. (2) 1
CITATOR INFO :
R 1963 SC 104 (9) C 1963 SC1667 (15) R 1967 SC1512 (40,67) RF 1971 SC2039 (17) RF 1972 SC1061 (48) RF 1972 SC2563 (24) R 1973 SC1034 (13) RF 1984 SC 420 (41) R 1984 SC1194 (31) RF 1985 SC 537 (15) E 1989 SC1829 (14)
ACT:
Excise duties-Retrospective Levy-Validity of enactment-Legislative competence of Parliament- Constitutional validity-Finance Act 1951 (23 of 1951), s. 7(2)-Constitution of India Arts.
19(1)(f), 31, 265, Seventh Schedule, List I, Entry 84, List II, Entry 60.
HEADNOTE:
The appellants who were carrying on business in tobacco had in their licenced warehouse considerable quantity of tobacco on February 28, 1951. On the same day a Bill was introduced in the House of the People containing the financial proposals of the Government of India for the fiscal year beginning April 1, 1951. Clause 7 of the Bill made provision for the amendment of the Central Excises and Salt Act, 1944, by way of alteration of duties, inter alia, on unmanufactured tobacco by imposing an excise duty of 8 annas per 1b. Under the provisions of the Provisional Collection of Taxes Act, 1931, the duty could become leviable as from the date of the introduction of the Bill and it was so made. In accordance therewith the appellants paid excise duty on tobacco in their possession at the rates mentioned in the Bill and obtained clearance certificates. On April 28, 1951, the Bill was passed and became Finance Act, 1951, but as passed changes were effected as regards the duty proposed in the Bill. Under s. 7(1) of the Finance Act, the duty on unmanufactured tobacco was increased to 14 annas per lb. Section 7 (2) thereof provided that "the amendments made in the Central Excises and Salt Act, 1944, shall be deemed to have effect on and after March 1, 1951 and accordingly........
recoveries shall be made of all duties which have not been collected but which would have been collected if the amendment had so come into force." In pursuance of s. 7(2) a demand was made upon the appellants on June 22, 1951, for payment of the excess of the 2 excise duty payable on tobacco cleared out of the warehouse from March 1, 1951, to April 28, 1951.
The appellants challenged the legality of the demand on the grounds, inter alia, that (1) excise duty was a tax on goods which must exist at the time when the tax was levied and it must have been intended and expected by the legislature that it would be passed on to the consumer, and as the retrospective operation of the duties deprived the tax of these qualities they did not fall within the term "duties of excise" in Entry 84, List I of the Seventh Schedule to the Constitution of India, and, therefore, s. 7(2) of the Finance Act, 1951, in so far as it imposed an excise duty retrospective before the date of its enactment was beyond the legislative competence of Parliament and (2) the impugned levy contravened Art.
19(1)(f), because a retrospective levy of an excise duty deprived the tax payer of the right of passing it on and recovering it from his buyer, and that this constituted a restraint on the right to hold property, which was not saved by cl.(5) of Art. 19.
HELD: (1) Parliament acting within its own legislative field had the powers of a sovereign legislature and could make a law prospectively as well retrospectively and the duties leviable under the Central Excises and Salt Act, 1944, as provided by s. 7(2) of the Finance Act, 1951, notwithstanding their imposition with retrospective effect and even if it be that they were incapable of being passed on to a buyer from the taxpayer, were "duties of excise" within the meaning of Entry 84, List I of the Seventh Schedule to the Constitution of India.
(2) The levy of the tax retrospectively under s. 7(2) of the Finance Act, 1951, was valid and did not contravene Art. 19(1)(f) of the Constitution.
Per Kapur, J.-(1) Entry 84 in List I deals with taxes on goods manufactured or produced, while Entry 60 in List II deals with the carrying on of trade i.e., an activity in the nature of buying and selling, and the Central Excises and Salt Act, 1944, in its pith and substance relates to duty on goods manufactured or produced and has no relationship with Entry 60.
(2) Reasonableness of tax laws is not justiciable and therefore they cannot fall within cl.(5) of Art. 19. Art. 19(1)(f) and the cl.(5) are part of one scheme and the former is incapable of operating where the latter is inoperative. If considerations of Art. 19(5) are foreign to taxing laws Art. 19(1)(f) can have no application to them.
Case law reviewed.
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 140 to 142 of 1952.
Appeals from the judgment and order dated March 24, 1953, of the former Nagpur High Court in Misc. Petitions Nos. 1795-1796 of 1951 and 1 of 1952.
WITH Petitions Nos. 24, 25 and 93 of 1952.
Petition under Art. 32 of the Constitution of India for enforcement of Fundamental Rights.
G.S. Pathak, S.N. Andley, J.B. Dadachanji and Rameshwar Nath, for the Appellants/petitioners.
H.N. Sanyal, Additional Solicitor General of India, N.S. Bindra, R.H. Dhebar and T.M. Sen, for the respondents.
C.R. Pattabhi Raman and R. Ganapathy Iyer, for the interveners (in C.A. No. 141 of 1954).
1961, December 11. The judgment of S.J. Imam, K.C. Das Gupta, Raghubar Dayal and N. Rajagopala Ayyangar, JJ., was delivered by Rajagopala Ayyangar, J., J.L. Kapur, J., delivered a separate judgment.
AYYANGAR, J.-The appellants in Civil Appeal 140 of 1954 are tobacco merchants and manufacturers of biris. They own private warehouses licensed under r. 140 of the Excise Rules, 1944 at Gondia and other places in Madhya Pradesh.
On the 28th of February, 1951 a Bill was introduced in the House of the People, being Bill 13 of 1951 containing the financial proposals of the Government of India for the fiscal year beginning the 1st of April, 1951. Clause 7 of the Bill made provision for the amendment of the 4 Central Excise Act (Act 1 of 1944) by way of alteration of duties on "tobacco manufactured and unmanufactured." In particular, it provided that "unmanufactured tobacco other than flue-cured and ordinarily used otherwise than for the manufacture of cigarettes" (which included tobacco intended for manufacture into biris) should be charged to an excise duty of 8 annas per lb. and it also imposed a new duty of excise on biris varying from 6 to 9 annas per lb. depending upon the weight of tobacco contained in the biris.
Section 3 of the Provisional Collection of Taxes Act, 1931 (Act XVI of 1931) enacted "Where a bill introduced into the Indian Parliament provided for the imposition or increase of a duty of excise the Central Government might cause to be inserted in the bill a declaration that it was expedient in the public interest that any provision of the bill relating to such imposition or increase shall have immediate effect under this Act". A declaration under this section was made in respect of the provision for imposing the duties on tobacco under cl. 7 of the bill already adverted to. The effect of such a declaration was stated in s. 4 of Act XVI of 1931 in the following terms:- "4. (1) A declared provision shall have the force of law immediately on the expiry of the day on which the Bill containing it is introduced.
(2) A declared provision shall cease to have the force of law under the provisions of this Act- (a) When it comes into operation as an enactment with or without amendment, or (b) when the Central Government in pursuance of a motion passed by parliament, directs, by notification in the Official Gazette, that it shall cease to have the force of law, or (c) if it has not already ceased to have the force of law under clause (a) or clause (b), then on the expiry of the sixtieth day after the day on which the Bill containing it was introduced." In compliance with this law the appellants paid the excise duty at the rates imposed under cl. 7 of the bill and obtained clearance certificates in regard to the tobacco moved out from their warehouses from and after March 1, 1951. Bill 13 of 1951 was passed into law as the Indian Finance Act 1951 (Act XXIII of 1951 on April 28, 1951 but as passed, changes were effected in the duty proposed in the bill, as a result of certain alterations suggested by the Select Committee. Under s. 7 (1) of the Finance Act 1951 while the excise duty on biris was abandoned, the duty on unmanufactured tobacco (other than flue-cured and used in the manufacture of cigarettes) was increased to 14 annas per lb. from the rate of 8 annas per lb. in the bill. Consequential provisions were enacted in s. 7 (2) of the Finance Act which read:
"The amendments made in the Central Excise and Salt Act 1944, sub-cl. 1 shall be deemed to have effect on and from the 1st March, 1951 and accordingly:- (a) refund shall be made of all duties collected which would not have been collected, if the amendment had come into force on that day, and (b) recoveries shall be made of all duties which have not been collected but which would have been collected if the amendment had so come into force." 6 In pursuance of s. 7 (2) a demand was made upon the appellants on June 22, 1951 for the payment of the duty payable by them, after giving credit for the refund of the duty paid on biris which had been deleted by the Act. The appellants contested the legality of this demand by a petition under Art. 226 which they filed in the High Court at Nagpur urging that the retrospective operation given to s. 7(1) by sub-s.(2) thereof was illegal, ultra vires and unconstitutional, and besides that the provision in r. 10 of the Excise Rules which contained the machinery for enforcing the demand was not adequate to meet the situation arising out of the change in the law from the provisions of the bill to those of the Act. The learned Judges of the High Court repelled all the contentions disputing the legislative competence and the constitutionality of the legislation contained in s. 7(2) of the Finance Act of 1951, but they upheld the objection to the adequacy of the procedure for recovery based on the limited scope of r. 10 of the Excise Rules.
Thereafter the Central Government, by a notification dated December 8 1951, amended the Central Excise Rules, 1944 by the addition of a new r. 104 providing machinery specially designed f r the enforcement of a demand like the one arising in the circumstances of the present case.
On December 12, 1951 a further and a fresh demand was made for the payment of the duty in terms of s. 7(2)(b) of the Finance Act quoted earlier, and the appellants thereupon once again moved the High Court of Nagpur under Art. 226 challenging the validity of the demand on the very same grounds as before. This petition was heard by a Full Bench of the Court and every contention raised by the appellants including that based on the adequacy of the new r. 10A to cover the present case was rejected. The learned Judges granted a certificate under Art. 132 of the Constitution which was enabled the appellants to file this appeal. Before proceeding further it is only necessary to state that there is no material difference between the facts of the 7 cases covered by Civil Appeals 141, 142 as well as the points raised in the Writ Petitions and that this judgment will cover and dispose of the other appeals and the petitions. We might also, at this stage mention that other parties who were similarly situated as the appellants in Civil Appeals 140 to 142 of 1954 and who had filed petitions under Art. 226 of the Constitution in the High Court of Madras which arc pending there, raising the same points as the appellant's before us, have intervened in these appeals and they have also been heard. Learned Counsel appearing for the interveners adopted the arguments urged in support of the appeal.
Mr. Pathak, learned Counsel who appeared for the appellants urged three point in support of the appeals(1) Section 7 (2) of the Finance Act, 1951 in so far as it imposed an excise duty retrospectively before the date of its enactment (April 28, 1951) was beyond the legislative competence of Parliament. The contention on this head was briefly this: The impugned tax was imposed by Parliament in purported exercise of the power to levy "a duty of excise on tobacco" within Legislative Entry 84 of Union list which reads:
"Duties of excise on tobacco and other goods manufactured or produced in India except An "excise" was basically an indirect tax, i.e., a tax or duty not intended by the taxing authority to be borne by the person on whom it is imposed and from whom it is collected but is intended to be passed on to those who purchased the goods on which the duty was collected; but when such a tax was imposed with retrospective effect it could not be passed on, so such a levy deprived the tax of its essential characteristic of being indirect. It therefore ceased to be a "duty of excise" and 8 became a personal tax of a category quite distinct from "excise" and so was beyond the legislative power of Parliament under that Entry. (2) That the impugned levy was unconstitutional in that it contravened the fundamental right guaranteed to the citizens of India to hold property under Art.
19(1)(f), the point urged being that a retrospective levy of an "excise duty" deprived the tax-payer of the right of passing it on and recovering it from his buyer, that this constituted a restraint on "the right to hold property" (the amount of the tax-levy) conferred by Art. 19(1)(f) and was not saved by cl. 5 of that Article as being a reasonable restraint and should, therefore, be struck down under Art.
13(2). (3) That the terms of r. 10A of the Excise Rules 1944 were insufficient to cover the cases of the appellants and that in consequence the demand made on them and the attempt to recover the sums by resort to the coercive process provided for by s. 11 of the central Excise Act was illegal and without statutory authority.
We shall now proceed to consider these points in that order. (1) Want of legislative competence:
To appreciate the submission of learned Counsel it is necessary to set out the steps in the reasoning by which he sought, to establish that a "duty of excise" when imposed with retrospective effect ceased to be a "duty of excise" as used in Entry 84 of the Union List. The submission of learned Counsel was this: The term "duty of excise" on goods was universally recognized as a tax on home produced goods and as a typical instance of an indirect tax. It was a tax on the activity of production or manufacture of goods within the country and that it was levied on or collected from the producer or manufacturer or from those who held such goods. It was, further, not a personal tax but its essential and characteristic nature, which distinguished it from other types of taxes was that it was levied on goods. It had, therefore, in order that it might 9 truly be "duty of excise", to satisfy two tests:
(a) It had to be an indirect tax, i.e. levied in such a manner that the person from whom the tax was collected was in a, position to pass it on to those who acquired the goods from him or at least the taxing authority expected him to pass it on, and laid no impediment on his ability to do it.
(b) Being a tax on goods, it was levied on the producer or manufacturer or person in possession of the goods at the time when the person taxed was the owner or had possession and control over the goods. Where neither of these essential elements or attributes was present, and in the present, case, according to learned Counsel neither condition was satisfied, the tax-levy would not fall under the category of "duty of excise." The same argument was Presented in a slightly different from by saying that though Parliament, generally speaking, had the power to legislate in respect of everyone of the subjects included in the relevant legislative entries whether prospectively, or retrospectively including legislation with regard to taxation, still if the retrospective levy of a taxes, altered its essential nature and identity, then the power to legislate retrospectively would be open to Parliament only if the tax in its altered from- i.e., a tax direct and personal-would be open to Parliament to impose. In the case of a "duty of excise" as the tax in the present case was, if imposed retrospectively, deprived it of its essential characteristic of being in indirect tax and a tax on goods, and so the power of Parliament to enact such retrospective legislation would depend upon whether Parliament could impose a tax on a person merely because he happened to produce goods at an antecedent date, or, happened to have had in his control goods of indigenous production at a prior date and if this could not be done, it would follow that Parliament could not impose a "duty of excise" with retrospective effect.
10 In support of his submission regarding the nature of an excise duty and that meaning that ought to be attributed to the expression as it occurs in Entry 84 of the union List, Mr. Pathak placed before us judgments of the Privy Council in appeals from Canada and some decisions of the American Supreme Court and of the Australian High Court.
First as to the decisions relating to the Canadian constitution though learned Counsel referred us to several decisions on the interpretation of the word "excise" in connection with the distinction between direct and indirect taxes in most of the British North America Act, 1867, we do not think it necessary to refer to all of them.
The general line of approach of the Privy Council decisions referred by learned Counsel could be gathered from the observations of Lord Cave in City of Halifax v. Fairbanks' Estate. The impugned tax legislation was a business tax imposed by the Province of Nova Scotia to be paid by every occupier of real property for the purposes of any trade, profession, or other calling carried on for the purpose of gain, the assessment being according to the capital value of the premises. This was challenged inter alia on the ground that it was an indirect tax and therefore not within the legislative competence of the Provincial Legislature. Lord Cave said:
"Thus, taxes on property or income were everywhere treated as direct taxes; and John Stuart Mill himself, following Adam Smith, Ricardo and James Mill, said that a tax on rents falls wholly on the landlord and cannot be transferred to anyone else............ On the other hand, duties of customs and excise were regarded by everyone as typical instances of indirect taxation. When therefore the Act of Union allocated the power of direct taxation for Provincial purposes to 11 the Province, it must surely have intended that the taxation, for those purposes, of property and income should belong exclusively to the Provincial legislatures, and that without regard to any theory as to the ultimate incidence of such taxation. To hold otherwise would be to suppose that the framers of the Act intended to impose on a Provincial legislature the task of speculating as to the probable ultimate incidence of each particular tax which it might desire to impose, at the risk of having such tax held invalid if the conclusion reached should afterwards be held to be wrong........... The imposition of taxes on property and income, of death duties and of municipal and local rates is, according to the common understanding of the term, direct taxation, just as the exaction of a customs or excise duty on commodities............
would ordinarily be regarded as indirect taxation; and although new forms of taxation may from time to time be added to one category or the other in accordance with Mill's formula as a ground for transferring a tax universally recognised as belonging to one class to a different class of taxation." Similar passages in relation to a "duty of excise" being an indirect tax occur in other judgments of the Judicial Committee to which learned Counsel drew our attention. Of these, it is sufficient to refer to one more-Attorney-General for British Columbia v. Kingcome Navigation Company, Limited which raised the question as to whether a tax which was imposed upon every consumer of fuel-oil according to the quantity which he had consumed imposed by the Fuel-Oil Tax Act of 1930 of British Columbia was a direct tax under s. 92, head 2, of the British North America Act, 1867. After extracting the following passage from Bank of Toronto v. Lambe:
12 "A direct tax is one which is demanded from the very persons who it is intended or desired should pay it. Indirect taxes are those which are demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another;
such are the excise or customs.
Lord Moulton who delivered the judgment of the Board referred to the passage from the judgment of Lord Cave in City of Halifax v. Fairbanks' Estate just now quoted and went on to add:
"The ultimate incidence of the tax in the sense of the political economist, is to be disregarded, but where the tax is imposed in respect of a transaction, the taxing authority is indifferent as to which of the parties to the transaction ultimately bears the burden ........... Similarly, where the tax is imposed in respect of some dealing with commodities, such as their import or sale, or production for sale, the tax is not a peculiar contribution upon the one of the parties to the trading in the particular commodity who is selected as the tax payer.
This is brought out in the second paragraph of Mill's definition, and is true of the typical custom and excise duties referred to by Lord Cave." The tax was therefore held to be valid.
We consider that not much assistance could be derived from these decisions for the interpretation of the scope or content of the term "duties of excise" in Entry 84 of the Union List.
The line of division in Canada between those taxes which a Province could impose and those which it could not was, whether it was direct or indirect.
In Canada, taxing powers are divided between the Dominion and the Provinces on the basis of the incidence of the tax, the Dominion power extending to "any mode or system of taxation" (vide s. 91 (3) British North America Act, 1867) while that of the 13 Provinces is restricted to "direct taxation within the Province in order to the raising of revenue for provincial purposes" (Section 92(2) ibid).
When therefore the validity of any Provincial tax legislation is challenged in Canada the enquiry is as regards the normal incidence of the tax whether it is "direct" or "indirect." As these expressions had a settled meaning in economic theory, the Courts had necessarily to find out whether the particular tax imposed by the Province fell within the class of "indirect" taxes or not. In such a situation naturally the classification by economists of taxes as those which are "direct" as distinct from those which are "indirect" assumed a vital role in deciding whether the tax impugned is or is not within Provincial power. As pointed out by Gwyer, C.J. in the Province of Madras v. Boddu Paidanna:
"The Canadian cases which were cited do not seem to afford any assistance, since analogous problems in Canada are always concerned with questions of direct and indirect taxation; and if a Provincial tax is held to be an indirect tax, it is unnecessary for the Court to consider whether it may not also be a duty of excise: see, for example Att.-Gen. for British Columbia v. The Canadian Pacific Railway Co. (1927 A.C. 934), where a tax on every person purchasing within the Province fuel oil for the first time after its manufacture in, or importation into, the Province was held to be invalid as an indirect tax, and the question whether it might not also be bad as an excise duty was left unanswered. In contrast to the case just cited we may refer to Att. Gen. for British Columbia v. Kingcome Navigation Co. (1934 A.C. 45) in which a fuel oil tax imposed by a Province upon every consumer of fuel oil according to 14 the quantity which he had consumed was held to be valid as a direct tax, because it was demanded from the very persons who it was intended or desired should pay it." Similarly, Lord Simonds observed in Governor General in Council v. Province of Madras:
"little assistance is to be derived from the consideration of other federal constitutions and of their judicial interpretation. Here there is no question of direct and indirect taxation, nor of the definition of specific and residuary powers." Under the Indian Constitution the scheme of division of the taxing powers between the Union and the States is not based on any criterion dependent on the incidence of the tax. Sir Maurice Gwyer in re the Central Provinces and Berar Act XIV of 1938 speaking of the word "excise" as occurring in the legislative lists in the Government of India Act (and for this purpose there is no variation in the lists in Schedule VII of the Constitution) said:
"Its primary and fundamental meaning in English is that of a tax on articles produced or manufactured in the taxing country and intended for home consumption. I am satisfied that this is also its primary and fundamental meaning in India; and no one has suggested that it has any other meaning in Entry No. 45 (corresponding to Entry 84 in the Union List).
It was then contended on behalf of the Government of India that an excise duty is a duty which may be imposed upon home produced goods at any state from production to consumption; and that therefore the federal legislative power extended to imposing excise 15 duties at any stage. This is to confuse two things, the nature of excise duties and the extent of the federal legislative power to impose them ......... There can be no reason in theory why an excise duty should not be imposed even on the retail sale of an article, if the taxing Act so provides.
Subject always to the legislative competence of the taxing authority, a duty on home- produced goods will obviously be imposed at the stage which the authority find to be the most convenient and the most lucrative, wherever it may be; but that is a matter of the machinery of collection, and does not affect the essential nature of the tax. The ultimate incidence of an excise duty, a typical indirect tax, must always be on the consumer, who pays as he consumes or expends;
and it continues to be an excise duty, that is, a duty on home-produced or home- manufactured goods, no matter at what stage it is collected." As Lord Simonds said in the decision, to which reference has already been made after referring to the decision of the Federal Court in the C.P. Petrol case:- "Consistently with this decision their Lordships are of opinion that a duty of excise primarily a duty levied on a manufacturer or producer in respect of the commodity manufactured or produced. It is a tax on goods not on sales or the proceeds of sale of goods," and then speaking about taxes on sale of goods the learned Lord continued:
"The two taxes, the one levied on a manufacturer in respect of his goods, the other on a vender in respect of his sales, may, as is there pointed out, in one sense overlap. But in law there is no overlapping.
The taxes 16 are separate and distinct imposts. If in fact they overlap, that may be because the taxing authority, imposing a duty of excise, finds it convenient to impose that duty at the moment when the exciseable article leaves the factory or workshop for the first time on the occasion of its sale. But that method of collecting the tax is an accident of administration; it is not of the essence of the duty of excise, which is attracted by the manufacture itself." In view of this clear exposition of the content of the term "duty of excise" in the Indian setting we think, no assistance can be derived for the meaning ascribed and the characteristics attributed to it in the decision construing the relative taxing powers of the Dominion and the Provinces under the British North America Act 1867.
Before dealing with the Australian decision to which Mr. Pathak drew our attention, we could conveniently dispose of the American cases which were referred to by the learned counsel bearing on the meaning of the word "excise". We might point out that the American decisions do not assist the appellant in the least since under the Constitution of the United States practically every tax other than a capitation, a poll tax or a tax on land is termed an "excise duty" and even income-tax was held to be an 'excise' until the decision of the Supreme Court of the United States in Pollock v. Farmers Loan & Trust Co. It has to be borne in mind that the American Constitution provides that direct taxes have to be apportioned among the States according to their respective populations (Art. 1, s. 2, and Art. 1, s. 9, cl.
4). Hence the attempt in the United States has been to bring taxes which according to the classification of economists would be direct taxes within the category of excise or indirect taxes which need not follow the rule as to apportionment among the States. It follows, 17 therefore, that neither the American decisions, nor the understanding by the Courts of that country as to what a duty of excise connotes can be of any utility for deciding the content of that entry in the Indian Constitution. The relevance of the American decisions is, therefore, even remoter than the decisions from Canada which were relied on by the learned Counsel.
Mr. Pathak referred us to some of the decisions in Australia and in particular to Parton v. Milk Board (Victoria) in support of his submission that the characteristic of being an indirect tax and therefore the capability of being passed on was an essential ingredient and pre- requisite of an excise duty. In this connection it is necessary to point out that the decisions in Canada which were relied on by Mr. Pathak as aids for understanding the import of the expression "duty of excise" in Entry 84, have been treated by the Australian Courts as not helpful to determine the meaning of "excise" in s. 90 of the commonwealth of Australia Act. As explained by Wynes:
"In Canada, the distribution of taxation is based upon the direct and indirect character thereof, the Provincial power being limited to direct taxation within the Province. Hence Canadian cases such as the Bank of Toronto v. Lambe are of very little use in settling the question whether or not a tax is a duty of customs or excise within the meaning of the Australian Constitution.
It may be pointed out that under the Australian Constitution taxes levied on commercial dealings in goods produced, such as taxes on sales, have been held to fall within the category of excises.
Several of the decisions of the Australian High Court rendered before Parton v. Milk Board (Victoria dealing with what constituted an excise 18 under s. 90 of the Commonwealth of Australian Act were cited to the Federal Court in the Province of Madras v. Boddu Paidanna and the learned Chief Justice, after referring to them in detail, observed:
"We find it impossible to say that the expression 'duties of excise' even in Australia is limited to duties imposed in connection with the production of a commodity alone. We should be disposed to say on the contrary that in Australia all taxes on the sale of commodities are, or may be regarded, as, duties of excise............ Under the Australian Constitution power to impose duties of excise is, as we have said, the exclusive right of the Commonwealth Parliament; the residuary taxing power remains in the States. In the Indian Constitution Act the whole of the taxing power in this particular sphere is expressly apportioned between the Centre and the Provinces, to the one being assigned the power to impose duties of excise, to the other taxes on the sale of goods." The decision in the Milk Board case follows in general the same lines as did the earlier decisions which have been detailed and discussed by Sir Maurice Gwyer C. J. in Paidanna's case. In these circumstances we do not consider it useful or necessary to discuss these decisions.
Undoubtedly, there are passages in these judgments in the Australian Courts which refer to the fact that an excise duty is an instance of an indirect tax. As regards the general proposition, however, there is little controversy, but these decisions did not lay down that if by reason of the tax being levied retrospectively the duty cannot be passed on it ceased to be a duty of excise. On the other hand, there is express and high authority for the position that a duty of excise could be validly levied with retrospective effect under the Australian Constitution. The question for 19 consideration before the privy Council in Colonial Sugar Refining Company Ltd. v. Irving related to the constitutional validity of the Excise Tariff Act, 1902, passed by the Commonwealth Parliament.
One of the objections raised to the levy was that on the terms of the enactment which was passed on the 26th of July, 1902, the imposition of the duty could be as and from October 8, 1901, the day on which the Minister had moved a resolution to that effect in the committee of Ways & Means of the House of Representatives. The respondent before the Board who were manufacturers of refined sugar in Brisbane in the State of Queensland questioned the legality of the tax which had been demanded and paid by them in respect of the sugar produced by them between October 8, 1901, and July 26, 1902. Lord Davey delivering the judgment of the Board observed:
"It is a little difficult to understand the first point taken by the appellants. The Parliament had undoubted power to impose taxation under the express words of s. 51 of the Constitution, and it is not now disputed that the Parliament could, if it thought fit, make the Act retrospective and impose the duties from the date of the resolution. That practice is (it is believed) universally followed in the imperial Parliament, and (their Lordships were told) is common in the Colonial Legislatures in Acts of this description, and for obvious reasons it is convenient and almost necessary. There was nothing, therefore, in either the subject matter of the Act, or in the mode of dealing with it, which was beyond the power of the Parliament." In our opinion, the above aptly describes and covers the point raised by the appellants in the appeals now before us.
20 There is no doubt that excise duties have been referred to by the economists and in the judgments of the Privy Council as well as in the Australian decisions as an instance of an "indirect tax", but in construing the expression "duty of excise" as it occurs in Entry 84 we are not concerned so much with whether the tax is "direct" or "indirect" as upon the transaction or activity on which it is imposed. In this context one has to bear in mind the fact that the challenge to the legislative competence of the tax-levy is not directed to the imposition as a whole but to a very limited and restricted part of it. This challenge is confined (a) to the operation of the tax between the period March 1, 1951, and April 28, 1951, and (b) even in regard to this limited period, it is restricted to the imposition of the additional duty of six annas per lb. which was levied, beyond the eight annas per lb. collected from the appellants by virtue of the Finance Bill under the provisions of the Provisional Collection of Taxes Act, 1931. It would seem to be rather a strange result to achieve that the tax imposed satisfies every requirement of a "duty of excise" in so far as the tax operates from and after April 28, 1951, but is not a "duty of excise" for the duration of two months before that date.
Learned Counsel conceded, as he had to, that even on the decision relied upon by him, the fact that owing to the operation of economic forces it was not possible for the taxpayer to pass on the burden of the tax, did not alter the nature of the imposition and detract from its being a "duty of excise". For instance, the state of the market might be such that the duty imposed upon and collected from the producer or manufacturer might not be capable of being passed on to buyers from him. Learned Counsel urged that this would not matter, as one had to have regard to "the general tendency of the tax" and "the expectation 21 of the taxing authority" and to the possibility of its being passed on and not to the facts of any particular case which impeded the operation of natural economic forces.
The impediment to the duty being passed on might be due not merely to private bargains between the parties or abnormal economic situations such as the market for a commodity being a buyers' market. Such impediments may be brought about by the operation of other laws which Parliament might enact, such for instance, as control over prices. If in such a situation were the price which the producer might charge his buyer is fixed by the statute, say under the Essential Supplies Act, and a "duty of excise" is later imposed on the manufacturer, it could not be said that the duty imposed would not answer the description of an "excise duty". Learned Counsel had really no answer to the situation created by such a control of economy except to say that it would be an abnormal economic situation. It could hardly be open to argument that a tax levied on a manufacturer could be stated not to be a "duty of excise", merely because by reason of the operation of other laws the tax payer was not permitted to pass on the tax-levy. The retrospective levy of a tax would be one further instance of such inability to pass on, which doses not alter the real nature or true character of the duty.
It might further be pointed out that the submission of the learned Counsel that a tax which according to economic theory is an indirect tax or a tax on goods becomes a direct and a personal tax and a tax of a different nature or category if imposed retrospectively because it was then incapable of being passed on, does not correctly represent the law as laid down by this Court. In common with duties of customs and excise, a tax on the sale of goods is another instance of a typical indirect tax 22 Indeed Lord Thankerton pointed out in Attorney- General for British Columbia v. Kingcome Navigation Company Ltd.:
"The ultimate incidence of the tax in the sense of political economist is to be disregarded and referred to a tax imposed in respect of some dealings in commodities such as their import or sale or production for sale as instances of indirect taxes, the tax not being a peculiar contribution upon one of the parties to the trading in the particular commodity selected as the tax-payer." The question of the validity of the imposition of a sales tax with retrospective effect came up for consideration before this Court in the Tata Iron & Steel Co. Ltd. v. The State of Bihar. An argument similar to the one now presented before us was submitted to this Court in challenge of that levy which was summarized by Das, C.J., in these terms:
"The retrospective levy by reason of the amendment of s. 4(1) (of the Bihar Sales tax Act which was impugned) destroys its character as a sales tax and makes it a direct tax on the dealer instead of an indirect tax to be passed on to the consumer." Dealing with this point the learned Chief Justice said :
"The argument is that sales-tax is an indirect tax on the consumer. The idea is that the seller will pass it on to his purchaser and collect it from them. If that is the nature of the sales-tax then, urges the learned Attorney-General, it cannot be imposed retrospectively after the sale transaction has been concluded by the passing of title from the seller to the buyer, for it cannot, at that 23 stage, be passed on to the purchaser............... Once that time goes past, the seller loses the chance of realising it from the purchaser and if it cannot be realised from the purchaser, it cannot be called sales-tax. In our judgment this argument is not sound. From the point of view of the economist and as an economic theory, sales-tax may be an indirect tax on the consumers, but legally in need not be so......... This also makes it clear that the sales-tax need not be passed on to the purchasers and this fact does not alter the real nature of the tax which, by the express provisions of the law, is cast upon the seller .......... If that be the true view of sales-tax then the Bihar Legislature acting within its own legislative field had the powers of a sovereign legislature and could make the law prospectively as well as retrospectively. We do not think that there is any substance in this contention." In our judgment this passage covers the argument regarding a duty of excise getting its essential nature altered and ceasing to be a duty of excise if imposed retrospectively. The submission, therefore, lacks any force and is rejected.
It is also necessary to refer to one further matter : Even assuming that the learned Counsel is right in his submission, that to be a duty of excise within Entry 84 of the Union List the taxing authority should have expected the tax to be passed on, we consider that learned Counsel is not right in submitting that condition is not satisfied in the case of the levy now impugned.
The provisions of the impugned enactment have to be read in the light of s. 64A of the Sale of Goods Act which enacts:
"In the event of any duty of customs or excise on any goods being imposed, increased decreased or remitted after the making of any 24 contract for the sale of such goods without stipulation as to the payment of duty where duty was not chargeable at the time of the making of the contract, or for the sale of such goods duty-paid where duty was chargeable at that time:- (a) if such imposition or increase so takes effect that the duty or increased duty, as the case-may be or any part thereof, is paid, the seller may add so much to the contract price as will be equivalent to the amount paid in respect of such duty or increase of duty, and he shall be entitled to be paid and to sue for and recover such addition, and (b) if such decrease or remission so takes effect that the decreased duty only or no duty, as the case may be, is paid, the buyer may deduct so much from the contract price as will be equivalent to the decrease of duty or remitted duty and he shall not be liable to pay, or be sued for or in respect of, such deduction." This provision originally formed s. 10 of the Tariff Act VIII of 1894 and was subsequently enacted as s. 10 in the Indian Tariff Act of 1934 (cl Act XXXII of 1934). The object of the statutory provision is that where contracts for the sale of goods are entered into and the price payable therefore determined on the basis of existing rates of duty-either of excise or of customs-neither party shall be prejudiced or advantaged by reason of the increase or decrease of the duty. The question as to the scope of s. 10 of the Tariff Act of 1894 came up for consideration before a Bench of the Madras High Court whose decision is reported in Narayanan v, Kadir Sahib (1). The suit out of which the second appeal before the High 25 Court arose was by a buyer of salt for the refund of salt-excise duty which had been reduced after the date of the contract. The transaction of sale between the plaintiff and the defendant took place on March 5, 1922, and the price payable by the plaintiff was based on the rate of duty prevailing on that date. Subsequent thereto the Government of India reduced the duty on salt from Rs. 5/- to Rs.
2/8/- per bag and this was to have effect from a date prior to March 5, 1922. The defendant-firm (the sellers) had obtained from the Government refund of the duty on the salt sold by them to the plaintiff. It was to recover this amount of duty that the suit was filed by the buyer. The learned Judges held that on the terms of s, 10 of the Tariff Act of 1894 (indentical with s. 64A of the Sale of Goods Act) the fact that the contract was no longer executory but that delivery had been made and the price paid, was no bar to the plaintiff succeeding in his suit.
It will be seen that s. 64A is in two parts:
the first cl. (a) dealing with the case of an increase in duty and conferring on the seller the right to recover the amount of the increased duty from the buyer, and the second limb (cl. b) making provision regarding the correlated case of a reduction in the duty with corresponding rights to the buyer to obtain the benefit of a reduction.
Whatever argument might be raised baned upon the language of the second limb of the section, it is not open to doubt that in the case of an increase in duty, the seller would be entitled to recover the duty from the buyer provided: (a) there was no contract to the contrary by which he had precluded himself from claiming such enhanced duty, i. e., the contract having negatived or limited the seller's right to prefer such a claim, or was at least silent as regards what was to happen in the event of the duty being increased, (b) the change in the rate of duty was effected after the date of the contract. In 26 these circumstances, it appears to us that there might not be even a factual basis for the complaint of learned Counsel for the appellants that in the case of a retrospective increase in duty, the duty ceases to be a duty of excise by becoming a "direct" tax because it was incapable of being passed on. The answer of learned Counsel to this point regarding the operation of s. 64A of the Sale of Goods Act was merely that the Court could not take account of the provisions of another statute for dealing with the validity of a provision of the Finance Act 1911. The submission has no force at all because s. 64A of the Sale of Goods Act refers in express terms to "duties of excise" and has therefore, to be read as part and parcel of every legislation imposing a duty of excise. In view of our conclusion, however, that the duty in the present case, notwithstanding its imposition with retrospective effect, and even if it be that it was incapable of being passed on to a buyer from the tax-payer, was a duty of excise within Entry 84 as properly understood it is not necessary to rest it upon this narrower ground.
In our view, a duty of excise is a tax-levy on home produced goods of a specified class or description, the duty being calculated according to quantity or value of the goods and which is levied because of the mere fact of the goods having been produced or manufactured and unrelated to and not dependent on any commercial transaction in them. The duty in the present case satisfies this test and therefore it is unnecessary to seek other grounds for sustaining the validity of the tax.
One further aspect of the matter on which some emphasis was laid by Mr. Pathak was that a duty of excise was in its essence a tax on goods and not a personal tax a levied on the tax payer such as an income-tax. He urged that being a tax levied on goods notwithstanding that it was 27 collected from the producer or manufacturer, it followed that the essential attribute or characteristic of that duty was that the producer or manufacturer must own or have possession and control over the goods at the moment of the levy.
If this element of ownership, possession or control over the goods by the tax-payer was lacking, learned Counsel urged the duty would not be a duty on the goods but a personal tax levied on the tax-payer.
This is really another aspect of the same argument that a duty of excise is in its nature an indirect tax but learned Counsel submitted that viewed from this angle it would be seen that the duty imposed by the impugned enactment was shown to be not a duty of excise. The grounds upon which the submission of learned Counsel that a duty of excise levied retrospectively was converted into a direct tax and therefore not a duty of excise have been repelled by us which ought to suffice to repel the contention in this form also. Besides, it may also be pointed out that even in strict theory there is no basis for the submission now under consideration. The duty imposed by the impugned Act being retrospective, it operates as from a previous date and admittedly on the date when by force of the enactment the duty was levied the tax-payer was the owner or was in possession and control of the goods. To deny this, would in effect deny the legal effect of the tax being imposed retrospectively and fictionally deemed to be in force on an earlier date.
In dealing with the arguments of learned Counsel on the scope and content of Entry 84 of the Constitution and of the meaning of the expression "duty of excise" in that entry we have also covered the special argument questioning the right of Parliament to impose retrospectively a duty of excise. It was conceded, that Parliament has power to enact laws with retrospective effect and as it was not suggested that laws 28 dealing with taxation are any exception to that rule the only ground upon which the learned Counsel could rest this submission was that being an indirect tax, capability of being passed on was an essential characteristic or requirement of a duty of excise, and so its imposition with retrospective effect deprived it of that essential character and therefore rendered it a duty of a different nature and for that reasons a retrospective imposition of an excise duty was not permissible. It would be seen that this is really the same argument which we have dealt with earlier presented in another form. For the reasons already stated, we find no substance in this form of argument either and we have no hesitation in rejecting it. It need only be mentioned that the passage in judgment of Lord Davey in the Colonial Sugar Refining Company Ltd. v. Irving, already extracted, is sufficient precedent, if authority were needed, to reject this argument.
The second point raised by learned Counsel was that the impugned s. 7(2) of the Act was unconstitutional in that it contravened the fundamental rights guaranteed under Arts. 19(1)(f) and 31(1) and (2) of the Constitution. It was urged that even if the impugned provision was within the legislative competence of Parliament as being covered by Entry 84 of the Union List, the retrospective levy of an excise duty violated the freedom guaranteed by Art. 19 (1)(f)-the right to hold property-and was not saved by Art. 19(5) since the same was not "a reasonable restraint" on the rights of the appellant. If Counsel was right so far, his next submission was that the threat to deprive the appellant of the amount of the tax levy was a deprivation without authority of law- Art. 31(1) and was further a compulsory acquisition of that property without compensation (Art. 31(2)) which was not saved by Art.
31(5)(b)(i) because the 29 law contemplated by that sub-article was a valid law for the imposition of a tax which satisfied the requirements both of legislative competence and of the rights guaranteed by Part III of the Constitution.
The submission of Mr. Pathak on this part of the case was briefly as follows. A law which imposes a tax and provides for its levy and collection is as much a law, as a law under other non-taxation entries of the legislative list. All laws including laws imposing taxes are within Part III of the Constitution being laws under Art.
13(2) thereof and unless any particular Article was inapplicable to such laws by reason of obvious irrelevance every Article in the Part would apply to them and without such a law satisfying the test of reasonableness or constitutionality laid down in the various Articles guaranteeing the several.
Fundamental rights the statute in question could not be pronounced valid and enforceable.
We shall be referring to the manner in which Mr. Pathak sought to urge that the impugned provision offended Art. 19(1) (f), but before doing so, it is necessary to notice the submission which Mr. Sanyal invited us to accept.
He raised a broad contention that no law imposing a tax could be impugned on the ground of violation of Part III of the Constitution in general and in particular of Art. 19(1) (f) or Art. 31. His submission was that the validity of tax laws were governed solely by Art. 265 and that such laws were not governed by Part III of the Constitution and specially because the money sought to be taken by the State as tax by virtue of a fiscal enactment was not "property" within Art. 19(1) (f) and that the expression "laws for the purpose of imposing a tax" used in Art. 31(5) (b) (i) saved all laws from the operation of Art.
31 whether such laws be within legislative competence or not, as 30 also whether or not such laws were repugnant to Part III of the Constitution.
Before adverting to the decisions on which reliance was placed for this position two things might he pointed out: (1) that Art. 265 merely enacts that all taxation-the imposition, levy and collection shall be by law; and (2) that the Article beyond excluding purely executive action does not by itself lay down any criterion for determining the validity of such a law to justify any contention that the criteria laid down exclude others to be found elsewhere in the Constitution for laws in general. If by reason of Art. 265 every tax has to be imposed by "law" it would appear to follow that it could only be imposed by a law which is valid by conformity to the criteria laid down in the relevant Articles of the Constitution. These are that the law should be (1) within the legislative competence of the legislature being covered by the legislative entries in Schedule VII of the Constitution; (2) the law should not be prohibited by any particular provision of the Constitution such as for example, Arts. 276(2), 286 etc., and (3) the law or the relevant portion thereof should not be invalid under Art. 13 for repugnancy to those freedoms which are guaranteed by Part III of the Constitution which are relevant to the subject matter of the law. The reference therefore to Art.
265 does not lead necessarily to the result envisaged by Mr. Sanyal.
The entire argument of Mr. Sanyal on this part of the case was rested on the observations contained in two decisions of this Court, Ramjilal v. Income-tax Officer, Mohindargarh and Laxmanappa Hanumantappa Jamkhandi, v. The Union of India. We do not understand these decisions as laying down any such broad proposition. We are further 31 satisfied that the learned Judges could not have meant that if a law imposing a tax was outside the legislative competence of the legislature enacting it, as the argument before us appeared to suggest it could be a law under which a person could be deprived of his property under Art. 31(I) or regarding which a person could not move this Court for relief under Art. 32. Such a proposition would be contrary to a long catena of cases of this Court of which it is sufficient to refer to Mohammad Yasin v. The Town Area Committee, Jalalabad, State of Bombay v. The United Motors (India) Ltd., The Bengal Immunity Company Limited v. The State of Bihar and Ch. Tika Ramji v. The State of Uttar Pradesh. In all these cases the legislation imposing the tax or the fee which had been held not to have been within the legislative competence of the authority imposing the tax or the fee was struck down on the ground that those laws violated the freedom guaranteed by Part III of the Constitution. Learned Counsel laid some stress on the fact that in these cases the tax or fee was held to be unconstitutional as imposing an unreasonable restraint on the right to carry on a trade or business guaranteed by Art. 19(1)(g) and not as an infringement of the right to hold "property" under Art. 19(I)(f). In our opinion nothing turns on this, for it is the deprivation of the freedom "to hold property" that is the direct result of the tax and the restraint on the business by reason of the collection of the illegal tax or the procedures prescribed for such collection is only an indirect and incidental effect thereof.
Nor do we find it possible to accept even the more limited proposition that whatever be the position in regard to tax laws which lack legislative competence, once a tax law is covered by an entry in the Legislative List and does not contravene direct prohibitions like those in Arts.
276 (2) or 286 32 etc., such a law is immune from the limitations imposed by Part III of the Constitution.
Mr. Sanyal is right in his submission that the levying of taxes though it might involve taking private property for a public use is entirely distinct from the power of eminent domain which is covered by Art. 31(1)(2) and that the saving in Art. 31(5)(b) (i) of such laws is really by way of abundant caution. It has been stated that where "property is taken under a taxing power, the persons so taxed may be said to be compensated for their contribution by the general benefits which they receive from the existence and operation of Government. But this is not to say that the burden of a tax that may be constitutionally laid upon an individual needs to be justified by a showing that he, individually will receive benefit from the expenditure of the proceeds of the tax, and much less that the degree of that burden may be measured by the amount of benefit that the tax payer is excepted to receive (1)". It would, therefore, be obvious that a tax law need not satisfy the tests of Art. 31(2).
But it does not follow that every other Article of Part III is inapplicable to tax law.
Leaving aside Art. 31(2) that the provisions of a tax law within legislative competence could be impugned as offending Art. 14 is exemplified by such decisions of this Court as Suraj Mal Motha v. Sri A. V. Visvanatha Sastri and Shree Meenakshi Mills Ltd., Madurai, v. Sri A. V. Visvanatha Sastri. In Moopil Nair v. State of Kerala the Kerela Land Tax Act was struck down as unconstitutional as violating the freedom guaranteed by Art. 14. It also goes without saying that if the imposition of the tax was discriminatory as contrary to Art. 15, the levy would be invalid.
It might very well be that a distinction might have to be drawn between the legality of the 33 quantum of a tax levied which might not be open to challenge under Art. 19(1)(f) and the incidence of the tax or the procedure prescribed therein either for the assessment or the collection which might be open for being tested with reference to all the freedoms including that contained in Art.
19(1)(f). In fact in Moopil nair v. State of Kerala (1) already referred to, certain provisions of the Act therein challenged which prescribed the procedure for the levy of the tax were struck down on the ground of being obnoxious to Art. 19(1)(f).
Having regard to the very limited controversy before us we do not consider it necessary to embark on any further or more detailed examination of this question, except to say that we cannot accept the argument of the learned Additional Solicitor General that by reason of Art. 265 tax laws are outside Part III of the Constitution.
In support of the submission that a tax levied with retrospective effect was unconstitutional as being an unreasonable restriction on this right to hold property (Art.
19(1)(f)). Mr. Pathak relied on the decisions in Nichols v. Coolidge (2). The tax in question was an estate duty on property passing on death and in the items to be included for computing the value of the estates was included not merely all property of which the deceased died possessed, on the date of his death but also that which he had transferred by gifts within a period of two years fore his death. This inclusion of property transferred to third persons not in contemplation of death but by the grantor in the ordinary and natural course of the transaction of his affairs so that the donees might enjoy the properties absolutely, was held to be unconstitutional as offending the rule as to "due process" contained in fifth amendment to the constitution. Justice McReynolds delivering the opinion of the Court said:
34 "Under the theory advanced for the United States, the arbitrary, whimsical and burdensome character of the challenged tax is plain enough .....Real estate transferred years ago, when of small value, may be worth an enormous sum at the death. If the deceased leaves no estate there can be no tax; if, on the other hand, he leaves ten dollars both that and the real estate become liable.
Different estates must bear disproportionate burdens determined by what the deceased did one or twenty years before he died. This Court has recognised that a statute purporting to tax may be so arbitrary and capricious as to amount to confiscation and offend the fifth Amendment. We must conclude that s. 402(c) of the statute here under consideration, in so far as it requires that there shall be included in the gross estate the value of property transferred by a deceased prior to its passage merely because the conveyance was intended to take effect in possession or enjoyment at or after his death, is arbitrary, capricious and amounts to confiscation." Learned Counsel also referred us to a few later decisions of the American Supreme Court in which retrospective taxation has been held arbitrary and capricious and to amount to a violation of the due process clause contained in the 5th Amendment. In regard to these decisions, two points have to be noted: (1) that the decisions of Supreme Court of the United States are not uniform and there are undoubtedly decisions of the Court of a later date which speak the other way. In Third National Bank v. White (1) the Supreme Court upheld an estate tax which operated retrospectively. It is in view of these decisions that Mr. Ballard states in an article in the Harvard Law Review (*), referring to White's case (1) 35 "It seems accurate to say that the decision marks for practical purposes the passing of 'arbitrary retroactivity' in the field of the estate tax...........And the present status of Nichols v. Coolidge is not entirely clear......... Since the Nichols case can be distinguished on its facts, it may well give way.........In any event.......it would seem that after the White case no application of the estate tax
