1965 (9) TMI 48 - SC - Central Excise

Whether the enhancement of the levy by notification dated March 31, 1961 insofar as it enhanced the levy from ₹ 40 to ₹ 70 per L.P. Gillon infringes any constitutional probibitions? Whether the original duty alone would be sustained or also the enhanced duty which was introduced in 1961? Held that - The adaptation made the Act valid vis-a-vis the Government of India Act, 1935. When the Act was valid, the notification issued in 1937 was also valid. The Excise Acts, as adapted, continued to be law under the Government of India Act, 1935. The present Constitution has made no change either in the distribution of legislative power or the entries and has further said in Art. 372 that all existing laws continue to be of full force and effect. The imposition of countervailing duty at ₹ 40 per London proof gallon continued to be valid. If the old duty it the old rate is sustainable there is no reason why the absence of production of foreign liquor in the State would make any difference to the enhancement of the duty to ₹ 70 per London proof gallon. So long as the Act is valid, and that is beyond doubt, the notification can be changed. The duty could always be made less and there is no reason why it could not be made more provided the imposition of duty on locally produced goods was not made lower. If production of foreign liquor is not a condition precedent to the validity of the Act because of historical reasons there is no bar to the validity of the notification which takes its force from the valid Act. Appeal dismissed.

Issues Involved:
1. Legality of the levy of countervailing duty on foreign liquor imported into the State of Orissa.
2. Validity of the enhancement of countervailing duty from Rs. 40 to Rs. 70 per L.P. Gallon.
3. Compliance of the levy with constitutional provisions, specifically Articles 301, 303, 304, and 305.

Issue-wise Detailed Analysis:

1. Legality of the Levy of Countervailing Duty on Foreign Liquor Imported into the State of Orissa:

The appellants, Kalyani Stores, contested the legality of the countervailing duty imposed on foreign liquor imported into Orissa, arguing that such a duty could not be levied in the absence of similar goods being produced within the State. The High Court dismissed this contention, holding that under Entry 51, List II, in Schedule VII of the Constitution, the State Legislature had the power to levy duties of excise on alcoholic liquors for human consumption manufactured or produced in the State and countervailing duties at the same or lower rates on similar goods manufactured or produced elsewhere in India. The Supreme Court observed that the expression "countervailing duty" means a duty levied on similar articles imported from outside the State with a view to equalize the burden of taxation on articles produced or manufactured within the State and articles imported. The Court clarified that countervailing duties could only be levied if similar goods were actually produced or manufactured in the State on which excise duties were being levied.

2. Validity of the Enhancement of Countervailing Duty from Rs. 40 to Rs. 70 per L.P. Gallon:

The appellants challenged the enhancement of the duty from Rs. 40 to Rs. 70 per L.P. Gallon, arguing that the enhancement was without authority of law and contravened Entry 51, List II, Schedule VII of the Constitution. The Supreme Court held that the Bihar & Orissa Excise Act 2 of 1915, enacted before the Constitution, continued to remain in force by virtue of Article 372 of the Constitution. The Court noted that the duty of Rs. 40 per L.P. Gallon, levied before the Constitution, remained effective until lawfully altered. The notification of March 31, 1961, which enhanced the duty to Rs. 70 per L.P. Gallon, was deemed invalid as it did not comply with the constitutional requirements of Articles 301 and 304. The Court concluded that while the enhancement was invalid, the original duty of Rs. 40 per L.P. Gallon remained valid and enforceable.

3. Compliance of the Levy with Constitutional Provisions (Articles 301, 303, 304, and 305):

The Supreme Court examined the validity of the enhanced levy in light of constitutional provisions. Article 301 declares the freedom of trade, commerce, and intercourse throughout India, subject to other provisions of Part XIII. Article 304 allows the State Legislature to impose taxes on goods imported from other States if similar goods manufactured or produced in the State are subject to the same tax, provided there is no discrimination. The Court found that since no foreign liquor was produced or manufactured in Orissa, the power to legislate under Article 304 was not available, and the restriction on trade under Article 301 remained unfettered. The Court also noted that Article 305 protects existing laws, and the levy of Rs. 40 per L.P. Gallon, being an existing law, was protected under Article 305. The enhancement to Rs. 70 per L.P. Gallon, however, was invalid as it did not comply with the requirements of Article 304.

Conclusion:

The Supreme Court partially allowed the appeal, declaring the notification dated March 31, 1961, enhancing the duty on foreign liquor by Rs. 30 per L.P. Gallon, as invalid and unenforceable. The original duty of Rs. 40 per L.P. Gallon, however, remained valid and enforceable. The Court made no order as to costs in both the Supreme Court and the High Court.

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