TaxTMI 
TaxTMI 
TaxTMI 
1938 (12) TMI 15
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.... as representing the general provincial interest. The Court is much indebted to all the counsel engaged for the assistance which they have afforded it. 3. Notwithstanding the very wide terms in which the Special Reference is framed, the question to be determined lies essentially in a small compass. It has arisen in the following way. Section 3 (1), Provincial Act, to which it will be convenient to refer hereafter as the impugned Act, is in these terms: There shall be levied and collected from every retail dealer a tax on the retail sales of motor spirit and lubricants at the rate of five per cent on the value of such sales. Retail dealer" is defined by Section 2 as any person who, on commission or otherwise, sells or keeps for sale motor spirit or lubricant for the purpose of consumption by the person by whom or on whose behalf it is or may be purchased, and "retail sale" is given a corresponding meaning. 4. Both motor spirit and lubricants are manufactured or produced (though not to any great extent) in India Motor spirit is subject to an excise duty imposed by the Motor Spirit (Duties) Act, 1917, an Act of the Central Legislature; no excise duty at present ha....
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....e of the Provincial Legislature, it is nevertheless invalid, because the effect of the non obstante clause in Section 100(1), and a fortiori of that clause read with the opening words of Section 100(3), is to make the federal power prevail if federal and provincial legislatie powers overlap. The Provincial Government, on the other hand, deny that the two entries overlap and say that they are mutually exclusive. The Government of India raise a further point under Section 297, Constitution Act, but it will be more convenient to deal with this separately and at a later stage.I should add that it is common ground between the parties that if Section 3(1) of the impugned Act is held to be invalid, the rest of the Act must be invalid also, since it only provides the machinery for giving practical effect to the charging Section. 8. This is the first case of importance that has come before the Federal Court; and it is desirable, more particularly in view of some of the arguments addressed to us during the hearing, to refer briefly to certain principles which the Court will take for its guidance. It will adhere to canons of interpretation and construction which are now well known and establ....
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....ution, and have been the subject matter of a long series of cases in Canada, Australia and the United States, as well as of numerous decisions on appeal by the Judicial Committee Many of these cases were cited in the course of the argument. The decisions of Canadian and Australian Courts are not binding upon us, and still less those of the United States, but, where they are relevant, they will always be listened to in this Court with attention and respect, as the judgments of eminent men accustomed to expound and illumine the principles of jurisprudence similar to our own and if this Court is so fortunate as to find itself in agreement with them, it will deem its own opinion to be strengthened and confirmed. But there are few subjects on which the decisions of other Courts require to be treated with greater caution than that of federal and provincial powers, for in the last analysis the decision must depend upon the words of the Constitution which the Court is interpreting and since no two Constitutions are in identical terms, it is extremely unsafe to assume that a decision on one of them can be applied without qualification to another. This may be so even where the words or expr....
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....fore them the limits of their respective powers. It could not have been the intention that a conflict should exist and in order to prevent such a result, the two Sections must be read together and the language of one interpreted, and, where necessary, modified by that of the other. In this way it may, in most cases, be found possible to arrive at a reasonable and practical construction of the language of the Sections, so as to reconcile the respective powers they contain, and to give effect to all of them. In performing this difficult duty it will be a wise course for those on whom it is thrown, to decide each case which arises as best they can, without entering more largely upon an interpretation of the statute than is necessary for a decision of the particular question in hand. 15. The question before the Court admits of three possible solutions: (1) that the provincial entry covers the tax now challenged and that the federal entry does not; (2) that the federal entry covers it, but that the provincial entry does not; and (3) that the tax falls within both entries, so that there is a real overlapping of jurisdiction between the two. In the first case, the validity of the tax cou....
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....roduced or manufactured in the taxing country and intended for home consumption. I am satisfied that that is also its primary and fundamental meaning in India; and no one has suggested that it has any other meaning in Entry (45). 18. 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 stage from production to consumption; and that therefore the federal legislative power extended to imposing excise 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. Authorities were cited to us, from Blackstone onwards, to prove that excise duties may be imposed at any stage; and if this means no more than that, instances are to be found where they have been so imposed, authority seems scarcely needed. It would perhaps not be easy without considerable research to ascertain how far Blackstone was justified at the time he wrote in saying that excise duties were an inland imposition, paid sometimes on the consumption of the commodity, and frequently on the retail sale. Blackstone's statement however is repeated, almost....
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.... in general terms, standing by itself, would no doubt be construed in the wider sense but it may be qualified by other express provisions in the same enactment, by the implications of the context, and even by considerations arising out of what appears to be the general scheme of the Act. 21. The question must next be asked whether such a tax as is imposed by the impugned Act, though described as a tax on the sale of goods, could in any circumstances be held to be a duty of excise; for it is common ground that the Courts are entitled to look at the real substance of the Act imposing it, at what it does and not merely at what it says, in order to ascertain the true nature of the tax Since writers on political economy are agreed that taxes on the sale of commodities are simply taxes on the commodities themselves, it is possible to regard a tax on the retail sale of motor spirit and lubricants as a tax on those commodities, and I will assume for the moment in favour of the Government of India that it is on that ground capable of being regarded as a duty of excise. 22. It appears then that the language in which the particular legislative powers which the Court is now considering have ....
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.... which is now under consideration and an endeavour must be made to solve it, as the Judicial Committee have said, by having recourse to the context and scheme of the Act, and a reconciliation attempted between two apparently conflicting jurisdictions by reading the two entries together and by interpreting, and, where necessary, modifying, the language of the one by that of the other. If indeed such a reconciliation should prove impossible, then, and only then, will the non obstante clause operate and the federal power prevail: for the clause ought to be regarded as a last resource, a witness to the imperfections of human expression and the fallibility of legal draftsmanship. 24. It has been shown that if each legislative power is given its widest meaning, there is a common territory shared between them and an overlapping of jurisdictions is the inevitable result and this can only be avoided if it is reasonably possible to adopt such an interpretation as would assign what would otherwise be common territory to one or the other. To do this it is necessary to construe this legislative power defined or described by one entry or the other in a more restricted sense than, as already poi....
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....ude both goods and services, while others include only goods. The German turnover tax is an example of a tax which includes nearly every type of transaction in the line of goods and services. Comstock, ibid., page 113. And again: The tax (i.e. the sales or turnover tax) may be general, as in France or Germany, or retail transactions may be excluded,as in Belgium. It maybe, as is common in the States of the American Union, confined to retail transactions. It may be imposed, as in Canada and Australia, as a producers' or manufacturers' tax, and it may be on classified industries or trades only. It may be levied on nearly all goods and services, as in Germany. It may exempt certain sales, as in France, where the sales of farmers are exempted unless carrying on manufacture as well as agriculture. Findlay Shirras, ibid., page 610. 26. Thus the expression "sales tax" may comprehend a good deal more than would be understood by" tax on the sale of goods" in the ordinary and natural meaning of those words and the expression "turnover tax" seems to be in some directions wider and in others narrower." Tax on the sale of goods "at any rate se....
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....tution Act to the Federal Legislature is to be construed as a power to impose duties of excise upon the manufacturer or producer of the excisable articles, or at least at the stage of, or in connexion with, manufacture or production, and that it extends no further. I think that this is an interpretation reasonable in itself, more consonant than any other with the context and general scheme of the Act, and supported by other considerations to which I shall refer. 28. I have said that it seems to me impossible, without straining the language of the Act, to construe a power to impose taxes on the sale of goods as a power to impose only turnover taxes. To construe the power to impose duties of excise, as I think it ought to be construed, involves no straining of language at all. The expression "duties of excise," taken by itself, conveys no suggestion with regard to the time or place of their collection. Only the context in which, the expression is used can tell 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, so far ....
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....described) at the rate of 3d. for every gallon of motor spirit sold by any person who sold and delivered it within the State to persons within the State for the first time after its production or manufacture, but not including any purchaser who subsequently sold it. It was argued that this was in substance a duty of excise which under the Constitution only the Commonwealth had the right to impose, and that contention prevailed. It might at first sight appear that this decision supported the Government of India's case for, as already pointed out, the taxing power of the Australian States is unlimited, save in so far as the Constitution reserves the right of imposing certain specified taxes to the Commonwealth and indirectly limits the power of the States by giving the Commonwealth power to regulate inter State trade and commerce. But a closer examination of the judgments 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. The case is no authority at all for the proposition that a tax on retail sales must necessarily be a duty of excise.....
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....cessary that the literal meaning of the words defining the powers vested in the Dominion Parliament should sometimes be restricted,"in order to afford scope for powers which are given exclusively to the Provincial Legislatures;" and they summed up the matter thus: The question they [the Committee] have to answer is whether the one body or the other has power to make a given law. If they find that on ' the due construction of the Act the legislative power falls within Section 92, it would be quite wrong of them to deny its existence because by some possibility it may be abused, or may limit the range which would otherwise be open to the Dominion Parliament. 32. This is not to ignore the non obstante clause, still less to bring into existence, as it were, a non obstante clause in favour of the Provinces; for if the two legislative powers are read together in the manner suggested above, there will be a separation into two mutually exclusive spheres, and there will be no overlapping between them. Thus, the Central Legislature will have the power to impose duties on excisable articles before they become part of the general stock of the Province, that is to say at the st....
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....erred expressly as in Entry (48). No doubt there will be borderline cases, in which it may be difficult to say on which side a particular tax or duty falls; but that is one of the inevitable consequences of a division of legislative powers. If however the facts in (1901) 184 U S 6089 had been such as to make the decision turn upon the distinction between the two kinds of tax mentioned above, it seems probable that the special duty there imposed would still have been held to be a duty of excise, because it was an attempt, as it were, to relate 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. In the present case it could not be suggested that the tax on retail sales has any connexion with production; it is also imposed indifferently on all motor spirit and lubricants, whether produced or manufactured in India or not. I do not say that this is conclusive, but it is to be taken into consideration. And I think that the distinction drawn by the learned Judge corresponds in substance with the distinction which it seems to me ought to be drawn in the case of the federal and pr....
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.... mind and unless the context otherwise clearly requires, not to have conferred a legislative power intended to be interpreted in a sense not understood by those to whom the Act was to apply. There were several central excise duties in force in India at the date of the passing of the Constitution Act, imposed respectively upon motor spirit, kerosene, silver, sugar, matches, mechanical lighters, and iron and steel. In all the Acts Motor Spirit (Duties) Act (No. II of 1917), extended to kerosene by Indian Finance Act (No. XII of 1922); Silver Excise Duty Act ' (No. XVIII of 1930); Sugar (Excise Duty) Act (No. XIV of 1934); Matches (Excise Duty) Act (No. XVI of 1934); Mechanical Lighters (Excise Duty) Act (No. XXIII of 1934), Iron & Steel Duties Act (No. XXXI of 1934)by which these duties were imposed it is provided (and substantially by the same words) that the duty is to be paid by the manufacturer or producer,and on the issue of the excisable article from the place of manufacture or production.The Acts which imposed the cotton excise, now repealed, were in the same form Cotton Duties Act (No. XVII of 1894); Cotton Duties Act (No. II of 1896). 37. The only provincial excise duty....
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....rticular indirect tax (as salt excise or opium excise), the only kind of excise duties which were known in India by that name were duties collected from manufacturers or producers, and usually payable on the issue of the excisable articles from the place of manufacture or production. This also may not be conclusive in itself, but it seems a not unreasonable inference that Parliament intended the expression "duties of excise" in the Constitution Act to be understood in the sense in which up to that time it had always in fact been used in India, where indeed excise duties of any other kind were unknown. Nor indeed are excise duties properly so called often to be found at the present day which are not collected at the stage of production or manufacture, whatever may have been the case in Black stone's time, and whatever may have been the reasons for Johnson's definition of "Excise" in the first edition of his Dictionary (1755) as a hateful tax levied on commodities and adjudged not by the common Judges of property but wretches hired by those to whom the excise is paid. 40. Patton v. Brady (1901) 184 U S 608. was obviously a very special case. The United Ki....
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....l adoption by Provinces of this method of taxation will tend to reduce the consumption of the taxed commodities and thus indirectly diminish the Central excise revenue. This however is a circumstance which this Court cannot allow to weigh with it if, as I believe, the interpretation of the Act is clear; though it might be an element to take into consideration if there were real ambiguity or doubt. But I do not think there is either ambiguity or doubt, if the two entries are read together and interpreted in the light of one another. The difficulty with which the Government of India may be faced is of a kind which must inevitably arise from time to time in the working of a Federal Constitution, where a number of taxing authorities compete for the privilege of taxing the same taxpayer. In the present case, the result may well, be that the Central Government will find itself unable to make such a distribution of the proceeds of excise duties under Section 140 of the Act as it might otherwise desire to do; but these are not matters for this Court, and they must be left for adjustment by the interest concerned in a spirit of reasonableness and commonsense, qualities which I do not doubt ....
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....n such an inevitable overlap the Provinces must give way. The meaning of the latter expression "taxes on the sale of goods" is perfectly plain; the ambiguity, if any, lies in the interpretation of the words "duties of excise" which have not been defined in the Act. 47. Economists' definition of 'excise' cannot be conclusive. But there are even some economists who think that an excise duty does not include sales to consumers. Find lay Shirras in his Science of Public Finance, Vol. II (Edn. 3), p. 652, has defined 'excise' as ordinarily meaning: A tax or duty on home produced goods, either in the process of their manufacture or before their sale to consumers, especially on spirits, beverages, gasoline, sugar, and tobacco. It includes also certain licences, commodities, and licences to conduct certain trades. It is usual to exclude from excise or excises sales or turnover taxes. 48. At p. 653 he has again remarked, "it is, in short, the general rule to exclude sales or turnover taxes from excises." In the Encyclopaedia of the Social Sciences by Seligman and Johnson, Vol. 5, page 669, 'excise' is defined as: A tax on commo....
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.... word ' excise" must therefore be examined first. 54. Stephen in his Commentary (Vol. II, Chap. 7) following Blackstone's old definition (Commentary, Vol. I, Chap. 8) has stated : Excise duties are those duties which are imposed by Parliament upon commodities produced and consumed in this country. They are directly opposite in their nature to the Customs duties, for they are an inland imposition,paid sometimes on the consumption of the commodities, frequently upon the retail sale. 55. This was apparently based on the fact that about the middle of the 17th century there were excise duties laid on the makers and vendors of ale, etc. It does not however appear that their Lordships of the Privy Council have in any Dominion case adopted Blackstone's definition of 'excise'. 56. In the Encyclopaedia Britannica, Vol.8, p.955 (Edn.14) it is pointed out that in modern times however the term generally connotes a tax on articles of home manufacture in contradistinction to customs duties which are levied on certain articles imported. 57. Thus the term has assumed a more restricted meaning since Stephen's adoption of Blackstone's definition. 58. In Halsbur....
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.... no wonder therefore that the term "excise" is freely used, in England in a very general and comprehensive sense, and for convenience includes even collection of revenue on goods manufactured, produced or sold in the country, that is to say on home products and home consumption, as well as certain licenses. 61. There are several reasons why the wider English meaning may be inapplicable to the Indian Constitution,(1) There are no historical reasons for applying excise duty to all inland impositions in contrast with customs only. (2) Unlike England, where there can be no conflict of legislative powers, the Indian Constitution is a federal one and the Federation need not necessarily as against the Provinces have power to impose duties up to the stage of consumption. (3) In the Indian Act, the Federal and the Provincial Legislative Lists are separate and have to be read together and reconciled as far as possible. (4) The power to impose taxes on the sale of goods has been assigned exclusively to the Provinces, and the excise duties assigned to the Federation may not presumably include it. (5) In the Indian Act, the word used is not merely "excise" but "duties ....
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....pril 1898. Patton claimed a refund of the duty levied and collected from him on his tobacco under the last provision. In argument it was practically conceded by one counsel that it was an excise tax, but they all "specifically insisted that the power of imposing an excise once exercised is gone." Brewer J. held (Harlan and Gray JJ. not taking part in the decision) that the tax was not a direct tax but an excise duty and also that an additional tax was not illegal. This conclusion was of course, obvious. The general tendency of the duty was to be passed on to the consumer, and it could not possibly be regarded as direct taxation. Further, the duty was on tobacco manufactured (or imported) and removed from factory (or customs house). It was intended to be one tax in relation to both manufacture and removal, and not two taxes in relation to manufacture and removal separately. It was in reality a tax on the manufacture and removal of tobacco, and was assessed at a subsequent stage, simply because it had not been paid previously at the time of the removal from the factory. The observations of the learned Judge however went a little further. He quoted with approval the definiti....
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....ecifically mentioned anywhere. The category of a tax not expressly mentioned in either list would ordinarily be determined according to its being direct or indirect taxation. Thus, generally Canadian decisions turn on the meaning and scope of the words "direct taxation" and are easily distinguishable. 67. Up to the Confederation, the distinction between direct and indirect taxation was solely of academic or scientific importance. Until the Act of 1867 was passed, the division of taxation into direct and indirect belonged solely to the province of political economy so far as taxation in Great Britain, Ireland or any of the Colonies was concerned, and there was no recognized definition of either class universally accepted. But it became from that moment essential for Courts for the purposes of that statute to ascertain and define the meaning of the phrase 'direct taxation" as used in such legislation: Per Lord Moulton in Cotton v. Rex (1914) A.C. 176 at p. 190. 68. According to the rule first laid down in Attorney-General for Quebec v. Walter Reed (1884) 10 A.C. 141 one had to look, following John Stuart Mill to the ultimate incidence of the taxation as compared....
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....inciple remains the same and could equally well have been illustrated by the cases of the executor or administrator or legatee by a particular title. 75. In City of Halifax v. Fairbanks Estate (1928) A.C. 117 where a Statute had imposed a business tax 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 owner being deemed to be the occupier where property was let to the Crown or any person exempt from taxation, Viscount Cave laid down, "taxes on property or income were everywhere treated as direct taxes" and that Mill's formula could not alter their classification. 76. In Attorney-General for British Columbia v.Canadian Pacific Ry. Co. (1927) A.C. 934 the Provincial Fuel Oil Tax Act, 1923, enacted that every person who purchases within the Province fuel oil sold for the first time after its manufacture in or importation into the Province should pay for Provincial purposes a tax equal to one half cent per gallon on the oil so purchased. "Purchaser" (who was to pay the tax) was defined as a person who within the Province purchases fuel oil when sold for the first time....
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....typical instances of indirect taxation (page 56). 79. The tax was held to be a direct tax on three main grounds: (1) The Act purports to exact the tax from a person who has consumed fuel-oil, the amount of tax being: computed broadly according to the amount consumed. (2) It does not relate to any commercial transaction in the commodity between the tax payer and some one else. (3) There is no justification for the suggestion that the tax is truly imposed in respect, of the transaction by which the tax payer acquired the property in the fuel-oil, nor in respect of any contract or arrangement under which the oil is consumed, though it is, of course, possible that individual taxpayers may recoup themselves by such a contract or arrangement. It was further held that except that the Act taxes persons in respect of a commercial commodity, which is not produced in its raw state within the Province, there is nothing in the Act to suggest that its purpose was the regulation of trade or commerce. His Lordship laid down at page 57: The ultimate incidence of the tax in the sense of the political economist is to be disregarded when the tax is imposed in respect of a transaction, the taxing au....
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....pecifically. 84. In Peterswald v. Bartley (1903-04) 1 C L R 497 the question arose as to a Liquor Act prohibiting the carrying on the business of a brewer without a proper license. In view of the words "the duties of excise paid on goods produced and manufactured in a State" used in Section 93, the High Court held that a license fee is not a tax on the goods themselves, and is not an indirect tax, as the amount in no way depends on the quantity of beer manufactured, and there is no expectation or intention that the person paying it should indemnify himself by passing it on. Rejecting the larger view, it was held that the basic principle of excise duties was that they were taxes on the production and manufacture of articles which could not be taxed through the Customs House (page 508), the fundamental conception of the term (excise) is that of a tax on articles produced or manufactured in a country; and that the conclusion is almost inevitable that whenever it is used, it is intended to mean a duty analogous to a customs duty imposed upon goods either in relation to quantity or value when produced or manufactured and not in the sense of a direct tax or personal tax ....
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....ned crude petrol oil in the State of Victoria and then consigned the refined oil to their agents in South Australia. 89. Various and not necessarily unanimous reasons were given by the several learned Judges in support of the view that the Act was beyond the power of the State. (1) The tax was called an Income Tax, which obviously it could not be as it was not a tax even on gross income, much less on net income but on the first sale of a quantity, irrespective of quality or value. (2) The tax on imported goods before they had become part of the general mass of property of the State, first sale taking place mostly while the spirit was still contained in the original tins and cases, would be in the nature of an impost levied on imports. (3) The tax on the first sales of the goods after production, refinement, manufacture or compounding was bound to be added on to the price and passed on to the vendee and ultimately to the consumer, and therefore was not a direct tax, but an excise duty. (4) Constitutional prohibition does not cease the moment the goods entered the State, and the tax on first sales though imposed after entry was as effectual in the way of hampering commerce between S....
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....r impost by remarking so regarded, it clearly infringed Section 92, though its operation and incidence only took effect at an interval after the border was passed. 92. It infringed Section 92 because it interfered with trade and commerce. The High Court unanimously held that it was neither a duty of customs, nor of excise nor a bounty within the meaning of Section 90. His Lordship did no say that Section 90 was infringed (pp.623-4). 93. There is thus no doubt whatsoever that in Australia a tax imposed on first sales being connected with either import or manufacture or production of goods is outside the competence of a State. But not a single Australian case has been cited where a tax on retail sale has been held to be an excise duty. 94. Fortunately in India it is not necessary to revive the fine niceties of distinction between direct and indirect taxation, as no such division exists in the Act. Indeed, there are several taxes like taxes on luxuries or trade which can be indirect; and some taxes like succession duties (and even excise) have in parts been assigned to both. The ultimate incidence of the tax is certainly not a crucial test under the Indian Constitution. There is no....
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.... from the fact that some heads overlap, as the groupings cannot be absolutely perfect. When overlapping is unavoidable, the provisions of Section 100 operate, as it provides that the Federal Legislature has power to make laws with respect to matters in List I "notwithstanding anything in the two next succeeding sub-sections" and has power to make laws with respect to matters in List III "notwithstanding anything in the next succeeding sub-sections". Whereas a Provincial Legisture also has power to make laws with regard to matters in List III "subject to the first sub-section" and has power to make laws with respect to matters in List II "subject to the two preceding sections". It follows that in the case of an inevitable conflict between the powers of the Federal and the Provincial Legislatures the former would prevail in respect of Lists I and III, Section 100 being the last refuge. 100. As two separate Lists exist, the Imperial Parliament should be presumed to have intended to keep the Federal and Provincial Lists mutually exclusive as far as possible. It should certainly be our earnest endeavour to avoid a conflict between two apparently ....
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.... no doubt that Parliament has chosen to use an expression which narrows the scope of Excise duties, and consequently limits the legislative power of the Centre. Entry No. 45 of List I refers to "duties of excise on tobacco and other goods manufactured or produced in India, etc." Unquestionably, no duty would be regarded as a duty of excise under Entry No. 45 unless it is on goods (at least other than tobacco) manufactured or produced in India. For purposes of such goods the wider English sense is necessarily excluded. And the word 'goods' has been used in the widest possible sense, for under Section 311 goods" includes all materials, commodities and articles. 105. It can hardly be disputed that if there were nothing else in the Act, tax on retail sale of motor spirits and lubricants would fall within the scope of the express words tax on the sale of goods" used in List II, Entry No. 48. The main question in the present case therefore is whether the tax on retail sales also comes within the category "duties of excise on goods manufactured or produced in India" so far at any rate as concerns goods manufactured or produced in this country. 106. ....
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....red or produced is distinct, separate and independent from a duty on their sale and, (except probably at the stage of the first sale) there seems to be no good reason why they may not co-exist without overlapping. 107. I doubt if it would be at all legitimate to examine the words previously used in the entries in the lists appended to the White Paper (which were professedly illustrative, not purporting to be either complete or final) or to those in the Joint Committee's Report (which were later carefully revised and largely recast), corresponding to the entries now under consideration, and then to speculate why the phraseologies were changed. If the removal of the words 'on the production and manufacture' in the old Entry No. 36 of List I would support one view, then the deletion of the word 'turn over' from the old Entry No. 10 of List II might strongly support the other. It would not, strictly speaking, have been correct to use the words duty of excise on manufacture or production of goods,' unless the duty were intended to be levied on the processes of manufacture or production, irrespective of the quantity manufactured or produced. Those words would als....
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....last sale. If a tax has to be imposed on sales, this would be the last occasion on which it can be done, if at all. Tax on retail sale will immediately affect the consumer, who becomes known at that stage. According to the rule laid down in Walter Reed's case,18 at that point of time, 'the ultimate incidence is certain'. The tax relates to commercial transactions in the commodities between the tax payer and the consumer. It is wholly unconnected with manufacture or production. There is every reason to take it as a tax truly imposed in respect of the transaction of sale. 112. The object of the taxation is not to impose any special burden on goods manufactured or produced in India. The principal object is to recover revenue on all sales irrespective of the origin of the goods. The amount assessed depends exclusively on the sale price and on nothing else. A tax on the sale of goods, whether originally imported or locally produced or manufactured in a Province, which have become mixed up with the general mass of property in that Province about to pass into the hands of the consumer has hardly any resemblance to an import duty or even an excise duty on manufacture or produc....
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....seller who would certainly add it on to the price and recover it from the consumer, on whom the burden will ultimately fall. At the time the tax is paid it is fully ascertained where the incidence would be, though the tax is demanded front a person who it is not intended should him self bear the burden. According to the test laid down in the series of cases decided by their Lordships of the Privy Council (subsequent to the case of Walter Reed)18 particularly the case of Cotton v. The King17 and' Burland v. The King20 there can be no doubt whatsoever that the retail tax in question is indirect. But that is not a conclusive test under the Indian Act. The fact that it is an indirect taxation does not exhaust the whole question, as it would not necessarily follow that the tax is an excise duty within the meaning of Entry No. 45. 115. A clear distinction exists between the first sale and the last sale, as the latter is not intimately connected with the manufacturer or the producer and cannot come within the scope of excise duty. In the Commonwealth Oil Refineries case,11 the observation of Isaacs J. at p. 426 already quoted supports the view that if the tax is unconnected with prod....
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....on of duty on sales may either be so closely connected with imports as to become a customs duty, or so closely connected with production or manufacture as to become an excise duty, although it purports to be merely a tax on first sales of such goods. It is the pith and substance of the Act and not its form which will be the decisive factor: Attorney-General for Ontario v. Reciprocal Insurers (1924) A.C. 328 at p. 337. A Province may therefore not have power to tax such first sales; but taxation of retail sales is not governed by such considerations. 119. It is true that in some cases the first sale in the Province may itself be a retail sale to the consumer, for instance a sale by a manufacturing retailer. This would not ordinarily be so where the goods are manufactured or produced outside the Province, except in the very special case where a consumer orders goods direct from an outside manufacturer or producer, and under the terms of the contract between them, the transaction of sale is completed within the Province. But an Act cannot be invalidated merely on account of its peculiar operation in special individual cases, and must be judged by its ordinary effect. 120. The Legisl....
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....s of home products. Such a conclusion would lead to an almost impossible position and would practically nullify the power expressly given to the Provinces to impose taxes on the sale of goods. It should be presumed that the Imperial Parliament did mean to give to the Provinces the power to tax sale of goods, as it has said, and not that the power was merely illusory. Unless at least retail sales come within the category "sale of goods", power to impose a tax on sales of home products under Entry No. 48 would be almost non existent. If retail sales tax on every possible kind of home commodities is wholly outside the legislative competence of the Provinces, then practically the only power which would remain under Entry No.48 would be to impose a tax on the sales of imported goods, which might in extreme cases conflict with Section 297 (1)(a). 122. The learned Advocate-General of India is forced to admit that if his contention prevails, then the only taxes that would not amount to excise duty and would be left over for the Provinces to impose under Entry No.48 would be certain licence fees and certain turnover taxes. 123. As regards licence fees, if we leave aside the wide....
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....ducers and importers only, sales of wholesalers and manufacturing retailers, sales of merchants, manufacturers, receipts of printers, publishers, contractors, public utilities, etc. 127. H.L. Lutz in his Public Finance (3rd Edn.), p. 632 has also pointed out that: The sales taxes now in effect are not easily classified. The most clearly defined type is the retail sales tax, which is levied upon the sale o£ tangible personal property at retail. The tax may apply to sales made by wholesalers and manufacturers as well as by retailers Or it may be still broader in scope and apply to the sales of services by public utilities and to admissions, in addition to sales of tangible property. 128. In the Encyclopaedia of the Social Sciences by Seligman and Johnson, Vol.13,page 516, it is stated: The sales tax is a levy imposed upon the sales of commodities or services. The tax may be levied upon sales: in general, as in Germany; in general, except at retail, as in Belgium; in general, with other special taxes, as in France; of classified enterprises, as in Washington; of producers, as in Canada; or of retailers, as in Kentucky. At page 517 it is also stated: Sales taxes may be i....
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....n the sale of goods is a special provision. In the Canadian cases Attorney-General for Ontario v. Attorney-General for Canada (1912) A.C. 571 Marriage Legislation (Ibid 880), and Great West Saddlery Co. v. The King (1921) 2 A.C. 91 at page 115 it was certainly said that what is particular may be regarded as an exception to what is general. But that can hardly apply to a constitution where overlapping is definitely met by an express provision. The competing entries in the Federal and the Provincial Legislative lists have to be read together to avoid an overlap. As far as possible, an undefined term should not be given such a wide scope as to include a particular provision. If there is no help, then only the power of the Federation overrides that of the Provinces. The tax in question comes within the special and specific provision "taxes on the sale of goods" and can only by defining and enlarging the meaning of the words "duties of excise on goods manufactured or produced in India," be brought within the scope of the latter. The special provision, even from this point of view, should be considered to be exclusive of the other. 132. Another principle which emerge....
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....n indication of the drift of the provision, and suggests that the Section applies to internal trade; but it may be said that internal trade may involve foreign goods as well. The first part of Sub-section (1)(b) refers to discrimination in favour of goods manufactured or produced in the Province as against goods not so manufactured or produced. Prima facie there is no such discrimination intended, as the tax is imposed on sales of motor spirit and lubricants in general; and also it so happens that none is produced within the Province in favour of which there could be any discrimination. Nor does it appear that intention is a necessary ingredient in this sub-section; it would be quite sufficient if the provisions result in discrimination. The power to tax is not taken away; only preference is prohibited. The second part also is probably inapplicable inasmuch as there is no discrimination at all between goods manufactured or produced in one locality and those in another locality. The word "locality" may mean a local area, i.e. some part of India, and may not refer to countries outside India, or it may possibly have a wider application. To hold that the taxation is wholly in....
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....),Act 14 of 1934 on Sugar, (v) Act 16 of 1934 on Matches (vi), Act 23 of 1934 on Mechanical Lighters and (vii) Act 31 of 1934 on Iron and Steel respectively; and in all these, duty is levied at the factory or manufacturing works and is payable by the manufacturer; and the same was true of the repealed Cotton Duties Act 17 of 1894.In none of these Acts has any duty been imposed on retail sales. For instance, under the Motor Spirit Duties Act, 1917, excise duty is levied and collected at every manufactory on all motor spirit produced in such manufactory, but not on retail sales of such, goods after they have by the first sale passed out of the factory. Provisions for rebate on exported goods would not establish that an excise duty must always be one imposed on consumption only. 140. Our attention has not been drawn to any Provincial enactment, which might have imposed any excise duty on the retail sale of motor spirits and lubricants, or for the matter of that on the retail sale of any other goods. In particular, the Central Provinces Excise Act 2 of 1915 did not do that. Under Section 17 a license is required for sales. Section 18 only provides that the Local Government may lease o....
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....type of duty, being in existence at the time that the Act was passed, must be regarded as a recognized type of excise duty, and hence should be specially included within the connotation of that term. In the absence of any such legislative practice, it cannot be seriously argued that a duty on retail sales was understood in 1935 to be an excise duty in India. At the same time the absence cannot conclusively prove the negative; otherwise in the absence of such practice neither the Central nor the Provincial Legislatures would have power to tax sales. In E. R. Croft v. Sylvester Dunphy (1933) A.C. 156 there had been Hovering Acts which established the affirmation. In India the absence can only show that it was not in point of fact known that excise duty would include taxes on retail sales as well. The fact is that neither any Central nor Provincial Excise Act imposed a duty on retail sales, because apparently this postwar fiscal measure had not been introduced in India till 1935. The previous Legislative practice can certainly not help the Centre. 143. There is, of course, a remote danger that a Province may impose an almost prohibitive duty on the sale of articles, which are not pro....
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....ll be improperly used; if it is, the only remedy is an appeal to those by whom the Legislature is elected. 147. Again, in Brewers and Malters Association of Ontario v. Attorney-Gen. for Ontario (1897)A C 231 at p. 237 Lord Herschell observed: It was argued that the Provincial Legislature might impose a tax of such an amount and so graduated that it must necessarily fall upon the consumer or customer, and that they might thus seek to raise a revenue by indirect taxation in spite of the restriction of their powers to the imposition of direct taxation. Such a case is conceivable. But if the Legislature were thus, under the guise of direct taxation, to seek to impose indirect taxation, nothing that their Lordships have decided or said in the present case would fetter any tribunal that might have to deal with such a case if it should ever arise. 148. We must therefore consider the Act as it stands, unperturbed by the possibility of any drastic consequences following if authority is held to be vested in any particular Legislature. Much less should our conclusion be affected by any consideration of the financial loss suffered by the Centre or the Provinces if one or the other view wer....
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....must, as always, be the actual language used...The problems of the constitution can only be solved as they emerge by giving effect to the language used: James v. Commonwealth of Australia (1936) A.C. 578 at p. 614-5. 154. And the third is that we have to look to "the pith and substance" of the Act in order to ascertain its "true nature and character" : If on the true view of the legislation it is found that in reality in pith and substance the legislation invades civil rights within the Province...the legislation will be invalid: Attorney-General for Canada v. Attorney-General for Ontario (1937) A I R P C 89 at p.367. 155. Without in any way attempting to give an exhaustive definition of 'duties of excise,' but giving to the words "taxes on the sale of goods" as used in the Provincial Legislative List, entry No.48, their ordinary and natural meaning, and comparing them with the words "duties of excise on goods manufactured or produced in India" as used in the Federal List, entry No.45, my conclusion is that the tax on the retail sales to the consumers is in pith and substance not an excise duty, and that therefore the Central Prov....
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...., for the purpose of determining what it is that the Legislature is really doing: Attorney-General for Ontario v. Reciprocal Insurers (1924) A.C. 328 at p. 337. (4) Even where there has been an endea vour to give pre eminence to the Central Legislature in cases of a conflict of powers, it is obvious that, in some cases where this apparent conflict exists, the Legislature could not have intended that powers exclu sively assigned to the Provincial Legisla ture should be absorbed in those given to the Central Legislature. It is the duty of the courts, however difficult it may be, to ascertain in what degree, and to what extent, authority to deal with matters falling within these classes of subjects (mentioned in the Central and Provincial Lists) exists in each Legislature and to define, in the particular case before them, the limits of their respective powers. It could not have been the intention that a conflict should exist; and, in order to prevent such a result, the two Sections must be read together, and the language of one interpreted, and, where necessary, modified by that of the other. In this way, it may, in most cases, be found possible to arrive at a reasonable and pract....
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....8 (hereinafter briefly called the Central Provinces Act) fall? Does it fall under Item 45 (List I) as a "duty of excise ?" Does it, on the other hand, fall under Item 48 (List II) as a tax on the sale of goods ? Does the Act or any and what portion of it fall under both items? If so, to what extent is there an overlap and to whom does it go the Centre or the Provinces? These are the main questions before us. A subsidiary question was argued: that in the event of the tax levied by Section 3 of the Central Provinces Act being invalid with reference to motor spirit and lubricants manufactured or produced in India, is it not invalid also with reference to the same commodities manufactured out of India, under the provisions against discrimination in Section 297 (1)(b), Government of India Act, 1935? The last question I propose to leave out of consideration for the present. 163. The material provision of the Central Provinces Act is Section 3 which enacts that: There shall bo levied and collected from every retail dealer a tax on the retail sales of motor spirit and lubricants at the rate of five per cent, on the value of such sales. 164. "Lubricant" is defined in....
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.... of the question before us is first to ascertain the meaning of the expression "duties of excise" in that item, taken by itself and apart from Item 48 in List II, and then to ascertain how far it is necessary to cut down or modify this meaning in order to reconcile that item with Item 48 (List II), if there appears to be a conflict between the two. For, it is clear that, according to the rule of interpretation No.(4), which I have stated in the beginning of this opinion, it is the duty of this Court to make every endeavour to reconcile the two items and to avoid a conflict between them as far as possible; to give a meaning to both of them and to construe them in such a way as to avoid making the one or other of them unmeaning, superffuous or nugatory. As both sides have addressed us a detailed argument on this question, I shall discuss it in some detail. 166. The contention of the Government of India is that the expression "duties of excise" in Item 45 (List I) means an indirect tax on the consumption of indigenous goods, levied and collected at any stage between their production and manufacture on the one hand and the time when they reach the consumer on the o....
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....e taxes levied on goods manufactured or produced in the Province at any stage inclusive of their sale to the consumer or were those words confined only to taxes levied on and at the time of their manufacture or production, or up to their first sale, as is argued on behalf of the Provinces? 169. Some light is thrown on this matter by Item 16 occurring in the List of Provincial subjects given in Schedule 1 of the Devolution Eules made under Section 45-A of the previous Government of India Act, 1919. That item reads 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 license fees on or in relation to such articles, etc. (The italics are mine.) 170. It appears from this that, taking this item as the background of the Government of India Act, 1935, as we are entitled to do, it could be urged with fairness that, the word "excise" meant and included, in the said Item 16, the "control" of the excisable commodity (alcoholic liquor, etc.) from the stage of production and manufacture up to sale. The first part of this cl....
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....A tax is very often an effective means of "controlling" production, manufacture, possession, transport, purchase and sale of an excisable commodity. 172. It is not difficult to imagine a case which may sometimes arise; e. g, "prohibition" of intoxicating liquors, which some Provincial Governments have now introduced in India, may exist in one locality and may not exist in another and contiguous locality. This may, in certain cases, necessitate the control" of "transport" etc. of the goods from one locality to the other, and, in that event, an effective way of exercising such control" may be the levying of an excise duty upon entry into or consumption of the excised article in the prohibited area. 173. I therefore see no justification for inter, preting the two items (Items 31 and 40 ia "List II) in such a way as to give a different range of powers to the two departments of a Provincial Government, both dealing with the same commodity, one through the medium of administrative control and the other by taxation. 174. I see no escape from the conclusion that the term "excise duties" in the latter half of Item 16 of the Devolutio....
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....s the duty; whence it follows that the duty itself is something deducted or subtracted from the actual price paid. The price in fact is divided into two parts, one part being subtracted from the whole for the benefit of the State and the remainder going to the vendor. 179. This is the sense in which the word excise" has been understood for many years in England and the question arises 'whether there is any reason why this meaning should, in the Government of India Act, 1935, be so cut down as to exclude duties charged and levied at some stage subsequent to their manufacture and production, e.g. at or in connexion with a sale to a consumer. It was argued that the definitions of textbook writers on political economy, however eminent, prove hardly a valuable guide in legal matters, but an answer to this contention is provided by several rulings of the Privy Council, who in a series of decisions going back to 1878, have accepted Mill's definition of a "direct taxation" and "indirect taxation." See these cases referred to in Attorney-General for British Columbia v. Kingcome Navigation Co. Ltd. (1934) A.C. 45 at pp.51 to 53. Their Lordships' view app....
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....xplained by the Privy Council as no doubt due to the fact that the effect of such duties is not confined to the place where, and the persons upon whom, they are levied;Attorney-General for British Columbia v. McDonald Murphy lumber Co. Ltd. (1930) 17 A I R P C 173. at page 364. 182. It is further to be noted that in neither of the Items (45 in List I and 40 in List II) occur the words "in respect of" manufacture or production, though the Legislature has used this expression in some items, for instance in Item 56 of List I and in Item 43 of List II. If the intention of the Legislature was to place the incidence of the duty of excise "on the manufacture or production" we would have expected the said expressions to occur in the Section or some equivalent words indicating clearly that the incidence was either 'on" or in respect of" production or manufacture. On the contrary, the words are duties on" the "goods" indicating thereby that the duty arose in connexion with the goods and followed them through the several stages of their progress to the consumer and was not limited to the stage of their manufacture or production. An instance of....
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.... duty at the stage of production, manufacture, transport or sale. I do not see any reason for limiting the taxing power of the State to any of these earlier stages. If it is a tax on consumption, there is no reason why it should not be levied and collected at any of the stages between manufacture or production on the one hand and sale to the consumer on the other, which the State may find convenient, according to circumstances. 185. I may here invite attention to an important American ruling, Potton v. Brady (1901) 183-186 U.S. Supreme Court, Reports. Although American rulings may not be binding on this Court, I see no reason for not accepting, with respectful caution, any help they can give in the elucidation of questions which arise before this Court. This case is important, because it arose under a Constitution in which there was no entry like Item 48 (List II) and consequently the term "excise tax" received its proper interpretation without the necessity of cutting it down in order to reconcile it with an item like 48 (List II). The plaintiff had purchased, in open market, a quantity of tobacco in May 1898; all requisites for completing the purchase which were requir....
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....d proportional contribution of persons and property levied by the authority of the State for the support of the Government and for all public needs.' And so long as there exist public needs, just so long exists the liability of the individual to contribute thereto. The obligation of the individual to the State is continuous and proportioned to the extent of the public wants. No human wisdom can always foresee what may be 'the exigencies of the future, or determine in advance exactly what the Government must have, in order to provide for the common defence and promote the general welfare. Emergencies may arise; wars may come unexpectedly; large demands upon the public may spring into being with little forewarning; and can it be that, having made provision for times of peace and quiet, the Government is powerless to make a further call upon its citizens for the contributions necessary for unexpected exigencies? 188. It was urged before us that in interpreting the words "duties of excise" in the Government of India Act, 1935, regard should be had to the legislative practices of the Central and Provincial Governments which prevailed previously and up to the passing o....
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....e or production or at a subsequent stage previous to actual sale to the consumer. For instance, in the Bombay Abkari Act 5 of 1878, Section 19-A (a), the duty was levied and collected on "issue for sale;" in the Bengal Act, Section 27, on goods imported, exported, transported, etc., and so on. 190. Coming to Central Acts, the following i instances were quoted to us: The Cotton Duties Act of 2 1896. The Motor Spirit (Duties) Act 2 of 1917. The Sugar (Excise Duty) Act 14 of 1934. The Iron and Steel Duties Act 31 of 1934. 191. It was argued on behalf of the Central Provinces Government and of the Provinces generally that in none of these Acts the Central Legislature levied an excise at the stage of sale" of the respective excisable commodities. For instance, it is pointed out that in the case of the Cotton Duties Act, under Section 6, the cotton ' produced" in the mills is taxed. Under Section 3(1), Motor Spirit (Duties) Act, the duty is levied and collected 'at every manufactory on all motor spirit produced in such manufactory." In the Sugar (Excise Duty) Act, Section 3(1), the duty is levied on 'all sugar produced in any factory in Brit....
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....nd can be levied at any stage from manufacture to consumption according to the exigencies of the State and the nature and consumption of the article, I cannot see why the word excise", as Understood in this way, should receive a limited signification by reason of the mere circumstance that, at some previous stages and under a form of Government entirely different from the present one (when perhaps the resources of the Central Government were more numerous or more easily recoverable) the State thought it expedient in particular instances to levy and collect an excise duty at an early stage like manufacture, production or transport. I would require a stronger proof than the mere so called legislative practices to induce me to deprive the words "excise duties" of a signification which they had and still have in England and in important parts of the British Commonwealth of Nations. 194. It is argued that the expression "excise duties" is understood in England in the widest signification, but that the expression has received a restricted meaning elsewhere in the British Commonwealth. I am well aware of this circumstance, but find that the alleged restriction of....
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....ntly no necessity arose to reconcile the two items, the expression "duties of excise" occurring in Item 45 (List I) would include all duties of excise on goods manufactured or produced in India, whether levied or collected at the stage of manufacture or production or at any of the subsequent stages up to consumption, and that the Central Legislature had, under that item, taken along with Section 100(1), the exclusive power to make laws with respect to the levying of all such duties. 203. The next question is whether the wide meaning I have attached to the expression in Item 45 (List I) has in any and whafe way to be curtailed or modified, so as to reconcile that item with Item 48 in List II.: Item 48 is "taxes on the sale of goods". The wording is as clear and precise as ib can be. There is no doubt that the item was intended to be operative. The rule of interpretation No. (5), which I have stated! above, applies, that where the text is explicit, the text is conclusive in what it directs and what it forbids. The language of Item 48 (List II) has to be given effect to. Its plain and natural meaning would be a tax on the sale of goods, and the term "goods,&q....
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....oods was a prolific source of revenue. 205. On scanning Lists I and II with a view to discover what sources of revenue have been left respectively in the hands of the two Governments, Central and Provincial, it will be found that an attempt has been made, as far as possible, to clearly mark out the field of each, and to avoid the possibility of a conflict or overlap. If that is the general intention of the Legislature to be gathered from the tenor of the two Lists, it will be fair to interpret the two items in such a way as would avoid conflict and keep them out of the purview of each other. 206. On a careful review of the whole question, I am therefore inclined to hold that Parliament intended: (1) That, as regards goods centrally excisable, taxes on their sale within the Province for purposes of consumption, when such taxes are in no way connected with their production, manufacture, etc. within the Province, but are imposed on their sale in the Province merely as existing articles of trade and commerce, should be exclusively within the competence of the Provincial Legislature. (2) That, save as aforesaid, all duties of excise on those goods, whether levied and collected at ....
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....r to a case where goods excisable by the Centre were held to be exclusively taxable by the Province in cases where their sale took place in the Province merely as existing articles of trade and commerce and the sale was in no way connected with their production or manufacture within the Province: see 38 Commonwealth Oil Refineries Co. v. South Australia, 38 Commonwealth L R 408 at page 426. 208. This, I think, is an interpretation which is reasonable in itself and in keeping with the wording of the item and also of its context and the general scheme of the Act. In other words as I interpret the two items, Item 45 (List I) may be said to contain a general power to levy an excise duty at all stages. As an exception to this a portion of the power is cut out and allocated to the Provinces under Item 48 (List II). It operates as an exception to the general power conferred by Item 45. I will invite in this connexion attention to a ruling where a similar principle of reconciliation was adopted: In the matter of a Reference to he Supreme Court of Canada (1912) A.C. 880 at pages 885-887. In that case a conflict arose between two entries, one in the Dominion List entitled "marriage and....
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....cing on Item 48 (List II) is sufficiently practical to leave an adequate source of revenue in the hands of the Provinces without making inroads on Central reserves. I may add here that the several authors I have been able to consult on this point agree in their opinion that, since the War, a tax on the sale of goods has proved to be both productive and practicable in many countries, under circumstances not very different from those prevailing in the Provinces of India. The yield naturally varies with the scope and rates of the tax, business conditions and administrative efficiency, but it is stated that the tax itself has become a major source of revenue in a number of countries, yielding more than the Income Tax in a few instances and nearly as much as other sources of revenue in others. 212. For all these reasons I am of opinion thati the tax levied by Section 3, Central Provinces Act, falls within Item 48 of List II and consequently the provisions of that Act which affect the taxation of motor spirit and lubricants manufactured or produced in India are intra vires the Central Provinces and Berar Legislature. The remaining provisions of the Act being incidental to the charging S....