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TMI Blog1961 (12) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... anufacture 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 shall cease to have the force of law under the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 appellants including that based on the adequacy of the new Rule 10A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spective 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 term "duty of excise" on goods, was universally recognized as a tax on h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the purposes of gain, the assessment being according to the capital value of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing 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 second paragraph of Mill's definition, and is true of the typical custom and excise duties re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il 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 is that of a tax on articles produced or manufactured in the taxing country and intended for home consump ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in Pollock v. Farmers Loan & Trust Co. (1804) 158 U.S. 601. It has to be borne in mind that the American Constitution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 discuss these decisions. Undoubtedly, there are passages in these judgments in the Australian Courts which refer to the fact that an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax", 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 duration of two months before that date. 20.Learned Counsel conceded, as he had to, that even on the decisions relied upon by him, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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." Dealing with this point the learned Chief Justice said : "The argument is that sales-tax is an indirect tax on the consumer. The idea is that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 advantaged by reason of the increase or decrease of the duty. The question as to the scope of Section 10 of the Tariff Act of 1894 came up for consideration before a Benc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x 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 value of the goods and which is levied because of the mere fact of the goods having been produced or manufactured and unrelated to and not dependent on any commercia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 rights guaranteed under Articles. 19(1)(f) and 31(1) and (2) of the Constitution. It was urged that even if the impugned provision was within the legislative competence of Parlia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 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 the legislative entries in Schedule VII of the Constitution; (2) the law should not be prohibited by any particular provision of the Constitution such as for example, Articles 276(2), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 needs to be justified by a showing that he individually will receive benefit from the expenditure of the proceeds of the tax, and much less that the degree of that burden may be measured by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin 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 recognized that a statute purporting to tax may be so arbitrary and capricious as to amount to confiscation and offend the fifth Amendment. We must conclude that Section 402(c) of the statute here under cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lassification 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 imposition does not necessarily infringe due process, and to challenge the present tax it is not enough to point out that the taxable event, the receipt of income, antedated the statute." 40.In Untermyer v. Ander ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthorised 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 pay the duty unreasonable. Learned Counsel admitted that as the imposition would yield to the Exchequer more money, the restriction on the appellant's right to hold property could not be denied to be in the "interest of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, such duty, deficiency in duty or sum shall, on a written demand made by the proper officer, be paid to such person and at such time and place, as the proper officer may specify." The words "deficiency in duty if the duty has for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch 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 time when the tax is levied and it must have been intended and expected by the legislature that it will be passed on to the consumer and as retrospective operation of such duties has not got these qualities when the goods are no longer in possession of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .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 power is conferred to legislate on a particular topic it is important in determining the scope of the power to have regard to what is ordinarily treated as embraced within that topic in the legislative practice in England, U.S.A. and the Dominions and of India; the Federal Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 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 duty is imposed on the goods manufactured or produced when they issue from the manufactory then the duty becomes leviable independently of the purpose for which they leave it and irrespective of what happens to them later." In a subsequent case 1942 FCR 90 : [1978 (2) E.L.T. (J 272) (F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 1958 SCR 1355 where the nature of the excise duty was discussed. At page 1369 the observations of Gwyer C.J. in Boddu Paidanna case, 1942 FCR 90 : [1978 (2) E.L.T. (J 272) (F.C.)] and of the Privy Council in 72 Ind. App. 91 : [1978 (2) E.L.T. (J 280) (P.C.)] were quoted with approval. It may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 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 activity in the nature of buying and selling and the Act in its pith and substance relates to duty on goods manufactured or produced and has no relationship with item 60 of List II. 59.Even assuming that the nature and tendency of the duty of Excise is, as contended by Mr. Pathak that it can be passed on to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hange 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 way : (1) that the nature of an excise duty is such that normally it is passed on to the purchaser by the manufacturer or the producer and it has that tendency and quality : (2) as the impugned duty was enhanced at a time when the appellants had cleared their goods after paying the then prevailing duty, it was not poss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir 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 legitimate use, and what degree may amount to the abuse of the power." See also Graves v. Schmidlapp, (1941) 86 Law Ed. 1097 (per Chief Justice Stone). In Pacific Insurance Co. v. Soule, (1868) 7 Wall 433 the Court said :- "Congress may prescribe the basis, fix the rate, and require payment as it may deem proper within the limits of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 jurisdiction vary with the kind of tax levied." According to Willoughby, Constitution of the United States, Vol. III p. 1875, the due process of law obliges the exercise of the taxing power to conform to the following rules :- That the tax shall be for a public purpose.1. That it shall operate uniformly upon those subject to it.2. That either the person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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'. Mr. Justice Holmes in Adkins v. Children's Hospital, (1922) 67 Law Ed. 785 (800)". It was because of the varying meanings and concepts which have from time to time been attached to "due process of law" that the framers of the Indian Constitution did not adopt it in the Constitution, on the other hand they tried to give more defined boundaries to the area of fundamental ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 powers, including powers as to taxation, between the State Legislatures and Parliament. Subjects of taxation are distributed in the three Legislative Lists and areas of the respective fields of Parliament and State Legislatures as to taxes are defined. In Parts XII and XIII limitations on legislative competence of the various legislatures as to taxation are indicated and emphasis is placed on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 made independent provision giving protection against taxation save by authority of law. When Dr. Tek Chand was asked if that was not the correct position, he did not advance any cogent or convincing answer to refute the conclusion put to him. In our opinion the protection against imposition and collection of taxes save by authority of law directly comes from Article 265, and is not secured by clause (1) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Income-tax Act was based on Articles 14, 19 and 22. There again the question for decision was not the imposition of the tax but the mode of recovery and at page 976 this ground of attack was rejected and reference was there made to the State of Punjab v. Ajaib Singh, 1953 SCR 254; (1955) 2 SCR 887. Another case relied upon by the appellants' Counsel was Western India Theatres v. Cantonment Board, Poona, AIR 1959 SC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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.In all these cases relied upon by Counsel for the appellants the basis of attack was (1) that the tax was not within the legislative competence of the legislature imposing the tax and therefore the tax was being illegally recovered from the assessee or (2) an objection was taken to the differential mode of imposition and collection and use of a more stringent procedure i.e. illegal discrimination between persons similarly situat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt 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 be confiscatory. It was observed by the learned Chief Justice at p. 559 :- "That the provisions aforesaid of the impugned Act are in their effect confiscatory is clear on their face. Taking the extreme case, the facts of which we have stated in the early part of this judgment, it can be illustrated that the provisions of the Act, without proposing to acquire the privately owned forests in the State of Kerala after satisfying the conditions lai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here 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 department of the State to determine how the burden will be distributed and why, because that department is the policy making body and is familiar with the economics and the resources of the country and its needs. It is for that department in its discretion to select anything for taxation or to exclude it. Cooley's Constitutional Limitations, Vol. II p. 986 (note). Fourthly : The power to tax is an attribute of sovereignty and it is an accepted principle that the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 inapplicable to deprivation by taxation. Ramjilal's case (1951) SCR 127; (1955) 1 SCR 769; and taxation laws are expressly excluded from the operation of Article 31(2) by clause (5)(b)(i) of the Article. If the appellants' contention is correct then deprivation although not protected under Article 31 will be subject to regulatory control under Article 19(1)(f). Eleventhly : To put it in the words of the American Supreme Court in Ogden v. Saunders (1827) 6 Law Ed. 606 at p. 62 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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