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TMI Blog1942 (5) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... owed to appear at the hearing and to support the arguments of the Advocate-General of Madras. The Advocate-General of India, to whom we had caused notice of the proceedings to be sent, also appeared and addressed arguments to us in support of the judgment of the High Court. We therefore had the advantage of a very full discussion of all points which ariso in the case and we are indebted to counsel for the assistance which they have afforded us. 2. The Respondents carry on business at Vizianagram in the Province of Madras. There business consists of the purchase of groundnuts for the purpose of extracting oil from the kernels of the nuts and the making of groundnut cake out of the residue. They sell this oil and cake, and, since they are themselves the manufacturers, it follows that each sale which they effect is the first sale of the commodity after its manufacture or production. 3. The Madras Act provides that, subject to the provisions of the Act, every dealer, that is to say, every person who carries on the business of buying and selling goods, is to pay in each year a tax on his turnover, if that turnover is not less than ₹ 10,000, the tax being at a flat rate of fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was an appeal to the District Court at Vizagapatam, but, on the application of the Advocate-General of Madras, the appeal was transferred to the High Court. A Bench of the High Court, composed of the Chief Justice and Chandrasekhara Ayyar J., upheld the judgment- of the lower Court ; and it is from the High Court's decision that the appeal now comes to us. 5. Under the Constitution Act the Federal Legislature has an exclusive power to impose duties of excise. (List I, entry No. 45) and the Provincial Legislature an exclusive power to impose taxes on the sale of goods (List II, entry No. 48). The relation of a duty of excise to a tax on sales was much discussed in the Central Provinces case [1939] P.C.R. 18., in which the Court delivered an advisory opinion on the question whether an Act imposing a tax on retail sales of petrol was within the competence of the Central Provinces Legislature. All the members of the Court were of opinion that the Legislature was competent to impose such a tax, though their reasons differed. Jayakar J. held that all taxes on the sale of goods for purposes of consumption , by which he presumably meant taxes on retail sales, ought to be regarded a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; but where a turnover tax is leviable at a specified rate on the aggregate sum produced by the sale of a number of different articles or commodities, then it seems to us that it is a tax levied at the specified rate on each sale of those goods or commodities. A system of turnover taxation is conceivable where it may not be easy, or even possible, to identify the tax on a particular sale; but no such difficulty arises in a case under the Madras Act, at least if the turnover exceeds ₹ 20,000 per annum, as that of the Respondents does. We do not think therefore that there is any substance in the Appellants' contention. 7. In the Central Provinces Case the Opinions expressed were advisory Opinions only, but we do not think that we ought to regard them as any less binding upon us on that account. We accept therefore the general division between the Central and Provincial spheres of taxation which commended itself to the majority of the Court in that case. They did not reach their conclusions by assigning any particular technical meaning to the expressions duty of excise or tax on the sale of goods , but rather by construing the language in which the taxing powers of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A taxing authority will not ordinarily impose such a duty, because it is much more convenient administratively to collect the duty (as in the case of most of the Indian Excise Acts) when the commodity leaves the factory for the first time, and also because the duty is intended to be an indirect duty which the manufacturer or producer is to pass on to the ultimate consumer, which he could not do if the commodity had, for example, been destroyed in the factory itself. It is the fact of manufacture which attracts the duty, even thongh it may be collected later ; and we may draw attention to the Sugar Excise Act in which it is specially provided that the duty is payable not only in respect of sugar which is issued from the factory but also in respect of sugar which is consumed within the factory. In the case of a sales tax, the liability to tax arises on the occasion of a sale, and a sale has No. necessary connexion with manufacture or production. The manufacturer or producer cannot of course sell his commodity unless he has first manufactured or produced it ; but he is liable, if at all, to a sales tax because he sells and not because he manufactures or produces; and h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e formulated their proposition thus: a tax on the first sale of goods is so connected with their production that it cannot properly be described as, and is not in fact, a tax on sale. Stated in this way the proposition is surely difficult to sustain. We may recall that in 1935, when the Constitution Act was passed, the distinction between a producer's or manufacturer's sales tax and sales taxes (including retail sales taxes) of other kinds was familiar to economists and those concerned with public finance (see Findlay Shirras: Science of Public Finance, Vol. II, Ch. 25); and it is therefore not without significance that Parliament did not think fit to confine the provincial taxing power in terms to sales taxes other than taxes on first sales. It is also material, even if not necessarily conclusive, to point out that the judgment of the High Court would deprive the Provincial Legislature of the whole yield of taxes on first sales, and not merely of the tax on the first sale of commodities which are also subject to a duty of excise; and it would do so without in practice conferring any corresponding benefit on the Central fisc, since for plain reasons of convenience the numbe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties of customs and excise being an exclusive one. Some of the learned Judges who decided the case, it is true, were of opinion that it was an excise duty because it was connected with the production of the commodity, but others took a wider view: see especially the judgment of Higgins J., (at p. 435). where he says: For the purpose of Section 90 and our Constitution as a whole, customs duty is a duty on importation or exportation whether by land or by sea ; whereas excise duty means a duty on the manufacture, production, etc., in the country itself ; and it matters not whether the duty is imposed at the moment of actual sale or not, or sale and delivery, or consumption. In Matthews v. The Chicory Marketing Board (1938) 60 Com. L.R. 263, a levy of l on producers for every half acre of land planted with chicory was held by a majority of the Court to be a duty of excise. A very full account of the history of excise duties is given by Dixon J. in his judgment in that case, and the learned Judge observes: It should not be overlooked that so far there is no direct decision (i.e., by the Australian Courts) inconsistent with the view that a tax on commodities may be an excise although ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the principle upon which the Judicial Committee have for the most part interpreted Sections 91 and 92 of the British North America Act. The case however is different where, as in the Indian Act, there are two complementary powers, each expressed in precise and definite terms. There can be no reason in such a case for giving a broader interpretation to one, power rather than to the other; and there is certainly no reason for extending the meaning of the expression duties of excise at the expense of the Provincial power to levy taxes on the sale of goods. 14. Lastly, the wellknown American case of Brown v. The State of Maryland (1827) 12 Wheat. 419, was cited to us. The State of Maryland had passed an Act prohibiting the importers of foreign goods from selling their goods without taking out a licence, for which fifty dollars had to be paid. This Act was held to be repugnant to the provision in the Constitution which provides that no State shall, without the consent of Congress, allow any imposts or duties on imports or exports, except what may be absolutely necessary for executing its inspection laws . In the course of his judgment, Marshall C.J., after observing that whateve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to sell .... What does the importer purchase, if he does not purchase the privilege to sell ? On this view of the Commerce Clause, it would indeed be differents to recognize the right of the State to impose a tax upon the first sale of the commodity, at any rate so long as it remained in the importer's hands. In the Indian Constitution Act no such question arises; and the right of the Provincial Legislatures to levy a tax on sales can be considered without any reference to so formidable a power vested in the Central Government. Lastly, the prohibition in the American Constitution is against the laying of any imposes(sic) or duties(sic) on imports or exports ; the prohibition is not merely d..(sic) the laying of duties of customs, but is expressed in what conceive to be far wiser terms ; and it does nor appear to us that it would necessarily follow from the principle of the Maryland decision that in India the payment of customs duty on goods imported from abroad or the payment of an excise duty on goods manufactured or produced in India can be regarded as conferring some kind of licence or title on the importer or manufacturer to sell his goods to any purchaser without incu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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