TaxTMI 
TaxTMI 
1966 (9) TMI 139
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....n CAs Nos. 1580 to 1586, 1588 and 1595 of 1966); H.R. Gokhale and B.R.L. Iyengar, Senior Advocates, (R.H. Dhebar. Advocate, with them), for the Respondent (In CAs Nos. 1590 to 1600 of 1966). JUDGMENT: SIKRI, J. 1. These appeals are directed against the judgment of the High Court of Mysore, dated November 17, 1965, disposing of 49 petitions filed under Art. 226 of the Constitution. The High Court disposed of the petitions by one common judgment as identical questions of law were involved in all of them. We will also dispose of these appeals by this judgment because they raise substantially identical questions of law. These appeals may however, be divided into two groups, one dealing with the licences for the sale of Toddy and the other dealing with the licences for the sale of arrack. 2. We may give the facts in one appeal, Civil Appeal No. 1590 of 1966, arising out of Writ Petition No. 1076 of 1964. The appellant, M/s. Guruswami and Co.-hereinafter referred to as the petitioner-filed writ petition alleging that the firm was a licensed Excise contractor with its principal office at Bangalore, and that it had been the licensee of the Bangalore Urban group of 26 shops f....
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....tioner further alleged that he was paying tree rent to the owners of toddy-yielding trees for allowing him to draw toddy from the trees. The petitioner also paid education and health cess at the prescribed rates in pursuance of the condition in Para. No. 17 of the aforesaid notification. 4. A similar notification was issued on April 27, 1964, for the sale of excise privileges for 1964-65, and alternatively for 1964-66. It was mentioned in Para. 18 of this notification that health cess at the rate of nine naye paise per rupee shall also be payable on the shop rent and tree tax on toddy and other duties of excise levied on the following articles in accordance with the Mysore Health Cess Act (Mysore Act No 28 of 1962), hereinafter referred to as the impugned Act, namely, (1) Mandya made Special Liquor; (2) I.M.F.L.; (3) arrack; and (4) beer. The petitioner alleged that as a result of the impugned Act it would have to pay Rs. 86,518 more as health cess for the year 1964-65. 5. The petitioner then challenged the impugned Act as ultra vires on various grounds which need not be mentioned at this stage. The petitioner claimed the following reliefs:- (a) to declare that the S....
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....nts raised by the learned counsel, it is necessary to set out the relevant provisions of the Mysore Excise Act (Act V of 1901) and the impugned Act. We may mention that in some appeals the relevant law is the Hyderabad Abkari Act No. 1 of 1316 Fasli, and not the Mysore Excise Act, but it is common ground between the parties that there is no material difference between the provisions contained in the Mysore Excise Act and the Abkari Act. The Mysore Excise Act was enacted in 1901. In S. 3 (1) it defined "excise revenue'' to mean "revenue derived or derivable from any duty, fee. tax, rent, fine or confiscation imposed or ordered under the provisions of this Act or of any other law for the time being in force relating to liquor or intoxicating drugs". There was no definition of the words "excise duty" in this Act at all. This Act substantially followed the Madras Abkari Act, 1886 (Madras Act I of 1886). It is interesting to note that the Madras Abkari Act was amended by the Adaptation of Indian Laws Order, 1937, and C1. (22) was inserted in the definition section, S 3 as follows "(22) "exercise duty" and ''countervailing duty" mean any such excise duty or count....
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....: or (2) of selling by retail. or (3) of manufacturing or supplying by wholesale and selling; by retail, any country liquor or intoxicating drugs within any local area. No grantee of any privilege under this section shall exercise the same until he has received a license in that behalf from the Deputy Commissioner. In such cases, if the Government shall, by notification, so direct, the provisions of S. 12 relating to toddy and toddy-producing trees shall not apply.") The notifications set out above may be taken to have been issued under S. 16 for the purpose of giving a privilege of selling by retail [see S 16 (2)]. Sections 17 and 18 may be set out in full : "17 A duty shall, if the Government so direct, be levied on all liquor and intoxicating drugs- (a) permitted to be imported under S. 6: or (b) permitted to be exported under S. 7, or (c) manufactured under any licence granted under S. 12; or (d) manufactured at any distillery established under S. 14 or (e) permitted under S. 11 to be transported: or (ee) issued from a distillery or warehouse licensed or established under S. 12 or S. 14: or ....
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.... or (b) any intoxicating drug. Section 28 of the Mysore Excise Act is also relevant and the relevant part reads as follows:- "All duties, taxes, fines and fees payable to the Government direct under any of the provisions of this Act or of any license or permit issued under it, and all amounts due to the Government by any grantee of a privilege or be any farmer under this Act or by any person on account of any contract relating to the Excise revenue, may be recovered from the person primarily liable to pay the same, or from his surety (if any), as if they were arrears of land revenue." Section 29 enables rules to be made and the rules throw some light on the conditions of the license and the privilege obtained by the petitioner. Section V of the Mysore Rules regulating sales of Excise Privileges prescribes the conditions applicable to toddy licenses. Condition No. 2 reads as follows :- "For the supply of toddy to his shops, the licensee shall have the privilege of obtaining subject to tree-tax rules, toddy yielding trees in the groves assigned to his shops or groups, of shops and he shall be at liberty to manufacture toddy from the trees in private lands under priv....
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....ed under S. 18(b) would be excise duties. However, this much may be conceded that the Mysore Excise Act not only does not expressly call the duty collected under S. 18(c)(2) all excise duty, but in S. 28 seems to mention it differently. 11. The licences granted to the petitioner were governed by detailed regulatory provisions regarding sale, tent Condition No. 2 makes it clear that the license is in the main for selling. Further if he taps toddy he has to obtain toddy-tapping licences and pay fees. 12. We have already mentioned that the petitioner obtained the privilege of selling toddy at certain shops by bidding at auctions held in pursuance of the two notifications mentioned above. 13. We may now notice the provisions of the Mysore Health Cess Act, 1962. Section 3 is the charging section and reads as follows:- "3. Levy of health cess.-There shall be levied and collected a health cess at the rate of nine naye paise in the rupee on,- (i) all items of land revenue; (ii) the items of State Revenue mentioned in Schedule A: and (iii) the items of taxes mentioned in Schedule B levied under any law for the time being in force by a local autho....
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....ss on a number of items of State revenue or tax and it adopted the form of calling it a cess and prescribed the rate of nine naye paise in the rupee on the State revenue or tax. Section 4 of the impugned Act makes it quite clear that the cess is leviable and recoverable in the same manner as items of land revenue, State revenue or tax. In the context, the word 'on' in S. 3 does not indicate that the subject-matter of taxation is land revenue or State revenue, but that 9 per cent of the land revenue or State revenue is to be levied and collected, the subject-matter remaining the same as in the law imposing land revenue or any duty or tax. If we read Ss. 3 and 4 together the fact that the words "surcharge" or ''additional duty" have not been mentioned does not detract from the real substance of the legislation. Accordingly we hold that the Mysore Legislature was competent to enact the law under the various entries of List II which enable it to levy land revenue or the duties of excise, or the other taxes mentioned in S. 3 (iii) of the impugned Act. 15. This takes us to the second point raised by the learned counsel. He says that the shop rent is not a duty of excis....
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....uncil and this Court on a number of occasions, and it will serve no useful purpose to reproduce the relevant portions of the judgments in these cases. It will suffice if we mention two decisions of this Court and the language employed by this Court in those cases. 19. In R. C. Jall v. Union of India, (1962) Supp 3 SCR 436: (AIR 1962 SC 1281), Subba Rao, J., as he then was, speaking for the Court, after noticing In re, Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938, 1939 FCR 18: (AIR 1939 FC 1), Province of Madras v. B. Paidanna and Sons, 1942 FCR 90 (AIR 1942 FC 33), and Governor- General in Council v. Province of Madras, 72 Ind App 91: (AIR 1945 PC 98), observed as follows:- "With great respect, we accept the principles laid down by the said three decisions in the matter of levy of an excise duty and the machinery for collection thereof, Excise duty is primarily a duty on the production or manufacture of goods produced or manufactured within the country. It is an indirect duty which the manufacturer or producer passes on to the ultimate consumer, that is, its ultimate incidence will always be on the consumer. Therefore, subject alwa....
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.... incidence. This characteristic was mentioned by the Privy Council in 1945 FCR 179: (AIR 1945 PC 98), in these terms: "The tax imposed by the Madras Act is not a duty of excise in the cloak of a tax on sales. Lacking the characteristic features of a duty of excise, such as uniformity of incidence and discrimination in subject-matter it is in the general scope and in its detailed provisions a 'tax on sales'." This also seems to follow from the wording of the entry itself. Entry 51, List II reads thus: "Duties of excise on the following goods manufactured or produced in the State and countervailing duties at the same or lower rates on similar goods manufactured produced elsewhere in India:- (a) alcoholic liquors for human consumption; (b) opium, Indian hemp and other narcotic drugs and narcotics; but not including medicinal and toilet preparations containing alcohol or any substance included in sub-para. (b) of this entry". It is difficult to see how the State can fix countervailing duties at the same or lower rates unless the rate of excise as such is known or can be ascertained. Similarly, S. 64-A of the Indian Sale of Goods Act, 19....
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....hly, toddy has already paid one excise duty in the form of tree-tax. If the petitioner taps toddy he pays tree tax, but he need not tap himself. Fifthly, the duty is not uniform in incidence because the amount collected has no relation to the quantity or quality of the product but has only relation to what the petitioner thought he could recoup by the sale of the excisable articles. What he recoups would depend upon the amount of sales and the conditions prevailing during the licensing year. Sixthly, there are no express words showing that what is being realised from the petitioner is an excise duty. In fact what S.16 of the Mysore Excise Act says is that a privilege has been granted to him for selling by retail. Section 28 refers specifically to an amount due to the Government by any grantee of the privilege and the legislature apparently did not think that this amount would be covered by the expression all duties, taxes, fines and fees payable to the Government" occurring in S.28. Seventhly, the privilege of selling is auctioned well before the goods come into existence. In this case it would be noticed that the second notification, dated April 27, 1964, was for the sale during t....
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....se duties. We are not concerned here with the case of manufacture or the privilege of manufacture, and it is not necessary for us to decide whether Chief Justice Gwyer was right in so far as the auction of the privilege of manufacturing excisable article is concerned. But fit is interesting to note that even in Australia where a very wide meaning has been given to the word "excise", a fee for a mere licence to engage in business even if it be indirectly connected with production or manufacture has not been held to be an excise duty. The High Court of Australia held in Peterswald v. Bartley, 1 CLR 497, that the State Act imposing a licence fee upon brewers as a condition precedent to the carrying on of their business and punishing non-compliance with its provisions was not opposed to S. 90 of the Australian Constitution. It may be that Chief Justice Gwyer had this case in mind when he made the observations reproduced above. Recently in Dennis Hotels Pvt. Ltd. v. Victoria, 33 ALJR 470, the High Court of Australia, by majority, held that S. 19 (1) (a) of the Licensing Act, 1958 (Vic.) which imposed fees for a Victualler's licence calculated at "equal to the sum of six per centum o....
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....acture. This, as we have said above, must depend upon the facts of each case. But it must be positively shown that the taxable event for the duty which has been levied is manufacture or production of the article. We agree with his contention that the method of its collection is not decisive but, in our opinion in cases of doubt it may throw some light on this question. 29. Mr. Setalvad who appears in the appeals concerned with licenses for arrack points out that Para. 29 (a) of the General Conditions applicable to all excise and opium licenses specifically provides that the manufacturers of arrack and other country spirits as well as the licensees of arrack Bonded Depots are prohibited from holding any interest in the retail vend of arrack or in the vend of other country spirits and from employing any person who has such interest. He says that this strengthens his case because the money realised by the sale of licenses for vending arrack can have no relation to the manufacture or production of arrack. There is force in his contention. 30. In the result we hold that the health cess sought to be levied under the impugned Act on shop rent does not fall within Item I of Sch. A of....
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.... 1962 (Act 28 of 1962) On September 22, 1962 levying retrospectively a health cess in the State of Mysore from the 1st day of April 1962 This cess is levied at the rate of 9 paise per rupee, on (a) all items of land revenue, (b) the items of State Revenue, specified in the Act, in a Schedule numbered A, and (c) on all items of taxes levied, under any law for the time being in force, by a local authority, and specified in Sch. B. The first of the three items in Sch. A reads: "1. Duties of excise leviable by the State under any law for the time being in force in any area of the State, on the following goods manufactured or produced in the State and countervailing duties levied on similar goods manufactured or produced elsewhere:- (a) Alcoholic liquors for human consumption (b) Opium, Indian hemp and other narcotic drugs and narcotics. Explanation.-The duty of excise leviable under this item includes the duties, payments, fees and other amounts payable under S. 18 of the Mysore Excise Act, 1901, and similar impost or payment by whatever name called payable under any other 1aw in force in any area of the State of Mysore." The other two items in Sch. ....
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....al area. But such grantee must obtain a licence from the Deputy Commissioner (S. 16). A duty, if Government so directs, is leviable on all liquor imported or exported or manufactured under licence or manufactured at a distillery or permitted to be transported or issued from a licensed distillery or a licensed warehouse or sold in any part of Mysore, of such amount as the Government may from time to time, prescribe (S. 17). There are various ways of levying the duty. These are described in S. 18 which may be reproduced here: "18. How duty may be imposed. Such duty may be levied in one or more of the following ways:- (a) by duty of excise to be charged in the case of spirits or beer either on the quantity produced in or passed out of a distillery, brewery or warehouse licensed or established under S. 12 or S. 14 (b) as the case may be or in accordance with such scale of equivalents, calculated on the quantity of materials used or by the degree of attenuation of the wash or wort, as the case may be as the Government may prescribe; (b) In the case of intoxicating drugs, by a duty to be rateably charged on the quantity produced or manufactured or sold....
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....s proceed. The system has been in vogue as long as Abkari Laws have existed in India and the Acts passed are uniformly the same. For the excise contractor it is in a sense speculative venture. In addition to this there is leviable a tree tax for the right to tap toddy from trees and tree rent is also payable to the owner of toddy trees. 38. The Health Cess is not a new levy. It existed as far back as 1951 and was at first at the rate of one anna per rupee. The health tax is made payable with the monthly kist above-mentioned, the tree tax and other duties of excise. The appellants do not object to the payment of the health cess levied on the tree tax but raise objections to health cess. It may be mentioned here that every excise contractor who obtains this privilege by auction is assigned tree groves earmarked its being levied on the amount of the kist for the shop and is entitled to tap or draw toddy and if he obtains an arrack shop, also to manufacture arrack. In fact, he sells at the shops his own produce or manufacture and pays a tax on the tapping of trees, the amount bid by him for the privilege of .selling and in addition pays the health cess on both these sums at nine pai....
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....vy has been upheld in Chhotabhai Jethabhai Patel and Co. v. Union of India, (1962) Supp (2) SCR 1: (AIR 1962 SC 1006). It must be remembered that Parliament when it imposts taxes has many ancillary powers, and can interfere with vested rights by validating past unlawful collections and by making retrospective laws. 41. This brings me to the main question whether the amount for which the exclusive privilege of selling liquor is sold by action can be said to be a duty of excise. In this connection I must bring to the fore and emphasise certain matters which must not he lost sight of. The persons who bid at these auctions are themselves the producers and manufacturers. They bid for the exclusive privilege of selling which in so far as Government is concerned, is a means of collecting the anticipated excise duty at one go from a producer or manufacturer before the goods become a part of the general stock of goods in the country In other words, the person who is charged is the producer and manufacturer and the duty is levied from him before he can sell or obtains liquor which has not borne excise duty so far. The short question is: Is this a duty of excise? My emphatic answer is that....
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....ure or vend spirit or liquor is disposed of by tender or sale. In view of the existing practice which had grown hoary by then, the Devolution Rules while including Excise in the Provincial Subjects (Rule 3, Cch I, Part II) framed entry No. 16 as follows:- "16. Excise, that is to say, the control of production, manufacture, possession, transport, purchase and sale of alcoholic liquor and intoxicating drugs, and the levying of excise duties and licence fees on or in relation to such articles, but excluding, in the case of opium, control of cultivation, manufacture and sale for export." 44. It will be noticed that this entry follows closely the provisions of the Abkari Acts which are in their turn copied by S. 17 of the Mysore Act. These statutes, as I have said already, existed for several decades. Excise duty was thus considered leviable by the auction system and special constitutional recognition was given by the Government of India Act and the Devolution Rules. The Government of India Act, 1935 did not repeal the Devolution Rule entry in one place. It put the entire subject of intoxicating liquors within the legislative competence of the Provinces by Entry 31 in List I....
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.... 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. Here again, their Lordships find themselves in complete accord with the reasoning and conclusions of the Federal Court in the Boddu Paidanna case, 1942 FCR 90: (AIR 1942 FC 33). The two taxes, the one levied on a manufacturer in rent of his goods, the other on a vendor in respect of his sales, may, as is there pointed out, in one sense overlap. But in law there is no overlapping. The taxes 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 excisable 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. That this is so is clearly exemplified in those excepted cases in which the Provincial, not the Federal, legislature has power to impose a duty of excise. In such cases there a....
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....following observations are found:- "With great respect, we accept the principles laid down by the said three decisions in the matter of levy of an excise duty and the machinery for collection thereof. Excise duty is primarily a duty on the production or manufacture of goods produced or manufactured within the country. It is an indirect duty which the manufacturer or producer passes on to the ultimate consumer, that is, its ultimate incidence will always be on the consumer. Therefore, subject always to the legislative competentence of the taxing authority, the said tax can be levied at a convenient stage so long as the character of the impost, that is, it is a duty on the manufacture or production, is not lost. The method of collection does not affect the essence of the duty. but only, relates to the machinery of collection for administrative convenience. Whether in a particular case the tax ceases to be in essence an excise duty, and the rational connection between the duty and the person on whom it is imposed ceased to exist, is to be decided on a fair construction of the provisions of a particular Act." There is a slight difference between the Privy Council case and t....
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....ys no suggestion with regard to the time or place of their collection. Only the context in which the expression is used can tel1 us whether any reference to the time or manner of collection is to be implied. It is not denied that laws are to be found which impose duties of excise at stages subsequent to manufacture or production; but, as far as I am aware, in none of the cases in which any question with regard to such a law has arisen was it necessary to consider the existence of a competing legislative power. "Referring to the Australian case of Commonwealth Oil Refineries Ltd. v. South Australia, (1926) 38 CLR 408, the Chief Justice observed: "But a closer examination of the judgements delivered shows that the majority of the Judges took the view that the duty on the first sale of the commodity was in fact a tax on the producer and for that reason a duty of excise without doubt." He thus approved of these cases, as he says, by relating the duty back to the stage of production, even though the person made liable for payment was not (and indeed could seldom have been) the original producer himself (p. 52). 50. All these observations have my respectful concurrence ....
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....nt fixes the upset price for such auctions based on statistics of sales and consumptions available to it and is quite satisfied when the highest bid is satisfactory. To say that such a collection of excise duty renders the levy into a rent for a shop is to miss the reality. 52. Nor do I see any difficulty in the matter of countervailing duties. The rate of duties is fixed and the duty may be collected at that rate on liquor produced else where in India without infringing the Constitution. In all such matters a broad view of the matter has to be taken. Machinery sections do not enter into the rate but only the charging section does. If the privilege to sell liquor produced in the State and that produced elsewhere in India are both auctioned on the condition that the duty on both kinds of liquor is the same, the requirements of the constitutional provision as to countervailing duties would be amply satisfied. It would be making a fetish of equal rates if one wanted absolute equality not only in rates but in everything. Further imposition of countervailing duties is not compulsory. The legislature need not impose them if it cannot make them equal. 53. The view I have taken is fo....
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....eld by the Federal Court and the Privy Council is that it is a duty on the goods manufactured or produced in the taxing country. Further as generally the duty is on the goods produced or manufactured it is paid by the producer or manufacturer, though as in the case of all indirect taxes it is passed on eventually to the consumer in the shape of being included in the price and is thus really borne by the consumer. Further the cases on which reliance has been placed on behalf of the State also to show that laws are to be found which impose duty of excise at stages subsequent to manufacture or production. As a matter of fact, even in British India before 1935 there used to be public auctions of the right to possess and sell excisable goods like country liquor, ganja and bhang and the amount realised was excise revenue. * * * It seems under the circumstances that the auction system which was in force was only a method of realising duty through the grant of licences to those who made the highest bid at the auctions." 55. It is argued that the words used here are "excise revenue" and not "excise duty". It is hardly a question of semantics. The distinction sought to be made is without ....
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.... struck down by the High Court. There is no appeal by the State, and this part of the order of the High Court has become final. 60. The Mysore Excise Act, 1901 (Mysore Act No. 5 of 1901) is in force in the old Mysore area of the Mysore State. Section 16 empowers the State Government to grant exclusive or other privilege of selling retail any country liquor or intoxicating drugs to any person or persons on such conditions and for such period as it thinks fit. The privilege of sale in a specified shop is disposed of periodically as a result of a public auction held by the excise authorities. The amount paid for the grant of this privilege is called the shop rent. Sections 17 and 18 show that this payment is the levy of a duty. It is common case that similar law and practice prevail in the old Hyderabad area of the State, where the Hyderabad Abkari Act (No. 1 of 13l6 Fasli) is in force. Both the Acts continue to be in force by virtue of Art. 372 of the Constitution. 61. As a result of public auctions held subject to the terms and conditions notified by the State Government, the appellants were granted the exclusive privileges of selling liquor in certain arrack shops, beer taver....
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....t, the duty of excise is a tax is in respect of the manufacture or production of goods. There can be no controversy that a tax levied on a manufacturer or producer with reference to the quantity or value of the article produced at the moment of its production is a duty of excise. But the levy may be made in other ways, and it may then become necessary to ascertain the real character of the tax. In determining whether the tax is a duty of excise, several tests may be suggested. Is the tax levied on the manufacturer or producer ? Is it levied with reference to the value, quantity, weight or volume of the goods ? Does it affect the goods as subjects of manufacture or production ? Is it a levy at the stage of or in connection with the manufacture or production ? None of these tests is conclusive or decisive. A duty of excise may be collected at such time in such manner and on such person as may be convenient or beneficial to, the revenue, e.g., by a levy on the producer with reference to the quantity or value of the article produced, when it leaves the factory, see 1945 FCR 179 at p. 193: (AIR 1945 PC 98 at p. 101), by a levy on the producer of toddy with reference to the toddy produci....
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.... sum payments for the privilege of selling alcohol under the aforesaid Act were clearly not excise duties or anything like them. 69. My conclusion may be stated briefly. A charge for a license to sell an excisable article may be a fee or a tax. If it is a tax. it can satisfy the test of a duty of excise, when it is so connected with the manufacture or production of the article as to be, in effect, a tax on the manufacture or production. Otherwise, such a tax does not fall within the classification of a duty of excise. 70. The arrack license gives the privilege of sale of arrack distilled in a Government distillery. The licensee is not a producer of arrack. He obtains the arrack on payment of the price and the prescribed duty per litre. He has no connection with the production of the liquor. Likewise, the beer license gives the privilege of sale of country beer or porter in beer taverns. The beer is brewed elsewhere. There is a prescribed duty per bulk litre of beer. The charge paid for the license to sell either arrack or beer has no connection with the production of the liquor. The toddy license gives the privilege of sale of toddy. The licensee is not necessarily a producer....