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TMI Blog1942 (5) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... du trading family carrying on business at Vizianagaram. They purchase groundnuts in the shell, and having decorticated the nuts they proceed to extract the oil from the kernels for the purpose of sale. Out of the residue they make groundnut cake, which they also sell. The assessing authority constitut- ed by the Madras General Sales Tax Act assessed the respondents to the tax imposed by the Act both in respect of their purchases of groundnuts and their sales of groundnut oil and groundnut cake. The assessing authority regarded the business of manufacturing groundnut oil and groundnut cake as distinct from their business as buyers of groundnuts. The Government of India Act, 1935, vests in the Central Legis- lature the power of imposing duties of excise on goods manufactured or produced in India, subject to certain exceptions which do not in- clude the goods dealt in by the respondents. The power of imposing taxation on the sale of goods is given to the Provincial Legislatures. When the respondents first came into Court their case was that a tax on the sale of goods is in all cases an excise duty and therefore the Madras Legislature had exceeded its power in enacting the General Sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vincial Government appealed to the District Court of Vizagapatam, but the Advocate-General of Madras applied for an order transferring the appeal to this Court. The application was not opposed and in view of the importance of the case this Court granted the application. The appellant's contentions may be summarised as follows: (1) An excise duty implies only a tax on the manufacture or production of goods before they leave the hands of the manufacturer or producer and as such a tax can be imposed before any sale takes place, there is no conflict of power. The Federal Legislature has free scope to impose an excise duty before a sale takes place, leaving the Provincial Legislature the power to impose a tax when a sale in fact takes place. (2) The tax imposed by the Madras General Sales Tax Act is a tax on turnover and such a tax cannot be classified as an excise duty. (3) The rules framed under the Act are intra vires and the res- pondents have not been subjected to double taxation, the two sides of their business being quite distinct. (4) While a suit will lie for a declaration that the Act and the rules are ultra vires, if intra vires, the validity of an assessment can only be rais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factured or produced within the United Kingdom would undoubtedly fall within the definition of excise, but it is to be remembered that in the United Kingdom there is no division of legislative powers. Parliament stands alone. According to Blackstone [Stephen's Commentaries (1928) Edn., Vol. IV, P. 420] and economists excise duties may be imposed at any stage from manufacture to consumption, as was pointed out in The Central Provinces Case, although Gwyer, C.J., maintained that the primary and fundamental meaning in English of an excise duty is still that of a tax on articles produced or manufactured in the taxing country and intended for home consumption and that the Government of India Act, 1935, did not intend to give the words 'duties of excise' an extended meaning. The learned Chief justice of India observed ([1939] I F.C.R., at P. 47; Ante P. 42): "In my opinion the power to make laws with respect to duties of excise given by the Constitution 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 con- nexion with, manufacture or production, and ext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was lawful. Jayakar, J., laid great stress on Entry No. 16 in Schedule I of the Devolution Rules made under Section 45-A of the previous Government of India Act. The relevant portion of that entry read as follows: "16. Excise, that is to say, the control of production, manufacture, possession, transport, purchase and sale of alcoholic liquor and intoxicat- ing drugs and the levying of excise duties and licence fees on or in relation to such articles." The learned Judge considered that there was no escape from the conclusion that the definition of "excise" in Entry No. 16 of the Devolution Rules and the expression "duties of excise" in Entry No. 40 of the Provincial List in the present Act bear a wide signification, and include all duties levied on the consumption of the excisable commodity in the Province at any stage from production to sale. He expressed his conclusion in these words ([1939] 1 F.C.R., at p. 116; Ante p. 98): "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of India Act, 1935, the court can only have regard to the provisions contained therein; but this does not mean that the Court is precluded from examining the judgment in The Commonwealth and Commonwealth Oil Refineries Ltd. v. South Australia, in order to see whether they throw light on the meaning to be attached to the words "excise duties" used in the Government of India Act, 1935, and we consider that these judgments do render great assistance in solving the first of the problems with which this Court is now confronted. The Act of the South Australian Parliament imposed a tax of three pence on every gallon of motor spirit sold within the State (excluding spirit sold for delivery in or transportation to any place outside the State) and the vendor was authorised to add the amount of the tax to the price agreed to be paid. Six of the seven judges who constituted the Court were of the opinion that the Act was ultra vires, because it vio- lated the power of the Commonwealth Parliament to impose duties of excise. With the one exception the learned judges were all of the opinion that a tax on the first sale amounted to an excise duty. The basis of their decision was that a tax on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... motor spirit is with a view to sale; and the tax, having direct reference to a sale so described as to be intimately related to production, is a matter which affects the producer as such, because it burdens the trade for which his production is the essential preparation. A tax laid expressly on the production alone of goods would affect every one who produced them even for personal use or consump- tion. But it is all one in reality whether the tax is expressed to be on production followed by sale, or, as here, on the sale immediately following production." Higgins, J., also said that a tax on the sale of an article is a tax on the article itself and in accepting the definition in Mill's Political Economy, 4th Edition, Vol. II, page 434, that "taxes on the sale of consumable commodities are simply taxes on those commodities". Starke, J., said the same thing. The learned Advocate-General has accepted the proposition stated by the learned Chief Justice of India in The Central Provinces Case, that a tax connected with the manufacture or production of goods within the Province constitutes an excise duty, and in our opinion, the correctness of the proposition is not open to doubt. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a tax on sales. In this connection he has pointed to an argument advanced by the Advocate-General of India in The Central Provinces Case, to the effect that the only power given to the Provincial Legislature by Entry No. 48 is a power to impose a tax on turnover. The contention of the Government of India was that the Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act constituted an infringement of the power of the Central Legis- lature and the argument of the learned Advocate-General of India was advanced in support of this contention. The Federal Court refused to accept the argument, but this does not mean that this decision implied that a tax on turnover does not mean a tax on sales. Under the Madras General Sales Tax Act, the tax is undoubtedly based on the dealer's turnover. "Turnover" is defined by Section 2(i) as meaning the aggregate amount for which goods are either bought by or sold by a dealer, whether for cash or for deferred payment or other valuable consideration, provided that the proceeds of the sale by a person of agricultural or horticultural produce grown by himself or grown on land in which he has an interest, whether as owner, usufruc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the respondents, but they have not pressed it and it will also be dismissed, in this case without costs. As this judgment involves a substantial question of law as to the interpretation of the Government of India Act, 1935, a certificate will issue in accordance with the provisions of Section 205 of that Act. The Province of Madras appealed to the Federal Court. Sir Alladi Krishnaswami Ayyar, Advocate-General of Madras (N. Rajagopala Iyengar with him), instructed by B. Banerji, Agent, for the appellant. T.R. Venkatarama Sastri (C. Krishnaswami with him), instructed by Ganpat Rai, Agent, for the respondents. Interveners: (1) Sir Brojendra Mitter, Advocate-General of India, (H.R. Kazimi with him), instructed by K.Y. Bhandarkar, Agent. (2) Sir Asoka Roy, Advocate-General of Bengal, (H.K. Bose with him), instructed by B. Banerji, Agent. (3) Dr. Narain Prasad Asthana, Advocate-General of the United Provinces, (Sri Narain Sahai with him), instructed by Sumair Chand Jain Raizada, Agent. JUDGMENT GWYER, C.J.-In this case the appellants are the Province of Madras, who appeal against a judgment of the Madras High Court dated September 5, 1941, in which it was held that certain taxes whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of the same transaction of sale, but only one of them, as determined by rules made under the Act; and that, when the amount for which any goods have been bought by a dealer has been included in his turnover, the amount for which the same goods are sold by him is not to be included in his turnover for the purposes of the Act. The turnover for all purposes of the Act is to be determined in accordance with, and the tax is to be assessed, levied and collected in such manner and in such instalment as may be prescribed by, rules made for the purpose by the Provincial Government. There are various other provisions in the Act, mostly dealing with the machinery of assessment and collection, but nothing turns upon them in the present appeal. The assessing authority under the Act assessed the respondents to tax both in respect of their purchase of groundnuts and of their sales of oil and cake, holding that the purchase of groundnuts was a business distinct from the business of manufacturing oil and cake. Accordingly the sum of Rs. 160-11-0 was demanded from the respondents by way of tax, and was paid by them under protest. The respondents then took proceedings in the Court of the Distri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impose duties on the manufacturer or producer of the goods and did not extend further, the power to impose a tax upon the sale of goods after manu- facture or production being reserved to the Provinces. They left open however the question on which side of the line a tax upon the first sales of goods manufactured or produced in the Province was to be regarded as falling. Thus one judgment would confine the power of the Central Legislature to the imposition of duties "on the manufacturer or producer of the excisable articles, or at least at the stage of, or in connection with, manufacture or Production". In the other this sentence is to be found: "For all practical purposes, it [that is, a tax on first sales] is a tax on the manufacturer or producer, and the burden is in the first instance imposed on him, though of course, it being an indirect imposition, he could pass it on; but the essence is that the tax is imposed on a sale by the producer or manufacturer and not on a sale by any subsequent vendor". The learned Judge, the late Sulaiman, J., added that, though it was not necessary to decide the question, there might be some difficulty in upholding a provincial tax on first sales. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urally convey. In these circumstances the question at issue in the present appeal appears to us to lie within a very small compass. The duties of excise which the Constitution Act assigns exclusively to the Central Legislature are, according to the Central Provinces Case (Ante p. 1) duties levied upon the manufacturer or producer in respect of the manufacture or production of the commodity taxed. The tax on the sale of goods, which the Act assigns exclusively to the Provincial Legislatures, is a tax levied on the occasion of the sale of the goods. Plainly a tax levied on the first sale must in the nature of things be a tax on the sale by the manufacturer or producer; but it is levied upon him qua seller and not qua manufacturer or producer. It may well be that a manufacturer or producer is sometimes doubly hit; but so is the taxpayer in Canada who has to pay income-tax levied by the Province for Provincial purposes and also income-tax levied by the Dominion for Dominion purposes: see Caron v. The King ([1924] A.C. 999); Forbes v. A.G. for Manitoba ([1937] A.C. 260). If the taxpayer who pays a sales tax is also a manufacturer or producer of commodities subject to a central duty of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is an excise duty, and no reason has been advanced in the course of the argument in this case to induce us to think otherwise. The tax operates on the goods themselves and it is imposed before they leave the hands of the manufacturer or producer. In the normal course he is certainly not going to part with his goods until a contract of sale has been entered into. This being the case, it seems to us that the tax is intimately connected with the manufacture or production of the goods. We hold that a Provincial Legislature in India has no power to tax a sale by the manufacturer or producer as, for the reasons given, this would mean the imposition of an excise duty and the assumption of a power vested only in the Centre". We do not think, for reasons which we give hereafter, that the Australian case referred to has any bearing on the question which we are now called on to determine. That question is this: assuming the right of the Central Legislature to tax the production of a commodity and the right of the Provincial Legis- lature to tax its sales, can a good reason be shown for excluding a particular category of sales on the ground only that they are sales by the producer? According ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is unnecessary for the Court to consider whether it may not also be a duty of excise: see, for example A.-G. for British Columbia v. The Canadian Pacific Railway Co. ([1927] A.C. 934) where a tax on every person purchasing within the Province fuel oil for the first time after its manufacture in, or importation into, the Province was held to be invalid as an indirect tax, and the ques- tion whether it might not also be bad as an excise duty was left unanswered. In contrast to the case just cited we may refer to A.-G. for British Columbia v. Kingcome Navigation Company ([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. The Australian cases are rather more in point, and in particular the High Court laid great stress on Commonwealth Oil Refineries Ltd. v. South Australia, (1926) 38 C.L.R. 408, which was also discussed at length in the Central Provinces Case, ([1939] F.C.R. 18; Ante p. 1). In this Australian case the validity of a so-called income-tax of three pen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds', but those apparently simple words permit of much flexibility in application. The tax must bear a close relation to the production or manufacture, the sale or the consumption of goods, and must be of such a nature as to affect them as the subjects of manufacture or production or as articles of commerce" (pp. 303, 304). Having regard to the above opinions, we find it impossible to say that the expression "duties of excise" even in Australia is limited 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; but whether this be so or not, it is clear that the Commonwealth Oil Refineries Case cannot be treated as having the conclusive authority which the High Court of Madras seem to have attributed to it. We should be unwilling also for another reason to adopt blindly the Australian decisions. 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 whol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvalid for the above reasons, a tax on the first sale must be no less invalid; and it follows from the judgment of Marshall, C.J., and has ever since been held to be the law of the United States, that a duty of this kind is to be regarded as so intimately connected with the act or transaction of importation as to be itself an impost or duty on im- ports and therefore beyond the power of any State in the Union to impose. We should be temerarious indeed, if we expressed any opinion upon the reasoning of that great judge, even though we might find it easier to follow the reasoning of Thompson, J., in his dissenting judgment; but we have no occasion to do so. The provisions which were being considered in Brown v. Maryland ([1827] 12 Wheat. 419) were very different from those which are before us in the present appeal. There is in the first place, as in the Australian Constitution, a specific reservation of certain taxing powers to Congress, with the resi- duary powers left to the States; and what we have already said on this point in connection with the Australian decisions is equally applicable here. Next, it is to be observed that the American Constitution also provides that Congress ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax on sales thereafter." In using these words I intended to do no more than suggest a convenient dividing line between the two spheres of jurisdiction; but I certainly did not mean to elevate the dividing line into a legal principle, the application of which might attract those numerous American authorities, of which perhaps Brown v. Maryland ([1827] 12 Wheat. 419) was the first, where the question has been con- sidered at what point commerce ceases to be inter-State or foreign commerce and becomes the domestic commerce of a State and taxable by it. I should much regret if any contribution of mine to the elucida- tion of the problems which come before this Court were thought to have included the introduction of some kind of "original-package" doctrine and all the refinements and complications which that doctrine has brought in its train in the Courts of America. We should add that neither the appellants nor the respondents desired to adduce arguments on certain issues in the case which the High Court left undecided, because on the view which they (the High Court) took of the matter it was unnecessary to decide them. We do not in these circumstances think it obligatory upon us to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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