TaxTMI 
TaxTMI 
1961 (12) TMI 1
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....dinarily used otherwise than for the manufacture of cigarettes" (which included tobacco intended for manufacture into biris) should be charged to an excise duty of 8 annas per lb. and it also imposed a new duty of excise on biris varying from 6 to 9 annas per lb. depending upon the weight of tobacco contained in the biris. 3.Section 3 of the Provisional Collection of Taxes Act, 1931 (Act XVI of 1931) enacted. "Where a bill introduced into the Indian Parliament provided for the imposition or increase of a duty of excise the Central Government might cause to be inserted in the bill a declaration that it was expedient in the public interest that any provision of the bill relating to such imposition or increase shall have immediate effect under this Act". A declaration under this section was made in respect of the provision for imposing the duties on tobacco under clause 7 of the bill already adverted to. The effect of such a declaration was stated in Section 4 of Act XVI of 1931 in the following terms :- "4. (1) A declared provision shall have the force of law immediately on the expiry of the day on which the Bill containing it is introduced. (2) A declared provision sh....
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....ained the machinery for enforcing the demand was not adequate to meet the situation arising out of the change in the law from the provisions of the bill to those of the Act. The learned Judges of the High Court repelled all the contention disputing the legislative competence and the constitutionality of the legislation contained in Section 7(2) of the Finance Act of 1951, but they upheld the objection to the adequacy of the procedure for recovery based on the limited scope of Rule 10 of the Excise Rules. Thereafter, the Central Government, by a notification dated December 8, 1951 amended the Central Excise Rules, 1944 by the addition of a new Rule 10A providing machinery specially designed for the enforcement of a demand like the one arising in the circumstances of the present case. On December 12, 1951 a further and a fresh demand was made for the payment of the duty in terms of Section 7(2)(b) of the Finance Act quoted earlier, and the appellants thereupon once again moved the High Court of Nagpur under Article 226 challenging the validity of the demand on the very same grounds as before. This petition was heard by a Full Bench of the Court and every contention raised by the appe....
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....ld property under Article 19(1)(f), the point urged being that a retrospective levy of an "excise duty" deprived the tax-payer of the right of passing it on and recovering it from his buyer, that this constituted a restraint on "the right to hold property" (the amount of the tax-levy) conferred by Article 19(1)(f) and was not saved clause 5 of that Article as being a reasonable restraint and should, therefore, be struck down under Article 18(2). (3) That the terms of Rule 10A of the Excise Rules, 1944 were insufficient to cover the cases of the appellants and that in consequence the demand made on them and the attempt to recover the sums by resort to the coercive process provided for by Section 11 of the Central Excise Act was illegal and without statutory authority. 8.We shall now proceed "to consider these points in that order. (1) Want of legislative competence : To appreciate the submissions of learned Counsel it is necessary to set out the steps in the reasoning by which he sought to establish that a "duty of excise" when imposed with retrospective effect ceased to be a "duty of excise" as used in Entry 84 of the Union List. The submission of learned Counsel was this : The ....
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...., it would follow that Parliament could not impose a "duty of excise" with retrospective effect. 10.In support of his submission regarding the nature of an excise duty and the meaning that ought to be attributed to that expression as it occurs in Entry 84 of the Union List, Mr. Pathak placed before us judgments of the Privy Counsil in appeals from Canada and some decisions of the American Supreme Court and of the Australian High Court. 11.First as to the decisions relating to the Canadian Constitution though learned Counsel referred us to several decisions on the interpretation of the word "excise" in connection with the distinction between direct and indirect taxes in Section 92 of the British North America Act, 1867, we do not think it necessary to refer to all of them. 12.The general line of approach of the Privy Council decisions referred by learned Counsel could be gathered from the observations of Lord Cave in City of Halifax v. Fairbanks' Estate, 1928 A.C. 117. The impugned tax legislation was a business tax imposed by the Province of Nova Scotia to be paid by every occupier of real property for the purposes of any trade, profession, or other calling carried on for ....
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....Section 92, head 2, of the British North America Act, 1867. After extracting the following passage from Bank of Toronto v. Lambe, (1887) 12 AC 575 : "A direct tax is one which is demanded from the very persons who it is intended or desired should pay it. Indirect taxes are those which are demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another; such are the excise or customs." Lord Moulton who delivered the judgment of the Board referred to the passage from the judgment of Lord Cave in 1928 AC 117 just now quoted and went on to add : "The ultimate-incidence of the tax, in the sense of the political economist, is to be disregarded, but where the tax is imposed in respect of a transaction the taxing authority is indifferent as to which of the parties to the transaction ultimately bears the burden ............... Similarly, where the tax is imposed in respect of some dealing with commodities, such as their import or sale, or production for sale, the tax is not a peculiar contribution upon the one of the parties to the trading in the particular commodity who is selected as the tax payer. This is brought out in the sec....
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....efer to 1934 A.C. 45 in which a fuel oil tax imposed by a Province upon every consumer of fuel oil according to the quantity which he had consumed was held to be valid as a direct tax, because it was demanded from the very persons who it was intended or desired should pay it." Similarly, Lord Simonds observed in Governor-General in Council v. Province of Madras, 72 Ind App 91 at p. 102 : [1978 (2) E.L.T. (J 280) (P.C.)] : "Little assistance is to be derived from the consideration other federal constitutions and of their judicial interpretation. Here there is no question of direct and indirect taxation, nor of the definition of specific and residuary powers." Under the Indian Constitution the scheme of division of the taxing powers between the Union and the States is not based on any criterion dependent on the incidence of the tax. Sir Maurice Gwyer in In re : Central Provinces and Berar Act XIV of 1938, 1939 FCR 18 at p. 40, speaking of the word "excise" as occurring in the legislative lists in the Government of India Act (and for this purpose there is no variation in the lists in Schedule VII of the Constitution) said : "Its primary and fundamental meaning in English i....
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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." 14.In view of this clear exposition of the content of the term "duty of excise" in the Indian setting we think, no assistance can be derived for the meaning ascribed and the characteristics attributed to it in the decisions construing the relative taxing powers of the Dominion and the Provinces under the British North America Act, 1867. 15.Before dealing with the Australian decision to which Mr. Pathak drew our attention, we could conveniently dispose of the American cases which were referred to by the learned Counsel bearing on the meaning of the word "excise". We might point out that the American decisions do not assist the appellant in the least since under the Constitution of the United States practically every tax other than a capitation, a poll tax or a tax on land is termed an "excise duty" and even income-tax was held to be an `excise' until the decision of the Supreme Court of the United States ....
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....42 FCR 90 : [1978 (2) E.L.T. (J 272) (F.C.)] and the learned Chief Justice, after referring to them in detail, observed : "We find it impossible to say that the expression `duties of excise' even in Australia is limied to duties imposed in connection with the production of a commodity alone. We should be disposed to say on the contrary that in Australia all taxes on the sale of commodities are, or may be regarded, as, duties of excise...... Under the Australian Constitution power to impose duties of excise is, as we have said, the exclusive right of the Commonwealth Parliament; the residuary taxing power remains in the States. In the Indian Constitution Act the whole of the taxing power in this particular sphere is expressly apportioned between the Centre and the Provinces, to the one being assigned the power to impose duties of excise, to the other taxes on the sale of goods." 17.The decision in the Milk Board case follow general the same lines as did the earlier decisions which have been detailed and discussed by Sir Maurice Gwyer C.J. in Paidanna's case 1942 FCR 90 : [1978 (2) E.L.T. (J 272) (F.C.)]. In these circumstances we do not consider it useful or necessary to discu....
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....to by the economists and in the judgments of the Privy Council as well as in the Australian decisions as an instance of an "indirect tax", but in construing the expression "duty of excise" as it occurs in Entry 84 we are not concerned so much with whether the tax is "direct" or "indirect" as upon the transaction or activity on which it is imposed. In this context one has to bear in mind the fact that the challenge to the legislative competence of the tax-levy is not directed to the imposition as a whole but to a very limited and restricted part of it. This challenge is confined (a) to the operation of the tax between the period March 1, 1951, and April 28, 1951, and (b) even in regard to this limited period, it is restricted to the imposition of the additional duty of six annas per lb. which was levied beyond the eight annas per lb. collected from the appellants by virtue of the Finance Bill under the provisions of the Provisional Collection of Taxes Act, 1931. It would seem to be rather a strange result to achieve, that the tax imposed satisfies every requirement of a "duty of excise" insofar as the tax operates from and after April 28, 1951, but is not a "duty of excise" for the ....
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....n by this Court. In common with duties of customs and excise, a tax on the sale of goods is another instance of a typical indirect tax. Indeed Lord Thankerton pointed out in 1934 AC 45 : "The ultimate incidence of the tax in the sense of the political economist is to be disregarded and referred to a tax imposed in respect of some dealings in commodities such as their import or sale or production for sale as instances of indirect taxes, the tax not being a peculiar contribution upon one of the parties to the trading in the particular commodity selected as the tax-payer." The question of the validity of the imposition of a sales tax with retrospective effect came up for consideration before this Court in the Tata Iron & Steel Co. Ltd. v. State of Bihar, 1958 SCR 1355. An argument similar to the one now presented before us was submitted to this Court in challenge of that levy which was summarized by Das. C.J. in these terms : "The retrospective levy by reason of the amendment of Section 4(1) (of the Bihar Sales-tax Act which was impugned) destroys its character as a sales tax and makes it a direct tax on the dealer instead of an indirect tax to be passed on to the consumer." ....
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....act, or for the sale of such goods duty paid where duty was chargeable at that time :- (a) if such imposition or increase so takes effect that the duty or increased duty, as the case may be or any part thereof, is paid, the seller may add so much to the contract price as will be equivalent to the amount paid in respect of such duty or increase of duty, and he shall be entitled to be paid and to sue for and recover such addition, and (b) if such decrease or remission so takes effect that the decreased duty only or no duty, as the case may be, is paid, the buyer may deduct so much from the contract price as will be equivalent to the decrease of duty or remitted duty and he shall not be able to pay, or be sued for or in respect of, such deduction." This provision originally formed Section 10 of the Tariff Act VIII of 1894 and was subsequently enacted as Section 10 in the Indian Tariff Act of 1934 (Act XXXII of 1934). The object of the statutory provision is that where contracts for the sale of goods are entered into and the price payable therefor determined on the basis of existing rates of duty - either of excise or of customs - neither party shall be prejudiced or advantage....
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....plaint of learned Counsel for the appellants that in the case of a retrospective increase in duty, the duty ceases to be a duty of excise by becoming a "direct" tax because it was incapable of being passed on. The answer of learned Counsel to this point regarding the operation of Section 64A of the Sale of Goods Act was merely that the Court could not take account of the provisions of another statute for dealing with the validity of a provision of the Finance Act, 1951. This submission has no force at all because Section 64A of the Sale of Goods Act refers in express terms to "duties of excise" and has therefore to be read as part and parcel of every legislation imposing a duty of excise. In view of our conclusion, however, that the duty in the present case, notwithstanding its imposition with retrospective effect, and even if it be that it was incapable of being passed on to a buyer from the tax-payer, was a duty of excise within Entry 84 as properly understood it is not necessary to rest it upon this narrower ground. 25.In our view, a duty of excise is a tax-levy on home-produced goods of a specified class or description, the duty being calculated according to the quantity or ....
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....excise. It was conceded that Parliament has power to enact laws with retrospective effect and as it was not suggested that laws dealing with taxation are any exception to that rule, the only ground upon which the learned Counsel could rest this submission was that being an indirect tax, capability of being passed on was an essential characteristic or requirement of a duty of excise, and so its imposition with retrospective effect deprived it of that essential character and therefore rendered it a duty of a different nature and for that reason a retrospective imposition of an excise duty was not permissible. It would be seen that this is really the same argument which we have dealt with earlier presented in another form. For the reasons already stated, we find no substance in this form of argument either and we have no hesitation in rejecting it. It need only be mentioned that the passage in the judgment of Lord Davey in 1906 AC 360 already extracted, is sufficient precedent, if authority were needed to reject this argument. 29.The second point raised by learned Counsel was that the impugned Section 7(2) of the Act was unconstitutional in that it contravened the fundamental right....
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....ue of a fiscal enactment was not "property" within Article 19(1)(f) and that the expression "laws for the purpose of imposing a tax" used in Article 31(5)(b)(i) saved all laws from the operation of Article 31 whether such laws be within legislative competence or not, as also whether or not such laws were repugnant to Part III of the Constitution. 33.Before adverting to the decisions on which reliance was placed for this position two things might be pointed out : (1) that Article 265 merely enacts that all taxation - the imposition, levy and collection shall be by law; and (2) that the Article beyond excluding purely executive action does not by itself lay down any criterion for determining the validity of such a law to justify any contention that the criteria laid down exclude others to be found elsewhere in the Constitution for laws in general. If by reason of Article 265 every tax has to be imposed, by law it would appear to follow that it could only be imposed by a law which is valid by conformity to the criteria laid down in the relevant Articles of the Constitution. These are that the law should be (1) within the legislative competence of the legislature being covered by th....
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....eason of the collection of the illegal tax or the procedures prescribed for such collection is only an indirect and incidental effect thereof. 35.Nor do we find it possible to accept even the more limited proposition that whatever be the position in regard to tax laws which lack legislative competence once a tax law is covered by an entry in the Legislative List and does not contravene direct prohibitions like those in Articles 276(2) or 286 etc., such a law is immune from the limitations imposed by Part III of the Constitution. 36.Mr. Sanyal is right in his submission that the levying of taxes though it might involve taking private property for a public use is entirely distinct from the power of eminent domain which is covered by Article 31(1)(2) and that the saving in Article 31(5)(b)(i) of such laws is really by way of abundant caution. It has been stated that where "property is taken under a taxing power, the persons so taxed may be said to be compensated for their contribution by the general benefits which they receive from the existence and operation of Government. But this is not to say that the burden of a tax that may be constitutionally laid upon an individual ne....
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.... included for computing the value of the estate was included not merely all property of which the deceased died possessed, on the date of his death but also that which he had transferred by gifts within a period of two years before his death. This inclusion of property transferred to third persons not in contemplation of death but by the grantor in the ordinary and natural course of the transaction of his affairs so that the donees might enjoy the properties absolutely, was held to be unconstitutional as offending the rule as to "due process" contained in fifth amendment to the Constitution. Justice McReynolds delivering the opinion of the Court said : "Under the theory advanced for the United States, the arbitrary, whimsical and burdensome character of the challenged tax is plain enough........ Real estate transferred years ago, when of small value, may be worth an enormous sum at the death. If the deceased leaves no estate there can be no tax; if on the other hand, he leaves ten dollars both that and the real estate become liable. Different estates must bear disproportionate burdens determined by what the deceased did one or twenty years before he died. This Court has recogniz....
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....ider the nature of the tax and the circumstances in which it is laid before it can be said that its retroactive application is so harsh and oppressive as to transgress the constitutional limitation." "Any classification for taxation is permissible which has reasonable relation to a legitimate end of Governmental action. Taxation is but the means by which Government distributes the burdens of its cost among those who enjoy its benefits. And the distribution of a tax burden by placing it in part on a special class which by reason of the taxing policy of the State has escaped all tax during the taxable period is not a denial of equal protection. Nor is the tax any more a denial of equal protection because retroactive..... A tax is not necessarily unconstitutional because retroactive. Milliken v. United States, (1930) 283 US 15 : 75 Law Ed. 809 and cases there cited. Taxation is neither a penalty imposed on the taxpayer nor a liability which he assumes by contract. It is but a way of apportioning the cost of Government among those who in some measure are privileged to enjoy its benefits and must bear its burdens. Since no citizen enjoys immunity from that burden its retroactive impo....
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....depriving the person of property under Article 31(1). If on the one hand, the tax enactment in question were beyond the legislative competence of the Union or a State necessarily different considerations arise. Such unauthorised imposition would undoubtedly not be a reasonable restriction of the right to hold property besides being an unreasonable restraint on the carrying on of business, if the tax in question is one which is laid on a person in respect of his business activity. 42.Mr. Pathak also presented his argument on this head in a slightly different form. He submitted that the Constitution-makers had contemplated that a duty of excise would be imposed only when the manufacturer or the producer was in possession and control of the goods at the moment of the imposition, and therefore would be in a position to pass it on and obtain payment from the purchaser of the duty paid by him to the State. The imposition of the levy retrospectively however deprived him of this benefit of passing on the burden which he would normally have. This restriction or impairment of his right to pass on the duty, he urged, rendered the restriction imposed on him in the shape of the obligation to....
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....ly refunded, the person chargeable with the duty or charge, so short-levied, or to whom such refund has been erroneously made shall pay the deficiency or repay the amount paid to him in excess, as the case may be, on written demand by the proper officer being made within three months from the date on which the duty or charge was paid or adjusted in the owners account-current, if any, or from the date of making the refund." The contention which was then urged was that the short-levy which led to the demand was not caused through inadvertence, error etc., which are set out in this rule and that consequently there was a defect in the operative machinery for collection of the refund. This objection of the present appellants was upheld by the Full Bench of the Nagpur High Court and it was as a result of this decision that Rule 10A was framed. This rule reads : "10A.Residuary powers for recovery of sums due to Government. - Where these Rules do not make any specific provision for the collection of any duty, or of any deficiency in duty if the duty has for any reason been short-levied, or of any other sum of any kind payable to the Central Government under the Act or these Rules, su....
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....passed and became Finance Act, 1951 (Act XXIII of 1951). By Section 7 of that Act the first schedule to the Central Excises and Salt Act was amended in accordance with what has been stated above. By Section 7(2) of the Finance Act, 1951, it was provided that the amendment made in the first schedule to the Act shall be deemed to have effect on and from the first day of March 1951. A demand was subsequently made from the appellants in respect of excess duty payable on tobacco cleared out of the store houses from March 1, 1951, to April 28, 1951. 47.Thereupon the appellants filed a petition under Article 226 of the Constitution in the High Court at Nagpur. The grounds of attack as to the constitutionality of the tax were decided against the appellants but the petition succeeded on the ground that there was no machinery provided under the Act for recovery of the tax. This judgment is reported as Chhotabhai Jethabhai Patel & Co. v. Union of India, ILR (1952) Nag. 156. On December 8, 1951, the Central Government by a notification amended the Central Excise Rules by adding Rule 10A which provided machinery for the collection of tax. The rule was :- "10A. Residuary powers for recover....
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....ng of duties specified in the First Schedule. The relevant portion of that section is as follows :- Section 3(1). "There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India and a duty on salt manufactured in, or imported by land into, any part of India as, and at the rates set forth in the First Schedule." By Section 7(2) of the Act retrospective effect was given to the duties imposed by the Finance Act taking effect as and from the First day of March, 1951. Section 7(2). "The amendment made in the Central Excises and Salt Act, 1944 by sub-section (1) shall be deemed to have had effect on and from the first day of March 1951........." The effect of this deeming provision is that the new rates of duties must be taken to have been imposed and become operative as if they were in the bill as and when the bill was introduced in Parliament : Venkatachalam v. Bombay Dyeing & Manufacturing Co. Ltd., 1959 SCR 703 at p. 707. 50.The contention raised is as to the nature of the duty of Excise. It was argued that Excise Duty is a tax on goods which must exist at the t....
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....nd indirect taxation........" The Indian Constitution is unlike any that have been called to their Lordships' notice in that it contains what purports to be an exhaustive enunciation and division of legislative powers between the Federal and Provincial Legislatures." 53.The Excise duty in England came to be imposed as a scheme of revenue and taxing device by Pym and approved by the Long Parliament. It consisted of charges on wine and tobacco and some other articles were added later. The basic principle of duties of Excise was that they were taxes on the production and manufacture of articles which could not be taxed through the customs house. The revenue derived from that source is called excise revenue proper. In England it was later on extended to comprise other taxes but the fundamental conception of the term is that it is a tax on articles produced or manufactured in the country. It was in this sense that the word "duty of excise" was understood in Australia [Peterswald v. Bartley, (1904) 1 CLR 497]. 54.The importance of legislative practice of a country was pointed out by the Privy Council in a Canadian case Croft v. Dunphy, 1933 AC 156, where it was held that when a pow....
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....l and the Provincial Legislatures comes into operation but, as the previous passages, show, it does not in any manner vary the meaning of the word "excise" not does it accept a further qualification which is sought to be included in that phrase as a necessary quality of that tax, that unless it is capable of being passed on to the consumer or the person taxed can indemnify himself, it is not a duty of excise. At p. 47 (of FCR) the learned Chief Justice observed that in the expression "duties of excise" no suggestion as to time or place of collection was implied Sulaiman, J., pointed out at p. 73 (of FCR) that in the Indian Constitution it was not necessary to go into the fine niceties of distinction between direct and indirect taxation because in the Indian Act no such division existed and the ultimate incidence of tax was not a crucial test under the Indian Constitution. Again at p. 77 (of FCR) Sulaiman J., said :- "The essence of a tax on goods manufactured or produced is that the right to levy it accrues by virtue of their manufacture or production. It is immaterial whether the goods are actually sold or consumed by the owner or even destroyed before they can be used. If a du....
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....od 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 imposed a duty of excise." 55.Thus according to the Indian cases decided on the nature of duties of excise ultimate incidence is not of any importance or relevance. In dealing with excise duty (1) there is no mention of a direct or indirect taxes; the Indian Legislature has avoided this incidence to be characteristic of the tax; (2) taxable event is the manufacture or production of goods; it is immaterial what happens to them afterwards whether they are sold, consumed, destroyed or given away; (3) it is not a necessary incidence that the manufacturer must be able to pass it on to the consumer or indemnify himself; (4) the general tendency of its being passed on may be there but it may be prohibited by the circumstances, economic or otherwise. The fact that the manufacturer has no chance to get the tax from the buyer does not affect the legality of the tax; it was so held in the case of sales tax in 195....
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....efers to a trade dispute in the industry of agriculture." But this latter case has no application because there the word "trade" was interpreted in relation to a section of a particular Act and trade in that context has quite a different meaning. In Skinner v. Jack Breach Ltd. (1927) 2 KB 220 at p. 225 Lord Hewart C.J., in interpreting the word "trade" in Trade Boards Act held that the word "trade" indicates a process of buying and selling but it was by no means an exhaustive definition. It might also mean a calling or industry or class of skilled labour. 58.The duty of Excise in item 84 should be given the widest construction unless for some reason it is cut down either by the terms of that item itself or by other Parts of the Constitution. The legislative history of the duty of Excise shows the nature of the tax. The word "trade" in item 60 of List II has reference to the carrying on of an activity in the nature of buying and selling and may in a different context mean a calling or an industry. Therefore reading the two items together it is obvious that item 84 deals with taxes on goods manufactured or produced and item 60 deals with the carrying on of trade i.e., an activi....
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....t had constructively been decreased because the tariff valuation had been reduced and so constructively it must be reckoned that there was a decrease in the duty on the goods sold. This contention was negatived by the Privy Council and it was held that a change of duty means a change in the rate of duty, and not a change of tariff value. Thus assuming that the contention of the appellants is correct as to the nature of the excise duty it cannot be said that in the present case the appellants were deprived of the opportunity of recovering the additional duty from the purchaser and therefore the duty lost its character of being excise duty and was transformed into a different tax. This argument of the appellants is therefore without substance and must be overruled. 60.The constitutionality of the tax and retrospective imposition of enhanced duty on tobacco was further challenged on the ground of violation of the fundamental rights of the appellants under Article 19(1)(f) of the Constitution which it was submitted is not saved by clause (5) of that article because it is not a reasonable restriction in the interest of the general public. The grounds of attack may be stated in this w....
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....the power of the government affect more constantly and intimately all the relations of life than through the exactions made under it." (Cooley's Constitutional Limitations, Vol. 2, 8th Ed. p. 987.) Chief Justice Marshall said in McCulloch v. Maryland, (1819) 4 Law Ed. 579 at p. 607 - "The power of taxing the people and their property is essential to the very existence of Government and may be legitimately exercised on the objects to which it is applicable to the utmost extent to which the Government may choose to carry it. The only security against the abuse of this power is found in the structure of the Government itself." (See Willoughby on the Constitution of the United States, Vol. 2 at p. 666). As the exigencies of the Government cannot be limited, no limits can be prescribed to the exercise of the right of taxation. Every individual must bear a portion of public burden and that portion is determined by the legislature. According to the American Supreme Court the power of taxation is very wide and uncontrolled. 63.In (1819) 4 Law Ed. 579 Chief Justice Marshall said :- "........ it is unfit for the judicial department to inquire what degree of taxation is the ....
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....anised State, it may be exercised on objects to the utmost extent to which the legislature may choose to carry it and (4) the needs of the revenue are only known to the legislature and the court cannot enquire into the necessity of imposing a tax or the objects on which the imposition should be made or the extent of the imposition. In the very nature of things the courts are unable to go into the propriety, extent or economics of a particular tax or the policy underlying it, which must depend upon a multitude of circumstances, which can only be known to the Government or the legislature. 64.As the appellants have relied on certain American decisions where certain taxing laws operating retrospectively were tested on the touchstone of "due process of law" clause it becomes necessary to examine the extent of that doctrine. "The taxing power of the Federal Government" says Prof. Willis (Constitutional Law, p. 378), is limited by the procedural requirements of the due process clause. Notice and hearing though not a judicial tribunal are required where the tax is based on the value of the property. Jurisdiction, also is a requirement for all forms of taxation, though the rules as to j....
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....inable. The contention that the retroactive application of the Revenue Acts is a denial of the due process guaranteed by the Constitution has not been accepted in America as an invariable rule. (1938) 83 Law Ed. 87 and the other cases there cited. 67.The doctrine of due process of law has received various interpretations in America which have not always been consistent. Sometimes it has favoured personal liberty and sometimes social control; sometimes personal liberty as a matter of substance. Sometimes it has protected personal liberty by extending due process to matters of substance and sometimes it has protected social control by broadening the scope of police power or the power of taxation or the power of eminent domain. Willis Constitutional Law, page 659. Mr. Justice Brandeis in (1927) 72 Law Ed. 645 dealing with the presumption of validity of a taxing statute observed : "The presumption should be particularly strong where as here the objection to an act arises not from a specific limitation or prohibition on congressional power but only out of the vague contours of the 5th Amendment prohibiting the depriving any person of liberty or property without due process of law'....
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....an equality of burden and regular distribution of expenses of Government among the persons taxed. It is levied by authority of law equitably uniformly or in echelons on all persons subject to it. 71.The appellants alleged that they had sold their goods during the period when the Finance Bill was before Parliament. Variations in the rates of duties are not unexpected, it being within the power of Parliament to do so both prospectively and retrospectively. It is not suggested that such variations are unknown in legislative practice or that the legislators were not entitled to amend a money bill as introduced. If the appellants' contention is sustained then it will mean the deprivation of Parliament of its right to choose the objects of taxation and therefore Parliament will only vary the rates of duties proposed by the Executive or the time of their effectiveness at the peril of their being declared invalid although they may be within its legislative competence and may in its opinion be necessary for the carrying out of its policies or subserve the proper governance of the country. 72.In the Indian Constitution there is an exhaustive enunciation and distribution of legislative ....
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..... By exercising its power of taxation by law the State may deprive us, citizen or non-citizen of almost sixteen annas in the rupee of our income." [See also p. 654 (of SCR). In 1951 SCR 127 Das, J. (as he then was), observed at pp. 136-137 (of SCR) :- "Reference has next to be made to Article 265 which is in Part XII, Chapter 1, dealing with `Finance'. That article provides that no tax shall be levied or collected except by authority of law. There was no similar provision in the corresponding chapter of the Government of India Act, 1935. If collection of taxes amounts to deprivation of property within the meaning of Article 31(1), then there was no point in making a separate provision again as has been made in Article 265. It therefore, follows that clause (1) of Article 31 must be regarded as concerned with deprivation of property otherwise than by the imposition or collection of tax, for otherwise Article 265 becomes wholly redundant. In the United States of America the power of taxation is regarded as distinct from the exercise of police power or eminent domain. Our Constitution evidently has also treated taxation as distinct from compulsory acquisition of property and has....
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....1247 (under Article 14); A. Thangal Kunju Musaliar v. M. Venkatachalam Potti, (1955) 2 SCR 1196 (under Article 14); Bidi Supply Co. v. Union of India, 1956 SCR 267 (under Article 14); Panna Lal Binjraj v. Union of India, 1957 SCR 233 (under Articles 14 and 19(1)(g); and Collector of Malabar v. Erimal Ebrahim Hajee, 1957 SCR 970 at p. 976. These are the cases in which the validity of taxation laws was attacked under the Articles above mentioned. 74.In 1957 SCR 233, the assault was not against the imposition or the vires of the tax but against the vires of Section 5(7A) of the Indian Income-tax Act which empowers the Commissioner of Income-tax to transfer any case from one Income-tax Officer subordinate to him to another and empowers the Central Board of Revenue to transfer any case from one Income-tax Officer to another. This attack was based on the contravention of Articles 14 and 19(1)(g). It was held that the discretion vested in the authorities empowered to make the transfer is not discriminatory and there was no interference with the right of the citizen to carry on his trade or calling. In 1957 SCR 970, the attack against the recovery of Income-tax under Section 46(2) of th....
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....is right to carry on trade is violated or infringed by the imposition of the tax and Article 19(1)(g) "comes into play". There again the taxation law itself was not challenged on the ground of violation of any fundamental right which has reference to property, but the imposition of the tax was assailed on the ground that it was not imposable on the transactions which had been entered into. 77.In support of the proposition that the taxation laws are assailable under the provisions of Article 19(1) State of Travancore-Cochin v. Shanmuga Vilas Cashew Nut Factory, 1954 SCR 53 was relied upon. That was not a petition under Article 32 or a matter under Article 19(1)(f) but one under Article 286(1) and the question in dispute was whether the transaction was in the course of inter-State trade. Himmatlal Harilal Mehta v. State of Madhya Pradesh, 1954 SCR 1122 was also a similar case. Article 19(1)(g) was applied because of the unconstitutionality of the tax under Article 286(1)(a). Ram Narain Sons Ltd. v. Assistant Commissioner of Sales Tax, (1955) 2 SCR 483 was also a case under Article 286 of the Constitution and was not a matter falling under Article 19(1) of the Constitution. 78.I....
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.... SCR 777; The Daily Express case [Express Newspaper (Private) Ltd. v. Union of India, 1959 SCR 12 at pp. 129-132 and The Hamdard Dawakhana case [Hamdard Dawakhana v. Union of India, (1960) 1 SCR 314. 81.The question of the applicability of Article 19(1)(f) of the Constitution to taxing matters was considered in AIR 1961 SC 552. That was a case in which tax at a flat rate was levied on forest lands in the State of Kerala and this Court by majority held that the tax so imposed was unconstitutional on the ground of infringement of Articles 14 and 19(1)(f). The reasons given by the learned Chief Justice were : (a) In the procedure to be adopted for the levying of the tax, there was no provision for a notice to be given to the assessee. (b) There was no procedure for rectification of mistakes committed by the assessing authorities; (c) There is no procedure for obtaining the opinion of a superior Civil Court on a question of law as is generally found in all taxing statutes; (d) No duty was cast upon the assessing authority to act judicially; and (e) There was no right of appeal provided to the assessee. The provisions of the Act were held in the majority judgment to....
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....ere can be no regulation of things not in existence. Therefore where an Act is deprivatory as the imposition of a tax is it cannot fall within Article 19(1) but under the specific Article 31, which relates to deprivation of property. Imam, J., in 1957 SCR 970 said at p. 976 (of SCR) :- "If the property itself is taken lawfully under Article 31, the right to hold or dispose of it perishes with it and Article 19(1)(f) cannot be invoked." That was a case where the Income-tax Officer issued a certificate under Section 46(2) of the Income-tax Act and the Collector proceeded to recover under Section 48 of Madras Revenue Recovery Act. Secondly : All taxation, as shown by its very nature and object, is in the interest of the general public because it is a contribution for governmental expenditure from all persons who in some measure are entitled to its benefit. Thirdly : There is no means or measure for determining the reasonableness of the restrictions which is an objective determination. The needs of the revenue cannot be known to the courts and cannot be determined by them, and the sources of revenue are entirely within the knowledge of the legislature and it is for that dep....
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.... be inapplicable to citizens but will be applicable to non-citizens. At any rate such law will operate differentially between one set of tax-payers and another i.e. between citizens and non-citizens. This will violate the very principle of due process relied upon by the appellants. Seventhly : In American due process, which has a variable concept has not been applied to retrospective operation of tax laws except to tax on voluntary gifts of property and that also was doubted in (1938) 83 Law Ed. 87. Eighthly : Retroactive duty of excise will be a valid imposition in the case of persons who have not sold their tobacco between the period of the introduction of the bill and the enactment of the Finance Act but will be invalid in the case of persons placed as the appellants. Ninthly : The acceptance of the appellants' argument would mean that they can recover any excess duty paid, excess because of subsequent decrease, but would not be liable to pay any similar increase in duty in spite of Section 64A of the Indian Sale of Goods Act under which variation in the rates of duties become operative on contracts of sale and purchase. Tenthly : It has been held that Article 31 is ....