TaxTMI 
TaxTMI 
1966 (9) TMI 139
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.... 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 for the year July 1, 1963 to June 30, 1964. The petitioner....
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.... 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 State of Mysore has no authority to levy and collect 'health cess under the Mysore Health Cess Act 19....
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....ct. 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 countervailing duty, as the case may be, as is mentioned in Item 40 of List II in the Seventh Schedule to the Government of India Act, 1935." But the defini....
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....rivilege 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 (f) sold in any part of Mysore of such amount as the Government may, from time to time, prescribe." "l8. Such duty may be levied in one or more of the following ways :- (a) by duty of excise to be changed in the case of' spirits or beer either on the q....
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....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 private arrangements, between himself and the owners of such lands." Condition No. 2 further enables the Deputy Commissioner to refuse to grant license for tapping certain trees. Licensees are entitled to purchase toddy from any licensed toddy shopkeeper on application to the Inspector or Assistant Inspector who will grant the required permits on proof of the nece....
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....t 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 authority." Section 4 reads thus: "4. Recovery of health cess.-The health cess payable under S. 3 shall be levied, assessed and recovered along with the items of land revenue, State revenue or tax on which such cess is levied, and the provisions of the law and the rules, orders and notifications made or issued thereunder for the time being in force, shall apply to the levy, assessment and recovery of the ....
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....te 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 excise and does not fall within Entry 51 of List II, or Sch. A of the Act. We have already mentioned that he has conceded that the tree-tax is an excise duty and we need not consider the question of tree-tax at all. His argument in brief is as follows: The duty of excise is primarily a duty levied on manufacture or production of goods, the taxable event being the manufacture or production. He says that the taxable event in this case is not manufacture or producti....
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....irit 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 always to the legislative competence 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 th....
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....ry 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, 1930, contemplates a uniformity of incidence and reads thus: "64-A. In contracts of sale amount of increased or decreased duty to be added or deducted. In the event of any duty of customs or excise on any goods being imposed, increased, decreased or remitted after the making of any 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:- ....
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....s 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 the next two years. 23. In view of these characteristics, can it be said to be an excise duty? In our opinion the answer is in the negative. The taxable event is not the manufacture or production of goods but the acceptance of the license to sell. In other words, the levy is in respect of the business of carrying on the sale of toddy. There is no connection of any part of the levy with any manufacture or production of any goods. To accept the contention of the State would mean expanding the definition of "excise duty" to include a levy which has ....
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....a 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 of the gross amount (including any duties thereon) paid or payable for all liquors which during the 12 months ended on the last day of June preceding the date of application for the grant or renewal of the licence was purchased for the premises was valid as it did not impose any excise duty within S. 90 of the Australian Constitution. 26. It is now necessary to consider the decision of this Court in 1962 Supp (2) SCR 741 (AIR 1962 SC 922), Disting. This decision is of course binding on us, but, in our opinion, this case is distinguishable. The question before....
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....s 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 the impugned Act or Entry 51, List II of the Constitution. 31. In W. P. No. 1076 of 1964 and in some other petitions in the High Court the petitioners have challenged the validity of the Mysore Health Cess Act. 1951. This Act was not referred to in the course of arguments. Section .3 of the Health Cess Act. 19517 reads thus : "3.(1) There shall be levied and collected a health cess at the rate of six pies in the rupee on all items of land revenue and at such rate not exceeding one anna in the rupee as may be specified by Government by notification on all other item....
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....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. A are water rate and tax on cinematograph shows. In Sch. B are mentioned taxes on (a) land and buildings, (b) vehicles, (c) professions, trades, callings and employments, and (d) advertisements. We are concerned with Sch. A (1) quoted above. The cess collected on that item is said by the appellants for various reasons, to be an illegal impost. They challenged it by petitions under Articles 226/227 of the Constitution before the High Court of Mysore, but the High Court after striking out the Explanation upheld the cess and hence these appeals. 35. The appeals can be divided into two groups. Some are concerned with toddy....
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....) 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 by wholesale or issued from a warehouse licensed or established under .S 14: (c) by payment of a sum in consideration of the grant of any exclusive or other privilege (1) of manufacturing or supplying by wholesale, or (2) of selling by retail, or (3) of manufacturing or supplying by wholesale and selling by retai1 any country liquor or intoxicating drug in any local area and for any specified period of time; (d) by fees on licences for manufacture or sale (e) in the case of toddy, or spirits manufactured from toddy, by a tax on each tree from which toddy is drawn, to be paid in such instalments and for such period as the Government may di....
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....e 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 paise per rupee. Where he sells beer or such other liquor he obtains his supplies from breweries and distilleries at fixed prices which do not include excise duty. 39. Now the health cess is first assailed on the ground that there is no entry 'health cess' as such in the legislative entries. The word 'cess' is used in Ireland and is still in use in India although the word rate has replaced it in England. It means a tax and is generally used when the levy is for some special administrative expense which the name (health cess, education cess, road cess, etc.) indicates. When levied as au increment to an existing tax, the name matters not for the validity of the cess must be judged of in the same way ....
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....hich 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 it is, whether the matter is considered in the light of economic theory, legislative practice or judicial authority. I shall examine the question from these three angles. 42. Before I deal with the economic theory I must say that I am aware that the economists' definitions were not treated as conclusive by the Privy Council in Bank of Toronto v. Lambe, (1887)12 AC 575 at pp. 581, 582 and by Sulaiman, J. in1939 FRC 18 at p. 58:(AIR 1939 FC 1 at p. 14), although in the first case Lord Hobhouse commended reference to works on Economics and Lord Thankerton in Attorney General for British Columbia v. Kingcome Navigation Co., 1934 AC 45 at p. 91, actually used Mill's definition of direct and indirect taxes. In thi....
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....ysore 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 II. The power to levy excise duties was divided between, the Centre and the States. By Entry 45 of the Central List in the 7th Schedule duties of excise on tobacco and goods manufactured or produced in India, other than those mentioned in the Provincial List, were given to the Centre. The Provincial List by Entry 40 included excise duty on alcoholic liquors for human consumption manufactured or produced in the Province and countervailing duties at the same or lower rates on similar goods manufactured or produced elsewhere in India. The whole of the power to levy excise duty on alcoholic liquors for human consumption was passed on to the Provinces. The subject of excise duties was thus plenary in so far as alcoholic liquors were con....
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....ent 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 appears to he no reason why the Provincial legislature should not impose a duty of excise in respect of the commodity manufactured and then a tax on first or other sales of the same commodity. Whether or not such a course is followed appears to be merely a matter of. administrative convenience. So by parity of reasoning may the Federal legislature impose a duty of excise on the manufacture of excisable goods and the Provincial legislature impose tax on the sale of the same goods when manufactured.'' 46. The above passage clearly shows that where the power to levy sales tax as well as excise duty resides in the same legislature, the levy of excise duty may be made at some earlier stage but so long as the tax is levied in respect of ....
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.... 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 the case of this Court. In the former excise duty was said to be primarily a duty levied on a manufacturer or producer in respect of the commodity manufactured or produced while in the Supreme Court case it was said to be primarily a duty on the production or manufacture of goods produced or manufactured within the country. It is useless to enter into a discussion which of the two is the proper way to describe a duty of excise since the Supreme Court case is binding on me and the description there given has again been applied in 1964-3 SCR 787 at pp 804, 822 (AIR 1963 SC 1760 at pp. 1770, 1776), although without fresh discussion. 49. But even if the tax is treated as a duty on production. it is clear that the goods which were taxed were produced or manuf....
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....st 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 and in my judgment al they are true exposition of the width of the expression "duty of excise" when it is used in a context in which it has not to compete with the exercise of a rival power. Looked at in this way the tree tax and the composition amount obtained by the auction of the right to bring to sale home produced alcohol is a proper excise duty. It certainly is not shop rent even if the amount is payable by monthly instalments and is described loosely as rental, or Baithak or shop rent. 51. The objections to the views I have propounded here may be noted. It was argued that there is no close relation of the tax or levy to production or manufacture and it is related to the ability to sell, that the duty is not uniform because It has no relation to quantity or quality, that the collec....
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....quor 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 fortified by two cases of this Court which are precedents to follow in the decision of the case in hand. In Cooverjee B. Bharucha v. Excise Commissioner and the Chief Commr., Ajmer, 1954 SCR 873 at pp. 877-878: (AIR 1954 SC 220 at p. 222), in dealing with Excise Regulation I of 1915, the amounts raised by public auction and described as fees were held to be more in the nature of taxes than fees. Revenue was collected by the grant of contracts to carry on trade in liquors and these contracts were sold by auction. The grantee was given a license on payment of the auction price. If this was treated not as a fee but as a tax it could only be justified as an excise duty. The power to raise excise revenue was exercisable only through the imposition of excise duties and it is obvious that the levy was r....
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....se 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 a difference. Wanchoo, J. had discussed the nature of excise duty before proceeding to compare the auction money with duties of excise and he found that sale of the privilege to the highest bidder was a method of realising "duty" and he obviously meant excise duty. 56. These two cases are binding. I was a party to the second case and on reconsidering it in the light of arguments now advanced. I find that it furnishes a complete answer and is indistinguishable on the slender ground that the expression "excise revenue" or "duty" have been used and not the expression "excise duty". To hold otherwise is to depart from this and the earlier case and to overrule them. 57. I am, therefore, of the opinion that the so called shop-rent was only a means of collecting excise duty and the health cess which was an addit....
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....ri 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 taverns and toddy shops in consideration of their agreeing to pay specified shop rents and health cess thereon at the rate of nine naya paise in the rupee. 62. Counsel for the State submitted that shop rent is a duty of excise, the Mysore Cess Act, 1962 levied a surcharge on this duty and the State Legislature was competent to make this levy, having regard to Entry 51, List II of Seventh Schedule to the Constitution. 63. The subject of duties of excise and fees in connection therewith is divided between the Union and the States, see Entries 84 and 96, List I and Entries 5l and 66 List II. The power to make laws with respect to duties of excise carries with it the ancillary power to make licensing laws for preventing the evasion of the duty. See Chaturbhai M. Patel v. Union of India, 1960-2 SCR 362: (AIR 1960 SC 424). The subject of intoxicating liquor....
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.... 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 producing tree, or by a levy on the consignee of coal despatched from the colliery by means of a surcharge on freight. 1962 Supp (3) SCR 436: (AIR 1962 SC 1281). The Court examines the substance of the levy. If it is a tax in respect of the manufacture or production of goods, it is a duty of excise, howsoever it may have been collected or realised. 67. If the duty of excise is levied with reference to the quantity, volume, weight or value of the goods, each unit will bear the same amount of tax. But the incidence of the duty on the goods will not necessarily be uniform where the levy is by a rate on each toddy producing tree, see S. 18 (e) of the Mysore Excise Act, 1901, or on each acre of hemp producing land, see S. 26 (1) of the C. P. and Berar Excise Act, 1915. Every tree and every acre of land may not produce the same quantity, volume, weight or value of the e....
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.... 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 of toddy. If he produce, toddy, he pays tax at the prescribed rate on each tree from which toddy is drawn. As a producer of toddy he pays the tree tax. The charge for the toddy license has no connection with the production of today. The shop rent or the charge for the license to sell arrack, beer or toddy does not satisfy the test of a duty of excise. 71. As the shop rent is not a duty of excise the State legislature is not competent to make a law levying a surcharge on the shop rent under Entry 51, List II. The Mysore Health Cess Act, 1962, in so far as it purports to levy a surcharge on the shop rent cannot he sustained under Entry .51, List II. I express no opinion on the question whether this levy under the Mysore Health Cess Act, 1962 can be justified under some other Entry in List II. But as Counsel for the State did not seek to justify the levy under any ot....