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PETITIONER: IN  RE.   THE BILL TO AMEND S. 20 OF THE  SEA  CUSTOMS  ACT,

       Vs.

RESPONDENT:

DATE OF JUDGMENT: 10/05/1963

BENCH: SINHA, BHUVNESHWAR P.(CJ) BENCH: SINHA, BHUVNESHWAR P.(CJ) DAS, S.K. GAJENDRAGADKAR, P.B. SARKAR, A.K. WANCHOO, K.N. HIDAYATULLAH, M. GUPTA, K.C. DAS SHAH, J.C. AYYANGAR, N. RAJAGOPALA

CITATION:  1963 AIR 1760            1964 SCR  (3) 787  CITATOR INFO :  RF         1964 SC1486  (13)  R          1965 SC 745  (1)  R          1967 SC1512  (20,48,64)  R          1977 SC1459  (7)  RF         1979 SC 478  (8,22)  RF         1984 SC 420  (13)  RF         1986 SC 515  (92)  RF         1986 SC 649  (26)  R          1986 SC 662  (53)  F          1989 SC1153  (8)  C          1990 SC 781  (64)

ACT: President’s  Reference-Customs duties and duties of  excise- Parliament’s  power to levy such duties on the  property  of States-Direct and indirect taxes-Distinction, if valid under Constitution--Customs duties and duties of excise, if  taxes on property-"Taxation", Definition-Sea Customs Act, 1878  (8 of  1878),  s. 20-Central Excises and Salt Act, 1944  (1  of 1944). s. 3 (1)- Government of India Act, 1935 (25 & 26  Geo 5,  ch. 42), 88. 154, 155-Constitution of India, Arts.  245, 246, 285, 289, 366 28).

HEADNOTE: As a result of a proposal to introduce in Parliament a  Bill to amend s. 20 of the Sea Customs Act, 1878, and s. 3 of the Central Excises and Salt Act, 1944, with a view to  applying the  provisions of the said two Acts to goods  belonging  to the  State  Governments, in regard to which  certain  doubts arose  as  to  whether  the  provisions  of  the  Bill  were inconsistent with Art. 289 of the Constitution of India, the President   of  India  referred  under  Art.  143   of   the Constitution  certain  questions  for  the  opinion  of  the Supreme Court to ascertain if the proposed amendments  would be constitutional.  The question was whether the  provisions

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of  Art.  289 of the Constitution precluded the  Union  from imposing,  or  authorising  the imposition  of  (a)  Customs duties  on the import or export or (b) excise duties on  the production or manufacture in India: of the 788 property  of  a  State used for purposes  other  than  those specified in cl. (2). of that Article. Held  (S.  K. Das, A. K. Sarkar, Hidayatullah and K. C.  Das Gupta, JJ  dissenting), that the provisions of Art.  289.(1) of  the  Constitution  of India were in  the  nature  of  an exception to the exclusive field of legislation reserved  to Parliament  and  were limited to taxes on  property  and  on income  of a state; that the immunity granted in  favour  of States  had  to be restricted to taxes  levied  directly  on property  and  income  ; and, that even  though  import  and export  duty or duties of excise had reference to goods  and commodities,  they were not taxes on property  directly  and were not within the exemption in Art. 289 (1). Per   Sinha  C.  J.,  Gajendragadkar,  Wanchoo,   Shah   and Rajagopala   Ayyangar   JJ.-(1)   Though   the    expression "taxation",  as  defined  in Art. 366  (28),  "includes  the imposition of any tax or impost, whether general or local or special",  the  amplitude of that definition has to  be  cut down if the context otherwise so requires. (2)  Whereas  the Union Parliament has been vested with  the exclusive power to regulate trade and commerce and with  the sole responsibility of imposing export and import duties and duties  of  excise,  with a view  to  regulating  trade  and commerce   and  raising  revenue,  an  exception  has   been engrafted in Art. 289 (1) in favour of States granting  them immunity  from  certain kinds of Union taxation  and  it  is necessary  that the general Words of the exemption  in  that Article  should be limited in their scope so as not to  come in  conflict with the power of the Union to  regulate  trade and commerce. (3)  Though the Constitution of India does not make a  clear distinction between direct and indirect taxes, the exemption provided  in Art., 289 (1) from Union taxation  to  property must  refer to what are known to economists as direct  taxes on property and not to indirect taxes like duties of customs and excise which are in their essence trading taxes and  not tax on property. Per  Das, Sarkar and Das Gupta JJ.-(1) The exemption  clause under  Art.  289  (1) ha,; to be interpreted  with  the  key furnished  by Art. 366 (28) Under the Constitution the  word "taxation" has been defined by the Constitution itself,  and the  Court  is not free to give a different meaning  to  the word so as to make a distinction between direct and indirect  789 taxation,  nor  is  the Court free  to  make  a  distinction between a tax on property and a tax in respect of it. (2)  The problem is not the nature of the impost, but rather the  extent  of  the immunity granted by Art.  289  and  the extent of the immunity really depends on the true scope  and effect of Arts. 245, 285, 289, and 366 (28). (3)  The  Union’s  power to legislate  to  regulate  foreign trade  contained in the legislative list is subject  to  the provisions  of  the Constitution, and the Union  cannot,  in view  of  Art.  289 (1), impose a  customs  duty  on  things imported by the State and seek to justify it as an  exercise of its power to regulate foreign trade. (4)  The  exemption  given  to  State  property  from  Union taxation  by Art. 289 does not conflict in any way with  the power of  control which the Union has over foreign trade  or inter-State trade.

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(5)  In  the  Constitution of India the  "taxing  powers  is treated  as  different from the "regulatory power"  and  the classification  between "direct" and "indirect" taxes  hasot been adopted in the Constitution. Per Hidayatullah J.-(1) The fact that the word "taxation" is used in one place only in the Constitution saves us from the task of examining the context, because the definition  would become a dead letter if it were not used in Art. 289 in  the sense defined. (2)  Taking  the language of Art. 289 (1) by itself or  even as  modified by that of cls. (2) and (3) the  conclusion  is inescapable  that properties of all kinds belonging  to  the States  save those used or occupied fur trade  or  business, were meant to be exempted from taxation.  The scheme of Art. 289  does not admit that the word "property" should be  read in  any  specialized  sense and  goods  imported  and  goods manufactured or produced by the States air, included in  the word "property." (3)  The  provisions  of Art, 289 preclude  the  Union  from imposing,  or authorising the imposition, of customs  duties on the import or export of the property of a State used  for purposes  other  than those, specified in cl.  (2)  of  that Article,  if the imposition is to raise revenue but  not  to regulate external trade. (4)  The  intention being to raise revenue the amendment  if made would be hit by Art. 289. 790 Per  Rajagopala Ayyangar J. -Though no  express  distinction has  been  made  in  the  Constitution  between  direct  and indirect  taxes,  taxes in the shape of  duties  of  customs including  export  duties,  and  excise,  particularly  when imposed  with a view to regulating trade and commence in  so far as such matters are within the competence of  Parliament being covered by various entries in List I, cannot be called taxes  on property ; for they are imposts with reference  to the movement of property by way of import or export or  with reference to the production or manufacture of goods. American, Australian and Candian cases reviewed.

JUDGMENT: ADVISORY JURISDICTION : Special Reference No. 1 of 1962. Reference  by the President of India under Art. 143  (1)  of the  Constitution regarding the proposed amendments to  sub- section (2) of Section 20 of the Sea Customs Act, 1878  (Act 8 of 1878) and subsection 1 (a) of Section 3 of the  Central Excise and Salt Act, 1944 (Act 1 of 1944). C.   E. Daphtary, Solicitor-General of India,H.   N. Sanyal, Additional  Solicitor General of India, G.N. Joshi and  R.H. Dhebar, for the Union Of India. D.   Narsa  Rajuu, Advocate-General for the State of  Andhra Pradesh  and  T. V. R. Tatachari, for the  State  of  Andhra pradesh. B.   C.  Barua, Advocate-General for the State of Assam  and Naunit Lal, for the State of Assam. Mahabir Prasad, Advocate-General for the State of Bihar  and S. P. Varma, for the State of Bihar. A.   V. Viswanatha Sastri, J. B. Dadachanji,O.    C.  Mathur and Ravinder Narain, for the State of Maharashtra. J.   M.  Thakore, Advocate-General the State  of  Gujaratand H.L.Hathi,for the State for Gujarat.  791 D.   Sahu,  Advocate-General for the State of Orissa and  K. L. Hathi, for the State of Orissa.

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V.   P.  Gopalan Nambyar, Advocate-General for the State  of Kerala and Sardar Bahadur, for the State of Kerala. A.   Ranganadham  Chetty and A. V. Rangam, for the State  of Madras. G.   R. Ethirajulu Naidu, Advocate-General for the State  of Mysore and R. Gopalakrishnan, for the State of    Mysore. S.   M. Sikri, Advocate-General for the State of Punjab,   S. K. Kapur and Gopal Singh, for the State of   Punjab. G. C. Kasliwal, Advocate-General for the State Of Rajasthan, S.  K. Kapur, V. N. Sethi and K. K. Jain, for the  State  of Rajasthan. B.   Sen, M. K. Banerjee and P. K. Bose, for the State of  West Bengal. M.   Adhikari,  Advocate-General  for the  State  of  Madhya Pradesh and I. N. Shroff, for the State of Madhya Pradesh.K.   S. Hajela and C. P. Lal, for the State of Uttar Pradesh. 1963.   May  10.  The opinion of B. P. Sinha,  C.J.,  P.  B. Gajendragadkar,  K.  N.  Wanchoo  and J.  C.  Shah  JJ.  was delivered  by Sinha, C. J. The opinion of S. K. Das,  A.  K. Sarkar and K. C. Das Gupta JJ., was delivered by Das, J.  M. Hidayatullah, J., and N. Rajagopala Ayyangar, J.,  delivered separate opinions. SINHA  C.  T.-The main question, on this  reference  by  the President of India under Art. 143 (1) of 792 the   Constitution,   depends  upon  the  true   scope   and interpretation  of Art. 289 of the Constitution relating  to the  immunity of States from Union taxation.  On receipt  of the  reference notices were issued to the  Attorney  General ’of  India and to the Advocates General of the  States.   In pursuance of that the case of the Union Government has  been placed  before us by the learned Solicitor-General and  that of  the  States of Andhra Pradesh,  Assam,  Bihar,  Gujarat, Kerala, Madhya Pradesh, Madras, Maharashtra, Mysore, Orissa, Punjab  and  West  Bengal  was  presented  to  us  by  their respective  counsel.  On the date the hearing of  this  case started,  an application was made on behalf of the State  of Uttar Pradesh also to be heard, but no statement of case had been put in on behalf of that State, and as no grounds  were made   out   for  condoning  the  delay,  we   refused   the application. The reference is in these terms "Whereas  sub-section (1) of section 20 of the  Sea  Customs Act, 1878 (Act 8 of 1878), provides for the levy of  customs duties  on goods imported or exported by sea to  the  extent and in the manner specified in the said sub-section ; And  whereas sub-section (2) of section 20 of the  said  Act applies the provisions of sub-section (1) of that section in respect of all goods belonging to the Government of a  State and used for the purposes of a trade or business of any kind carried  on by, or on behalf of, that Government, or of  any operations  connected  with such trade or business  as  they apply in respect of goods not belonging to any Government; And  whereas  it  is proposed to amend  sub-section  (2)  of section 20 of the said Act so as to apply the provisions  of sub-section  (1)  of that section in respect  of  all  goods belonging to the Government of a State;  793 irrespective  of whether such goods are used or not for  the purposes set out in the said subsection (2) as at present in force; And  whereas  sub-section (1) of section 3  of  the  Central Excises and Salt Act, 1944 (Act 1 of 1944), provides for the levy  of duties of excise on all excisable goods other  than salt which are produced or manufactured in India and a  duty

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on  salt manufactured in, or imported by land into any  part of India in the manner specified in the said sub-section; And  whereas  sub-section (IA)of section 3 of the  said  Act applies the provisions of sub-section (1) of that section in respect  of  all excisable goods other than salt  which  are produced  or manufactured in India by, or on behalf of,  the Government  of a State and used for the purposes of a  trade or business of any kind carried on by, or on behalf of, that Government,  or of any operations connected with such  trade or business as they apply in respect of goods which are  not produced or manufactured by any Government; And  whereas  it is proposed to amend  sub-section  (IA)  of section  3 of the said Act so as to apply the provisions  of sub section (1) of that section in respect of all  excisable goods other than salt which are produced or manufactured  in India  by,  or  on  behalf of the  Government  of  a  State, irrespective  of whether such goods are used or not for  the purposes set out in the said sub-section (IA) as at  present in force; And  whereas  it is proposed to introduce  in  Parliament  a Bill,  the  draft of ’which is annexed here  to  and  marked "Annexure’,  to amend for the purpose aforesaid  sub-section (2)  of  section 20 of the Sea Customs Act, 1878 (Act  8  of 1878)  and  sub-section -(IA) of section 3  of  the  Central Excises and Salt Act, 1944 (Act 1 of 1944); 794 And whereas Governments of certain States have expressed,the view  that the amendments as proposed in the said  draft  of the Bill may not be constitutionally valid as the provisions of  article 289 read with the definitions of ’taxation’  and -tax’  in clause (28) of article 366 of the Constitution  of India  preclude the Union from imposing or  authorising  the imposition  of any tax, including customs duties and  excise duties; or in relation to any property of a State except  to the  extent permitted by clause (2) read with clause (3)  of the said article 289; And  whereas  the Government of India is on the  other  hand inclined to the view-               (i)   that  the exemption from Union  taxation               granted  by clause (1) of article 289 is  res-               tricted  to Union taxes on the property  of  a               State  and does not extend to Union  taxes  in               relation  to the property of a State and  that               clauses (2) and (3) of that article have  also               to be construed accordingly;               (ii)  that  customs  duties are taxes  on  the               import or export of property and not taxes  on               property  as  such  and  further  that  excise               duties   are  taxes  on  the   production   or               manufacture  of  property  and  not  taxes  on               property as such; and               (iii) that  the union is not precluded by  the               pro.   visions   of   article   289   of   the               Constitution   of  India  from   imposing   or               authorising  the imposition of customs  duties               on  the import or export of the property of  a               State and other Union taxes on the property of               a  State  which are not taxes on  property  as               such; And whereas doubts have arisen as to the true interpretation and  scope of article 289 of the Constitution of India  and, in  particular,  as to the constitutional  validity  of  the amendments to the Sea Customs  795 Act.  1878 (Act 8 of 1878) and the Central Excises and  Salt

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Act, 1944 (Act 1 of 1944) as proposed in the aforesaid draft Bill; And whereas in view of what has been hereinbefore stated, it appears to me that the questions of law hereinafter set  out have arisen and are of such a nature and are of such  public importance that it is expedient to obtain the opinion of the Supreme Court of India thereon; Now, therefore, in exercise of the powers conferred upon  me by  clause (1) of article 143 of the Constitution of  India, 1,  Rajendra  Prasad, President of India, hereby  refer  the following  question  to  the  Supreme  Court  of  India  for consideration and report of its opinion thereon;                "(1) Do the provisions of article 289 of  the               Constitution preclude the Union from imposing,               or  authorising  the  imposition  of,  customs               duties on the import or export of the property               of a State used for purposes other than  those               specified in clause (2) of that article ?               (2)   Do the provisions of article 289 of  the               Constitution of India preclude the Union  from               imposing,  or authorising the  imposition  of,               excise duties on the production or manufacture               in  India of the property of a State used  for               purposes other than those specified in clause               (2)   of that article ?               (3)   Will  sub section (2) of section  20  of               the Sea Customs Act, 1878 (Act 8 of 1878)  and               subsection  (IA) of section 3 of  the  Central               Excises and Salt Act, 1944 (Act 1 of 1944)  as               amended by the Bill set out in the Annexure be               inconsistent  with the provisions  of  article               289 of the Constitution of India New Delhi                     Sd/-Rajendra Prasad, Dated the 19-4-1962.                                President of India. 796                                                               Anne xure               DRAFT BILL               A               BILL               Further  to amend the Sea Customs  Act,  1878,               and the Central Excises and Salt Act, 1944.               Be it enacted by Parliament in the year of the               Republic of India as follows               1.    Short  title-This Act may be called  the               Sea  Customs and Central  Excises  (Amendment)               Act, 19.               2.    Amendment of section 20, Act 8 of  1878,               In section 20 of the Sea Customs Act, 1878 for               sub-section  (2)  the  following   sub-section               shall be substituted, namely :-               "(2)  The provisions of sub-section (1)  shall               apply in respect of all goods belonging to the               Government  as they apply in respect of  goods               not belonging to the Government."               3.    Amendment of section 3, Act 1 of 1944.In               section 3 of the Central Excises and Salt Act,                             1944,  for sub-section (IA) the follow ing  sub-               section shall be substituted, namely :-               "(1A) The provisions of sub-section (1)  shall               apply in respect of all excisable goods  other               than  salt which are produced or  manufactured               in  India by, or on behalf of, the  Government

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             as  they apply in respect of goods  which  are               not produced or manufactured by the Govern.                797 It has been argued on behalf of the Union of India that  cl. (1)  of  Art. 289 properly interpreted would mean  that  the immunity  from taxation granted by the Constitution  to  the States is only in respect of tax on property and on  income, and  that  the immunity does not extend to  all  taxes;  the clause  should not be interpreted so as to include  taxation in  relation to property; a tax by way of import  or  export duty  is  not  a  tax on property but  is  on  the  fact  of importing  or  exporting goods into or out of  the  country; similarly, an excise duty is not a tax on property but is  a tax  on  production  or manufacture  of  goods;  though  the measure  of the tax may have reference to the value,  weight or  quantity  of  the  goods,  according  to  the   relevant provisions  of the statute imposing excise duty, in  essence and  truly speaking import or export duties or  excise  duty are not taxes on property, including goods, as such, but  on the  happening  of  a certain event in  relation  to  goods, namely,   import  or  export  of  goods  or  production   or manufacture of goods; the true meaning of Art. 289 is to  be derived not only from its language but also from the  scheme of  the Indian Constitution distributing powers of  taxation between the Union and the States in and the context of those provisions;  Arts.  285  and 289  of  the  Constitution  are complementary  and  the true construction of the one  has  a direct bearing on that of the other; those articles have  to be   construed  in  the  background  of  the   corresponding provisions of the Government of India Act 1935, ss. 154  and 155;  cl.  (2) of Art. 289 is only explanatory  and  not  an exception  to cl. (1) in the sense that the entire field  of taxation covered by cl. (1) is also covered by the terms  of cl. (2); as Parliament has exclusive power to make laws with respect  to  trade and commerce with foreign  countries  and with  respect to duties of customs, including export  duties and  duties  of  excise on  certain  goods  manufactured  or produced  in India, the Union is competent to impose  or  to authorise the, imposition of custom duties on 798 the  import or export of goods by a State which may  be  its property or excise duty. on the production or manufacture of goods  by  a  State;  if cl. (1) of  Art.  289  were  to  be interpreted as including the exemption of a State in respect of  customs  duties  or excise duty, it  will  amount  to  a restriction  on the exclusive: competence of  Parliament  to make  laws with respect to trade and commercial  restriction which  is  not  warranted  in view  of  the  scheme  of  the Constitution;  that the term "taxation" has been used  in  a very  wide  sense, as per Art. 366 (28); the wide  sweep  of that expression has to be limited with respect to the  words "Property"  or  "income";  the juxtaposition  of  the  words "’property"  and "income" in cl. (1) of Art. 289 would  show that  the  exemption of the States from Union  taxation  wag only  in  respect of tax on property and tax on  income;  in other  words,  the exemption granted by Art. ?89 (1)  is  in respect of property taxes properly so called in the sense of taxes directly on property; a tax on property means a tax in respect  of ownership, possession or enjoyment of  property, in contradistinction to customs duties and duties of excise, which  in their true meaning are not taxes on  property  but only in relation to property, on a particular occasion  Cl.. (2) of Art. 289 of the Constantine shows clearly that  trade or business carried on by States will be liable to taxation; by  cl.  (3) of Art. 289 Parliament has been  authorised  to

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legislate  as to what trade or business would be  incidental to the ordinary functions of government and which, therefore would not be subject to taxation by the Union; any trade  or busines  not  so declared by parliament will be  within  the operation of cl. (-), i.e liable to Union taxation. On the other hand. it is argued on behalf of the States that in  interpreting Art. 289 of the Constitution, on which  the answer to the question referred by the President depends, it has to be borne in mind that our Constitution does not  make a distinction  799 between  direct  and  indirect  taxation;  that  trade   and commerce  and  industry have been  distributed  between  the Union  and  the  States;  that  the  power  of  taxation  is different  from  the power to regulate trade  and  commerce; that the narrower construction of the Article, contended for and  on  behalf of the Union, will seriously  and  adversely affect  the activities of the States and their powers  under the Constitution; that a comparison and contrast between the terms of s. 155 of the Government of India Act and those  of Art.  289 of the Constitution would clearly  emphasize  that the  wider  meaning contended for on behalf  of  the  States should  be  preferred;  that  the  legislative  practice  in respect of excise and customs duties is a permissible  guide to  the interpretation of the Article in question and  would support  the wider construction, an that even on a  narrower construction, insisted upon by the Union, customs duties and duties of excise affect property and are, therefore,  within the  immunity  granted by Art. 289 (1);  properly  construed Art.  289 (1) grants complete immunity from all taxation  on any kind of property; and any kind of tax on property or  in relation to property is within the immunity; therefore,  the distinction sought to be made on behalf of the Union between tax  on property and tax in relation to property  is  wholly irrelevant;  cl.  (2)  of Art. 289 is  not  explanatory,  as contended on behalf of the Union, but is an exception or  in the  nature of a proviso to cl. (1) of the Article; cl.  (2) really carves out something which is included in cl. (1) and similarly cl. (3) is an exception to cl. (2) and carves  out something which is included in cl. (2). It   should  be  noted  that  all  the  States  which   were represented  before us were agreed in their  contention,  as set out above, except the State of Maharashtra.  The learned Counsel  for  the  State  of  Maharashtra  agreed  with  the contention  on  behalf of the Union that there was  a  clear distinction between 800 tax  on property and excise duties.  In other words,  excise duty  is not within the immunity granted by cl. (1) of  Art. 289,  which is in the nature of an exception to the  general power  of  a State to regulate trade and  commerce  and  its right  to  tax,  and  as such it  should  be  very  strictly construed.   But he supported the other States in so far  as they contended that duties of import and export were  within the exemption granted by cl. (1) of Art. 289. It  will  thus  be  seen  that  whereas  the  Union  is  for interpreting cl. (1) of Art. 289 in the restricted sense  of the  immunity being limited to a direct tax on property  and on  the  income of a State, the States contend for  an  all- embracing exemption from Union taxes which have any relation to or impact on State property and income.  In spite of this wide gulf between the two view points, both are agreed  that the  terms "property", "income’ and "tax" have been used  in their widest sense.  ’They are also agreed that the immunity granted to the Union in respect of its property by Art.  285

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corresponds  to the immunity granted to the States  by  Art. 289, and that, therefore, the term "property" "taxation" and "tax" have to be interpreted in the same comprehensive sense in  both the Articles.  It will be noticed that whereas  not only  the term ("property" but also "income" occurs in  Art. 289,  in Art. 285 the term "income’ is not  used  apparently because  the  Constitution makers were aware  of  the  legal position that tax on "income" (as distinct from agricultural income)  is  exclusively in the Union List and was  so  even before  the advent of the Constitution.  It was agreed,  and it  is manifest that the terms of Art. 285 and 289 are  very closely parallel to those of ss. 154 and 155,  respectively, of the Government of India Act, 1935 (25 & 26 Geo.  VC. 42), except  for the differences in expression occasioned by  the change  in the constitutional  position and the  integration of the Indian States after-  801 1947.   The language of the two parellel provisions  may  be set  out  below  in  order to bring  out  the  points     of similarity and contrast. Government of India Act. S.   154  : Property vested in His Majesty for  purposes  of the  Government of the Federation shall, save in so  far  as any  Federal law may otherwise provide, be exempt  from  all taxes imposed by, or by any authority within, a Province  or Federated State; Provided that, until any Federal law otherwise provides, any property   so  vested  which  was  immediately  before   the commencement  of Part III of this Act liable, or treated  as liable.,  to  any  such  tax, shall, so  long  as  that  tax continues,  continue  to  be liable, or  to  be  treated  as liable.. thereto. S.   155   (1)  Subject   as  hereinafter   provided..   the Government of a Province and the Constitution of India. Art.  285. (1) The property of the Union shall, save  in  so far  as Parliament may by law otherwise provide,  be  exempt from all taxes imposed by a State or by any Authority within a State. (2)  Nothing in clause (1)  shall,  until  Parliament by law  otherwise  provides., prevent I any authority within a State from levying any ’tax on  any  property of the Union to which  such  property  was immediately  before’ the commencement of  this  Constitution liable  or treated as liable, so long as that tax  continues to be levied in that State. Art.  289. (1) The property and income of a State  shall  be exempt from Union 802 Government of India Act. Ruler  of a Federated State &hall not be liable  to  Federal taxation in    respect of land & or     buildings situate in British India, or    income accruing, arising or received in British India : Provided that- (a)  where a trade or business of any kind is carried on  by or on behalf of the Government of a Province in any part  of British  India  outside that Province or by a Ruler  in  any part  of  British India, nothing in this  sub-section  shall exempt that Government or Ruler from any Federal taxation in respect  of that trade or business, or any  operations  con- nected  therewith,  or  any  income  arising  in  connection therewith,  or  any  property  occupied  for  the   purposes thereof, (b)  nothing in this sub-section shall exempt

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Constitution of India. taxation. (2)  Nothing in clause (1)    shall prevent.the Union  from imposing, or authorising the imposition  of  any tax to such extent, if any as Parliament may by law  provide in respect of a trade or business of any kind carried on by, or on behalf of the Government of a State, or any operations connected  therewith, or any property used or  occupied  for the  purposes  of  such trade or ’business,  or  any  income accuring or arising in connection therewith. (3)  Nothing in clause (2)  shall  apply to any trade or business, or to any  class of trade  or business which Parliament may by     law declare  to  be  incidental to  the  ordinary  functions  of government.  803 Government of India Act. a  Ruler from any Federal taxation in respect of any  lands, buildings or income being his personal property or  personal income. (2)  Nothing in this Act affects any exemption from taxation enjoyed as of right at the passing of this Act by the  Ruler of  an  Indian  State in respect of  any  Indian  Government securities issued before that date. Constitution of India. It  will thus appear that both s. 154 and Art. 285  set  out above  speak only of "property" and lay down  that  property vested  in the Union shall be exempt from all taxes  imposed by  a State or by any authority within a State,  subject  to one  exception  of  saving the pre-existing  taxes  on  such property  until  Parliament may by  law  otherwise  provide. Similarly,  whereas  s. 155 of the Government of  India  Act exempts  from federal taxes the Government of a Province  in respect  of lands or buildings situate in British  India  or income accruing, arising or received in British India,  Art. 289(1)  says  "the property and income of a State  shall  be exempt from Union taxation".  Section 156 aforesaid has  two provisos (a) & (b); (a) relating to trade or business of any kind  carried  on  by or on behalf of the  Government  of  a Province,  and  (b)  which is not relevant,  relating  to  a Ruler.   It will be seen that "’income" is repeated in  both the  provisions, but what was "’lands" or  "’buildings"  has become simply "property" in Art. 289(1). 804 The  question  naturally  arises why  "income"  was  at  all mentioned  when it is common ground that "income"  would  be included in the generic term " property".  It was  suggested on  behalf  of the Union that the a position  of  the  terms "property"  and "income"of a State which have been  declared to be exempt from Union taxation would indicate that the tax from which they were to be immune was tax on ,(property" and on  "Income", i.e., in both cases a direct tax, and  not  an indirect  tax,  which  may  be levied  in  relation  to  the property of a State, namely, excise duty, which is a tax  on the  manufacture  or production of goods  and  customs  duty which is a tax on the event of importation or exportation of goods. Before dealing with the argument on either side, whether the restricted meaning attributed to the words of Art. 289(1) on behalf  of the Union, or the wider significance claimed  for these  words  on behalf of the States, was intended  by  the Constitution makers, it is necessary to bear in mind certain general considerations and the scheme of the  constitutional provisions  bearing on the power of the Union to impose  the taxes contemplated by the proposed legislation.  Neither the

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Union  nor the States can claim unlimited right  as  regards the  are area of taxation.  The right has been hedged in  by considerations of respective powers and responsibilities  of the Union in relation to the States, and those of the States in  relation to citizens or inter se or in relation  to  the Union.   Part XII of the Constitution relates  to  "Finances etc."  At  the they outset Art. 265 lays down  that  no  tax shall  be  levied or collected except by authority  of  law. That  authority  has to be found in the three lists  in  the Seventh Schedule, subject to the provisions of Part Xi which deals with the relations between that Union and the  States, particularly Chapter 1 relating to legislative relations and distribution of legislative powers, with special  reference, to Art.’ 246.  Under that Article the legislature of a State has exclusive powers to make laws with respect 805 to the matters enumerated in List 11 and Parliament and  the Legislature of a State have powers to make laws with respect to’  the  matters  enumerated in List  III  (the  Concurrent List),  and notwithstanding those two lists, Parliament  has the exclusive power to make Laws with respect to any of  the matters  enumerated in List I (the Union List).   Parliament also  has  power  to make laws with respect to  any  of  the matters  enumerated  in the State List with respect  to  any part  of the territory of India which is not included  in  a State.   By  Art.  248  Parliament  has  been  vested   with exclusive power to make laws with respect to any matters not enumerated  in  the  State  list  or  the  Concurrent  list, including  the  power of making a law imposing ?.  tax  ’nut mentioned in either of those lists.  It is not necessary  to refer  to  the  extended  power  of  legislation  vested  in Parliament  in  abnormal circumstances, as  contemplated  by Arts. 249 250 and 252.  In short, though the State have been vested with exclusive powers of Legislation with respect  to the  matters  enemurated  in  List  II,  the  authority   of Parliament to legislate in respect of taxation in List I  is equally exclusive.  The scheme of distribution of powers  of legislation, with particular reference to taxation, is  that Parliament  has  the exclusive power to  legislate  imposing taxes  on income other than agricultural income (Entry  82): duties of customs including export duties (Entry 83); duties of excise an tobacco an other goods, manufactured or produc- ed in India, except alcoholic liquors for human  consumption and  opium,  Indian  hemp  and  other  narcotic  drugs   and narcotics,  which  by entry 51 of List II is vested  in  the State legislature (Entry 84).  It is not necessary to  refer to the other taxes which Parliament may impose because  they have  no direct bearing on the questions, in controversy  in this case.  Similarly, the State legislatures have the power to impose  taxes on agricultural income (Entry 46), taxer,on lands   and     buildings (Entry 49) and duties of excise on alcoholic liquors and opium etc., manufactured or 806 produced in the State and countervailing duties at the  same or  lower  rates on similar goods manufactured  or  produced elsewhere in India (Entry 51).  It is also not necessary  to refer  to  other heads of taxes which arc contained  in  the State List.  It would, thus appear that whereas all taxes on income  other  than  agricultural  income  are  within   the exclusive  power of the Union, taxes on agricultural  income only  are  reserved  for the States.   All  customs  duties, including export duties, relating as they do to transactions of  import into or export out of the country are within  the powers  of  Parliament.  The States are not  concerned  with those.   They are only concerned with taxes on the entry  of

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goods  in local areas for consumption, use or sale  therein, covered by entry 52 in the State List.  Except for duties of excise  on  alcoholic liquors and opium and  other  narcotic drugs,  all  duties of excise are  leviable  by  Parliament. Hence,  it can be said that by and large, taxes  on  income, duties  of  customs  and duties of  excise  are  within  the exclusive power of legislation by Parliament. Those  exclusive powers of taxation, as aforesaid vested  in Parliament,  have to be correlated with the exclusive  power of  Parliament  to  legislate  with  respect  to  trade  and commerce  with foreign countries; import and  export  duties across  customs frontiers; definition of  customs  frontiers (Entry  41); inter-State trade and commerce (Entry 42).   As the regulation of trade and commerce with foreign countries, as also inter-State, is the exclusive responsibility of  the Union, Parliament has the power to legislate with respect to those  matters, alongwith the power to legislate by  way  of imposition  of  duties of customs in respect of  import  and export  of goods as also to impose duties of excise  on  the manufacture or production in any part of India in respect of goods other than alcoholic liquors and opium, etc , referred to above.  Further, the imposition of customs duties  807 or  excite  duties may be either (1) with a  view  to  raise revenue or (2) to regulate trade and commerce, both in  land and foreign, or (3) both to regulate trade and commerce  and to  raise  revenue.  If therefore Art.  289  (1)  completely exempts all property of the States from all taxes the  power of  Parliament to regulate foreign trade by the use  of  its power of taxation would be seriously impaired and this  con- sideration  will have to be kept in mind  when  interpreting Art. 289(1). There is another general consideration which has also to  be borne  in mind in view of the provisions contained  in  Part XII  of  the Constitution.  Though various taxes  have  been separately  included  in List I or List II and there  is  no overlaping  in the matter of taxation between the two  lists and  there is no tax provided in the Concurrent List  except stamp  duties  (Item  44),  the  constitution  embodies   an elaborate scheme for the distribution of revenue between the Union  and  the States in Part XII, with  respect  to  taxes imposed  in  List  1. The scheme of  the  Constitution  with respect  to  financial relations between the Union  and  the States.  devised by the Constitution makers, is such  as  to ensure an equitable distribution of the revenue between  the Centre  and  the  States.   All  revenues  received  by  the Government  of India normally form part of the  Consolidated Fund  of India, and all revenues received by the  Government of  a State shall form part of the Consolidated Fund of  the State.  This general rule is subject to the provision of the Chapter  I  of  Part XII in which occur Arts.  266  to  277. Though  stamp duties and duties of excise on  medicinal  and toilet preparations which are’ covered by the Union List are to  be  levied by the Government of India, they have  to  be collected  by  the  States  within  which  such  duties  are leviable  and are not to form part of the Consolidated  Fund of  India,  but  stands assigned to  the  State  which  has. collected them (Art. 268).  Similarly, duties and taxes 808 levied  and collected by the Union in respect of  Succession Duty,  Estate Duty, Terminal Taxes on goods  and  passengers carried  by  Railway, sea or air, taxes on  rail  fares  and freights, etc. as detailed in Art. 269 shall be assigned  to the  States and distributed amongst them in accordance  with the  principles  of  distribution as may  be  formulated  by

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Parliamentary  legislation, as laid down in cl. (2) of  Art. 269.   Art.  270 provides that taxes on income,  other  than agricultural  income  shall be levied and collected  by  the Government  of India and distributed between the  Union  and the  States.  The taxes and duties levied by the  Union  and collected  by the Union or by the States as contemplated  by Arts.  268, 269 and 270 and distributed amongst  the  States shall  not  form  part of the Consolidated  Fund  of  India. Further Excise duties which are levied and collected by  the Government of India and which form part of the  Consolidated Fund of India may also be distributed amongst the States, in accordance  with the principles laid down by  Parliament  in accordance  with  the  provisions  of  Art.  272.    Express provision has been made by Article 273 in respect of grants- in-aid of the revenue of the States of Assam, Bihar,  Orissa and  West Bengal in lieu of assignment of any share  of  the net  proceeds  of  export duty on jute  and  jute  products. Further  a safeguard has been laid down in Art. 274 that  no bill or amendment which imposes or varies any tax or duty in which States are interested or which affects the  principles of  distribution  of duties or taxes amongst the  States  as laid  down in Arts. 268-273 shall be introduced or moved  in either  House of Parliament except on the recommendation  of the  President.  Parliament has also been authorised to  lay down  that certain sums may be charged on  the  Consolidated Fund  of India in each year by way of grants-in-aid  of  the revenues of such States as it may determine to be in need of assistance.   This  aid  may’  be  different  for  different States, according to their needs, with particular  reference to schemes of  800 development for the purposes indicated in Art. 275 (1).    Provision  has  also  been  made  by  Art.  280  for  the appointment  by  the President of a  Finance  Commission  to make,   recommendations   to  the  President   as   to   the distribution  amongst  the Union and the States of  the  net proceeds  of  taxes and duties as aforesaid, and as  to  the principles  which  should govern the  grants-in-aid  of  the revenue of the States out of the Consolidated Fund of India.   It will thus appear that Part XII of the Constitution  has made  elaborate provisions as to the revenues of  the  Union and  of the States, and as to how the Union will  share  the proceeds  of  duties and taxes imposed by it  and  collected either  by the Union or by the States.  Sources  of  revenue which  have  been  allocated  to the  Union  are  not  meant entirely  for  the  purposes of the Union  but  have  to  be distributed  according  to  the  principles  laid  down   by Parliamentary  legislation as contemplated by  the  Articles aforesaid. Thus all the taxes and duties levied by the Union and  collected either by the Union or by the States  do  not form  part  of the Consolidated Found of India but  many  of those  taxes and duties are distributed amongst  the  States and form part of the Consolidated Fund of the States.   Even those  taxes  and duties which constitute  the  Consolidated Fund of India may be used for the purposes of  supplementing the  revenues of the States in accordance with their  needs. The question of the distribution of the aforesaid taxes  and duties amongst the States and the principles governing them, as  also the principles governing grants-in-aid of  revenues of  the  States out of the Consolidated Fund of  India,  are matters  which have to be decided by a high-powered  Finance Commission,  which  is  a  responsible  body  designated  to determine  those  matters in an objective way.   It  cannot, therefore, be justly 810

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contended  that  the construction of Art. 289  suggested  on behalf  of the Union will have the effect of  seriously  and adversely  affecting  the  revenues  of  the  States.    The financial  arrangement and adjustment suggested in Part  XII of    the   Constitution   has   been   designed   by    the Constitution makers in such a way as to ensure an  equitable distribution  of  the  revenues between the  Union  and  the States, even though those revenues may be derived from taxes and  duties  imposed  by the Union and collected  by  it  or through the agency of the States.  On the other hand,  there may be more serious difficulties in the way of the Union  if we  were to adopt the very wide interpretation suggested  on behalf of the States.  It will thus be seen that the  powers of  taxation  assigned  to the Union  are  based  mostly  on considerations  of convenience of imposition and  collection and  not with a view to allocate them solely to the Union  ; that  is  to  say, it was not intended that  all  taxes  and duties imposed by the Union Parliament should be expended on the  activities of the Centre and not on the  activities  of the  States.   Sources of revenue allocated to  the  States, like  taxes on land and other kinds of  immovable  property, have  been allocated to the States alone.  The  Constitution makers realised the fact that those sources of revenue allo- cated to the States may not be sufficient for their purposes and  that  the Government of India would have  to  subsidise their  welfare  activities out of the  revenues  levied  and collected   by   the  Union   Government.    Realising   the limitations on the financial resources of the States and the growing  needs  of  the community in a  welfare  State,  the Constitution  has  made,  as  already  indicated,   specific provisions  empowering Parliament to set aside a portion  of its revenues, whether forming part of the Consolidated  Fund of  India  or  not, for the benefit of the  States,  not  in stated  proportions  but according to their  needs.   It  is clear,  therefore,  that considerations which may  apply  to those Constitutions which recognise  811 water-tight   compartments  between  the  revenues  of   the federating  States and those of the federation do not  apply to  our Constitution which does not postulate any  ’conflict of interest between the Union on the one hand and the States on the other.  The resources of the Union Government are not meant exclusively for the benefit of the Union activities  ; they  are also meant for subsidising the activities  of  the States   in   accordance  with   their   respective   needs, irrespective  of the amounts collected by or  through  them. In  other words, the Union and the States together form  one organic  whole  for  the  purposes  of  utilisation  of  the resources of the territories of India as a whole.    Bearing the scheme of our Constitution in mind let us now turn  to  the words of Art. 289 and also  its  complementary article, namely, Art. 285.  The contention on behalf of  the Union  is that when Art. 289 provides for exemption  of  the property and income of a State from Union taxation, it  only provides  for  exemption  from such tax  as  may  be  levied directly  on  property  and income and not  from  all  Union taxes,  which  may  have some relation to  the  property  or income  of  a State.  On the other hand, the  contention  on behalf of the States is that when Art. 289 (1) provides  for exemption  of the property and income of a State from  Union taxation, it completely exempts the property and income of a State  from all Union taxation of whatsoever nature  it  may be.  So far as exemption of income is concerned, there is no serious dispute that the exemption there is with respect  to taxes  on  income other than agricultural income  (item  82,

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List I), for the simple reason that the only tax provided in List  I with respect to income is in item 82 of List I.  The dispute is mainly with respect to taxes on "property".   Now this  fact  in our opinion has an important bearing  on  the nature of taxation of "’property" which is exempt under Art. 289 (1).  If the income 812 of  a  State  is  exempt only  from  taxes  on  income,  the juxtaposition  of  the words "property and income"  in  Art. 289(1)must  lead  to  the inference that  property  is  also exempt  only from direct taxes on property.  But it is  said that  there is no specific tax on property in List I and  it is  therefore  contended on behalf of the States  that  when property  of a State was exempted from Union  taxation,  the intention  of  the  Constitution makers must  have  been  to exempt  it from all such taxes which are in any way  related to  property.  Therefore, it is urged that the exemption  is not merely from taxes directly on property as such but  from all   tax  which  impinge  on  property  of  a  State   even indirectly, like customs duties, or export duties or  excise duties.  It is true that List I contains no tax directly  on property like List II, but it does not follow from that  the Union  has  no power to impose a tax  directly  on  property under  any  circumstances.  Article 246 (4) gives  power  to Parliament  to make laws with respect to any matter for  any part  of  the  territory of India not included  in  a  State notwithstanding  that such matter is a matter enumerated  in the State List.  This means that so far as Union territories are  concerned  Parliament has power to legislate  not  only with  respect  to items in List I but also with  respect  to items  in List II.  Therefore, so far as  Union  territories are concerned, Parliament has power to impose a tax directly on  property as such.  It cannot therefore be said that  the exemption  of States’ property from Union taxation  directly on  property  under  Art. 289 (1) would  be  meaningless  as Parliament  has  no  power to impose  any  tax  directly  on property.   If  a  State  has  any  property  in  any  Union territory that property would be exempt from Union  taxation on property under Art. 289 (1).  The argument therefore that Art. 289 (1) cannot be confined to tax directly on  property because  there is no such tax provided in List I  cannot  be accepted, 813   Now  the  words  in  Art.  289,  confining  ourselves   to "property",  are  that  "the property of a  State  shall  be exempt from Union taxation".  It is remarkable that the word "all"  does  not  govern  the  woods  "Union  taxation"   in Art.289(1). It does not provide that the property of a State shall  be  exempt  from all Union  taxation.   The  question therefore  is  whether  when  Art.  289  provides  for   the exemption  of  State property from Union taxation,  it  only provides  for  exemption from that kind  of  Union  taxation which  is a tax directly on property.  It is true that  Art. 299(1)  does  not specifically say that the  property  of  a State  shall be exempt from Union taxation on property.   It may  however be properly inferred that was the intention  if one  looks  to the language of Art. 289  (2).   That  clause mainly deals with income accruing or arising to a State from trade  or  business carried on by it.  At the same  time  it provides  that  where the State is carrying on  a  trade  or business  nothing  in cl. (1) shall prevent the  Union  from imposing  any  tax to such extent as Parliament may  by  law provide in respect of any property used or occupied for  the purposes  of such trade or business, and the authority  thus given  to  Parliament to tax property used  or  occupied  in

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connection  with trade or business can only refer to  a  tax directly on property as such, which is used or occupied  for business, the tax being related to the use or occupation  of the  property.   The meaning will be clearer if we  look  to Art.285.  Clause  (1)  of that  Article  provides  that  the property  ’of  the  Union shall be  exempt  from  all  taxes imposed  by  a  State or by any authority  within  a  State. Prima  facie  the use of the words "all taxes"  in  cl.  (1) would suggest that the property of the Union would be exempt from  all  taxes  of whatsoever nature, which  a  State  can impose. But if one looks to cl. (2) of Art. 285 the  ’nature of  taxes  from which the property of the  Union’  would  be exempt  is clearly indicated as a tax on  property.   Clause (2) provides that "nothing in clause (1) shall,until 814 Parliament by law otherwise provides, prevent any  authority within  a State from levying any tax on any property of  the Union  to  which such property was  immediately  before  the commencement  of  this  Constitution liable  or  treated  as liable,  so long as that tax continues to be levied in  that State".   It will in our opinion be permissible in  view  of cl.  (2) to read cl. (1) of Art. 285 when it speaks  of  all taxes  as relating to taxes of the nature of taxes  directly on property.  We have already pointed out, when dealing with the   general   considerations  which  should   govern   the interpretation  of Art. 289 (1) that the power of the  Union would  be crippled if Art. 289 is interpreted  as  exempting the property of a State from all Union taxes.  We have  also pointed out that even though the taxes may be collected  and levied  by the Union, there arc provisions in Part  XII  for the  assignment or distribution of many Union taxes  to  the States.   I here are also provisions for grants maid by  the Union  from the Consolidated Fund of India to a  State.   In these   circumstance’s  it  would  in  our  opinion  be   in consonance  with the scheme of the Constitution relating  to taxation  to  read  Art. 289 (1) as  laying  down  that  the property  and income of a State shall be exempt  from  Union taxation  on property and income.  There is in  our  opinion better  warrant  for reading these words "’on  property  and income" after the words "’Union taxation" in Art. 289(1)  in view of the scheme of our Constitution relating to  taxation and also the provisions of Part XII thereof than to read the word "all" before the words "Union taxation" in that clause. The  effect  of  reading the word  "all"  before  the  words "’Union taxation" would in our opinion be so serious, and so crippling to the resources, which the Constitution  intended the  Union  to have, as to make it impossible to  give  that intention  to the words of cl. (1) of Article 289.   On  the other hand, the States would not be so seriously affected if we read the words "’on property and income" after the words  815 "Union   taxation"  in  Art.  289  (1),  for  unlike   other Constitutions  there  is  provision  in  Part  XII  of   our Constitution for assignment or distribution of taxes  levied and  collected  by  the Union to the  States  and  also  for grants-in-aid  from  the Union to the States,  so  that  the burden which may fall on the States by giving a  restrictive meaning  to the words used in cl. (1) of Art, 289  would  be alleviated  to a large extent in view of the  provisions  in Part XII of the Constitution for assignment and distribution of  taxes  levied by the Union to the States  and  also  for grants-in-aid from the Union to the States.    Further  it must not be forgotten that Arts. 285 and  289 are successors of ss. 154 and 155 of the Government of India Act, though there are differences in detail between them, in

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particular  cl.  (2) of Art. 289, which corresponds  to  the proviso  to s. 154 seems in our opinion to make it clear  by the change in the language, that cl. (1) of Art. 285 when it speaks  of  all taxes is referring to taxes on  property  of which  cl. (2) definitely permits continuance provided  such property of the Union immediately before the commencement of the Constitution was liable or was treated as liable to such tax.   As  to Art. 289 (1), a change has been  made  in  the words,  for s. 155(1), which corresponded thereto,  provided that  the  Government of a Province shall not be  liable  to Federal taxation in respect of lands or buildings.  Art. 289 on the other hand refers not only to lands and buildings but to all property of a State, whether movable or immovable and exempts it from Union taxation.  Even so, we find no warrant for  interpreting cl. (1) of Art. 289 as if it  exempts  all property of a State from all Union taxation.  We are  there- fore of opinion reading Art. 289 and its complementary  Art. 285  together that the intention of the Constitution  makers was  that  Art. 285 would exempt all property of  the  Union from  all  taxes  on property levied by a State  or  by  any authority within the 816 State  while Art. 289 Contemplates that all property of  the States would be exempt from all taxes on property which  may be leviathan by the Union. both the Articles in our  opinion are  concerned  with taxes directly either on income  or  on property  and  not with taxes which  may  indirectly  affect income  or property.  The contention therefore on behalf  of the  Union  that these two’ Articles should be read  in  the restricted  sense of exempting the property or income  of  a State in one case and the property of the Union in the other from  taxes directly either on property or on income as  the case may be, is correct.    In  this connection, it is pertinent to refer to  certain decision  of the High Court of Australia, the Supreme  Court of Canada, and the Privy Council bearing on the construction of   similar,  though  not  identical,  provisions  in   the Constitutions of Australia and Canada.    The corresponding provisions of the Canadian Constitution are  contained  in ss. 91, 92 and 125 of the  British  North America  Act,  1867  (30-31 Vict.   Ch.  3).   The  relevant portion of s. 91 is as follows :-               "It  shall  be lawful for the  Queen......  to               make  laws  for  the  peace,  order  and  good               Government  of  Canada,  in  relation  to  all               matters  not  coming  within  the  classes  of               Subjects  by this Act assigned exclusively  to               the  Legislatures  of the Provinces;  and  the               greater  certainty, but not so as to  restrict               the generality of the fore going terms of this               Section,   it   is   hereby   declared    that               (notwithstanding  anything  in this  Act)  the               exclusive   legislative   authority   of   the               Parliament  of Canada extends to  all  matters               coming  within  the classes of  subjects  next               hereinafter enumerated; that is to say:                ...             ....          .....                817               (2)   The regulation of Trade and Commerce;               (3)   The  raising  of money by  any  mode  or               system of taxation." S.   92  provides  for  exclusive  powers  of  the  province including  direct taxation within the Province in  order  to the raising of revenue for Provincial purposes.               Section 125 is in these terms

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             ",No lands or property belonging to Canada  or               any Province shall be liable to taxation." It will thus be seen that the above quoted section runs very parallel   to  the  provisions  of  Art.  289  (1)  of   our Constitution.  These provisions of the Canadian constitution have  come up for consideration before the Supreme Court  of Canada,  as also before the judicial Committee of the  Privy Council  on  a  number of occasions.  In  the  case  of  the Attorney-General of The Province of British Columbia v.  The Attorney-General of the Dominion of Canada (64 Can.   S.C.R. 377)  the   question arose whether the Province  of  British Columbia  could import liquors into Canada for the  purposes of sale, pursuant to the provisions of the Government Liquor Act  (11 Geo.  V, c. 30) without payment of  customs  duties imposed  by the Dominion of Canada.  It was argued,  as  has been  argued before us, that the word "tax" was wide  enough to  include the imposition of customs duties, and  that  the word  "’property" in s. 125 included property of all  kinds. The answer given by the Dominion was that customs duties did not  constitute taxes within the meaning of  the  expression used  in s, 125 but were merely in the nature of  regulation of  trade and commerce, and secondly, assuming that  customs duties were included in the expression "taxation", they  did not constitute taxation 818 on  property.   It  was  also contended  on  behalf  of  the Dominion that the word "taxation" in s. 125 was not intended to  comprehend  customs duties inasmuch as  the  prohibition indicated  by  the  section was intended  to  be  reciprocal prohibition  and did not extend as regards the  Dominion  to indirect taxation.  The Supreme Court of Canada, by majority judgment,  upheld  the decision of the  Exchequer  Court  of Canada  which had held that the import by the  Province  was liable  to  pay  import  duty to  the  Dominion.   Thus  the contention  raised  on behalf of the Dominion  was  accepted that  customs duties were not taxes imposed on  property  as such  but  were levied on the importation of  certain  goods into Canada as a condition of their importation.   This  decision of the Supreme Court was challenged  before the  Privy Council, by special leave.  The judgment  of  the Privy  Council  is reported in Attroney-General  of  British Columbia  v. Attorney-General of Canada (1924 ’A.  C.  222). The Privy Council upheld the decision appealed from and held that  import duties imposed by the Dominion  upon  alcoholic liquors  imported into Canada by the Government  of  British Columbia  for  the purposes of trade was valid.   The  Privy Council  based its decision on a consideration of the  whole scheme of the Canadian Constitution under which the Dominion had the power to regulate trade and commerce throughout  the Dominion,  and  held  that ’Is. 125  must  therefore  be  so considered as to prevent the paramount purpose thus declared being  defeated".  The Privy Council further  observed  that "the  true solution is to be found in the adaptation  of  s. 125  to  the whole scheme of Government  which  the  statute defines".   The ratio decidendi in the case  just  mentioned fully supports the contention raised on behalf of the  Union in  the present case and the interpretation of Art  289  (1) must   also   be  adapted  to  the  whole  scheme   of   the Constitution.  819    Turning  now  to the Constitution of  Australia  and  the relevant  cases decided by the High Court ,of Australia,  it is  necessary to set out the relevant part of s. 51  of  the Commonwealth of Australia Constitution Act, 1900 (63 and  64 Vict. c. 12) :-

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             "The Parliament shall, subject to this Consti-               tution, have power to make laws for the peace,               order and good Government of Commonwealth with               respect to-               (i)  Trade and Commerce with other  countries,               and among the States;               (ii)  Taxation; but so as not to  discriminate               between the States or parts of States."   This  closely  follows that part of s. 91 of  the  British North  America Act, which has vested the Federal  Parliament with  the"exclusive  power to legislate in respect  of  such trade and commerce and taxation in respect thereof.  Section 114  of  the Commonwealth of Australia  Constitution  grants immunity from taxation in the following terms :-               "A State shall not, without the consent of the               Parliament  of  the  Commonwealth,  raise   or               maintain  any naval or military force, or  im-               pose any tax on property of any kind belonging               to the Commonwealth nor shall the Commonwealth               impose  any  tax  on  property  of  any   kind               belonging to a State."   This  corresponds  to  the  provision of  s.  125  of  the Canadian   Constitution  and  Arts.  285  and  289  of   our Constitution,  which  have laid down the  provisions  as  to exemption from taxation.  The question of the interpretation of  those  provisions of the  Australian  Constitution  came before  the  High  Court of Australia in  the  case  of  the Attorney-General of New South 820 Wales v. The Collector of Customs for New South Wales (1907- 8) 5 C.L.R. 818.  In this case an action was brought by  the State  of New South Wales to recover the amount  of  customs duties  realised by the Collector of Customs in  respect  of certain  steel rails imported by the plaintiff from  England for  use in the construction of the railways of  the  State. The  State  claimed  that those rails  were  not  liable  to customs duties on the ground that they were the property  of the  Government  and as such exempt from customs  duties  by virtue  of s. 114 of the Constitution.  The majority of  the Court decided that the imposition of customs duties being  a mode  of regulating trade and commerce with other  countries as  well  as  of  exercising the  taxing  power,  the  goods imported  by a State Government were subject to the  customs laws  of the Commonwealth.  They also laid it down that  the levying  of the duties of customs is not an imposition of  a tax on property within the meaning of s. 114 aforesaid.  The Court  added  that  even if the words of  the  section  were capable of bearing that comprehensive meaning, that was  not the  only  or necessary meaning and should  be  rejected  as inconsistent  with the provisions of the  Constitution  con- ferring  upon  the Commonwealth exclusive  power  to  impose duties  of  customs  and to  regulate  trade  and  commerce. Isaacs  I  came to the same conclusion  though  on  somewhat different  grounds.   In the result, the  Court  unanimously held,  though  not  for the same  reasons,  that  the  goods imported by the State were liable to import duty.  The  High Court held that the words "impose any tax" might be  capable of   application to duties of customs.  But it  pointed  out that  the  levying  of customs duties  was  not  within  the comprehension  of  the expression "imposition of  a  tax  on property."  It  also pointed out that  customs  duties  were imposed  in  respect  of  goods and in  a  sense  "’upon  19 goods,even as the expression Stamp duties, Succession Duties and  other forms of indirect taxes are said to be  taxes  on deeds and other real or personal property.  The

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821 Court recognised the legal position that customs duties  are not  really  taxation upon property but upon  operations  or movements of property.    These   authorities  based  on  the   interpretation   of analogous   provisions  in  the  Canadian   and   Australian Constitutions fully support the contention raised on  behalf of  the Union that customs duties are not taxes on  property but are imposts by way of conditions or restrictions on  the import  and  export  of goods, in exercise  of  the  Union’s exclusive  power  of regulation of trade and  commerce  read along with the power of taxation and that the general  words of the exemption have to be limited in their scope so as not to  come  into  conflict  with the power  of  the  Union  to regulate trade and commerce and to impose duties of customs.   It is next urged on behalf of the States that even if Art. 289  (1)  only exempts the property of the States  from  tax directly on property, the levy of excise on goods under item 84  of List I is a tax on property and therefore  no  excise can be levied on goods belonging to States and  manufactured by  them.   It  is  further urged  that  duties  of  customs including export duties under item 83 of List I are  equally duties  on the goods imported or exported and therefore  the property  of  the State must be exempt under Art.  289  (1), both from excise duties and from duties of customs including export  duties.  This raises the question of the  nature  of duties of excise and customs.  This question with respect to excise duties was considered by this Court in the case of  A malgamated  Coalfields Ltd. v. Union of India  (A.I.R.  1962 S.C: 1281).  After considering the previous decisions of the Federal  Court In re.  The Central Provinces and Berar  Saks of  Motor and Lubricant Taxation Act (1939 F.C.R. 18) ;  The Province  of Madras v. M/s.  Budhu Paidanna (1942 F.  C.  R. 90)  and of the Judicial Committee of the Privy  Council  in Governor General in Council v. Province of Madras (1945 822 F.C.R. 179), this Court observed as follows at p. 1287:-               "With great respect, we accept the  principles               laid  down by the said three decisions in  the               matter of levy of an excise duty and the mach-               inery for collection thereof.  Excise duty  is               primarily  a  duty on the production  or  man-               ufacture  of  goods produced  or  manufactured               within  the country.  It is an  indirect  duty               which  the manufacturer or producer passes  on               to  the ultimate consumer, that  is,  ultimate               incidence  will  always be  on  the  consumer.               Therefore,  subject always to the  legislative               competence  of the taxing authority, the  said               tax  can  be levied at a convenient  stage  so               long as the character of the impost, that  is,               it is a duty on the manufacture or production,               is  not lost.  The method of  collection  does               not  affect the essence of the duty, but  only               relates  to  the machinery of  collection  for               administrative convenience."    This  will  show that the taxable event in  the  case  of duties of excise is the manufacture of goods and the duty is not  directly on the goods but on the  manufacture  thereof. We  may in this connection contrast sales tax which is  also imposed  with  reference to goods sold,  where  the  taxable event  is  the act of sale.  Therefore, though  both  excise duty  and sales-tax are levied with reference to  goods  the two are very different imposts ; in one case the  imposition is  on  the act of manufacture or production  while  in  the

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other  it is on the act of sale.  In neither case  therefore can  it be said that the excise duty or sales tax is  a  tax directly  on  the goods for in that event they  will  really become  the same tax.  It’ would thus appear that duties  of excise, partake of the nature of indirect taxes as known  to standard works on economics and are to be distinguished from direct taxes like taxes on property and income.  823 Similarly in the case of duties of customs including  export duties  though they are levied with reference to goods,  the taxable  event  is  either the import of  goods  within  the customs  barriers  or  their  export  outside  the   customs barriers.   They  are also indirect taxes  like  excise  and cannot in our opinion be equated with direct taxes on  goods themselves.   Now, what is the true nature of an  import  or export  duty ? Truly speaking, the imposition of  an  import duty,  by  and large, results in a condition which  must  be fulfilled before the goods can be brought inside the customs barriers,  i.e., before they form part of the mass of  goods within  the country.  Such a condition is imposed by way  of the  exercise  of  the power of the Union  to  regulate  the manner  and  terms on which goods may be  brought  into  the country from a foreign land.  Similarly an export duty is  a condition  precedent to sending goods out of the country  to other  lands.  It is not a duty on property in the sense  of Art. 289 (1).  Though the expression "taxation", as  defined in  Art.  366 (28), "includes the Imposition of any  tax  or impost, whether general or local or special", the  amplitude of  that  definition  has  to be cut  down  if  the  context otherwise  so  requires.  The position is that  whereas  the Union  Parliament  has been vested with exclusive  power  to regulate  trade  and commerce, both foreign  and  interState (Entries  41  and 42) and with the  sole  responsibility  of imposing export and import duties and duties of excise, with a view to regulating trade and commerce and raising revenue, an exception has been engrafted in Art. 289 (1) in favour of the  States,  granting them immunity from certain  kinds  of Union   taxation.   It,therefore,becomes  necessary  so   to construe the provisions of the Constitution as to give  full effect  to  both as far as may be.  If it is held  that  the States  are  exempt from all taxation in  respect  of  their export  or  imports,  it  is  not  difficult  to  imagine  a situation where a State might import or export all varieties of things and thus nullify to 824 a  large  extent  the  exclusive  power  of  Parliament   to legislate  in respect of those matters.  The  provisions  of Art.  289  (1) being in the nature of an  exception  to  the exclusive  field of legislation reserved to Parliament,  the exception  has  to  be strictly  construed,  and  therefore, limited  to taxes on property and on income of a State.   In other words, the immunity granted in favour of States has to be  restricted  to  taxes levied directly  on  property  and income.   Therefore, even though import and export  duty  or duties  of excise have reference to goods  and  commodities, they  are not taxes on property directly and are not  within the exemption in Art. 289 (1).   We  may in this connection refer to  the  Attorney-General for  British Columbia v. Kingcome Navigation Co. Ltd.  (1934 A. C. 45), to bring out the essence of duties of customs and excise  which were held by the Privy Council to be in  their essence trading taxes as distinguished from direct taxes.   But  it is contended on behalf of the States that  in  the scheme  of  our constitution no distinction  has  been  made between   direct  and  indirect  tax  and   therefore   this

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distinction is not relevant to the present controversy.   It is true that no such express distinction has been made under our  Constitution; even so taxes in the shape of  duties  of customs  (including export duties) and excise,  particularly with  a view to regulating trade and commerce in so  far  as such matters are within the competence of Parliament and are covered by various entries in List I to which reference  has already been made, cannot be called taxes on property;  they are  imposts with reference to the movement of  property  by way  or import or export or with reference to production  or manufacture  of  goods.   Therefore  even  though  our  Con- stitution  does not make a clear distinction between  direct and  indirect  taxes, there is no doubt that  the  exemption provided in Art. 289 (1) from Union  825 taxation  to  property  must  refer to  what  are  known  to economists  as direct taxes on property and not to  indirect taxes  like duties of customs and excise which are in  their essence trading taxes and not taxes on property.    It  is  also contended on behalf of the States  that  the narrower construction suggested on behalf of the Union would very  seriously  and  adversely  affect  activities  of  the States.   This argument does not take into account the  more serious   consequences  that  would  follow  if  the   wider interpretation suggested on behalf of the States were to  be adopted.   For  example, a State may decide to  embark  upon trade  and commerce with foreign countries on a large  scale in respect of different commodities.  On the  interpretation put  forward  by the States, the Union Parliament  would  be powerless to regulate such trade and commerce by the use  of the power of taxation conferred on it by I entry 83 of  List I, thus largely nullifying the exclusive power of Parliament to legislate in respect of international trade and commerce, including  the power to tax such trade.  Trade and  commerce with foreign countries, export and import across the customs frontriers and inter-State trade and commerce are all within the  exclusive jurisdiction of the Union  Parliament.   This Court  naturally  will  not adopt a  construction,  of  Art. 289(1)  which  will lead to such a startling  result  as  to nullify the exclusive power of Parliament in these matters.   Lastly, it is urged on behalf of the States that s. 20  of the  Sea Custom Act was recast and amended ’by Act.  XLV  of 1951  and that sub-s. (2) thereof has borrowed most  of  its words  from  the  provisions of cl. (2)  of  Art.  289,  and therefore, Parliament itself had understood cl. (2) of  Art. 289 in the sense in which the States are contending that  it should be interpreted.  But that in our opinion does not 826 conclude the matter, for we have to construe the  provisions of  the  Constitution  in their proper setting  and  we  are entitled  to come to the conclusion that Parliament may  not have been correct in so interpreting the words of cl. (2) of Art. 289.   For  the  reasons given above, it must be  held  that  the immunity granted to the States in respect of Union  taxation does not extend to duties of customs including export duties or  duties  of excise.  The answer to  the  three  questions referred to us must, therefore, be in the negative.  Let the opinion   of  this  Court  be  reported  to  the   President accordingly.    S.K. DAS J. In exercise of the powers conferred upon  him by cl. (1) of Art. 143 of the Constitution, the President of India has referred three questions of law to this court  for consideration  and a report of its opinion  thereon.   These questions are

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             (1)   Do the provisions of article 289 of  the               Constitution preclude the Union from imposing,               or  authorising  the  imposition  of,  customs               duties on the import or export of the property               of a State used for purposes other than  those               specified in clause (2) of that article ?               (2)   Do the provisions of article 289 of  the               Constitution of India preclude the Union  from               imposing,  or authorising the  imposition  of,               excise duties on the production or manufacture               in  India of the property of a State used  for               purposes other than those specified in  clause               (2) of that article ?               (3)   Will  sub-section (2) of section  20  of               the Sea Customs Act, 1878 (Act 8 of 1878), and               sub-section  (1A) of section 3 of the  Central               Excises and Salt Act, 1944 (Act 1                827               of 1944) as amended by the Bill set out in the               annexure  be inconsistent with the  provisions               of article 289 of the Constitution of India ?   We have had the advantage of very full arguments on  these questions.   The learned Solicitor-General of India has  put forward  the point of view on behalf of the Union of  India. Several   States  were  represented  before  us   by   their Advocates-General or other counsel.  Except for the State of Maharashtra which has taken a stand somewhat akin to that of the  Union of India, there is a sharp conflict  between  the States  and the Union as to the answers to be given  to  the three questions.  We shall presently refer in greater detail to  the  points of conflict but it may be  generally  stated that  except for the State of Maharashtra, the  States  have taken the stand that under Art. 289 of the Constitution  the property of a State is exempt from the imposition of customs duties  and  excise duties except to  the  extent  permitted under  clause (2) of the said article.  The Union  of  India has taken the stand that the amplitude of power given to the Union  Legislature to impose duties of customs (entry 83  of List I of the Seventh Schedule) and duties of excise  (entry 84  of List I of the Seventh Schedule) can be cut down  only by  a.  very strict interpretation of article 289  and  that strict  interpretation  is  that  cl. (1)  of  Art.  289  is confined to a property tax only, namely, a tax on the  goods as  such and not on their importation or exportation  or  on their  production and manufacture, and looked at  from  that point of view Art. 289 of the Constitution does not give any protection  to a State in the matter of customs  duties  and excise duties.   It  is  necessary perhaps to say something at  this  stage about  the  constitutional  background  against  which   the questions fall for consideration.  The Sea 828 Customs  Act, 1878 (8 of 1878) was enacted in March 1878  in order to consolidate and amend the law relating to the  levy of  sea customs duties.  The Central Excises and  Salt  Act, 1944 (1 of 1944) was enacted in February 1944 to consolidate and  amend the law relating to central duties of excise  and to salt.  The Government of India Act, 1915 (5 and 6 Geo. 5, c. 61) was a consolidating measure repealing and  reenacting the   numerous  Parliamentary  Statutes  relating   to   the administration  of  British  India  which  had  been  passed between  the years 1770 and 1912.  This Act was  amended  in certain minor respects by the Government of India  Amendment Act,  1916  (6  and 7 Geo. 5, c. 37)  which  also  contained certain  substantive  provisions  not  incorporated  in  the

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principal Act.  In 1919 the Act again underwent amendment by the  passing of the Government of India Act, 1919 (9 and  10 Geo.  5,  c.  101)  which was enacted  for  the  purpose  of bringing into effect the Indian constitutional reforms based on what is commonly known as the Montagu-Chelmsford  Report. Section  45 of the Act of 1919 provided that the  amendments made by that Act and the Act of 1916 be incorporated in  the text  of the Government of India Act, 1915, and that Act  as so  amended be known as the Government of India  Act.   This Government  of India Act constituted an  Indian  Legislature consisting  of two Chambers, namely, the Council  of  States and  the  Legislative Assembly.  This  Legislature  bad  the power  to make laws for all persons, for all courts and  for all places and things within British India and had also  the power to repeal or alter any laws which were in force in any part  of  British India.  Prior to the Government  of  India Act,  1935 (26 Geo.  V, c. 2) the dominion and authority  of the  Crown, which extended over the whole of British  India, was derived from many sources, in part statutory and in part prerogative,  the former having their origin in Acts of  the British  Parliament  and  the latter in  rights  based  upon conquest, cession or usage  829 some  of  which  were directly acquired  while  others  were enjoyed by the Crown as successor to the rights of the  East India  Company.   The Secretary of State for India  was  the Crown’s responsible agent for the exercise of all  authority vested  in  the Crown in relation to the affairs  of  India. But the superintendence, direction and control of the  civil and  military  government  of  India  was  declared  by  the Government   of   India   Act   to   be   vested   in    the Governor-General-in-Council;   while   the   government   or administration  of the Governers’ and  Chief  Commissioners’ Provinces vested respectively in the local governments.   The Government of India Act, 1935 introduced a dual system of  government  in the shape of autonomous Provinces  and  a Federation;  two  sets  of Legislatures  were  set  up,  one Federal  Legislature and the other  Provincial  Legislature. In  the  Seventh Schedule were given  three  Lists,  Federal Legislative  List called List 1 Provincial Legislative  List called  List 11 and the Concurrent legislative  list  called List  III.   Legislative power was distributed  amongst  the legislatures  in  accordance with those  lists.   Duties  of custom, including export duties came within item 44 of  List I   and  duties  of  excise  on  tobacco  and  other   goods manufactured or produced in India except alcoholic  liquors, opium etc., came within item 45.  The In Indian  Legislature amended  the  Sea  Customs Act.. 1878 as  also  the  Central Excises and Salt Act, 1944 from time to time in exercise  of the powers which it had either under the Government of India Act.,  or  the Government of India Act,  1935.   The  Indian Independence Act, 1947 created the Dominion of India as from August 15, 1947 and the Secretary of State for India as  the Crown’s  responsible  agent for Indian  affairs  disappeared from  the Indian constitutional scene.  The Constitution  of India   came   into  force  on  January  26,   1950.    This Constitution envisaged India as a Sovereign 830 Democratic Republic, viz., a Union of States but the  scheme of  the  Government  of  India  Act,  1935  with  regard  to distribution of legislative powers between Parliament, which is  the  Union Legislature, and the State  Legislatures  was continued. The Seventh Schedule of the Constitution contains three  lists,  Union List called List 1, State  List  called List  11, and Concurrent List called List III.  Entry 83  of

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List I relates to duties of customs including export  duties and  entry  84 relates to duties of excise  on  tobacco  and other  goods  manufactured  or  produced  in  India   except alcoholic   liquors,   opium  etc.   The   distribution   of legislative powers and the legislative relations between the Union  and  the States are controlled by  various  articles, namely,  Arts.  245 to 258, in Chapter 1 of Part XI  of  the Constitution.    We   may   indicate   here   briefly    the constitutional   position  that  in   normal   circumstances Parliament has exclusive power to make laws with respect  to any of the matters enumerated in List 1, and the Legislature of  any State has exclusive power to make laws for any  such State with respect to any of the matters enumerated in  List 11;  both  Parliament and the Legislature of  a  State  have power  to  make  laws with respect to  any  of  the  matters enumerated in List III.    Under  Art.  245  of  the  Constitution,  the  power   of Parliament  as  also of the Legislature of a State  to  make laws is subject to the provisions of the Constitution.  Some of  these provisions are contained in Art. 285 and Art.  289 which  occur in Chapter 1 of Part XII of  the  Constitution. This  Part  deals  with several subjects,  such  as  Finance (Chapter 1), Borrowing (Chapter 11) and Property,  Contracts etc. (Chapter 111).  We may now read Art. 289 :               "289  (1) The property and income of  a  State               shall be exempt from Union taxation.                831               (2)   Nothing in clause (i) shall prevent  the               Union   from  imposing,  or  authorising   the               imposition of, any tax to such extent, if any,               as Parliament may by of law provide in respect               of a trade or business of any kind carried  on               by,  or  on  behalf of, the  Government  of  a               State, or any operations connected  therewith,               or  any  property  used or  occupied  for  the               purposes  of  such trade or business,  or  any               income  accruing  or  arising  in   connection               therewith.               (3)   Nothing in clause (2) shall apply to any               trade or business, or to any class of trade or               business, which Parliament may by law  declare               to be incidental to the ordinary functions  of               government."   The interpretation of this article is the main subject for consideration in this reference.   Soon  after the coming into force of the Constitution,  s. 20  of  the Sea Customs Act, 1878 which  stated  what  goods would  be dutiable under the Act, was, amended by the  Union Legislature  by  Act XLV of 1951.  The  amendment  took  the shape of inserting a subsection in s. 20, sub-s. (2),  which said  that  the  provisions of sub-s.  (1)  shall  apply  in respect of goods belonging to the Government of a State  and used  for  the purpose of a trade or business  of  any  kind carried  on by, or on behalf of, that Government or  of  any operations  connected  with such trade or business  as  they apply  in respect of goods not belonging to any  Government. A similar amendment was made in s. 3 of the Central  Excises and Salt Act, 1944 by inserting sub-s. (1A) in that section. That  sub-section  said that the provisions  of  sub-s.  (1) shall apply to all excisable goods other than salt which are produced  or  manufactured in India by, or on  behalf  of  a Government  of  a State (other than a Union  territory)  and used for the purposes 832 of  a  trade  or business of any kind carried on  by  or  on

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behalf  of that Government, or of any  operations  connected with  such  trade or business as they apply ;in  respect  of goods  which  are  not  produced  or  manufactured  by   any Government.   It is obvious that these two  amendments  were intented to bring the Sea Customs Act, 1878 and the  Central Excises and Salt Act, 1944 into harmony with Art. 289 of the Constitution.   In  1962 the Union Government  introduced  a draft  Bill in Parliament further to amend the  Sea  Customs Act,  1878 and the Central Excises and Salt Act,  1944.   We may  quote  two  clauses, of this draft  Bill  in  order  to appreciate  how this reference has come to be made  to  this court.   These two clauses are clauses 2 and 3 of the  draft Bill which run :               2.    Amendment of section 20, Act 8 of 1878,-               In  section 20 of the Sea Customs  Act,  1878,               for sub-section (2) the following  sub-section               shall be substituted, namely               "(2)  The provisions of sub-section (1)  shall               apply in respect of all goods belonging to the               Government  as they apply in respect of  goods               not belonging to the Government."               3. Amendment of section 3, Act 1 of 1944,-  In               section 3 of the Central Excises and Salt Act,               1944, for sub-section (1A) the following  sub-               section shall be substituted, namely :-               "(1A) The provisions of sub-section (1)  shall               apply  in respect of all excisable good  other               than  salt which are produced or  manufactured               in  India by, or on behalf of, the  Government               as  they apply in respect of goods  which  are               not   produced   or   manufactured   by    the               Government."  833 This  draft  Bill  gave  rise  to  a  controversy  and   the Governments  of certain States expressed the view  that  the amendments   proposed  in  the  draft  Bill  would  not   be constitutionally  valid as the provisions of Art.  289  read with the definitions of ’taxation’ and ’tax’ in cl. (28)  of Art.  366  of  the  Constitution  preclude  the  Union  from imposing or authorising the imposition of any tax, including customs  duties and excise duties, on or in relation to  any property  of a State, except to the extent permitted by  cl. (2)  read  with  cl. (3) of the said Art.  289.   The  Union Government was, however, of the view that the exemption from Union taxation granted by cl. (1) of Art. 289 was restricted to Union taxes on the property of a State and did not extend to  Union  taxes  in relation to the property  of  a  State; therefore,  customs  duties  being taxes on  the  import  or export  of goods and not on goods as such and excise  duties being  taxes on the production or manufacture of  goods  and not  on goods as such did not come within the protection  of cl.  (1) of Art. 289.  This conflict of views gave  rise  to doubts  as to the true interpretation and scope of Art.  289 of   the   Constitution  and  in  particular,  as   to   the constitutional  validity of the amendments proposed  in  the draft  Bill.   This  led the President to  refer  the  three questions stated above to this court for consideration and a report of its opinion thereon.   In one of the very earliest references made to the Federal Court (In are The Central Provinces and Bert Sales of  Motor Spirit and Lubricants Taxation Act, 1938 (Central  Provinces and  Bert  Act. No. XIV of 1938) (1), under s.  213  of  the Government  of India Act, 1935 (which corresponded  to  Art. 143  of  the Constitution), Gwyer C. J.  observed  that  the rules  which  would  apply to the  interpretation  of  other

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statutes  would  apply equally to the  interpretation  of  a constitutional  enactment,  but their  application  must  be conditioned of necessity by the (1)  [1939] F.C.R. 18. 834 subject  matter of the enactment itself, namely, the  nature and  scope  of the Act itself which is a  Constitution,  "’a mechanism under which laws are to be made and not a mere Act which declares what the law ought to be".  He said that this was especially true of a Federal Constitution, with its nice balance  of  jurisdictions.  We recognise that a  broad  and liberal  spirit  must  inspire those whose  duty  it  is  to interpret   an   organic   instrument  which   sets   up   a constitutional  machinery, a machinery meant to control  the life  of a nation, to embody its ideals, and facilitate  the realisation  of such ideals for the present and the  future; this  does not however imply that those whose duty it is  to interpret  the Constitution are free to stretch  or  pervert the language of the enactment in the interests of any  legal or  constitutional  theory  or  even  for  the  purpose   Of supplying omissions or of correcting supposed errors.   Keeping  these  principles  in mind let  us  consider  the problem before us by an examination of the relevant articles of  the Constitution bearing on that problem.  The  crux  of the problem is the true scope and effect of Art. 289 of  the Constitution which we have quoted earlier.  Cl. (1) of  Art. 289 states that the property and income of a State shall  be exempt  from  Union taxation.  Now, Art. 366  (28)  says  in clear terms that, unless the context otherwise requires, the expression "taxation" includes the imposition of any tax  or impost  whether  general or local or special  and  the  word "tax"  shall be construed accordingly.  We  shall  presently consider  the  question  whether the  context  of  Art.  289 requires  a  different  meaning  to be  given  to  the  word "taxation".   But let us first see what happens if  we  read Art.  289 (1) by substituting for the expression  "taxation" the words which Art. 366 (28) says the expression "taxation" includes.  GI. (1) of Art. 289 will then read as follows :               "The  property and income of a State shall  be               exempt from the imposition of any tax or                835               impost,  whether general or local or  special,               by the Union." There can be no manner of doubt that customs duty or  excise duty  is an impost within the meaning of Art. 366 (28),  and this  the learned Solicitor-General has not  contested.   If therefore Art. 289 (1) is interpreted with the key furnished by Art. 366 (28), then it seems to us that however broad and liberal  a  spirit  may inspire those whose duty  it  is  to interpret the article, it would be impossible to stretch  or pervert  the language (of the article which in the  clearest of terms says that the property and income of a State  shall be  exempt  from  any impost, whether general  or  local  or special, by the Union.    So  far  as the property of the Union  is  concerned  the counter part of Art. 289 is Art. 285 which reads :               "(1) The property of the Union shall, save  in               so  far  as Parliament may  by  law  otherwise               provide be exempt from all taxes imposed by  a               State or by any authority within a State.               (2)   Nothing  in  clause  (1)  shall,   until               Parliament by law otherwise provides,  prevent               any authority within a State from levying  any               tax on any property of the Union to which such               property  was  immediately  before  the   com-

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             mencement  of  this  Constitution  liable   or               treated  as  liable,  so  long  as  that   tax               continues to be levied in that State." Now’  the  words of Art. 285 (1) are still  more  clear  and emphatic.   It  says that the property of the  Union  shall, save in so far as Parliament may by law otherwise provide be exempt from all taxes imposed by a State or by any authority within  a State.  The expression "all taxes" must  mean  all taxes  whether  they  be  on  property  or  in  relation  to property. 836 Neither  in Art. 289 (1) nor in Art. 285 (1) do we  see  any restricting  words which would cut down the full meaning  of the expression "taxation" in Art. 289 or "all taxes" in Art. 285.  The distribution of legislative powers under Art.  245 is  in  express  terms  subject to  the  provisions  of  the Constitution.   The  result  therefore  is  that  Parliament cannot  legislate to take away the exemption given  by  Art. 289 (1), nor can a State Legislature Legislate to take  away the  exemption  given by Art. 285 (1).  If one  follows  the principles  of  interpretation  to  which  we  have  earlier referred the plain effect of Arts. 245, 285 (1), 289 (1) and 366  (28)  appears  to  be this : under  Art.  285  (1)  the property of the Union shall be exempt from all taxes imposed by the State or by any authority within a State, save in  so far  as  Parliament  may  by law  otherwise  provide  ;  the property  and income of a State shall be exempt  from  Union taxation  save  in so far as cl. (2) Of Art. 289  allows  or authorises  the imposition of any tax. on the property of  a State.   Let  us now consider whether’ the context of Art.  289  or any of the other articles in the Constitution requires  that a  different  meaning  should be  given  to  the  expression "taxation" or "’taxes" in Art. 289 (1) or Art. 285 (1).     The learned Solicitor-General has emphasised the use  of the  words  ’property’  and ’income’ in  Art.  289  and  has further  submitted that the word ’income’ was not  necessary in  Art. 285 (1) and has not been mentioned  there,  because "taxes on income other than agricultural income" is an  item in List I of the Seventh Schedule of the Constitution and  a State,  or an authority within a State, has  no  legislative competence  to impose a tax on income.  From the use of  the two words property’ and ,income’ in cl. (1) of Art. 289, the learned Solicitor.  General has argued that the intention of the makers  837 of the Constitution must have been to restrict cl. (1) to  a direct tax on property or income, that is, a tax on property as  such or a tax on income as such, He has elaborated  this argument  in this way: as ’income shall be exempt from  tax’ means  that income shall be exempt from income-tax,  in  the same way the expression ’property shall be exempt from  tax’ means  that  property shall be exempt from property  tax  In other  words,  he  contends, that the  word  ’property  must control  the  word  ’taxation’ and must  be  interpreted  as modifying   the  comprehensive  connotation  of   the   word "taxation’.   We  are wholly unable to accept this line of  argument  as correct.  The learned Solicitor-General has indeed  conceded that  the  word  "property’ in cl. (1) of  Art.  289  has  a comprehensive  connotation  and refers to all  property  and assets  of  a State.  Article 294 which occurs in  the  same Part   of   the  Constitution  states  that  as   from   the commencement  of  the Constitution all property  and  assets which  immediately before such commencement were  vested  in

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His  Majesty  for  the purposes of  the  Government  of  the Dominion  of  India  and  all  property  and  assets   which immediately  before  such commencement were  vested  in  His Majesty   for  the  purposes  of  the  Government  of   each Governor’s Province shall vest respectively in the Union and the corresponding State.  It is clear therefore that in  the Constitution the word ’property’ is used in a  comprehensive sense  to include all assets, movable or  immovable.   Apart from  those assets which vested in the Union or a  State  at the  commencement of the Constitution, the Union or a  State may acquire new assets.  This is also provided for in  Arts. 296  to 298 of the constitution.  Therefore, in  both  Arts. 285  and  289  the word ’property’ means  all  property  and assets  which  vested  in  the  Union  or  a  State  at  the commencement of the Constitution and all property and assets which may thereafter be acquired by the Union or a State. 838 In  cl.  (1) of Art. 289, the subject of the sentence  is  ’ property  and income’ and the predicate is ’shall be  exempt from  Union taxation’.  Grammatically, the clause  can  only mean  this:  all  property and income of a  State  shall  be exempt  from  all  taxation by the Union,  giving  the  word ’taxation’  its comprehensive meaning, as required  by  Art. 366  (28).  It is necessary to emphasis here that  the  word ’property’  used  in  the sentence is not  used  as  a  word qualifying  the  word  ’taxation’; rather it is  used  as  a subject  which  gets  the benefit of  exemption  from  Union taxation.  One can understand that when one says that  State income  shall  be  free from Union tax he  means  that  such income  shall  be free from Union  income-tax,  particularly when there is only one legislative item with regard to a tax on  income (.other than agricultural income) which is  entry 82  in  List  I. But we fail to appreciate how  the  word  ’ property’ can be used as qualifying the word ’taxation’  and thereby   restricting   the  ambit  of   its   comprehensive connotation.  The Union power of taxation on or in  relation to  property of various kinds ranges over a wide field;  see entries 82 to 92A of the Constitution.  Why then should  the use  of the word ’property’ in Arts. 285 and 289 refer  only to  those items which enable the imposition of a direct  tax on  property  and not to other,,,?  We  find  no  legitimate ground  for such a restriction in the context of  Art.  289. Such a restriction would, in our opinion, be clearly against the plain language of the article.   The  learned Solicitor-General has conceded that Art.  285 (1) and 289 (1) are analogous and complementary articles and bear  the same meaning.  In Art. 285 (1) the  word  ’income’ does  not occur, but the word ’property’ occurs.  It  states that  the  property of the Union shall be  exempt  from  all taxes  imposed by a State etc.  We fail to see how  in  Art. 285 (1) the word ’property’ can be taken to qualify and  cut down the expression "all taxes"  839 occurring therein.  It should be obvious that the expression ’all  taxes’  means all taxes, and the  clear  intention  as expressed in Art. 285 (1) is that the property of the  Union shall be exempt from all taxes imposed by a State or by  any authority   within  a  State,  including  even  a   tax   on agricultural  income  derived from Union  property.   It  is worthy  of  note here that the items in List II  which  deal with taxes or duties which can be imposed by a State  Legis- lature are those contained in items 46 to 62 thereof Some of these  items  are indeed taxes on property as such,  e.  g., item 49, "taxes on lands and buildings"; item 56, "taxes  on goods   and  passengers  carried  by  road  or   on   inland

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waterways";   item   57,   "taxes   on   vehicles,   whether mechanically  propelled  or not, suitable for use  on  roads etc"; and item 58, "taxes on animals and boats".  Some other items  are in relation to property, but are not on  property as such; e.g., item 51, "duties of excise on the manufacture or  production  of alcoholic liquors for  human  consumption manufactured  in the State and countervailing duties at  the same  or  lower  rates  on  similar  goods  manufactured  or produced  elsewhere in India"; item 52, "taxes on the  entry of  goods  into a local area for consumption.  use  or  sale therein";  item 54, "taxes on the sale or purchase of  goods other   than   newspapers";   and   item   55,   "taxes   on advertisements  other than advertisements published  in  the newspapers".   If  the argument of  the  learned  Solicitor- General  is correct, then the property of the Union will  be exempt  from  such  taxes  imposed by  a  State,  or  by  an authority  within a State, as are property taxes,  that  is, taxes  on property as such, but not exempt from taxes  which are  on  the manufacture or production of  goods,  entry  of goods, sale or purchase of goods etc.  This would mean  that the  expression ’all taxes’ occurring in Art.  285(1)  would lose  its  meaning, and we must read the article  as  though when  the  Constitution  makers  used  the  expression  ’all taxes’. they meant some taxes only and not all taxes.  It is to be 840 noticed  that under Art. 366(28) the word ’tax’ has also  to be  construed  in  the same comprehensive way  as  the  word ’taxation’.  It is necessary to state here that  fortunately for us, neither under the Government of India Act, 1935  nor under  our present Constitution, it is necessary to  examine the  niceties  of distinction between  direct  and  indirect taxation,  as no such division exists in the  Government  of India  Act, 1935 or in the Constitution.  There are  several taxes like taxes on luxuries or trade which can be indirect; and some taxes like succession duties (and even excise) have in part been assigned to both.   In  M.  P. V. Sundararamier & Co. v. The State  of  Andhra Pradesh  (1), this court observed that our Constitution  was not   written  on  a  tabula  rasa;  and  that   a   Federal Constitution  had been established under the  Government  of India Act, 1935, and though that has undergone  considerable change by way of repeal, modification and addition, it still remains the frame work on which the present Constitution  is built.  On an analysis of the subjects in List I and List II of  the  Seventh :Schedule of the Constitution,  this  court observed :               "The  above analysis and it is not  exhaustive               of  the  Entries  in the Lists  leads  to  the               inference that taxation is not intended to  be               comprised  in  the main subject  in  which  it               might on an extended construction be  regarded               as  included,  but is treated  as  a  distinct               matter for purposes of legislative competence.               And  this distinction is also manifest in  the               language of Art. 248, Cls. (1) and (2), and of               Entry 97 in List I of the Constitution." The  distinction is between the main subject of  legislation and  a  tax  in  relation  thereto;  the  main  subject   of legislation  figures  in  one group and a  tax  in  relation thereto is separately mentioned in a (1)  [1956] S. C4 R. 1422,  941 second group, but no distinction is drawn between direct and indirect taxation.  There are several taxing items in List I

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and  List  II which will take in both  direct  and  indirect taxation.   In re The Central Provinces and Berar  Sales  of Motor  spirit  and Lubricant,s Taxation Act,  1938  (Central Provinces  and Berar Act No. XIV of 1938 (1)), Sulaiman  J., after referring to the Canadian Constitution as embodied  in the  British  North America Act, 1867,  and  the  Australian Constitution  as embodied in the Commonwealth  of  Australia Constitution   Act,   1900,  observed  that   unlike   those Constitutions  the  Government of India Act, 1935,  did  not make  any distinction between direct and  indirect  taxation and  in  the matter of legislative competence  the  ultimate incidence of the tax was not necessarily a crucial test  and there  was no justification for adopting any such  principle as that certain classes of duties which were to be  regarded as  direct  had been assigned to the  Provinces,  and  other classes  regarded  as  indirect had been  reserved  for  the Federation  (see  the observations at page 73).  As  in  the Government  of India Act, 1935, so also in our  Constitution the  distinction for purposes of legislative  competence  is between  the  main  subject  of legislation  and  a  tax  in relation thereto.   If this be the correct position, then it is impossible  to accept the argument advanced on behalf of the Union that the word  ’property’ in cl. (1) of Art. 289 or cl. (1)  of  Art. 285   makes  a  distinction  between  direct  and   indirect taxation,  namely,  a tax on property as such and a  tax  in relation to property.   If we examine cls. (2) and (3) of Art. 289 and cl. (2)  of Art.  285, the position becomes still more clear.  It  seems clear to us that cl. (2) of Art. 289 carves out an exception to  cl. (1) in the sense that it states that nothing in  cl. (1) shall prevent the (1) [1939] F.C.R. 18, 842 Union from imposing or authorising the imposition of any tax to such extent, if any, as Parliament may by law provide  in respect of a trade or business of any kind carried on, by or on  behalf  of; a Government of a State, or  any  operations connected  therewith, or any property used or  occupied  for the  purposes  of  such trade or  business,  or  any  income accruing  or arising in connection therewith.  Cl. (3)  says that, nothing in cl. 2 shall apply to any trade or  business or to any class of trade or business which Parliament may by law  declare to be incidental to the ordinary  functions  of Government.  Cf. (2) creates an exception to cl. (1) and cl. (3)  creates  an  exception upon an  exception.   The  broad distinction drawn in these two clauses is between trading or business  activities  of the Government of a State  and  its governmental  functions.   In  respect  to  its  trading  or business activities a tax may be imposed and if any property is used or occupied for the purpose of trade or business, it is  liable  to  tax.  If however the trade  or  business  is declared  by  Parliament to be incidental  to  the  ordinary functions  of a Government, the exemption given by  cl.  (1) will  operate  and cl. (2) will not defeat  that  operation. The  combined effect of cls. (1), (2) and (3) appears to  be this:  under cl. (1) the property and income of a  State  is exempt  from Union taxation; cl. (2) however says  that  the income of a State derived from commercial activities or  the property of a State in respect of a trade or business of any kind  carried on by or on behalf of a Government of a  State or any operations connected therewith or any property.  used or occupied for the purpose of such trade or business  shall not  be  immune from Union taxation; under cl.  (3)  however Parliament  may by law declare any trade or business or  any

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class  of trade or business of a State to be  incidental  to the  ordinary functions of Government and if  Parliament  so declares,  cl. (2) will not apply and the operation  of  cl. (1) will not be arrested.  What  843 is a governmental function or what is a trading or  business function  is  not  always  easy  ’to  determine?   Thus,  in Australia, activities of the Government have been held to be ’industrial’   even  though  nothing  is  charged  for   the services,,  e.  g.  municipal  road  construction,   harbour dredging.  piloting and ferries.  Our  Constitution,  avoids this  difficulty by empowering Parliament to declare by  law that  any trade or business carried on by a State shall  not come within the scope of cl. (2) of the article but shall be deemed  to  be  ’incidental to  the  ordinary  functions  of government’.  Upon such declaration no taxation by the Union of  such trade or business or property or  income  connected therewith will be possible.  This seems to us to be the true effect of the three clauses of Art. 289.   If  cl.  (1) of Art. 289 has a restricted  meaning  as  is contended for by the learned Solicitor-General on behalf  of the  Union,  then the distinction drawn between  trading  or business  activities on one hand and governmental  functions on  the other in cl. (2) and cl. (3) of Art. 289  loses  its full significance; for cls. (1) and (2) distinguish  between trading and other functions and cls. (2) and (3) distinguish between ordinary trading and trading which is really govern- mental  function.  If all that the Union is  prevented  from doing  is  to put a tax on property as such,  what  was  the purpose  of  drawing a distinction between  the  trading  or business  activities  of  Government  And  its  governmental functions ? If the tax is to be levied on property as  such, then  obviously there cannot be any impost on a  trading  or business  activity,  as for example, on  the  production  or manufacture of goods etc.  Why was it necessary then to make a reference to trading or business activities or  operations in cls. (2) and (3) of Art. 289 ? It would have been  enough merely  to say that property used or occupied in  connection with  a trade or business will be liable to a tax,  but  not other property.  But 844 the  ambit  of cl. (2) is much wider than the  mere  use  or occupation of property in connection with trade or business. It has reference to trading or business activities, such as, the production and manufacture of goods., transportation  of goods etc.  Why was it necessary for the Constitution-makers to  refer to such trading or business activities in cl.  (2) if all that they had in mind in cl. (1) was a direct tax  on property ? In our opinion, the learned Solicitor-General has given no satisfactory explanation with regard to this aspect of the case.  He suggested at first that cl. (2) was not  an exception,  but  merely  explanatory  of  cl.  (1).   It  is difficult  to understand why there should be a reference  to business  or  trading activities in cl. (2)  if  the  entire intendment  was to confine the exemption to a direct tax  on property.  The learned Solicitor-General then said that even if cl. (2) was an exception, it was an exception only in the matter of property tax.  That would mean that only the  last portion of cl. (2) which refers to property used or occupied for the purpose of trading or business activities of a State Government  has  any significance and not  the  other  parts which  relate  to trading or business activities,  such  as, production or manufacture of goods etc.   We   have  noticed  earlier  that  the  amendments   which Parliament itself made in 1951 in s. 20 of Sea Customs  Act,

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1878  and s. 3 of the Central Excises and Salt Act, 1944  by inserting  two  subsections thereto showed  that  Parliament understood  cl. (2) of Art. 289 as creating an exception  to cl.  (1).  Those two amendments, sub-s. (3) of s. 20 of  the Sea Customs Act, 1878 and sub-s. (1A) of s. 3 of the Central Excises  and Salt Act, 1944, draw a distinction between  the trading  activities  of the Government of a  State  and  its governmental functions; no exemption is given in respect  of goods  belonging  to  a State Government and  used  for  the purpose of a trade or business of any kind carried on  845 by  or  on behalf of that Government or  of  any  operations connected  with  such trade or business,  but  exemption  is granted in respect of other goods belonging to Government.   If,  therefore,  we  look  to the  context  of  Art.  289, particularly  cls. (2) and (3) thereof, it becomes  manifest that  there  is  nothing in Art.  289  which  restricts  the comprehensive meaning to be given to the word ’taxation’  in Art. 289.  Similar is the position with regard to cl. (2) of Art.  285.   That again creates an exception to cl.  (1)  of Art. 285 and saves any tax on any property   of the Union to which such property was immediately before the  commencement of  the Constitution liable or treated as liable to tax,  so long as that tax continues to be levied in that State.   One  very  serious  objection to  the  contention  of  the learned Solicitor-General, an objection which appears to  us to be almost fatal, is that in the taxing entries in List  I (from  entry 82 to entry 92A) there is no entry which  would enable  the Union to impose a tax on property as such,  that is,  a  direct  tax on property as  property  in  the  sense suggested   by   the  learned  Solicitor-General   for   his interpretation of Art. 289 (1).  There are however,  entries in List II to some of which we have referred carrier,  which would enable the State Legislature to impose a direct tax on property,  such  as, ’lands and buildings’ and  animals  and boats’  etc.  If the learned Solicitor-General is  right  in his contention, then the only tax from which the property of a  State  can claim exemption under cl. (1) of Art.  289  is ’Property tax’ to be imposed by the Union, and yet under the legislative  entries  in List I the Union  cannot  impose  a ’property tax" on State property  at all.  To this aspect of the case the reply of the learned Solicitor-General has been two  fold ; he has first referred us to entry  89  (terminal taxes on goods and passengers carried by 846 railway,  sea or air), entry 86 (taxes on the capital  value of   the   assets,  exclusive  of  agricultural   land,   of individuals  and  companies)  and entry  97,  the  residuary entry;  secondly, he has referred us to Art. 246  (4)  under which Parliament has power to make laws with respect to  any matter  for any part of the territory of India not  included in  a  State notwithstanding that such matter  is  a  matter enumerated  in  the State List.  His argument  is  that  the Union  can impose a property tax under any of the  aforesaid three  entries; secondly, under Art. 246 (4) the  Union  can impose a property tax on State property if that property  is situate in a territory riot included in a State.  It appears to  us that the argument does not really meet the  objection raised on behalf of the States.  Entry 86 relates to capital value  of  the assets of individuals and companies  and  has nothing to do with State property, for the State is  neither an individual nor a company.  Entry 89 relates to a terminal tax  which is essentially different from a property  tax  in the  sense contended for by the  learned  Solicitor-General. We find it difficult to believe that the exemption given  by

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cl.  (1)  of Art. 289 was meant as a safeguard  against  the exercise  of  power under the residuary entry.   Apart  from that, we have considerable doubt if the residuary entry will take in a " property tax’ when there are entries relating to such  tax in List If.  It would be a case of much ado  about nothing  if  the  Constitution  solemnly  provided  for   an exemption  against ’property tax’ on Stea property only  for such  rare  cases as are contemplated in Art. 246  (4),  the situation  of State property in territory not included in  a State.   Such situation would be very rare, and  could  have hardly  necessitated a solemn safeguard at the inception  of the  Constitution when the States were classed under Part  A or   Part   B  of  the  First  Schedule.    If   the   widsr interpretation  of  cl.  (1) of Art. 289  is  accepted,  sue property would also be exempt from Union taxatioch except in cases covered by cl. (2) of the article.  We  847 find  it difficult to accept the contention that cl. (1)  of Art.  289 was meant only for cases covered by Art. 246  (4); for that would be the result of the interpretation canvassed for on behalf of the Union.   We  proceed now to consider the problem from  three  other aspects  : (1) against the background of similar  provisions in  the Government of India Act, 1935; (2) in the  light  of the scheme under the Constitution of the financial relations between  the States and the Union; and (3) the  distribution of taxing powers between the States and the Union.   As  to  the Goverenment of India Act,  1935  the  relevant provisions  are contained in ss. 154 and 155.  They read  as follows (so far as relevant for oar purpose) :               "S.  154.  Property vested in His Majesty  for               purposes  of the government of the  Federation               shall,  save in so far as any Federal law  may               otherwise  provide, be exempt from  all  taxes               imposed  by,  or by any  authority  within,  a               Province or Federated State :                Provided   that,   until  any   Federal   law               otherwise  provides,  any property  so  vested               which was immediately before the  commencement               of Part III of this Act liable, or treated  as               liable,  to  any such tax, shall, so  long  as               that tax continues, continue to be liable,  or               to be treated as liable, thereto.               S.    155.  (1) Subject as hereinafter  provi-               ded,  the  Government of a  Province  and  the               Ruler of a Federated State shall not be liable               to  Federal  taxation in respect of  lands  or               buildings situate in British India or income               848               accruing, arising or received in British India               Provided that-               (a)   where a trade or business of any kind is               carried  on by or on behalf of the  Government               of  a Province in any part of  British  India,               outside  that  Province or by a Ruler  in  any               part  of British India, nothing in  this  sub-               section shall exempt that Government or  Ruler               from  any Federal taxation in respect of  that               trade   or   business,  or   any   operations.               connected therewith, or any income arising  in               connection therewith. or any property occupied               for the purposes thereof;                     (b)  x        x            x                     (2)     x     x           X"   Before  the  Government of India Act, 1935 the  scheme  of

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government  was essentially unitary though there were  local legislatures  with  limited  powers.   For  the  purpose  of distinguishing  the functions of the local  governments  and local   legislatures  of  Governor’s  Provinces   from   the functions of the Governor-General in Council and the  Indian Legislature,  subjects  were classified in relation  to  the functions  of Government as Central and Provincial  subjects in  accordance  with the Lists set on in Schedule 1  of  the Devolution  Rules  made  under ss. 45-A  and  129-A  of  the Government of India Act, 1919.  All Government property then vested  in His Majesty for the purpose of the Government  of India  and there was no necessity for any special  provision granting  immunity  to  that property  from  taxation.   The Government  of India Act, 1935 introduced a dual  system  of Government.   Part III of the Government of India Act,  1935 came  into force on April 1, 1937.  Properties belonging  to the Crown and in existence prior to that date were  849 governed  by  the  general law  enunciated  by  the  courts, judicial opinion was however not uniform.  In some cases  it was  held  that  statutes  imposing  duties  of  taxes  bind Government unless the very nature of the duty or tax is such as to be inapplicable to Government.  On the other hand,  in some cases it was held that the law was the same in India as in  England,  where  the  principle  of  immunity  of  Crown property  from taxation followed from the  prerogative  that the  Crown  was not bound by any statutes  unless  expressly named.   When  the  dual  system  of  Government  was  first introduced by the Government of India Act, 1935 the question of immunity of taxation of property of one Government by the other arose.   The   doctrine  of  Immunity  of   Instrumentalities   was propounded by the Supreme Court of the United States in  the case  of  McCulloch v. Maryland (s), to mean that  when  two separate  Governments  are  established  as  in  a   Federal Constitution, each with a limited jurisdiction, the power of each Government shall be construed as being under an implied limitation  that it shall be so exercised as not  to  impair the functions allotted to the other Government.  Hence,  any incidental  or indirect interference with the  functions  of the  Federal Government would make a State  legislation  bad even  though  the  legislation might  relate  to  a  subject allotted  to the State Legislature and conversely.   It  was held   that   a  State  could  not  tax  the   agencies   or instrumentalities  of the Federal Government and  a  similar limitation  would apply as regards the Federal  Legislature. This  doctrine has  had many vicissitudes of fortune in  the decisions of the courts in America.  We do not think that it is necessary to deal with the history of those vicissitudes.    The   Government   of  India  Act,  1935  as   also   the Constitution  of’ 1950 contained provisions  which  accepted the  principle  with a limited application  as  regards  the exemption from mutual taxation,, in (1) [1819] 4 Wh. 316. 850 ss. 154 and 155 of the Act of 1935 and Arts. 285 and 289  of the Constitution.  In the words of the Judicial Committee in Webb v. Outrim (1), it may be stated that the very inclusion of  the  aforesaid  provisions shows that  the  question  of interference on the part of the Federal and State powers  as a against each other was not left to an ’implied prohibition or  limitation’  but the provisions  themselves  define  the extent of the immunity.  Outside those provisions the  State and  Union Legislatures have the full power to legislate  on the matters included within their respective Lists,  subject

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always to the other provisions of the Constitution.    Like Arts. 085 and 289 of the Constitution, the aforesaid ss. 154 and 155 are complementary to each other and  provide for  the mutual exemption of the property of the  Federation and  the Provinces from taxation imposed by the other:  this is   consistent  with  the  general  practice   of   federal constitutions  to exempt the governments of the  units  from Federal   taxation,   that  being  part  of   a   reciprocal arrangement  under  which  the Federal  Government  also  is exempt from taxation by the several units (see Parliamentary Debates,  Vol.  302,  Cols. 523 and  524).   One  noticeable feature of the two sections is that whereas s. 154 speaks of the ""property vested in His Majesty for the purpose of  the Federation" so as to include movable property also (see Bell v.  Municipal  Commissioner  of Madras  (2),  s.  155  which confers exemption on the property of the "units" is confined to  lands and buildings.  The result would be  that  movable property  belonging to the Federation would be  exempt  from duties   like  octroi  which  might  be  levied  under   the Provincial  law, while, goods of the Provincial  Governments and  "units"  would  be subject to the  customs  and  excise duties  levied  by  the  Federal  Government.   Income  from commercial  undertakings  and operations in  the  nature  of trade carried on by the units, so long as they are confined (1) [1907] A.C. 81. (2) 25 Madras 457.  851 within  the territory of that unit is not liable to  Federal income-tax.   This, in short, was the scheme of ss. 154  and 155  of the Government of India Act, 1935.  Now, if ss.  154 and 155 of the Government of India Act, 1935 are  contrasted with  Arts. 285 and 289 of the Constitution, one  noticeable difference  strikes one at once.  The expression  lands  and buildings’  in s. 155 is changed to "property’ in Art.  289; in other words, the Union and the States are practically put on the same footing so far as exemption from taxation of one by  the other is concerned.  Both Arts. 285 and 289  mention ’property’  in  a comprehensive sense, and  the  distinction between movable property and immovable property drawn in ss. 154 and 155 is done away with.  The inevitable conclusion is that the Constitution makers consciously made the departure. They must have been aware of the distinction made in ss. 154 and  155  and  also of +,he interpretation  of  courts  that ’property$ in s. 154 was used in a comprehensive sense so as to get exemption for the property of the Federation from all Provincial taxation.  With that knowledge they used the word ’property’  in  Art. 289 and put State ’property’ on  a  par with Union ’property’.  It is impossible to accept in  these circumstances the contention that the word ’property’ or the juxtaposition of the words ’property and income’ in Art. 289 was  intended to qualify the word Taxation and  thereby  the plain meaning of the language used.    Now, as to the financial relations between the Union  and the States.  Chapter 1 of Part XII contains provisions which control and govern these relations.  Put briefly the  scheme is  that  there is a distribution of  revenues  between  the Union and the States, even though the collection may be made in some cases by the State and in other cases by the Union ; some taxes collected by the Union are assigned to the States (Art. 269); some taxes levied and collected by the Union are distributed between the 852 Union  and  the  States  (Arts.  270  and  272),  there  are provisions for grants in aid of the revenues of some States, in which jute is extensively grown, in lieu of assignment of

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any share of the net proceeds in each year of export duty on jute and jute products (Art. 273); there are also provisions for  grants  in  aid  of the  revenues  of  such  States  as Parliament  may determine to be in need of assistance  (Art. 275), etc.  These provisions indicate clearly that there  is an attempt at adjustment on a financial integration so  that neither the Union nor the States may be starved for want  of financial resources to carry on the essential and  expanding activities  of  a  welfare State.  We do not  see  in  these provisions.  any determining consideration which would  bear upon the exemption granted to Union property by Art. 285 and that granted to State property by Art. 289.  We fail to  see how a restricted meaning given to the aforesaid two articles will facilitate the financial adjustment referred to in  the earlier  articles in the same chapter or how it will  retard the said adjustment if a wider meaning is given to them.  We repeat that Arts. 285 and 289 must be construed on their own terms,  and  it is not open to us to pervert or  change  the language used therein unless there are compelling reasons to be  gathered from other relevant articles of  the  Constitu- tion.   We  find  no such compelling reasons  in  the  other article of Part XII which deal with the financial  relations between the States and the Union.   We  have earlier referred briefly to the  distribution  of legislative power between the States and the Union.  We have also  pointed  out  that so far as  the  taxing  powers  are concerned,  the legislative entries in the Seventh  Schedule make a distinction, for purposes of legislative  competence, between  the main subject of legislation and a tax in  rela- tion  thereto.   Taxes  on income  other  than  agricultural income (entry 82), duties of customs including export duties (entry 83), and duties of excise on  853 tobacco  and other goods manufactured or produced  in  India except alcoholic liquors for human consumption, opium,  hemp and  other  narcotic  drugs  (entry  84)  are  in  List   1. Therefore, under Art. 246 Parliament alone has power to make laws imposing the aforesaid taxes.  This power, it has  been argued  on behalf of the Union, will be seriously  curtailed if  a wider meaning is given to Art. 289.  We do  not  think that this argument is any answer to the problem posed before us.   The power to make laws given to Parliament is  subject to  the provisions of the Constitution.  Art. 289 is one  of such provisions.  Therefore, it is no answer to the  problem to say that if a wider meaning is given to Art. 289, it will curtail  the powers of Parliament.  If Art. 289 in its  true scope  and  effect  is capable of  bearing  only  the  wider meaning, then it must control the power of Parliament.  Art. 245 says so in express terms.      Another argument on this aspect of the case is that the Union  has  exclusive power to regulate trade  and  commerce with  foreign  countries, import and export  across  customs frontiers, and definition of customs frontiers (entry 41  of List I) and inter-State trade and commerce (entry 42 of  the same  List),  and the power to regulate trade  and  commerce with  foreign  countries or inter State trade  includes  the power  to regulate by imposing customs duties or  duties  of excise.  This power, it is contended, will be very seriously affected if the exemption from taxation given by Art. 289 is held  to  extend  to customs duties  and  excise  duties  in respect  of goods imported or exported by a State  or  goods produced  or manufactured by a State.  We are not  impressed by  the argument.  The power to control trade  and  commerce with  foreign  countries and inter-State trade is  with  the Union,  and in exercise of that power the Union  can  impose

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regulatory  measures on the activities of a State.   We  are familiar  now with control measures like the Import  Control Order, 854 Essential  Supplies  Act,  etc.   Through  these  regulatory measures  the  Union  can carry into  effect  its  power  of control,  and  under Art. 302 Parliament may by  law  impose such  restrictions  on  the freedom of  trade,  commerce  or intercourse between one State and another or within any part of  the territory of India as may be required in the  public interest.  Under Art. 256 the executive power of every State shall be so exercised as to ensure compliance with the  laws made  by  Parliament, and the executive power of  the  Union shall extend to the giving of such directions to a State  as may appear to the Union Government to be necessary for  that purposes, Under Art. 257 the executive power of every  State shall  be  so exercised as not to impede  or  projudice  the exercise of the executive power of the Union, and the  Union Government  can give necessary directions in the  matter  to the  State Government.  So far as trade and commerce  within the  State  is concerned, the State has power to  make  laws (entry  26 of List 11).  We think, therefore,  that  nothing serious  is likely to happen, either with regard to  foreign trade or inter State trade, if we hold on the terms of  Art. 289  that  State  property is  exempt  from  Union  taxation including   customs  duties  or  excise  duties.   Such   an interpretation  is not likely to result in any  interference with  the power of control which the Union  undoubtedly  has over foreign trade or inter-State trade.    The  contention that the Union has the power to  regulate trade  by imposition of customs duties and that power  would be’ annulled if the State has immunity from them in  respect of  things  imported  or exported by it seems to  us  to  be fallacious.   The  Union’s power to  legislate  to  regulate foreign  trade contained in the legislative list is  subject to  the provisions of the Constitution one of which is  con- tained in Art. 289(1).  Therefore in the case of a  conflict between Art. 289(1) and the legislative  855 power  to regulate foreign trader the former  must  prevail. The Union, therefore, cannot in view of Art. 289(1) impose a customs  duty  on things imported by the State and  seek  to justify  it as an exercise of its power to regulate  foreign trade.  Then, again,it seems to us that as stated in  M.P.V. Sundararamier & Co’s case(1) an item in the legislative list not  giving expressly the power of taxation does not  confer such  a power.  It would follow that the power in List I  to regulate foreign trade cannot be exercised by imposition  of a  tax.   That  has to be done  otherwise  and  without  the imposition of a tax.    It  is  to be remembered that a striking feature  of  our Constitution, which perhaps distinguishes it from some other Constitutions, is its attempt to harmonise the interests  of the individual with those of the community and the interests of  a State with those of the Union.  Our Constitution  does not  set  up the States as rivals to one another or  to  the Union.   Each  is intended to work harmoniously in  its  own sphere without impediment by the other, with an  over-riding power  to  the  Union where it is necessary  in  the  public interest.   It  is  a nice balance  of  jurisdictions  which has worked satisfactorily so far and, it is to be hoped will continue  to  so  work  in times to  come  with  good  sense prevailing  on all sides.  We are not prepared to  say  that the exemption given to State property from Union taxation by Art.  289  conflicts in any way with the  power  of  control

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which the Union has over foreign trade or inter-State  trade or disturbs the balance of jurisdictions referred to  above. It is to be remembered in this context that under cl. (2) of Art. 289 the trading activities of a State and property used for such trading activities cannot claim any exemption  from Union  taxation, unless Parliament declares by law that  the trading activities are incidental to the ordinary  functions of government. (1)  [1958] S.C.R. 1422, 856   We  have  so far dealt with the problem  on  the  relevant articles  of  our Constitution.  It may be  helpful  now  to consider   how  a  similar  problem  under   other   Federal Constitutions has been dealt with by the courts.    It  is necessary here to strike a note of warning.   Each Constitution must be interpreted on its own terms and in its own  setting of history, geography and social conditions  of the country and nation for which the Constitution is made; a decision  on  a constitutional problem  having  an  apparent similarity   with  a  problem  arising  under  a   different Constitution  may  not be sure guide as a  solution  of  the problem.  Basically, the problem must be solved on the terms of the Constitution under which it arises.  Remembering this warning,  we  turn first to certain  Canadian  decisions  on which  the learned Solicitor-General has relied.  The  vital core of a federal constitution, it is said, is the  division of legislative powers between the central authority and  the component states or provinces.  In Sections 91 to 95 of  the British  North  America  Act, 1867 the main  lines  of  this division  in Canada were set forth.  In section  92  certain classes  of subjects were enumerated and the provinces  were given  exclusive power to make laws in relation  to  matters coming  within  these  classes  of  subjects.   The  opening paragraph  of s. 91 gave the Dominion power "’to  make  laws for  the  peace,  order and good  government  of  Canada  in relation  to  all matters not coming within the  classes  of subjects   by   this  Act  assigned   exclusively   to   the Legislatures  of  the  Provinces.  " That  is  to  say,  the residue  of powers not expressly given to the Provinces  was reserved  to the Dominion The section then proceeded with  a specific  enumeration  of twenty nine classes  of  subjects, illustrating  but not restricting the scope of  the  general words  used earlier in the section.  Section 125  said,  "No lands or property belonging to Canada or any province  857 shall  be  liable to taxation." In The  Attorney-General  of British Columbia v. The Attorney-General for Canada(1),  the facts were these.  The Government of the province of British Columbia  in the exercise of its powers of control and  sale of alcoholic liquors embarked on the business of dealing  in alcoholic  liquors and found itself under the necesssity  of importing  ’Johnnie Walker Black Label" whiskey; it  claimed it  was  exempt  from payment of the  usual  customs  duties imposed  by the Dominion Parliament and rested its claim  on s.  12.5.  The Supreme Court of Canada held  by  a  majority decision that the levying of customs duties on the goods  in question  was  not "taxation" on "property" belonging  to  a province  within  the purview of s. 125.  The ratio  of  the decision, as expressed by Duff, J., was that customs  duties as  an  instrument  for regulation of  external  trade  came within  the second enumerated head under s. 91; and  customs duties  when  levied for the purpose of  raising  a  revenue were,  speaking  broadly add in the general  view  of  them, taxes on consumable commodities, taxes on consumption; while the  taxation of capital, of assets, of property was a  very

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different matter.  Duff, J. then said :               "Our first duty in construing the section  is,               of  course.  to  ascertain  the  ordinary  and               grammatical  meaning  of the words but  it  is               with  the ordinary and grammatical meaning  of               the  words  in the setting in which  they  are               found  and  as applied to the  subject  matter               that  we are concerned.  What the  section  is               dealing  with is not taxation in  general  but               the liability of "property" to "taxation"  and               the   word  "taxation"  when  used   in   this               association  has, I think prima facie  a  much               less  comprehensive  import  than  that  which               would be ascribed to it standing by itself  or               in some other connections."               (1)   64 Canada Supreme Court Reports 377, 858 It is pertinent to note here that the Canadian  Constitution did not contain a key to the word ’taxation’ as is contained in  Art. 366 (28) of our Constitution.  It was  permissible, therefore,  in the setting of the Canadian  Constitution  to draw  a distinction between "taxation of property"  and  the "levying  of  customs  duties"  for  purposes  of   raising, revenue,  Our  Constitution  says  in  express  terms   that ’taxation’  includes  the imposition of any tax  or  impost, whether  general,  local or special.  It  is  reasonable  to think that the makers of our Constitution were aware of  the distinction   between  the  more  comprehensive   and   less comprehensive  meaning  that  can be attached  to  the  word ’taxation’, and deliberately chose to mention expressly  the more  comprehensive meaning in the  interpretation  article, instead  of leaving it to judicial determination.   One  may well speculate if the decision in Canada would have been the same  if  there  were  such  a  provision  in  the  Canadian Constitution  and if, as Duff, ,J. said, our first  duty  in construing  a  provision is to ascertain  the  ordinary  and grammatical  meaning  of  the  words  used.   The  aforesaid decision  of  the Supreme Court was approved  by  the  Privy Council   in   Attorney-General  of  Britsh   Columnbia   v. Attorney-General  of Canada (1).  Referring to s.125 of  the British North America Act, Lord Buckmaster said :               "Taken alone and read without consideration of               the  scheme  of  the  statute,  this   section               undoubtedly  creates a formidable argument  in               support of the appellant’s case.  It is  plain               however,  that the section cannot be  regarded               in  this isolated and disjunctive way.  It  is               only a part of the general scheme  established               by the statute with its different  allocations               of  powers and authorities to  the  Provincial               and  Dominion  Governments.  Sect.  91,  which               assigns  powers  to  the  Dominion,  provides,               among  other  things,  that  it  shall   enjoy               exclusive legislative               (1) [1924] A.C. 222.                859               authority  over all matters enumerated in  the               Schedule,  included  among which are  the  re-               gulation of trade and commerce and raising  of               money by any mode or system of taxation.   The               imposition,  of  customs  duties  upon   goods               imported  into  any  country  may  have   many               objects;  it may be designed to raise  revenue               or   to   regulate  trade  and   commerce   by               protecting  native industries, or it may  have

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             the  two fold purpose of attempting to  secure               both  ends;  in  either case  it  is  a  power               reserved  to the Dominion.  It has not  indeed               been  denied  that such a general  power  does               exist, but it is said that a breach is created               in the tariff wall, which the Dominion has the               power to erect, by s. 125, which enables goods               of  the  Province  or  the  Dominion  to  pass               through, unaffected by the duties.  But s. 125               cannot,  in  their Lordships’ opinion,  be  so               regarded.   It is to be found in a  series  of               sections   which,  beginning  with   s.   102,               distribute  as  between the Dominion  and  the               Province certain distinct classes of property,               and  confer  control upon  the  Province  with               regard  to  the part allocated to  them.   But               this   does  not  exclude  the  operation   of               dominion   laws  made  in  exercise   of   the               authority  conferred by s. 91.   The  Dominion               have the power to regulate trade and  commerce               throughout the Dominion, and, to the extent to               which   this  power  applies,  there   is   no               partiality in its operation.  Sect. 125  must,               therefore, be so considered as to prevent  the               paramount  purpose  this declared  from  being               defeated." It is obvious that the observations made by Lord  Buckmaster have  reference  to  the  special  characteristics  of   the Canadian  Constitution,  particularly  the  paramountcy   of Dominion Power to regulate trade and commerce throughout the Dominion to which 860 s.   125 was’ made to yield.  The scheme of our Constitution is  different : (1) the legislative power of  Parliament  is expressly  subject to other provisions of  the  Constitution (2)  the  power to regulate trade and commerce  is  assigned both  to  the  Union  and the States; and  (3)  there  is  a distinction  between the main subject of legislation  and  a tax  in relation thereto.  We are not emphasising  the  fact that in s. 91 of the British North America Act, 1867  occurs the  expression  "notwithstanding  anything  in  this  Act", because  that  expression  may  be said  to  relate  to  the enumeration of subjects rather than to s. 125.  In our  view the decision turned upon the peculiar characteristics of the Constitution  under which the problem arose and is  no  safe guide  for the interpretation of our Constitution.   It  may perhaps  be  added  that if the Canadian  case  fell  to  be decided  under our Constitution, cl. (2) of Art.  289  would have  been  given an adequate answer to the problem,  for  a State  can  claim no exemption in respect  of  its  business activities  and  when British Columbia imported  whiskey  to embark  on  a business of alcoholic liquors,  it  could  not claim any exemption under cl. (1) of Art. 289.   We  now  turn to certain Australian  decisions.   Speaking generally,  the Commonwealth of Australia Constitution  Act, 1900 creates a federation which resembles the United  States in  a  manner in which powers are assigned  to  the  Federal Government  with a residue in the States or the people.’  It resembles the Canadian Constitution in the attempt to  adapt the machinery of responsible government to a federal system, but  differs from the Canadian and our Constitution  in  the division  of  powers.  As regards the  Commonwealth,  s.  51 contains a list of thirty nine enumerated powers with  which it  is  vested.   It says inter alia that,  subject  to  the Constitution,  the Parliament shall have power to make  laws

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for the peace  861 order  and good government of the Commonwealth with  respect to               (i)   Trade and commerce with other countries,               and among the States; and               (ii)  Taxation, but so as not to  discriminate               between the States or parts of States.   Section  52  defines the cases in which the power  of  the Commonwealth is to be exclusive.  As regards the State,  the broad principle of the division is found in s. 107 which  in effect  says  that  the  powers  of  the  States  are   left unaffected  by  the  Constitution except in so  far  as  the contrary  is expressly provided; subject to that each  State remains sovereign within its own sphere.  Now, s. 114 of the Commonwealth of Australia Act, 1900 says :               "A State shall not, without the consent of the               Parliament  of  the  Commonwealth,  raise   or               maintain  any  naval  or  military  force,  or               impose  any  tax  on  property  of  any   kind               belonging  to the Commonwealth, nor shall  the               Commonwealth impose any tax on property of any               kind belonging to a State."   The  decision on which the learned  Solicitor-General  has placed  the  greatest reliance is  Attorney-General  of  New South  Wales v. Collector of Customs for N.S.W.  (1).   That was   a  case  in  which  an  action  was  brought  by   the Attorney-General  of  New South Wales to  recover  from  the Collector  of Customs for New South Wales a  particular  sum being  the  amount  of duties of  customs  demanded  by  the defendant  upon  the importation into  the  Commonwealth  of certain   steel  rails,  and  paid  under  protest  by   the Government  of  the State of New South Wales  The  rails  in question  were purchased in England by the State or  use  in the construction of the railways of (1)  5C.L.R.818. 862 the  State.   On  their arrival at the port  of  Sydney  the defendant  claimed that they were liable to Customs  duties. The  State disputed its liability to pay duty and  deposited the amount claimed under protest.  A case was stated for the opinion of the High Court of Australia on two main questions :  (1) whether the provisions of the Customs  1901  and  the Customs Tariff 1922, affected the Crown as representing  the community  of  New South Wales; and (2)  whether  the  steel rails  were  exempt  from duty by virtue of s.  114  of  the Constitution.   So far as the first question  was  concerned Griffith C. J. said that it was concluded by the decision in The  King v. Sutton (1).  So far as the second question  was concerned,  the majority of judges held that customs  duties whether capable or not of being included in the word  "tax", are  not  a  tax upon property in the sense  in  which  that expression is used in s. 114.  Isaacs J. held that duties of customs,  as  ordinarily understood and as  enacted  in  the Customs  Act,  were imposed on the  goods  themselves,  and, therefore,  "on property" within the meaning of s. 114,  but they  did not come within the meaning of the word  "tax"  as used  in  that  section  and  the  Constitution   generally. Griffith  C. J. not only drew a distinction  between  direct and  indirect  taxation but also held that s. 1  14  applied only  to property within the limits of the Commonwealth  and did  not  apply to goods in process of coming  within  those limits.   He further held that the power to impose  taxation conferred  by  s. 51 (ii) as well as the power  to  regulate importation  conferred  by  s. 51  (1)  were  paramount  and

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unlimited  and a construction which would make the words  of s.  114  consistent  with giving full effect  to  the  plain intention of s. 51 should be preferred.  He proceeded on the footing  that  the  words  of s. 114  were  capable  of  two constructions.  Then he observed :               "There  is no doubt that in some contexts  the               words "impose any tax" might be capable of               (1)   SC.L.R. -89.                863               application  to  duties of  Customs.   Nor  is               there  any doubt that the word  "taxation"  in               sec.  51 (ii) includes the levying of  duties;               of  Customs.  But these duties arc nowhere  in               the Constitution described as a "tax",  unless               the use of the word "taxation" in sec. 51 (ii)               is  such  a description of them;  nor  is  the               levying   of  them  ever  spoken  of  as   the               imposition  of  a tax on  property.   Sec.  86               speaks  of  "’the collection  and  control  of               duties of Customs and of Excise".  Ss. 88, 89,               90,   92,  93,  94,  95,  all  speak  of   the               "imposition"  of  duties  of  Customs.    Such               duties are imposed in respect of "$goods"  and               in  one sense, no doubt, "upon" goods,,  which               is  only another way of saying that  the  word               "upon"  is sometimes used as  synonymous  with               "in  respect  of." In the same  way  the  word               "’upon"  or  "’on"  is  used  colloquially  in               speaking  of stamp duties, succession  duties,               and other forms of indirect taxation, as taxes               on  deeds,  etc.,  or  on  real  and  personal               property.   Yet  it is recognised  that  these               forms of taxation are not really taxation upon               property  but upon operations or movements  of               property."   Higgins  J.  based his decision on  a  somewhat  different ground.   He  said that he could not  confidently  take  the ground  that  a customs duty could not be a tax  within  the meaning  of the word "tax" in s. 114.  He said that  s.  114 did  not use the expression "tax of any kind", but spoke  of "any tax on property of any kind belonging to a State".   He derived the idea of ownership as the crucial test by  reason of the use of the expression "property of any kind belonging etc." The learned judge observed :               "The prohibition as to State taxation was,  no               doubt, suggested by the British North  America               Act,  sec. 125.  But by substituting the  word               "property" for "lands or property", the               864               intention-if  it was the intention to  confine               the   prohibition   to  what  are   known   as               ’,’property taxes" has been somewhat obscured.               Property  is, by the Constitution, subject  to               be taxed at the instance of the State as  well               as  of the Commonwealth; Customs  taxation  is               solely  a  matter for the  Commonwealth  (sec.               90).   Taxes  of retaliation, as  between  the               States  and the Commonwealth, are possible  as               to  property taxes; but are impossible  as  to               Customs taxes.  But whatever may have been the               motive which led to this express  prohibition,               in  addition  to the  prohibition  which  this               Court  has held to be implied from the  nature               of  the  Constitution as to  the  taxation  of               State or Commonwealth agents, the  phraseology

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             is such as to point to taxation of property as               property as being the subject of this  express               prohibition.  "A State shall not, without  the               consent    of    the   Parliament    or    the               Commonwealth,...   ...  impose  any   tax   on               property   of  any  kind  belonging   to   the               Commonwealth,   nor  shall  the   Commonwealth               impose  any  tax  on  property  of  any   kind               belonging to a State"."   We  are of the view that the considerations which led  the learned  judges to the conclusion at which they arrived  are not  considerations  which  are available to  us  under  our Constitution.  We are dealing with an exemption clause under Art.  289 (1); that exemption clause has to  be  interpreted with   the  key  furnished  by  Art.  366  (2s)  Under   our Constitution  the  word ’taxation’ has been defined  by  the Constitution itself and we are not free to give a  different meaning  to  the word so as to make  a  distinction  between direct  and  indirect  taxation,  or  between  taxation   on property within the limits of the Commonwealth and  property in  the  process of coming within those limits; nor  are  we free to make a distinction between a tax  865 on property and a tax in respect of property.  It is further significant  that s. 1 If of the Commonwealth  of  Australia Act,  1900  uses  the expression  "tax  on  property".   Our exemption clause in Art. 289 uses a different phraseology, a phraseology  which  does not qualify the word "tax’  in  any way, but says that the property and income of a State  shall be  exempt from any tax or impost whether general, local  or special, to be imposed by the Union.  Even in the matter  of s. 11 4 of the Commonwealth of Australia Act, 1900 there was a  difficulty in drawing the distinction  between  property, and  the imporation of property, because of the use  of  the expression  "of  any kind" in s. 114.   This  difficulty  is pointed  out  by  Nicholas  in  The  Australian  Costitution (second edition, page 1433).  He says :               "The  solution  was  found  in  distinguishing               between  property and the importation of  pro-               perty,  and  between duties  and  taxation  as               those  terms  are used  in  the  Constitution.               Both distinctions involved some  difficulties,               for  s. 114 uses the words "of any  kind"  and               the only express authority to impose duties is               to  be found in s. 51 (ii).  The  policy  thus               sanctioned has not been approved in all States               alike.   States  have been  compelled  to  pay               duties   on  imported   materials,   including               locomotives  of a type not made in  Australia,               so that the proceeds of their loans have  been               reduced  for the benefit of  the  Commonwealth               revenue  and  the power of exemption  has  not               been used where it might have been (Report  of               the Royal Commission, p. 361)." Apropos of the Australian case it may perhaps be pointed out that under our Constitution the ’taxing power’ is treated as different  from the ’regulatory power’.  Again, as  we  have stated  earlier,  the classification  between  ’direct’  and "indirect’ taxes has 866 not been adopted by our Constitution.  Moreover the  problem which falls for our consideration under Art. 289 is not  one which  has  to  be  examined  from  the  point  of  view  of legislative  power.   The problem before us  is  really  the extent of the immunity or exemption granted by Art. 289.  In

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Attorney-General   for  Saskatchewan  v.  Canadian   Pacific Railway  Company  (1), the question arose of  construing  an exemption granted to the Canadian Pacific Railway Company by clause 16 of a contract between the Canadian Government  and the said company.  The exemption clause provided inter  alia that  "the  Canadian Pacific Railway, and all  stations  and station  grounds,  workshops,  buildings,  yards  and  other property  etc., shall be forever free from taxation  by  the Dominion, or by any province hereafter to be established, or by  any  municipal  corporation therein."  The  Province  of Saskatchewan  was  constituted  in  1905  and  in  purported compliance   with  its  obligations  under   the   aforesaid exemption  clause,  the  Dominion  Parliament  provided   in section 24 of the Saskatchewan Act of 1905 that ,the  powers hereby  granted  to  the said Province  shall  be  exercised subject  to  the provisions of clause 16 of  the  contract". The  Canadian  Pacific Railway Company raised  the  question that it was free from business tax imposed by the City  Act, 1947,  of  Saskatchewan by reason of the  exemption  clause. Before  the judicial Committee of the Privy Council  it  was argued  on behalf of the Province of Saskatchewan  that  the exemption  was  limited to taxes imposed upon the  owner  in respect of the ownership of the property liable to taxation, but  the exemption did not extend to taxes levied  upon  the company in respect of its business of operating it.  Dealing with this argument the Judicial Committee said :               "While  the language of clause 16 is that  the               property shall be ’forever free from taxation’               by any Province thereafter to be established,               (1)   [1953] A.C. 594.                867               it is said that to tax the company in  respect               to  the use of the property (itself a term  of               the exemption), is not to tax the property and               that alone is prohibited."   Their  Lordships construed the exemption on its own  terms and held that a tax upon the owner in respect of the use  of the  property was as much within the exemption as a  tax  on the  property itself.  In our View the exemption  clause  in Art.  289 must similarly be construed on its own terms.   We further   consider  that  no  question  of  paramountcy   of legislative power arises in that connection.   On  behalf of the States, except the State of  Maharashtra which has supported the stand of the Union in the matter  of excise  duties  only, it has been  very  strongly  contended before  us that for the purpose of the exemption  clause  in Art. 289 nothing turns upon the distinction between a tax on property  as such and a tax in relation to  property.   Both affect  property  and if property is to be free  from  Union taxation,  it makes no difference whether the tax is on  the ownership or possession of property or is on its  production or  manufacture or its importation or exportation.  A  large number  of  decisions were cited before us as  to  the  true nature  of  customs duties and excise duties.  There  are  a number  of  decisions of this court where it has  been  held that  a  duty  of  excise is a  tax  on  goods  produced  or manufactured  in  the taxing country; similarly  customs  or export duty is a duty imposed on goods which are the subject of importation or exportation.  This is also clear from  the provisions relating to "draw back" in the matter of  customs duties  and refund rules in the matter of excise  duty.   We consider it unnecessary to examine these decisions in detail for  the purpose of the problem before us.  It is enough  to point  out that in order to determine whether an impost,  be it a tax, duty or fee, falls under one item or the other

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868 of the Legislative Lists in the Seventh Schedule, it may  be necessary to examine the nature of the tax, duty or fee.  As the  judicial Committee pointed out in  Governor-General  in Council  v.  Province  of Madras (1), a duty  of  excise  is primarily  a  duty levied on a manufacturer or  producer  in respect  of  the commodity manufactured or produced;  it  is however  a  tax on goods, to be distinguished  from  tax  on sales or the proceeds of sales of goods; the two taxes,  the one levied on the manufacturer in respect of his goods,  the other  on a vendor in respect of his sales may in one  sense overlap.   But  in law there is no  overlapping,  the  taxes being  separate  and distinct imposts But as  we  have  said earlier,  the  problem before us is not the  nature  of  the impost but rather the extent of the immunity granted by Art. 289 of the Constitution.  The extent of that immunity, as we have indicated earlier, really depends on the true scope and effect   of  Arts.  245,  285,  289  and  366(28)   of   the Constitution.   In the matter of the extent of the  immunity the  distinction  between a tax on property as  such  or  in relation to property is really of no materiality.  A tax  on property  as  such and a tax in relation  to  property  both affect  property  and if the true scope and  effect  of  the articles which we have mentioned is that state property must be  exempt  from imposition of any tax  or  impost,  whether general  or  local  or  special,  by  the  Union,  then  the distinction  drawn between a tax on property as such  and  a tax in relation to property loses its significance.     For  the  reasons given above our opinion  is  that  the answers  to the three questions referred to this court  must be  in  the affirmative and against the stand taken  by  the Union.    HIDAYATULLAH J.-- As a result of a proposal to  introduce in Parliament a Bill to amend s. 20 of the Sea Customs  Act, 1878  (Act  8 of 1878) and s. 3 of the Central  Excises  and Salt Act, 1944 (Act 1 of (1)  72 I.A. 91, 103.  869 1944)  with a view to applying the provisions of  these  two Acts  to  goods  belonging to  the  State  Governments,  the President of India has been pleased to refer under Art.  143 of the Constitution, three questions for the opinion of this Court  to  ascertain  if the proposed  amendments  would  be constitutional.  These questions are :               "(1)  Do the provisions of article 289 of  the               Constitution preclude the Union from imposing,               or  authorising  the  imposition  of,  customs               duties on the import or export of the property               of a State used for purposes other than  those               specified in clause (2) of that article ?               (2)   Do the provisions of article 289 of  the               Constitution of India preclude the Union  from               imposing,  or authorising the  imposition  of,               excise duties on the production or manufacture               in  India of the property of a State used  for               purposes other than those specified in clause of               that article ?               (3)   Will sub-section    of section 20 of the               Sea Customs Act,     1878 (Act 8 of 1878)  and               sub-section  (1A) of section 3 of the  Central               Excises and Salt Act, 1944 (Act 1 of 1944)  as               amended by the Bill set out in the Annexure be               inconsistent  with the provisions  of  article               289 of the Constitution of India ?" The sections of the two Acts as they stand today provide for

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the levy of customs duties and duties of excise on all goods belonging to a State but only if used for purposes of  trade or  business of any kind carried on by or on behalf of  that Government,  or of any operations connected with such  trade or business as they apply in respect of goods not belonging 870 to any Government.  These two sections as at present read :               "20.  (1)  Except  as  hereinafter   provided,               customs  duties shall be levied at such  rates               as  may be prescribed by or under any law  for               the time being in force, on               (a)   goods  imported or exported by sea  into               or  from  any  customs-port  from  or  to  any               foreign port;               (b)   opium,  salt or salted fish imported  by               sea  from  any  customs-port  into  any  other               customs-port;               (c)   goods  brought from any foreign port  to               any  customs-port,  and,  without  payment  of               duty, there transhipped for, or thence carried               to,  and imported at, any other  customs-port;               and               (d)   goods brought in bond from one  customs-               port to another.               (2)   The provisions of sub-section (1)  shall               apply in respect of all goods belonging to the               Government  of  a  State  and  used  for   the               purposes  of a trade or business of  any  kind               carried  on by, or on behalf of, that  Govern-               ment, or of any operations connected with such               trade or business as they apply in respect  of               goods not belonging to any Government.               Explanation....In  this  sub-section   ’State’               does not include a Union territory".               "3 (1) There shall be levied and collected  in               such manner as may be prescribed duties                871               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.               (1A)  The provisions of sub-section (1)  shall               apply in respect of all excisable goods  other               than  salt which are produced or  manufactured               in  India by, or on behalf of, the  Government                             of  a  State other than a Union  terri tory  and               used  for the purposes of a trade or  business               of  any kind carried on by, or on  behalf  of,               that   Government,   or  of   any   operations               connected with such trade or business as  they               apply  in  respect  of  goods  which  are  not               produced or manufactured by any Government".               x          x          x          x The proposal is to amend the two sections as follows :               "AMENDMENT  OF SECTION 20, ACT 8  OF  1878.-In               section  20 of the Sea Customs Act, 1878,  for               sub-section  (2)  the  following  sub-sections               shall be substituted, namely :-               ’(2)  The provisions of sub-section (1)  shall               apply  in respect ’of all goods  belonging  to               the  Government  as they apply in  respect  of               goods not belonging to the Government.’

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             AMENDMENT  OF  SECTION 3, Act  1  OF  1944.-In               section 3 of the Central Excises and Salt Act,               1944, for sub-section (1A) the following  sub-               section shall be substituted, namely :-               ’(1A) The provisions of sub-section (1)  shall               apply in respect of all excisable’ goods               872               other   than  salt  which  are   produced   or               manufactured in India by, or on behalf of, the               Government  as they apply in respect of  goods               which are not produced or manufactured by  the               Government’."   The  question is one of great importance not only  to  the States  but also to the Union.  What the Union wishes to  do is to put the State Governments on its tax-payers’ list, not only  in  respect of their trading activities  but  also  in respect   of   their   governmental   functions.    If   the Constitution  does  not prohibit it their can  be  no  doubt about  the  power.  The sole question thus  is  whether  the Constitution  has not prohibited this by Art. 289  to  which reference will be made presently.   Our  Republic  is  composed  of  States  with  their   own Governments.   These Governments possess and exercise  their own  powers  like any other Government.  Then there  is  the Union Government which within its own sphere is supreme  but its  supremacy is not a general or undefined supremacy.   It is  in certain respects curtailed to give supremacy  to  the State  Governments.  One such curtailment is to be found  in Art.  289(1) and the only question that can really arise  is to what extent does that restriction go ? We  are concerned here with the taxing power  of  Parliament which admittedly extends to the levying of duties of customs including export duties (entry 83, List I, 7th Schedule) and duties of excise on tobacco and other goods manufactured  in India  except those expressly mentioned in the entry  (entry 84,   ibid).   In  addition  to  the  powers  of   taxation, Parliament  has exclusive regulatory power over  "trade  and commerce  with foreign countries; import and  export  across customs  frontiers" (entry 41, ibid) and also  over  "inter- State  trade  and  commerce" (entry 42,  ibid).   The  power derive from these  873 entries is plenary and can only be the subject of  restraint if the Constitution so provides.  Under Art. 245, this power is  expressly stated to be subject to the provisions of  the Constitution.  By Art. 246, which divides the subject matter of laws to be made by Parliament and by the Legislatures  of the  States,  exclusive  power is  given  to  Parliament  in respect of matters enumerated in the Union list.  Similarly, exclusive  power  is  conferred  on  State  Legislatures  in respect of matters enumerated in the State List.  There is a third  list  called the "Concurrent list"  and  it  contains matters  over  which Parliament and the Legislature  of  the States  have power to make laws.  Inconsistency between  the laws  is  avoided by Art. 254 which makes the  law  made  by Parliament,  whether  before or after the law  made  by  the State Legislature, to prevail over the latter.  In  addition to  these provisions, Parliament has power to make laws  for the  territory  of  India not included in a  State  even  on matters  enumerated  in the State List  and  also  exclusive power  to  make  any  law with respect  to  any  matter  not enumerated  in the concurrent or the State Lists.  This,  in brief,  is  the  scheme of  legislative  relations  and  the distribution  of legislative power under  our  Constitution. The three Lists contain entries which enable the raising  of

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money  by  way  of taxes, duties  and  fees.   The  taxation entries  are to be found in the Union and State Lists  only. There are only two entries in the Concurrent List which deal with (a) stamp duties other than duties or fees collected by means  of judicial stamps, but not including rates of  stamp duties (entry 44, Concurrent List,) and (b) fees in  respect of  any of the matters in that List but not  including  fees taken  in any court (entry 47, ibid).  The other  two  lists contain  entries  which enable the Union and the  States  to impose  taxes,  duties and fees to raise revenue  for  their respective  purposes.   These  entries,  as  far  as   human ingenuity  could  achieve, attempt to make a clear  cut  and fair 874 division.  There is an elaborate procedure for  distribution of  the  proceeds of some of the taxes raised by  the  Union among the States to finance their activities but we are  not presently concerned with it.   The  powers of taxation being plenary except in so far  as the  exercise of the power could be said to trench upon  the exclusive  domain outlined and demarcated in a  rival  list, there was a danger in the dual form of government, which has been  adopted  in  our Republics of  one  Government  taxing another  whether to start with or as a retaliatory  measure. Such  a  possibility  had earlier been  envisaged  by  other Federal Constitutions either expressly or as an  implication of  the  dual  form  and immunity  of  some  kind  had  been conferred   in  respect  of  property,  etc.,  between   the respective  Governments.   Our Constitution  has  also  made provision in that behalf.  Those provisions are to be  found in Parts XII and XIII.  The latter part has been the subject of much anxious thought recently in this Court, and it  pro- vides for freedom of trade, commerce and intercourse  within the  territory  of  India.  Articles  285-289  of  Part  XII provide   for   immunity   from   tax   in   certain   other circumstances.    Of   these,  Art.  286,   which   involves restrictions  on  the  imposition of tax  on  the  gale  and purchase  of  goods,  has been before  this  Court  on  many occasions and need not be considered.  Article 285  provides for exemption of the property of the Union from State taxes, and  Article 289, for exemption of property and income of  a State from Union taxation.  We are primarily concerned  with Art.  289 in this Reference.  Articles 287 and  288  provide for  special exemption from taxes on electricity in  certain cases and are not relevant to the present purpose. Putting  aside  Articles 286, 287 and 288, 1 set  out  below Articles 285 and 289 :               "285. (1) The property of the Union shall,                875               save  in  so  far as  Parliament  may  by  law               otherwise  provide, be exempt from  all  taxes               imposed by a State or by any authority  within               a State.               (2)   Nothing  in  clause  (1)  shall,   until               Parliament by law otherwise provides,  prevent               any authority within a State from levying  any               tax on any property of the Union to which such               property    was   immediately    before    the               commencement  of this Constitution  liable  or               treated  as  liable,  so  long  as  that   tax               continues to be levied in that State."               "289.  (1) The property and income of a  State               shall be exempt from Union taxation.               (2)   Nothing in clause (1) shall prevent  the               Union   from  imposing,  or  authorising   the

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             imposition of, any tax to such extent, if any,               as Parliament may by law provide in respect of               a trade or business of any kind carried on by,               or on behalf of, the Government of a State, or               any  operations  connected therewith,  or  any               property used or occupied for the purposes  of               such trade or business, or any income accuring               or arising in connection therewith.               (3)   Nothing in clause (2) shall apply to any               trade or business, or to any class of trade or               business, which Parliament may by law  declare               to be incidental to the ordinary functions  of               government." These  are  the  provisions of the  Constitution  which  the President  of India has in mind in making this reference  to determine whether the proposed extension 876 of  customs and excise duties to all goods belonging to  the State Governments, imported or exported in the one case  and manufactured or produced in the other, would not offend Art. 289. It may be mentioned at this stage that under the  Government of  India Act, 1935, sections 154 and 155 also provided  for similar   immunity,   but  these  sections   were   slightly differently  worded.   I  quote these  sections  for  future comparison :               "154.   Exemption of certain  public  property               from taxation. Property vested in His  Majesty               for   purposes  of  the  Government   of   the               Federation  shall,  save  in  so  far  as  any               Federal  law may otherwise provide, be  exempt               from all taxes imposed by, or by any authority               within, a Province or Federated State :               Provided  that, until any Federal  law  other.               wise  provides, any property so  vested  which               was  immediately  before the  commencement  of               Part  III  of this Act liable, or  treated  as               liable,  to  any such tax, shall, so  long  as               that tax continues, continue to be liable,  or               to be treated as liable, thereto."               "155.  Exemption of Provincial Governments and               Rulers  of  Federated  States  in  respect  of               Federal  taxation. (1) Subject as  hereinafter               provided, the Government of a Province and the               Ruler of a Federated State shall not be liable               to  Federal  taxation in respect of  lands  or               buildings  situate in British India or  income               accruing, arising or received in British India               Provided that-               (a)   Where a trade or business of any kind is               carried  on by or on behalf of the  Government               of a Province in any                877               part of British India outside that province or               by  a  Ruler  in any part  of  British  India,               nothing in this sub-section shall exempt  that               Government or Ruler from any Federal  taxation               in  respect of that trade or business, or  any               operations connected therewith, or any  income               arising   in  connection  therewith,  or   any               property occupied for the purposes thereof               (b)   nothing in this sub-section shall exempt               a  Ruler from any Federal taxation in  respect               of  any lands, buildings or income  being  his               personal property or personal income.

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             (2)   Nothing   in   this  Act   affects   any               exemption from taxation enjoyed as of right at               the  passing  of this Act by the Ruler  of  an               Indian   State  in  respect  of   any   Indian               Government   securities  issued  before   that               date."   As  I have said already, dual government in  a  Federation requires  the protection of one government from taxation  by the  other.   In the United States of America, there  is  no specific  provision  but  such an immunity  is  held  to  be implied in the nature of dual government.  In Canada, s. 125 of the British North America Act, 1867, provides : ,               "No  lands or property belonging to Canada  or               any province shall be liable to taxation." In  the Australian Constitution, which, one of  its  framers (Mr.Justice Higgins) described as a "pedantic imitation"  of the American Constitution, s. 114 provides :               "A State shall not without the consent of  the               Parliament of the Commonwealth raise or               878               maintain  any  naval  or  military  Force,  or               impose  any  tax  on  property  of  any   kind               belonging  to the commonwealth, nor shall  the               commonwealth impose any tax on property of any               kind belonging to a State." Even  in Constitutions which are comparatively recent,  like those  of Argentina and Brazil we find  similar  provisions. Article 32 of the Constitution of Brazil provides:               "The Union, the States and the  Municipalities               are forbidden-               *             *         *            *               (c)   to tax goods, income or services of each               other."     In  the  arguments  before us at  which  the  Solicitor- General of India for the Union and Advocates-General of some of  the  States  and other  learned  counsel  assisted,  two distinct lines of thought were discernible.  One line was to rely   upon  certain  American,  Canadian   and   Australian decisions   where   restrictions   under   the    respective Constitutions  were either upheld or negatived, and then  to reason  from anology.  The other line was to take the  words of  the  Constitution and to see what the  Constitution  has meant  to  say.   These  two  lines  represent  the  classic approach to the interpretation and construction of a written Constitution.  Cooley explained the difference between  them (’Constitutional   Limitations,  p.  97)  by   saying   that interpretation "is the art of finding out the true sense  of any  form  of words; that is, the sense which  their  author intended  to convey", while construction is "the drawing  of conclusions, respecting subjects that lie beyond the  direct expression  of the text, from elements known from and  given in the text;Conclusions which are in the spirit, though not  879 within  the  letter  of the text".   With  a  written  Cons- titution,  such as we have, the task in most cases  must  be one  of  interpretation,  but where  the  language’  Of  the Constitution  suggests that what was previously passed  upon by  the  Superior  Courts of  other  countries  in  parallel matters has obviously been taken as a guide, one may have to go a little further than the text to find out what was being sought  to  be achieved and what was being  avoided.   I  am aware  that in Webb v. Outtrim (1), Lord  Halsbury  observed that  it  was  impossible  to say  of  the  framers  of  the Australian  Constitution  what  their  supposed  preferences were.   I  am  also conscious of the fact  that  the  Indian

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Constitution  is a document framed by the Indian people  for the  Indian people.  In interpreting the  Constitution,  one must not completely cast off the moorings to the text of the Constitution and drift into alien seas.  I may say, however, that  there  are indications in the Constitution  itself  of compelling  force which show that the framers were  desiring to  avoid some of the implications of these rulings  of  the Superior Courts of the United States, Canada and Australia.. The  observations of these learned Courts have been  pressed into  service  by  counsel  before  us,  as  they  form  the historical background of the provisions of our Constitution. I  also find it convenient to deal with them first  as  they prepare  us to understand our own Constitution.  Perhaps  by seeing  the problem in other settings and environments,  one is able to see it better in one’s own.   I  shall begin with the United States of America,  because the doctrine had its first beginnings there.  In the  United States, the immunity of one Government from taxation by  the other  arose  as an indispensible implication  of  the  dual system.   It had its roots in what Mr.  justice  Frankfurter described as a ’seductive cliche" of Chief justice  Marshall in McCulloch v. Maryland (2), that the power to tax involves the power to destroy by the tax.  But the (1) [1907] A. C. 81. (2) 4 Wheaton 316, 880 doctrine  was  more that) a mere cliche; it  was  stated  by Chief.’   justice  Marshall  to  be  fundamental   to   dual government.  Let me recall his words :               "If we measure the power of taxation  residing               in a State, by the extent of sovereignty which               the people of a single State possess, and  can               confer   on   its  government,  we   have   an               intelligible  standard,  applicable  to  every               case  to which the power may be  applied.   We               have  a  principle which leaves the  power  of               taxing  the  people and property  of  a  State               unimpaired,  which  leaves  to  a  State   the               command of all its resources, and which places               beyond   its  reach,  all  those   which   are               conferred  by the people of the United  States               on the Government of the Union, and all  those               means  which  are  given for  the  purpose  of               carrying those powers into execution.  We have               a principle which is safe for the States,  and               safe  for tile Union.  We are relieved, as  we               ought  to be, from clashing sovereignty;  from               interfering powers; from a repugnancy  between               a  right in one Government to pull  down  what               there  is an acknowledged right in another  to               build up; from the incompatibility of a  right               in  one government to destroy what there is  a               right  in  another to preserve.   We  are  not               driven to the perplexing inquiry, so unfit for               the   judicial  department,  what  degree   of               taxation is the legitimate use and what degree               may amount to the abuse of the power".               The.   Chief justice, therefore, concluded  in               these famous words :               "The  Court has bestowed on this  subject  its               most deliberate consideration.  The result  is               a  conviction that, the States have no  power,               by  taxation or otherwise, to retard,  impede,               burden   or   in  any  manner   control,   the               operations

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              881               of  the Constitution laws enacted by  Congress               to  carry into execution the powers vested  in               the general government.  This is we think, the               unavoidable  consequence  of  that   supremacy               which the Constitution has declared". This doctrine had early dissenters and chief among them  was Mr. justice Bradley who described it as founded on a fallacy which would lead to mischievous consequences.  Collector  v. Day (1). McCulloch’s case involved a State tax which was re- ally  discriminatory  against the operations of  a  national bank  and  could have been decided without laying  down  any such proposition.  But the doctrine was accepted and it grew and  grew.  It took in not only the property and  activities of  a Government within its protection but also  all  means, agencies and instrumentalities by which Government acts.  It was  only after, many years that the reach of  the  doctrine began to be curtailed.  In the Panhandle Oil Co. v. Missippi (2),  Mr.  justice Holmes did away with the  cliche  by  the trenchant observation ",the power to tax is not the power to destroy  while  this  Court  sits".  But  it  was  only  the increasing  dissents  which led to the overthrow of  a  good dozen cases in Gravess v. New York     I  need  not enter into the history of  the  process  by which  the  doctrine was curtailed.  I shall refer  to  that part  only  which has withstood the attrition to  which  the doctrine  was subjected.  In the State of South Carolina  v. U. S. (4), (a case relied upon by the States to explain Art. 289),  the  State  had taken over the  business  of  selling intoxicating  liquors  in  the  exercise  of  its  sovereign powers.  The dispensing and selling agents of the State were charged, under a Federal Revenue Statute, an excise  licence tax  which  was  imposed  on  all  sellers  of  intoxicating liquors.  It was held that the agents were not (1)  11 Wall. 113 : 20 L. Ed. 122. (2)  277 U.S 218, 223:72 L. Ed 857, 859. (3)  306 U.S, 466. 83 L.Bd. 927. (4) 199 U.S. 437 .50 L.  Ed. 261, 882 protected  by the doctrine because they were doing  business and  not carrying on functions of Government.   Mr.  Justice Brewer gave the reason in these words :               "Mingling  the  thought  of  profit  with  the               necessity  of regulation may induce the  State               to   take  possession,  in  like  manner,   of               tobacco,  oleomargarine and all other  objects               of  internal revenue tax.  If one State  finds               it  thus profitable other States  may  follow,               and the whole body of internal revenue tax  be               thus stricken down". Mr.  justice Brewer pointed out that in this way control  of all public utilities, of gas. of water and of the  rail-road systems would pass to the States and the States would become owner  of all property and business and then what would  the States  contribute to the revenues of the nation ?  He  held that  the tax was not imposed on any property  belonging  to the State, but was a charge on a business before any profits were  realized therefrom, or in other words, upon the  means by  which  that  property was acquired  but  before  it  was acquired.  In that case, the distinction between State as  a trader  and State as Government was made.  This  distinction was  emphasized  later in Ohio Helvering(1),  where  it  was observed :               "When a State enters the market place  seeking               customers  it  divests  itself  of  its  quasi

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             sovereignty   pro  tanto  and  takes  on   the               character of a trader, so far at least, as the               taxing  power  of the  federal  government  is               concerned". In  subsequent cases this distinction  between  governmental functions and functions as a trader was preserved.  The term ’governmental functions’ was (1)  292 U.S.360.78L.Ed.1307.  883 further  qualified by the words ’strictly’.  ’essential’  or ,usual’.   It  was even said that these  functions  must  be those  in  which State Governments  must  be  ’traditionally engaged’, otherwise they would not be able to withdraw  from the  taxing  power  of the general  government.   A  certain amount of strictness in the application of the doctrine  was noticeable in the University of Illinois v. U.S.A. (1).   In that case, the University imported scientific apparatus  for use in one of its departments.  Customs duties were  exacted which were paid under protest, the University claiming to be an  instrumentality of the State of Illinois, discharging  a governmental function.  The Tariff Act of 1922, under  which the  impost  was  made. was an Act to  provide  revenue,  to regulate  commerce with foreign countries, and to  encourage the  industries  of the U.S.A. Relying on Gibbons  v.  Ogden (1),  it  was  pointed out in the case  that  the  power  to regulate  was plenary and exclusive and its  exercise  could not be limited, qualified or impeded to any extent by  State action  and  that there was a denial to the  States  to  lay imposts or duties on imports and exports without the concent of  the  Congress (Articles 1, 10, 2).  It  was,  therefore, laid  down  that  the principle of  duality  did  not  touch regulation  of  commerce  with foreign  countries.   It  was argued that the Tariff Act laid a tax and the tax fell  upon an instrumentality.  It was conceded that it nigh be so, but it  was  pointed out that the imposition of  customs  duties could be for purposes of regulation and that the  provisions took into account foreign trade and regulated it and revenue was  incidental  and  the  protection  did  not  go   beyond governmental functions.  Chief justice Hughes then observed:               " The fact that the.  State in the performance               of  State functions may use imported  articles               does  not  mean  that  the  imporation  is   a               function               (1) 289 U.S. 48: 77 L. Ed. 1025.               (2) 9 Wheaton 1.               884               of the State Government independent of federal               power."               *         *          *             *                 "To    permit    the   States    or    their               instrumentalities  to import  commodities  for               their own use, regardless of the  requirements               imposed  by the Congress, would undermine,  if               not  destroy, the single control which it  was               one   of   the  dominant   purposes   of   the               Constitution   to  create.   It  is  for   the               Congress  to decide to what extent if at  all,               the  States and their instrumentalities  shall               be  relieved of the payment of duties  on  im-               ported articles." The  regulatory  aspect  of  taxes  on  commerce  was  again recently  the  subject of discussion in  the  United  States Supreme  Court in what is popularly called the  ’Soft  drink case’.  Natural mineral waters in the State were bottled and sold  and it was held by majority that a  non-discriminatory

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tax  on  all persons was payable by the  Government  of  the State because in selling mineral waters, even though a  part of  the natural resources of the State, it was not  carrying on  a governmental function and the tax did not  affect  its sovereignty.  Mr. justice Frankfurter said                "Surely  the power of Congress to  lay  taxes               has  impliedly no less a reach than the  power               of  the Congress to regulate commerce.   There               are of course State activities and State owned               property  that partake of uniqueness from  the               point of view of inter-governmental relations.               These   inherently  constitute  a   class   by               themselves.   Only  a State can  own  a  State               house; only a State can get income by  taxing.               These  could not be included for  purposes  of               federal  taxation in any abstract category  of               tax  payers  without  taxing the  State  as  a               State, But so long as Congress                885               generally taps a source of revenue by  whomso-               ever earned and not uniquely capable of  being               earned  only by a State, the  Constitution  of               the  United States does not forbid  it  merely               because  its incidence falls also on a  State.               If  Congress desires, it may of  course  leave               untaxed enterprises pursued by States for  the               public  good while it taxes  such  enterprises               organised for private ends".     Mr.  justice  Frankfurter  rejected  as  untenable  such criteria as "proprietary’ against ’governmental’  activities of  the  State  or  historically  sanctioned  activities  of Government  ’ or ’ activities conducted mostly  for  profit’ and found no restriction upon Congress to include the States in levying a tax exacted casually from private persons  upon the  same  subject-matter".  Mr. justice  Rutledge  did  not agree  with  the  last extention but chose  not  to  differ. Chief  justice  Stone, with whom justices Read,  Murphy  and Burton  agreed,  pointed out that in the United  States  the cases were divisible into two parts those in which there was taxing  of property, income or activities of the State,  and those   in   which   the  tax  was  laid   on   agents   and instrumentalities of the State, which tax was said to impede or  cripple  indirectly  the  State.   They  held  that  the distinction  between governmental and proprietary  interests was  untenable,  and agreed that  a  non-discriminatory  tax could  sometimes be laid on the State, provided it  did  not affect  its sovereignty, but the essence of the  matter  was not  that  the  tax was non-discriminatory  but  because  it unduly  interfered  with  the  performance  of  the  State’s functions  of Government.  Holding, therefore, that the  tax in  question there did not curtail the State  Government  in its functions, it was point out that the Constitution  could not  be read to give "immunity to the State’s mineral  water business  from federal taxation" or to deny to  the  federal government power to levy the tax.  Mr. justice Jackson  took no 886 part  but  justices  Douglas and Black  entered  a  powerful dissent.   The  opinion  was based on the  theory  that  the taxing  power of either Government if exercised against  the other was likely to affect the cost of its operation and "if the  federal Government can place the local  Governments  on its tax collectors’ list, then, capacity to serve the  needs of their citizens is at once hampered or curtailed."     From  the above analysis of the American cases (and  all

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of them were within the ken of our Constituent Assembly), we gather  that  the immunity now does not  extend  to  agents, means or instrumentalities as it did previously, and that it does  not extend to any trading or business activity of  the State  even  though the trading involves  natural  resources (though it is conceded that the Congress may excuse  trading in  a  suitable case).  It extends to the  property  of  the State owned as State but not in the course of trading.   The marginal  cases  are  those where the  tax  which  is  laid, interferes unduly with the State as a State, and it is  held by narrow majority that except for such marginal cases,  the States are not immune.  The contention on behalf of some  of the  States is that the distinction made by Brewer,  J.,  in the  South  Carolina  case (1) has’ been  preserved  in  the scheme  of  Art. 289, and if’ import and export are  in  the discharge of essential governmental functions, there must be exemption  from  customs duty but not if there  is  trading. Similarly,  it  is contended that there  is  exemption  from excise duty based on the same or similar considerations.  In other  words, the claim is that Our Constitution  reproduces in  its  broad features the doctrine ,is understood  in  the United  States  till  the  time  of’  the  framing  of   our Constitution.     There  can be no doubt that the broad features  of  Art. 289 correspond to the American doctrine as understood before our  own  Constitution was framed.  Article  289  grants  an exemption from taxation to (1)  199 U.S. 437: 50 L.Ed. 261.  887 the   property  and  income  of  the  States.    What   that comprehends  I am leaving over for discussion till  after  I have touched upon the Canadian and Australian  Constitutions and  referred  to  cases decided  in  connection  therewith. Article  289,  however, quite clearly limits  the  exemption against  taxation  in  such a way as  to  make  the  trading activities  of the States and the property used or  occupied for  the  purposes  of  such trade  or  business  liable  to taxation.   This follows indubitably from cl. (2).   Without attempting to expound exegetically the words of that  clause and its relation to clauses (1) and (3) I find it sufficient to say that cl. (2) put outside the exemption granted by cl. (1) all trading activities of the State and property used in that connection.  The force of the opening words "Nothing in clause  (1)" does not make cl. (2) an exception to cl.  (1). Those  words  emphasize  that the  existence  of  the  power declared  by cl. (2) is really unaffected by cl. (1).   This is  the trend of opinion in the U.J.S.A., as I have  pointed out.  The same opening words are repeated in cl. (3) and the final  words  "incidental  to  the  ordinary  functions   of government"  show  that  even trading can  be  regarded,  if Parliament  so  declares  by  law,  as  "incidental  to  the ordinary functions of Government." This is again  recognized in  the  U.S.A., where statutes  sometimes  include  special exemptions  in  favour  of the  trading  activities  of  the States.    It  follows, therefore, that the general outline of  Art. 289 is based upon the American pattern that the property and income  of the States are not to be taxed, that  trading  is not an ordinary function of Government though Parliament may by  law declare that any trade or business or any  class  of trade or business is incidental to functions of Government.    So  far  I have dealt with the general pattern  only  and traced its similarity to the American 888 doctrine.   It  may be pointed out even at this  stage  that

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there   is  no  immunity  in  respect  of  the   agents   or instrumentalities  of Government in our  Constitution.   The exemption  is  in respect of the "property and income  of  a State".   The force of these words appears from other  cases under  the Canadian and Australian Constitutions.   I  shall deal  with Australia first, because the leading  case  under that Constitution was decided before the leading case  under the Canadian Constitution.    I  have  already  quoted s. 114 of  the  Commonwealth  of Australia Constitution Act.  The material portion of it  may be reproduced here.:               "A State shall not..................... impose               any  tax on property of any kind belonging  to               the  Commonwealth, nor shall the  Commonwealth               impose any tax on property of any kind belong-               ing to the State".   The  doctrine  of  immunity  of  instrumentalities  as  an implied  prohibition  in  the  Constitution  was  held   in- applicable  to Australian Constitution by the Supreme  Court of  Victoria before the High Court was constituted  but  the High  Court  in the first case applied  the  doctrine.   See D’Emden  v. Pedder (1). It is hardly necessary to trace  the history of the doctrine as it was rejected in what is called the  Engineers’ case (2).  It was, However, held in  D’Emden v.  Pedder(1),  that  s.  1 14  only  referred  to  "tax  on property" as such and was a prohibition different from  that contained  in the American Doctrine.  The matter came  to  a head in two cases in 1908.  In King v. Sutton(3), a quantity of  wire netting purchased in England and imported into  the Commonwealth by the Government of New South Wales was landed at  the port of Sydney.  Without any entry having been  made or  passed  and  without  the  permission  of  the   customs officers, it was removed under the executive (1) (1904) I C.L.R. 91. (2) (1920) 28 C.L.R. 129. (3) (1908) 5 C.L.R. 786.  889 authority  of the State.  The customs authorities  proceeded against  the defendant under ss. 36 and 236 of  the  Customs Act of 1901.  It was held that the Customs Act, 1901, was  a valid  exercise of the exclusive power of  the  Commonwealth conferred by ss. 52(ii), 86 and 90 of the Constitution  Act, to impose, collect and control duties of customs and excise, and the Act applied to goods imported by the Government of a State  just as it applied to private persons and  the  goods which were subject to the control of the Customs authorities under s. 30 could not be removed contrary to the  provisions of the Act.  On the following day, the High Court  delivered judgment  in the Attorney-General of New South Wales v.  The Collector  of Customs (1), in which s. 114  was  considered. That was an action brought to recover from the defendant the amount of customs duties demanded and paid under protest  in respect of the importation into the Commonwealth of  certain steel  rails  by the Government of the State  of  New  South Wales.  The rails were purchased in England and were shipped to  the  Secretary for Public Works of the State.   At  that time the current of authority in Australia was in favour  of applying    the   American   doctrine   of    immunity    of instrumentalities as laid down by the High Court in  D’Emden v.  Pedder  ( 2), though in that case, it was  already  held that s. 114 dealt with "tax on property", and it was a  very different  matter.   The State sought the protection  of  s. 114.   It was held that the doctrine had no  application  to powers expressly granted to the Commonwealth which by  their very nature involved control of some operations of the State

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Government  and  one such grant was the power to  make  laws with  respect to external trade.  It was further  held  that the imposition of customs duties being a mode of  regulating trade  and  commerce  with other countries  as  well  as  an exercise  of  the taxing power, the right of the  States  to import goods must be subject to the (1)  (1908) 5 C. L. P. 818. (2) (1904) 1 C.t.R. 91. 890 Commonwealth power.  The Commonwealth power was said to flow from s. 51 [(i) and (ii)] which read :               "51.   The  Parliament shall, subject  to  the               Constitution, have power to make laws for  the               peace,  order  and  good  government  of   the               Commonwealth with respect to               (i)   Trade and commerce with other countries,               and among the States,               (ii)  Taxation; but so as not to  discriminate               between States or parts of States".               In  this connection, one other section may  be               quoted               "55.  Tax Bill.--Laws imposing taxation  shall               deal only with the imposition of taxation, and               any  provision therein dealing with any  other               matter shall be of no effect.               Laws  imposing taxation, except laws  imposing               duties  of  customs or of excise,  shall  deal               with  one subject of taxation only;  but  laws               imposing  duties  of customs shall  deal  with               duties  of  customs only,  and  laws  imposing               duties  of excise shall deal with  ditties  of               excise only".   In deciding that the State Government was required to  pay customs  duties  on import by it, the provisions of  s.  114 notwithstanding,  the learned judges gave  widely  different reasons.   Those  reasons were pressed into service  in  the arguments before us, and I shall briefly notice them.  Chief justice Griffith found entinomy in the power of taxation and regulation  conferred  by  s. 51 on the  one  hand  and  the exemption granted by s. 114 on the other, and held that if a construction was possible which would harmonise the two,  it was to be preferred.  The  891 learned Chief justice, therefore, examined the scheme of the Constitution  Act and found that though the word  ’taxation’ in  s. 51 (ii) included customs duties, the latter were  not described  as  ’tax’  in  the Constitution  or  as  ’tax  on property  He  held  that customs duties were a  tax  on  the movement of goods and the word ’tax’ ins. 114 could riot  be held to include customs duties because the section mentioned a  tax  con  property’ ’belonging to a State’.   He  was  of opinion  that such property must be within the  geographical boundaries  of the State and customs duties being  collected at the confines of the State were collected before the goods became the property of the State.  He concluded,  therefore, that the levying of duties of customs on importation was not an  imposition of the tax upon property within  the  literal meaning  of s. 114, and even if it was, the section must  be differently construed in the light of the general provisions of  the  Constitution Act.  Barton and   O’Connor,  JJ.,  in separate  judgments  followed  the  same  line  of  thought. Higgins,  J.  ,  pointed out  that  before  the  prohibition applied,  taxation of property must be ’as  property’.   His conclusion ,nay be stated in his own words :               "I  prefer to base my judgment on  the  ground

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             which  I have stated.  I  cannot  confidently,               take the ground that customs duty cannot be  a               tax  within  the meaning of the word  tax’  in               section  114.   It  is true  that  ’duties  of               customs’ and ’duties of excise’ are the  usual               expressions; but phraseology, such as is  used               in  s. 55, shows that the Constitution  treats               the  imposing  of  such duties  as  being  the               imposing  of taxes.  ’Laws imposing  taxation,               except  laws  imposing duties  of  customs  or               excise,   shall  deal  with  one  subject   of               taxation only’.  However the fact that section               114  uses the mere word "tax’not ’tax  of  any               kind’  although it speaks of (property of  any               kind strengthens the view               892               that the framers of the section could not have               had customs duties in their minds at the time.               They  lay  the  emphasis  on  the  thought  on               ownership  "property  of any  kind  belonging’               etc." (p. 855).     Isaacs,J.,  on  the  other hand,  held  that  duties  of customs as ordinarily understood or in the Customs Act, were imposed  on  the goods themselves and  were  therefore,  ’on property’  within  the meaning of s. 114, but did  not  come within the meaning of ’tax’ as used in that section and  the Constitution  generally.   He cited certain  authorities  to show that though the word ’taxation’, when used to confer on Government a power, might carry the amplest meaning..  being a  generic word, the word tax might or might not be as  wide in  meaning  when used in, one other context.   The  learned judge found that the word ’tax’ was used only in s. 114  and did  not carry the wide meaning, and coupled with  the  word ’property’ could not be read to include customs duties.     This decision of the Australian High Court was  strongly relied  upon  by the learned  Solicitor-General.   It  will, however,  be  seen that the construction of the  words  used ins.  114  is so intimately connected with  the  scheme  and language of the other parts of the Constitution Act as to be of little assistance to us.  The words ’tax’ and  ’taxation’ were  not  defined in the Australian  Constitution,  whereas they  are,  in our own.  Further,  the  distinction  between ’tax’  and  ’taxation’  with all due  respects  is  somewhat difficult  to  apprehand.  I can only say in  the  words  of Cassels,  J.,  in  a Canadian case to which  I  shall  refer presently that :               "I agree with the Attorney-General for British               Columbia in his Statement before me as to  the               difference between taxation and a tax.  As the               Attorney.General states ’I am not relying very                893               strongly upon that phase of the argument’.  He               thinks  the distinction is rather  subtle  and               thin, so do I." We shall soon that the Privy Council (lid not rely upon this distinction when this case was cited before it. The  decision  in  the Australian  case  laws  down  certain general  propositions  which may be stated.   It  recognizes that customs duties have the dual aspect of raising  revenue and  of  regulating external trade.   This  proposition,  of course,  is  valid.  It was also accepted  in  the  American cases to which I have already referred and also in the Privy Council  case from Canada to which I shall  make  reference. It  also  decided that the word ’taxation’  is  sufficiently

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wide  to  take  in customs duties.  This was  laid  down  by Isaacs,  J., and cannot be said to be dissented from by  the other learned judges.  This proposition is hardly  necessary as an aid to construction of our Constitution which uses the word  ’taxation’,  as  I pointed out during  the  course  of arguments only, in Art. 289, and defines the term :               "Art.  366  (28).   ’Taxation’  includes   the               imposition  of  any  tax  or  impost,  whether               general or local or special, and tax’ shall be               construed accordingly".    This  gets  over the difficulty felt in  Australian  case generally  and particularly by Higgins J., in the extract  I have  made  from  his  judgment.  The  fact  that  the  word taxation is used in one place only in our Constitution saves us  from  the  task of examining the  context,  because  the definition  would become a dead letter if it were riot  used in, that place in the sense defined.  As regards the  scheme of the Australian Constitution, there is some similarity  in that  the  powers  of taxation conferred by  s.  51  of  the Australian 894 Constitution Act on Parliament are subject to the provisions of  that Constitution just as they are in  our  Constitution but unlike those conferred by the Constitution of Canada.  I shall  refer  to these points which were used  in  arguments when I deal with our Constitution.  I shall now refer to the Canadian case relied upon by the learned Solicitor-General.   Before dealing with the Canadian precedent or the decision on appeal by the judicial Committee, I find it necessary  to refer  to a few cases in which the Privy  Council  explained the general scheme of the British North America Act and  the principles   on   which  that  Act  is  to   be   construed, particularly  ss.  91 --95 of the Act, which deal  with  the powers of legislation in the Dominion and their distribution between the Dominion Parliament and the Legislatures of  the Provinces.   Without  leaving those principles  before  one, there is a danger of misapprehending the implications of the cases  relied upon by the learned Solicitor-General.  It  is not  necessary  to  reproduce sections 91 and  92  in  their entirety  beyond  the  opening words  which  have  a  direct bearing upon the problem decided in the Privy Council  case. Section 91, in so far as material to our purpose, reads               Section 91 -               "It shall be lawful for the Queen, by and with               the advice and consent of the Senate and House               of Commons, to make laws for the peace, order,               and good government of Canada, in relation  to               all  matters not coming within the classes  of               subjects  by this Act assigned exclusively  to               the  legislatures  of the provinces;  and  for               greater  certainty but not so as  to  restrict               the  terms  of  this  section,  it  is  hereby               declared  that  (notwithstanding  anything  in               this Act) the exclusive legislative  authority               of  the  Parliament of Canada extends  to  all               matters                895               coming  within  the classes of  subjects  next               hereinafter enumerated, that is to say,-"               "Then  follows an enumeration of  twenty  nine               classes of subjects".               *        *      *    *      *       *               "And  any  matter  coming within  any  of  the               classes of subjects enumerated in this section               shall  not be deemed to come within the  class

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             of  matters  of  a  local  or  private  nature               comprised in the enumeration of the classes of               subjects  by this Act assigned exclusively  to               the legislatures of the provinces."               Section 92 is as follows               "In   each   province  the   legislature   may               exclusively  make laws in relation to  matters               coming  within  the classes of  subjects  next               hereinafter enumerated, that is to say,-"               "Then   follows  an  enumeration  of   sixteen               classes of subjects."    In dealing with the general scheme of the Act, the  Board in  The  Citizens  Insurance Company of  Canada  v.  William Parsons and The Queen Insurance Company v. Williams  Parsons (1), pointed out that the scheme was to give primacy to  the Dominion   Parliament   in  cases  of  conflict   of   power notwithstanding  anything in the Act and explained  how  the exclusiveness  of  the spheres of the two  legislatures  was intended to work.  The position was again summed up the next year in Russel v. Queen, the report of which is to be  found in  the  same volume at p. 829.  Again, in Tennant  v  Union Bank of Canada (2), it was held that s. 91 (No. 15) of the British North America Act gave the Dominion (1) (1881-82) 7 App. Cas. 96. (2) (1894) A.C. 31 at 41. 896 Parliament power to legislate over every transaction  within the  legitimate business of a banker,  notwithstanding  that the  exercise  of such power interfered  with  property  and civil rights in the province (ss. 92, 20, 13) and  conferred upon  the bank privileges as a lender which  the  provincial law  did not recognise.  The decision was rested once  again on  the  doctrine  of  paramountcy  of  Dominion  Parliament notwithstanding  anything in the Act so long as it  did  not fall  within  the exclusive power of the  Provincial  Legis- lature under section 91.  Lord Watson observed :               "..........  But sect. 91  expressly  declares               that,  notwithstanding anything in this  Act,’               the  exclusive  legislative authority  of  the               Parliament  of  Canada  shall  extend  to  all               matters coming, within the enumerated classes;               which  plainly indicates that the  legislation               of  that  Parliament, so long as  it  strictly               relates   to  these  matters,  is  to  be   of               paramount authority.  To refuse effect to  the               declaration would render nugatory some of  the               legislative  powers specially assigned to  the               Canadian Parliament."    This  primacy of Dominion Parliament wag in  all  matters legislative,  subject,  of  course,  to  what  was  assigned exclusively to the Provincial Legislatures.  But the primacy of  Parliament  of  Canada  was  untrammelled  by   anything elsewhere to be found in the same Act.   From  the above citations, it is obvious that the  general scheme  of  the British North America  Act  assigns  certain subjects to the exclusive and plenary power of the  Dominion Parliament,  and certain other subjects exclusively  to  the Provincial Legislatures.  By s. 91, the Imperial  Parliament has  unequivocally  placed everything not  assigned  to  the local  legislatures within the jurisdiction of the  Dominion Parliament notwithstanding anything in the  897 Act.  The British North America Act thus has to be construed as a whole and with reference first to the exclusive  domain of the Provincial Legislatures, next, with reference to  the

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Paramountcy  of  the  Dominion Parliament  and  the  general scheme  of the Act.  Unless a matter falls within s. 92  and does  not  fall  within s. 91, the action  of  the  Dominion Parliament is subject to no restraint by anything  elsewhere to be found in the Act.     We  are  now  in  a position to  consider  the  case  so strongly  relied upon by the learned Solicitor-General.   To Understand that case, the facts must be seen first.  It  was a test case by way of an action by the Crown in the right of the Province to have it declared that it could import liquor into  Canada  for purposes of sale  without  paying  customs duties imposed by the Crown in the right of the Dominion  of Canada  by virtue of the Customs Act of Canada.  The  action of  the  Province  of  British Columbia  was  based  on  the provisions of Government Liquor Act which was declared intra vires by the Privy Council in Canadian Pacific Wine  Company Limited  v.  Tuley  (1).  Before the  Exchequer  Court,  the following  admission  of facts was filed  by  the  Attorney- General of Columbia:-               "It  is hereby admitted, for all  purposes  of               this action, that the case of ’Johnnie Walker’               ’Black label’ whiskey, which was purchased and               consigned  to H.M. King George V in the  right               of  the province of British Columbia  care  of               Liquor Control Board, Victoria B. C. as alleg-               ed  in  para 1 of the Statement of  the  claim               filed  herein, was so purchased and  consigned               to  meet  the requirements of  the  Government               Liquor Stores’ established in British Columbia               under the Government Liquor Act Ch. 30 of  the               States  of British Columbia, 1921 and for  the               purpose of sale at the said Government               (1)   [1921] 2 A.C. 417.               898               Liquor  Stores pursuant to the  provisions  of               the said Act". The  contention on the side of the Province was that s.  125 of the British North America Act which provides "No lands or property belonging to Canada or any Province shall be liable to taxation", gave protection against the customs duty.  The contention on the side of the Dominion was that the  whiskey was  not imported for purposes of Government but for  trade. It  was  pointed  out that under s.  118,  large  sums  were payable  by the Dominion to the Provinces and reference  was also  made to ss. 122, 123 and 124, under which customs  and excise  laws  as also certain other dues  were  to  continue until altered by the Parliament of Canada.  British Columbia was  not  a  part of the Dominion to  start  with.   It  was admitted  ’into  the Dominion under s. 146  of  the  British North  America  Act  on May 16, 1871, by  an  order  of  Her Majesty  in Council.  Section 7 of the Order  provided  that the existing customs tariff and excise duties would continue in force in British Columbia for sometime.  The Dominion Act under  which  the  customs  duty was  sought  to  be  levied provided as follows :-               "The  rates and duties of customs  imposed  by               this  Act, or the customs tariff or any  other               law  relating to the customs, as well  as  the               rates and duties of customs heretofore imposed               by  any Customs Act or Customs Tariff  or  any               law  relating  to the Customs enacted  and  in               force at any time since the first day of  July               1867,  shall be binding, and are declared  and               shall  be deemed to have been  always  binding               upon and payable by his Majesty, in respect of

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             any goods, which may be hereafter or have been               heretofore  imported  by or  for  His  Majesty               whether in the right of His Majesty’s  Govern-               ment of Canada or His Majesty’s Government                899               of any Province of Canada, and whether or  not               the goods so imported belonged at the time  of               importation  to His Majesty; and any  and  all               such Acts as aforesaid shall be construed  and               interpreted  as  if the rates  and  duties  of               customs  aforesaid  were and  are  by  express               words  charged  upon and made payable  by  His               Majesty.               Provided,   however,   that   nothing   herein               contained is intended to impose or to  declare               the imposition of any tax upon, or to make  or               to  declare liable to taxation,  any  property               belonging  to His Majesty either in the  right               of Canada or of a Province". In the Exchequer Court, Cassells, J., based his decision  on the  fact  that  the  whiskey  was  imported  not  for   any governmental purpose but for trade.  He, therefore, rejected the  claim  of the Province following Mr.  justice  Brewer’s dictum in the South Carolina Case, and referred to two cases of  the Privy Council, Farnell v. Bowman (1)  and  Attorney- General of the Strait Settlement v. Wemyss (1), in which  it was  stated that "if a State chooses to embark upon  private business  in competition with other trades, they  should  be liable  just  as  other persons  engaging  in  trade".   The Australian  case of Attorney General of New South  Wales  v. Collector  of  Customs  (3), was referred  to  but  was  not followed.    An appeal was taken to the Supreme Court of Canada.   The report  of the decision is found in The Attorney-General  of the Province of British Columbia v. The Attorney-General  of the  Dominion  of Canada (4).  It was argued  on  behalf  of British Columbia that in s. 125, British North America  Act, the  word  ’taxation’  included the  imposition  of  customs duties and the word ’property’ included movable property  of all kinds and not merely (1) (1887) 12 App C.s. 613. (2) (1188) 13 App.  Cas 192. (3) (1908) 5 C.L.R. 818. (4) 64 Canda S.C.R. 377. 900 property  as may be incidental to the administration of  the provincial  government.  On behalf of the Dominion,  it  was contended that customs duties did not come within  taxation’ but  were merely in the nature of regulations of  trade  and commerce,  and further this was not taxation  on  property’, and  Attorney-General  of New South Wales  V.  Collector  of Customs (1), was relied upon. The  Court  consisted  of  five  learned  judges  and   they delivered separate judgments.  Iddington J., declined to  go into the question whether the word ’taxation’ would or would not  include customs duties.  He held that s. 125 was  in  a chapter  which  dealt with lands and property and  thus  was confined  to property as was mentioned there or in  the  3rd and  4th  Schedules,  and concluded that  in  view  of  this context  and the nature of the powers given by Nos. 2 and  3 of s. 91, the power to demand customs duties must be upheld. Ainglin J., held on the authority of Attorney-General of New South Wales v. Collector of     Customs  (1),  that  s.  125 could  not  have been intended to give  exemptions  of  this kind,  and that customs duties were not only taxes but  were

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also  regulatory and were imposed rather on movement  across the border than on the goods themselves and were thus not  a tax ’on property in           Canada.  Mignault J., followed a  similar  line.   Duff J., entered into  a  more  detailed discussion  of the scheme of the British North America  Act. He observed that it was a fundamental part of the scheme  of Confederation  to  give  amplest authority  in  relation  to external  trade  exclusively to the  Dominion,  and  customs duties  were  an instrument of regulation.   He,  therefore, held  that  the theory of Dominion primacy must  on  such  a construction of s. 125 postulate a power of disallowance  of anything  which would weaken that control and  primacy.   He also  held that "taxation’ in relation to property was  less comprehensive in significance than ’taxation’ (1)  (1908) 5 C.L.R. 818. simpliciter,  and  though  customs  duties  were  taxes   on commodities in one sense, they were not ’taxes on  property’ as used in s. 125 where the word ’property’ was used in  the sense of distribution of ’lands’ and "property’ between  the Dominion  and the Provinces.  Brodeur J., held that  customs duties  in Canada both regulated and raised revenue and  the Act  under  which  they were levied laid them  ’on  or  upon goods’ and this attracted s. 125. All these reasons were of course pressed into service in the arguments  before  us.  I shall now address  myself  to  the Privy  Council  judgment on appeal from the  Supreme  Court. The  Privy  Council  did not express any  opinion  on  these reasons.     Lord  Buckmaster  referred to the width of  s.  125  but pointed  out  that it could not be read in an  isolated  and disjunctive way.  It was to be read as a part of the general scheme of the Constitution Act by which the Dominion was  to enjoy   exclusive   legislative   authority   over   matters enumerated  in s. 91 which included regulation of trade  and commerce  all  raising  of money by any mode  or  system  of taxation.  He pointed out that customs duties had these dual functions  and whether it was the one function or the  other or both, the Dominion alone had the power.  The claim of the Provinces that though the Dominion had the power to erect  a tariff  wall,  the provinces could make a breach  in  it  by virtue  of  s. 125 through which the goods  could  pass  un- affected by the Customs duties, was not accepted, because s. 125  was  a part of a group of  sections  which  distributed property  between  the Dominion and the Provinces  and  gave control to the Provinces over properties allocated to  them. This  did  not affect authority conferred by  s.  91,  which power   extended  to  regulation  of  trade   and   commerce throughout the Dominion and irrespective of the area of  its operation.  Lord Buckmaster, therefore, 902 held that this purpose was paramount and s. 125 must not  be read to defeat it.  In other words, the primacy of  Dominion Parliament in the matter of regulation of external trade and commerce and taxation of this type was held to be unaffected by s. 125.  Lord Buckmaster referred to Attorney-General  of New  South  Wales v. Collector of Customs (1), but  did  not apply it and observed that "the true solution is to be found in  the  adaptation  of  s.  125  to  the  whole  scheme  of Government" which the British North America Act defined.     The Canadian decisions are based upon the scheme of  the British  North  America Act which gives paramountcy  to  the Dominion  Parliament  which was unaffected by s.  125  which found  place  in  a  group  of  sections  dealing  with  the distribution  of  property  between  the  Dominion  and  the Provinces.

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   Now, the arguments in the present case follow the  lines taken in the cases I have reviewed.  It is contended for the Union that the exclusive power to levy duties of customs and regulation  of  external trade belongs to  Parliament,  that customs  duties both raise revenue and regulate,  that  they are not ’taxes’ much less ’taxes on property’, and Art.  289 must  be interpreted to preserve the exclusive  and  plenary power  of  Parliament.  On the other side, it  is  contended that  clauses  (2)  and  (3)  indicate  that  the  right  of Parliament  is  to  tax  the  trading  activities  of  State Governments but to leave free the ordinary functions as  the Governments of the States, and the prohibition in cl. (1) of Art.  289  is  absolute subject only to  what  is  expressly excluded by cl. (2).  To understand the arguments and to see how the precedents of other countries serve us to understand our  Constitution,  I  shall first  analyse  the  scheme  of taxation under our Constitution.    To begin with, it is a matter for reflection whether  the word ’property’ in Art. 289 excludes (1)  (1908) 5 C.L.R. 818.  903 property imported from foreign countries which has to bear a tax before it can enter the territory of India.  The Article bans taxation of property belonging to the Government of the by property is meant only that prod the geographical  limits of outside those limits and set across customs frontiers may duty.  Similarly, if customs duties in the word  ’taxation’, the   Article  is  to  save  the  property  of   the   State Governments.  Union claims that customs duty is neither  nor a  ’tax on property’.  It is a tax on the movement of  goods across  the  customs frontier and the  protection  given  by Article   289(1)  does  not  apply.   The  scheme   of   the Constitution  clearly shows that neither claim of the  Union can be upheld.    The  Union  List does not include any tax  which  in  the technical or popular sense can be said to be ’property  tax’ or  a tax laid on property as property.  These  tax  entries begin  at  No.  82  which is "taxes  on  income  other  than agricultural  income".   Then follow Nos. 83 and  844  which deal  with  duties of customs and duties of excise.   It  is these  entries  which are the subject  of  controversy.   If these  are not to be regarded as taxes on ’property’,  then, no other tax can be remotely connected with the property  of "he  State in the sense suggested by the learned  Solicitor- General, Nos. 85 and 86 deal with companies, and Nos. 87 and 88,  with  death duties.  In extremely rare cases,  a  State might  be the legatee as in U. S. v. Perkins (1) and  Snyder v.  Bettman (1), but it is difficult to imagine that such  a case  was  in contemplation.  Terminal taxes  and  taxes  on railway  fares  and  freights of No. 89 may  fall  upon  the States, but under Art. 269, the proceeds have to be assigned to  the  States.  No. 90 deals with taxes other  than  stamp duties  oil  transactions  in  stock  exchanges  and  future markets.  They are seldom, if at all, likely to (1) 163 U.S. 62541 L.Ed. 287. (2) 190 U. R. 24947 L.Ed. 103 5. 904 fall  on the States and the proceeds are also assignable  to the  States.  No. 91 is Rates of stamp duties, and  No.  92, taxes    in   the   sale   or   purchase    of    newspaper, assements  published  therein, and he sale and  purchase  of goods where such sale or purchase jurse of inter-State trade or    not  taxes  such  as may be  con  property’.   The  net proceeds  of gain to be given to the States.  When ..J"  was put  to  the learned Solicitor-General as to  which  tax  on

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property  was in contemplation, he could only point  to  the residuary power of Parliament.  This shows that unless  Art. 289(1) took in entries relating to customs duties and excise duties, the protection granted by the clause would be large- ly superflaous or nugatory.    The  Government of India Act, 1935, granted exemption  in respect  of  lands and buildings only, The  present  Article changed  the words to "property and income’.  The pharse  is exhaustive  of  all  the assets and income  of  the  States. Clause  (2) of the Article indicates that the  exemption  is not  to  apply to the trade or business carried  on  by  the State and any tax can be imposed in respect of such trade or business  of any kind or any operations connected  therewith and  any property used or occupied for the purpose  of  such trade  or  business and any income accuring  or  arising  in connection  therewith.  The repeated use of the  word  ’any’ shows  that the distinction sought to be made  in  Australia from  the use of the word in one place and its  omission  in another  is  not admissible.  The words "used  or  occupied’ show  that  movable and immovable properties  are  included. Clause  (3)  shows that power is reserved to  Parliament  to declare by law which trade or business or class of trade  or business   is  incidental  to  the  ordinary  functions   of Government, thus, taking the matter out of the  905 jurisdiction  of courts.  Till Parliament so  declares,  all trade  and  business  of any kind  must  remain  subject  to taxation.      From  the above, it follows that the three  clauses  of Art.  289  must be read together and  harmoniously  together their  correct import.  It is not possible to read  cl.  (1) with the assistance of rulings of other Courts.  The problem to  be  faced  is  : What  is  included  in  the  expression ’property  of  a  State’ ? It  must  obviously  include  all property  to  which  the  State can  lay  claim.   The  word "property’  is wide enough to include immovable as  well  as movable  varieties.  Art. 289 departed from the language  of the  Government of India Act, 1935 by discarding  ’lands  or buildings’ and using the more comprehensive expression "pro- perty’,  and in cl. (2) qualified that word by ’any’ and  by ’used  or occupied’.  The collocation of  these  expressions clearly indicates that the property of the State in whatever circumstances  situated,  was  meant  and  was  exempt  from taxation  and  the only property which was made  subject  to taxation  was  any property used or occupied  for  business. Property,  which  is brought into ownership  and  possession abroad,  or property, which is produced or  manufactured  by the  State, is property of the State.  If not, the  question may  be asked, "Whose property is it then ?", and no  answer to  such a question can be given.  I am, therefore,  of  the opinion  that taking the language of Art. 289 (1) by  itself or  even  as modified by that of clauses (2)  and  (3),  the conclusion  is  inescapable  that properties  of  all  kinds belonging  to  the States save those used  or  occupied  for trade   or  business,  were  meant  to  be   exempted   from ’taxation’.   Such property may be immovable or movable  and need not be within the geographical limits.  This Article is in the part dealing with "Finance" and is included in a sub- chapter entitled "Miscellaneous Financial Provisions".   Its significance is thus not made less 906 by   any special considerations as was the case with s. 125 of   the   British  North  America  Act.   The   powers   of legislation,  which  Parliament  enjoys  by  virtue  of  the taxation  entries  in List 1, are expressly subject  to  the

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provisions   of  the  Constitution,  and  Art.   289   must, therefore,  override unless it be inapplicable.  The  Scheme of  Art. 289 does not admit that the word ’property’  should be  read  in  any specialized sense.  I  am,  therefore,  of opinion  that  goods  imported  and  goods  manufactured  or produced by the States are included in the word ’property’.    It  is  next contended that neither  customs  duties  nor excise duties can be said to be "taxation’ and even if  they can be described as "’taxation" or "’tax", they are not  tax on property.  They are said to be taxes on movement of goods in the one case, and taxes on production or manufacture,  in the other.  Many rulings were cited to show that this is the way  in which judges have described these levies.   I  shall deal  with  customs duties first, because,  in  my  opinion, excise  duties are simpler to deal with.  Some  judges  have described excise duties as "on goods produced", and some, as "on  production and manufacture", and it is easy to cite  an equal number of cases on either side.    The definition of the word ’taxation’ in our Constitution is the most significant fact.  It serves to distinguish  the Australian cases and it tells us what kind of levy would  be hit by Art. 289 (1).  This is what it states :               "Taxation’ includes the imposition of any  tax               or   impost,  whether  general  or  local   or               special, and ’tax’ shall be construed  accord-               ingly". Though  it  is not an exhaustive definition and  only  shows what is included in the word, one is struck  907 immediately  by its width of language.  Though it speaks  of any tax or impost, it goes a step further and adds  "whether general,  or  local or special" indicating thereby  that  no special  or  local considerations are relevant  and  even  a general   non-discriminatory  levy  must  be   regarded   as taxation.  I have already stated that the word "taxation" is used  only in Art. 289 (1) and it must be read with all  its wealth of meaning into the first clause of the Article.  Not to do so would be to make the definition entirely redundant. When the clause is expanded in the light of the  definition, it reads :               "The  property and income of a State shall  be               exempt  from any Union tax or impost,  whether               general or local or special". The underlined portion represents the definition.    The  question thus arises why use the word and define  it in  this  comprehensive  way  if there was  no  tax  in  the legislative entries in List I which could be said to fall on the  property of the States unless one thought in  terms  of customs duties and excises ?  According to Wells (1).               "Scientifically  considered  taxation  is  the               taking  or appropriating such portions of  the               product or property of a country or  community               as  is  necessary  for  the  support  of   its               Government  by  methods that are  not  in  the               nature    of   extortions,   punishments    or               confiscations".   Viewed in this broad way and having in mind that the  term ’taxation’ as used in the Article was specially defined with great  width,  the  answer to the question posed  by  me  is obvious.   But  that is not all.  The definition  speaks  of "impost".   The word "impost" in its general sense  means  a tax  or tribute or duty and may be on persons or  on  goods. In a (1)  Theory and Practice of Taxation,p.204. 908

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special  sense  it  means a duty on imported  goods  and  on merchandise.  See Pacific Ins.  Co. v. Sonle(1).  In Ward v. Maryland (2), it is stated .               "An impost, or a duty on imports, is a  custom               or  tax  levied  on articles  brought  into  a               country". The Oxford Dictionary does say that this special meaning  is after  Cowell and that there is no evidence of  the  origin. But  every  dictionary  of legal terms  will  bear  out  the special   meaning.    Indeed,  the   American   Constitution classifies "impost" with "duties" and "excises" as  indirect taxes   in  contradistinction  to  taxes  on   property   or capitation.    The  word  "duties"  is  sometimes  used   as synonymous  with  tax, but in a special sense, it  means  an indirect  tax imposed on the importation or  consumption  of goods.  See Pollock v. Farmers’ Loan & Trust co (3).   In  Art. 289(1), property of the States is  exempted  from Union taxation.  One cannot go by the word "Property"  alone but  must  take  into consideration the ambit  of  the  word "taxation" also.  I have read the definition into the  first clause of Art. 289.  Reading further into the definition the meaning  of  the  word "impost" not as  a  "tax"  (which  is unnecessary  as  the word "tax" has already  been  used  and there is a presumption against tautology) but as a "duty  on importation or consumption", one gets this result :               "The  property and income of a State shall  be                             exempt  from any Union tax or duty on  imported               goods or merchandise of all kinds". In  other words, property of the States shall be  free  from direct taxes and indirect taxes.    It will thus be seen that both from the angle of the word "property" as also from the angle of the (1)  7 Wall. (U.S.) 433 :19 L.Ed. 95. (2)  12 Wall. (U.S.) 418 :20 L.Ed. 449. (3)  158 U.S. 601, 622: 39 L. Ed. 1108  909 word  "taxation" we reach the two kinds of taxes  which  are the subject matter of controversy here.  On the other  hand, all this width of language is lost completely if these taxes are left out and one goes in search of other possible taxes. The  definition may conceivably cover some of them  in  very special  circumstances but the proceeds of those  taxes  are assignable to the States, and it seems pointless to  include them for taxation and then to hand over the proceeds to  the States.  The distinction between the trading activity of the State   Governments   and  their   ordinary   functions   of government, which is worked out with such elaborate care  on the  American  pattern, also loses its  point.   Clause  (2) would scarcely be necessary and cl. (3), even less.   The  next question is whether customs duties  and  excises are   in  their  true  nature  taxes  on  the  occasion   of importation in the one case and production in the other, and cannot be described as "taxes on property".  To begin  with, the  expression "taxes on property" is not used; nor is  the expression  "taxes in respect of property", with  which  the former  expression was compared.  The former expression  was used in the Australian Constitution Act and the  distinction was  made  by the High Court of that country.  We  are  only concerned to see whether the imports of the States would  be free  from  Union  taxation.  If by the  nature  of  customs duties as a tax on movement of goods, it cannot be said that the exemption has been earned, there should be an answer  in favour of the validity of the amendment.  If customs  duties can be said to be "tax on property", the answer must be  the

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other way.    In this connection, there is the High authority of  Chief justice Marshall in Brown v. Maryland where he observed :               "  An impost, or duty on imports, is a  custom               or a tax levied on articles brought into a               (1)   12 Wheaton 419, 437 : 6 L.Ed. 678, 685.               910               country,  and is most usually  secured  before               the importer is allowed to exercise his rights                             of ownership over them, because evasio ns of the               law can be prevented more certainly by  execu-               ting it while the articles are in its custody.               It  would not, however, be less an  impost  or               duty on the articles, if it were to be  levied               on  them after they were landed.   The  policy               and consequent practice of levying or securing               the duty before or on entering the port,  does               not  limit the power to that state of  things,               nor, consequently, the prohibition, unless the               true  meaning  of the clause so  confines  it.               What,  then,  are  ’imports’  ?  The  lexicons               inform us, they are "things imported’.  If  we               appeal  to usage for the meaning of the  word,               we  shall receive the same answer.   They  are               the articles themselves which are brought into               the  country.  "A duty on imports’,  then,  is               not  merely a duty on the act of  importation,               but is a duty on the thing imported."  In Marriot v. Brune (1), later approved in Lawder v.  Stone (2),  it was laid down that customs are duties charged  upon commodities on their being imported into or exported from  a country.  It follows, therefore, that it is not right to say that  customs duties are on movement of goods and  not  upon the  goods  themselves.  A glance at the  Sea  Customs  Act, 1878,  which is sought to be amended, shows that the  legis- lative practice in our country has been to describe  customs duties  as  laid on the goods or  commodities.   Section  20 itself, which is sought to be amended, says :               "...............   customs  duties  shall   be               levied......on               (a)   goods imported or exported, etc.               (b)   opium,  salt  or salted  fish  imported,               etc.               (1)  9  Haward (U.c.) 619 at 632 : 13  L,  Ed,               282.               (2) 187 (U.S.) 281: 47 L.Ed. 178                911               (c)   goods  brought  from  any  foreign  port               to............ etc.               (d)   goods  brought in bond from one  customs               port to another". Similarly,  ss. 25, 26, 27, 28, 29, 29A, 31, 32 and  several others  mentioned  goods as being the subject  of  the  tax. Section 43, which deals with drawbacks, may be seen in  this connection :               "43.  When any goods, having been charged with               import  duty  at one customs-port  and  thence               exported to another, are re-exported by Sea as               aforesaid,  drawback sha11 be allowed on  such               goods as if they had been so re-exported  from               the former port."               *        *      *      *      *    The duty is laid on goods and it is the goods which  earn the  drawback.  It would be not wrong to say that the  whole

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of the Sea Customs Act speaks of goods all the time.     If  then  the goods be the property of  the  States  and those goods have to bear the tax before rights of  ownership can  be exercised in respect of them, is it an error to  say that  the  exemption of Art. 289 (1) will  be  available  to them,  regard being had to the language of the  clause  read with the definition of "taxation"-               "The property...... of a State shall be exempt               from any Union tax or impost, whether  general               or local or special"?     Indeed,  Parliament in 1951, soon after the  Constituent Assembly had adopted the Constitution, amended s. 20 of  the Sea Customs Act, 1878, by inserting sub-s. (2) which read: 912               "The provisions of sub-section (1) shall apply               in  respect  of  all goods  belonging  to  the               Government of a State and used for the purpose               of a trade or business of any kind carried  on               by,  or on behalf of, that Government,  or  of               any  operation; connected with such  trade  or               business as they apply in respect of goods not               belonging to any Government." This  sub-section reproduces cl. (2) of Art. 289.  It  views the   goods   imported  as  property,  customs   duties   as "taxation", and declares that such goods though belonging to a   State   Government  would  bear  the   tax   under   the circumstances  mentioned in the said clause.  If there  ever was a perfect instance of contemporanea expositio, this must be  it.   It  is  not  a case  of  a  modern  statute  being interpreted with reference to an old one.  Nor is their  any judicial  interpretation  involved.  This is a case  of  the same body of men enacting a provision in an Act to carry out the  intent and meaning of a provision of  the  Constitution adopted  earlier  by them.  In their  understanding  of  the Constitution, customs duties as levied under the Sea Customs Act,  1878,  were  affected by the change  from  "lands  and buildings"  of s. 154 of the Government of India Act,  1935, to  "property" and the grant of exemption to  such  property from  Union  taxation.   If  I  had  any  doubts  about  the construction of Art. 289, this would have served me to  show the way. 1, however, think that the matter hardly admits  of any doubt.      The learned Solicitor-General again and again  referred to  the dual purpose achieved by the imposition  of  customs duties, namely, the raising of revenue and the regulation of foreign trade.  He associated excise duties with customs  in the same breath and cited the Privy Council case from Canada to  argue  that  if the proposed amendment  is  declared  in either  case  to be unconstitutional, then,  the  regulatory part  913 of  the  same  law  would fail  without  being  in  any  way imperilled by Art. 289 or anything elsewhere to be found  in the    Constitution.     This   argument    needs    serious consideration.     There  can be no doubt that the power of  Parliament  to regulate  foreign  trade is plenary and is  untrammelled  by anything  contained in Art. 289.  A similar  assumption  may also  be  made  in favour of duties of  excise,  though  the element  of regulation may be somewhat weaker there than  in the  duties  of  customs.  The question,  however,  is  what purpose is the proposed amendment intended to serve ? It  is a little difficult to dissociate the regulatory aspect  from taxation.  Even in Australia, where tax laws must deal  only with taxation and no other subject, the regulatory aspect of

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customs  duties  was adverted to. In the  United  States  of America  also, this regulatory aspect of customs duties  did play  a  prominent part.  Can we, therefore,  say  that  the combined effect of entries 83 and 41 of List 1 would sustain the proposed amendment ? If it were a question of regulation being  inextricably woven into the tax, I would have  paused to  consider the matter.  I am not expounding a law  already made  but am giving an opinion on certain questions.   These questions definitely refer to the revenue aspect of  customs duties.   If  the law were framed to regulate  and  even  to prohibit the importation, by the State Government in  common with  others, of certain goods or classes of goods, I  would have  no  hesitation  in saying that such a  law  would  not offend  the  exemption  in Art. 289.  Even if  the  law  was intended  to achieve ’both ends’ there would be an  argument in favour of the Union.  But if the advice is sought on  the plain question whether the goods of the States can be  taxed to raise revenue, the answer is equally plain that it is not permissible  except in the circumstances  already  mentioned respectively in the two sub-sections which are sought to  be amended. 914 Section  20 of the Sea Customs Act, and s. 3 of the  Central Excises  &  Salt Act, do not pretend  to  regulate  external trade in the one case and production and manufacture, in the other.  They are provisions for raising revenue in much  the traditional  English  way.  Whatever little  pretence  there might be is shed completely by the proposed amendment which, to borrow once again from Mr. justice Douglas, is a "measure designed to put the States on the tax collectors’ list".  In these  circumstances,  I answer the question in  respect  of customs  duties without adverting to entry 41 of  the  Union list.   It is argued that the States would import goods  not only free but also freely and, thus, lose valuable exchange. But  the question can only be answered as posed and  not  on the  basis  of horrible imaginings.  It can be  argued  with equal  force that the State Governments may be  expected  to evince a sane attitude towards our finances.   In so far as excise duties are concerned, no’ question  of regulation  of trade or of production or of manufacture  can really arise except in certain rare circumstances.  Much  of this  power  of  regulation of  production  and  manufacture (except   in  respect  of  certain   essential   commodities mentioned  in  No.  33  of  List  III  and  those  specially mentioned  in List I) belongs to the States.  In  entry  No. 84,  we  are concerned with tobacco and other  goods  except alcoholic liquors for human consumption, opium, Indian  hemp and  other narcotic drugs and narcotics.  If regulation  can serve the purpose, power will have first to be found  either in  List  I  or List III.  But if it were  a  case  of  pure taxation, then, the excise duty is laid on goods in much the same  way as customs.  We cannot treat the  observations  of judges,  where they speak of excises as "on  production  and manufacture",  to be as binding as statutes.   Other  judges have  used  other  language,  like  "on  goods  produced  or manufactured".  The Central Excise & Salt Act  915 uses  the latter, and so do the lists in  the  Constitution. There  is, therefore, no difference in this respect  between excises  and customs.  The case of excises is simpler and  a fortiori,  because the goods produced in the States  by  the States  for their ordinary functions of Government  and  not for  trade  or  business, are property  of  the  States  and directly within their ownership.  If such property is taxed, it is directly hit by Art. 289 (1), and the arguments on the

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analogy   of  customs  have  little  place.    It   follows, therefore, that neither customs duties nor excise duties can be  levied  on goods properly belonging to a  State  if  the goods are imported or produced not for the purpose of  trade or  business  but for purposes incidental  to  the  ordinary functions of Government.  It also follows that the  sections of  the  two  Acts  as they stand  today  reflect  the  true position under the Constitution, I may add that if the Union Government  desires  to put a curb on the  excessive  impor- tation  of  goods  by  the States,  the  power  to  regulate external  trade  is available and it is unaffected  by  Art. 289.   A measure designed to achieve regulation by a  system of  controls, licensing and all such-devices, would  not  be affected  by the exemption contained in the Article,  but  a pure  taxing measure, which seeks to tax property  used  for State or governmental purposes, is within the exemption.               My answers to the questions are:               (1)   The  provisions  of  Art.  289  of   the               Constitution preclude the Union from imposing,               or  authorizing  the  imposition  of,  customs               duties on the import or export of the property               of a State used for purposes other than  those               specified  in cl. (2) of that Article  if  the               imposition  is  to raise revenue  but  not  to               regulate external trade.               916               (2)   The  provisions  of  Art.  289  of   the               Constitution of India preclude the Union  from               imposing,  or authorizing the  imposition  of,                             excise duties on the production or  ma nufacture               in  India of the property of a State used  for               purposes other than those specified in cl. (2)               of that Article.               (3)   The answer is in the affirmative.       RAJAGOPALA  AYYANGAR  J.-I  entirely  agree  with  the opinion  expressed  by  my Lord the Chief  justice  both  as regards the answers to the questions referred to this  Court as  well  as the reasoning on which the same is  based.   My only  justification for venturing to add a few words  of  my own, is because of my feeling that certain matters on  which great  stress was laid by learned Counsel appearing for  the States, might be dealt with a little more fully.       When the learned Solicitor-General submitted that on a proper construction of Art. 289 (1), the immunity from Union taxation  in  its  relation to property was  confined  to  a direct tax on property and did     not  extend  to  indirect taxes which were not on  property but on an         incident or an event in relation to property, it was urged by learned Counsel   for  the  States  that  this  was  introducing   a distinction  between direct and indirect taxes which  formed no part of our constitutional structure.  It is true that no such express distinction has been made by our  Constitution, even so, taxes in the shape of duties of customs  (including export duties) and excise, particularly when imposed with  a view  to  regulating trade and commerce in so  far  as  such matters  are  within  the  competence  of  Parliament  being covered by various entries in List I, these cannot be called taxes on property; for they are  917 imposts with reference to the movement of property by way of import  or  export or with reference to  the  production  or manufacture   of   goods.   Therefore,   even   though   our Constitution does not confer or distribute legislative power to tax based on any distinction between direct and  indirect

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taxes,  it  is  wrong to suggest  that  for  construing  the exemption in Art. 289 (1), the distinction would necessarily be irrelevant.  Learned Counsel for the States are perfectly correct  in their submission that the Constitution does  not distribute  legislative power in regard to taxation  between the  Union and the States or any distinction between  direct and  indirect  taxes  as in Canada.   In  passing  I   might observe that even in Australia, there is no distribution  of taxing  power  on such a basis, for while  the  Commonwealth Parliament has an exclusive power to levy duties of  customs and excise (subject to the same having to be uniform) it has power,  generally  speaking, to impose  direct  taxes  also, provided they do not discriminate, and the States have  also a  similar  power to levy such direct taxes.   This  however does   not  by  itself  eliminate  the  relevance   of   the distinction  for  any particular purpose.  That there  is  a distinction  between  direct and indirect  taxes  cannot  be disputed  and  I heard no submission to the  contrary.   The question is whether that distinction has any materiality for interpreting  the  meaning of the words ’the property  of  a State not being subject to Union taxation’.  The question at once arises whether when reference is made to "property" and "’its taxation" what is meant is merely a tax on property as such, i. e. on the beneficial ownership by the State of  the property  or whether it is intended to include a  tax  which bears merely some relationship to or has some impact on such property.  For in ultimate analysis the distinction  between a direct and an indirect tax is a distinction based upon the difference   in  impact  which  is  also  expressed   as   a distinction based upon its being one not on property 918 but  on  a taxable event in relation to  property.   If  the taxable event is merely the ownership of the property and on the  beneficial interest therein, it would be a direct  tax, whereas if the connection between the property and the  tax- payer  is not merely ownership but something else such as  a transaction in relation to it, then it would be an  indirect tax.   The  argument therefore that under  the  Constitution legislative power in relation to taxation is not distributed between the Union and the States on any distinction  between direct and indirect taxes as in Canada is not very  material and   of   course  not  decisive  on  the   question   under consideration by us.        It was strenuously urged on behalf of the States that if  Art. 289 (1) were construed in the manner  suggested  by the Union, i. e., confining the immunity to direct taxes  on property  as  distinct from taxes on property  which  merely impinged  on or had an impact on property, the States  could derive  no  benefit at all from the provision,  because  the Union  Parliament  had no legislative competence  under  the entries  in  the Union list to impose any  direct  taxes  on property   and that if some meaning and content has to be given to the exemption it would only be if its    scope were to  be held to extend to indirect taxes on property such  as excise  duty and duties of customs.  The learned  Solicitor- General  submitted  that even on the construction  which  he desired  us to adopt there would be scope for the  operation of  the immunity because the exemption might very well  have been  framed  in  view of the possible  direct  taxation  on certain forms of property under entry 97 of the Union  List, read  with  Art.  248, though such taxes had  not  yet  been imposed.  His further argument was that the exemption  might be  capable of being invoked in cases where any State  owned property in the Union territories, for in such a situation the Union Government would have under

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919 Art.  246 (4) power to legislate on the items enumerated  in the  State List and thus levy direct taxes on property.   On the other side, it was urged that it would not be reasonable to construe the words as having some meaning by reference to such unlikely eventualities, but that it would be proper  to attribute  to the Constitution makers an intention  to  make provision for the usual and the normal.     I   must  say  that  the  submissions  of  the   learned Solicitor-General  are  not without force.   That  apart,  I consider   that  the  history  of  this  clause  should   be sufficient to preclude an argument of the type urged for the States having any great or decisive validity.  It is  common ground  that Art. 289 (1) was taken over from s. 155 (1)  of the Government of India Act, 1935, with however a  variation to  which  I shall advert.  In that  earlier  statute,  that section ran :               "Subject as hereinafter provided, the  Govern-               ment  of  a Province shall not  be  liable  to               Federal taxation in respect of lands or build-               ings  situate  in  British  India  or   income               accuring  or  arising or received  in  British               India."  The  only change which is material which this  section  has undergone is the substitution of the word ’property’ for the words "lands and buildings", thus extending the immunity not only  to  immovable property of the type  specified  but  to other forms of property, including movable property as well. The distribution of legislative power in regard to  taxation under  the Government of India Act in the field relevant  to the  present context was identical with that which is  found in the Constitution.  Then as now, there was no power in the Central  Legislature to levy any direct taxes on  lands  and buildings, besides there being no entry like 97 in the Union list,  the residuary power remaining after the  distribution in the three lists being vested in the Governor 920 General  for  allocation under s. 104.  It would  have  been impossible  to  find  any scope for the  operation  of  this exemption  under the scheme of distribution of taxing  power under  the Government of India Act except possibly  on  some such  line  as suggested by the  learned  Solicitor-General. The  fact  therefore that if one had regard  merely  to  the distribution  of  taxing power between the  Centre  and  the Provinces  there was no scope for imparting a wider  meaning to the expression "taxes on lands and buildings" appears  to me  to  support the view that the circumstance  that  direct taxes on property arc not within Union Legislative power  is not  by  itself  a ground for  reading  the  exemption  from taxation  as  necessarily having any particular or  a  wider connotation.   The  next  question is whether the inclusion  of  property other  than "lands and buildings" in the Article  by  itself brings  within  the  immunity taxation  not  merely  of  the property itself but on some incident or event in relation to property such as production or manufacture, import or export (to  refer  to  the  incidents which  are  relevant  to  the context)  or does the Article contemplate the same  type  of taxes  in  relation to movable property as were  within  the exemption  under  the Government of India Act in  regard  to "’lands and buildings"?  In other words, just in the case of "’lands  and buildings" under the Government of  India  Act, 1935,  is the type of taxation of other species of  property now brought in one which is direct and which arises from the mere  ownership  of such property or does it include  a  tax

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livied  not  on the property itself but on  an  incident  or event  in relation to it ? The analogy of the immunity  from direct  taxes  on  "lands and buildings"  which  formed  the feature  of the exemption in regard to "property" under  the Government  of India Act, 1935, would appear. to favour  the view  that it is also a direct taxation in relation  to  the other forms  921 of property that was intended to be brought within Art.  289 (1).  Of course, this view could be overborne by  sufficient reason pointing the other way. It was in this context that a reference was made to the  use of  the expression "taxation" in Art. 289, a term which  has been defined in Art. 366 (28) thus :-               "366.    In  this  Constitution,  unless   the               context  otherwise  requires,  the   following               expressions    have   the   meanings    hereby               respectively assigned to them, that is to say-               (28)  "Taxation"  includes the  imposition  of               any tax or impost, whether general or local or               special, and "tax" shall be construed  accord-               ingly." There  is no doubt that if this definition were applied  and every  "tax,  duty or impost" were within the scope  of  the exemption,  the  submissions made on behalf  of  the  States would  be  formidable.  A subsidiary and related  point  was also made that the expression "taxation" occurs only in Art. 289 and that if the width of the definition in Art.  366(28) is  not held to be applicable to understand the  content  of that  word  in  Art. 289, the  definition  itself  would  be rendered   wholly  unmeaning.   Before   considering   these arguments it is necessary to advert to some matters.  It  is true  that  the expression "taxation" occurs  only  in  Art. 289(1) but it is also to be noted that the definition of the term  "’taxation" in Art. 366 has been bodily taken from  s. 311(2)  of the Government of India Act, 1935. just as  under the Constitution the word "’taxation" also occurs only  once in  the  Government of India Act, 1935, viz., in  s.  155(1) corresponding  to Art. 289(1).  The definition, it would  be seen, applies to define not merely the word ""taxation"  but also to the grammatical 922 variations of that expression for instance "taxes".  In  the circumstances the only question is whether in the context in which  the  word  occurs having  regard  to  the  antecedent history  and  the  form of the provision and  to  the  other provisions  of the Constitution there is  justification  for the word being understood as meaning something less than the full width of which it is capable under the definition.   In  this connection it would be pertinent to refer to  the terms of Article 285 in which the corresponding immunity  of the  Union  from State taxation is provided.   That  Article runs :-               "285.  (1)  The property of the  Union  shall,               save  in  so  far as Parliament  may  by,  law               otherwise  provide, be exempt from  all  taxes                             imposed by a State or by any authority  within a               State.               (2)   Nothing  in  clause  (1)  shall,   until               Parliament by law otherwise provides,  prevent               any authority within a State from levying  any               tax on any property of the Union to which such               property    was   immediately    before    the               commencement  of this Constitution  liable  or

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             treated  as  liable,  so  long  as  that   tax               continues to be levied in that State." In  regard to this provision there are two matters to  which attention  might be directed.  The first of them is the  use of  the  expression  "all"  in  clause  (1)(taken  from  the corresponding  s.  154 (1) of the Government  of  India  Act 1935)  which  is absent from Art. 289 (1).  It  is  manifest that some significance has to be attached to this variation. If the definition of the word "taxes" in Art. 366 (28)  were applied  to that word in Art. 285 (1), it would be  apparent that the word "all" would be wholly superfluous and  otiose, as the definition itself and that  923 is  the  contention  urged  before  us  on  behalf  of   the States-embraces all and every tax.  This would suggest  that it would not be wrong to take the view that the Constitution makers  felt that notwithstanding the definition of  "taxes" in  Art.  366 (28), it might not always have that  width  of connotation, so that it was necessary to affirm and if  need be  supplement its width by the addition of the word  "all". The other matter is this.  If the definition of "taxes" were read into Art. 285 and the Article read literally, it  would be seen that property of which the Union was the owner would be entitled to the exemption, whether or not the  beneficial occupation  and  use of the property was in the  Union.   In other words, the literal reading of the Article would  bring within  the exemption a tax on a private occupier  of  Union land  even when imposed on the beneficial interest  of  such occupier.  S. 125 of the British North America Act 1867  ran :               "No  lands or property belonging to  Canada...               shall be liable to taxation (Provincial)". A lessee of Dominion Crown lands taken on lease for  grazing purposes  was  assessed to lard tax under  an  enactment  of Saskatchewan  in  respect of the lessee’s  interest  in  the lands.    The  dominion  challenged  the  validity  of   the imposition on the ground of the land itself being within the immunity conferred by s. 125.  Rejecting    this  contention Viscount   Haldane        speaking      for   the   judicial Committee said :               "........... although the appellant is  sought               to  be taxed in respect of his  occupation  of               land,  the fee of which is in the  Crown,  the               operation  of the Statute imposing the tax  is               limited to the appellants’ own interest." (1). My  object  in  referring  to  these  observations  is  that provisions of this sortxcannot always be read literally (1)  Smith v. Vermillion Hills. [1916] 2 A.C 569, 574. 924 and  that  the  object of the framers as  disclosed  by  the general scheme of distribution of powers has to be borne  in mind to arrive at their proper construction.  It is in  this context that the intimate correlation between the  exclusive legislative  power  of  the Union in regard  to  "trade  and commerce with foreign countries", and related to it, "import and  export  across customs frontiers" and the  duties  with which  we  are  now concerned and  particularly  import  and export duties   movements across the customs frontier assume crucial importance; and pose the question whether this power confided  to  the Union was intended to be  broken  into  by every  component  State imparting its requirements  free  of duty.    There  was  one other further submission made  to  us  by learned Counsel for the States which requires some  detailed examination and this was based upon the impact of cl. (2) of

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Art. 289 on the import of cl. (1).  The argument was this  : The  non-obstante clause with which cl. (2) opens should  be taken  to indicate that but for that clause,  the  exemption would  be operative so as to deprive the Union of the  power to  levy  tax in the converse circumstance, in  other  words that but for clause (2) even where the State was engaged  in a  trading activity it would be entitled to claim  exemption from  Union  taxes.  It was therefore submitted  that  light could  be gathered from the content of cl. (2) on the  types of  taxation from which exemption was granted under cl.  (1) or in other words for determining the ambit  of the immunity covered by cl. (1). The argument   proceeded.     Cl.    (2) permits          the  Union  to  impose  the  followingtaxes notwithstanding  the blanket exemption granted by  cl.  (1). These  taxes  are  :  (1) A tax in respect  of  a  trade  or business  of  any  kind carried on by or on  behalf  of  the State, The taxes leviable in respect of a trade or  business would be, having regard to the entries in the Union   925 List-(a) income tax (item 82), (b) Possibly corporation  tax (item  85)  where the State carries on  business  through  a State  owned or State controlled corporation, (c)  taxes  on the capital value of assests of companies (item 86) in cases where  the State carries on business through a  State  owned corporation;  (2) Taxes in respect of  operations  connected with  a  trade or business.  These might include  a  tax  on freights, sales tax, and it was added duties of customs  and duties  of excise; (3) Taxes in respect of property used  or occupied in connection with such a trade or business or  any income accuring or arising in connection therewith.  It  was strongly  pressed  upon us that not merely direct  taxes  on property  and  direct taxes on income, but  other  types  of taxes  which were incidental to the  "operations  connected" with a trade or business (and it was suggested that  customs and  excise duties were such) could be imposed by the  Union upon the States in cases where the latter was carrying on  a trade  or business.  It necessarily followed, it was  urged, that  if  these were not used for a trade or  business,  the taxes  would  fall within the scope of the  exemption  under Art.  289  (1).  In other words, the argument  was  that  as there  was a limited power in Parliament to impose  taxation on  States  or on those acting on behalf of  the  States  it necessarily  connoted that in cases not covered by cl.  (2), that is in cases where it was not connected with a trade  or business the exemption under cl. (1) would operate.    The precise relationship between clauses (2) and (1)  and the  question whether the former was a proviso  properly  so called  which had been carved out of the main  provision  of cl.  (1) and which but for such carving out would be  within cl. (1) was the subject of considerable debate before us but I consider that it is not necessary to deal with this rather technical point for in my view the history of cl. (2) throws 926 considerable  light  on its significance and  place  in  the scheme   of  tax  exemption.   At  the   lmperial   Economic Conference  of 1923 a resolution was adopted to  the  effect that  the  Parliaments of Great Britain, the  Dominions  and India  should  be invited to enact a  declaration  that  the general  and particular provisions of their respective  Acts imposing  taxation might be made to apply to any  commercial or  industrial  enterprises  carried on by  any  other  such Government in all respects as if it were carried on by or on behalf of a subject of the British Crown.    This  resolution drew a distinction between  the  trading and  business  activities of the several  constituent  units

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owing   allegiance  to  the  Crown  of  England  and   their governmental  activities.  In pursuance of  this  resolution the Imperial Parliament enacted s. 25 in the Finance Act  of 1925  (15 and 16 George V, Ch. 36) which read to  quote  the material words :               "25. (1) Where a trade or business of any kind               is   carried  on  by  or  on  behalf  of   the               Government  of  any  part  of  His   Majesty’s               Dominions  which is outside Great Britain  and               Northern  Ireland, that Government  shall,  in               respect  of the trade or business and of’  all               operations   in  connection   therewith,   all               property occupied in Great Britain or Northern               Ireland  and all goods owned in Great  Britain               or Northern Ireland for the purposes  thereof,               and   all   income   arising   in   connection               therewith, be liable, in the same manner as in               the  like case any other person would  be,  to               all  taxation for the time being in  force  in               Great Britain or Northern Ireland.               (2)  ...    ....     ...       ...               (3)   Nothing in this section shall-               (a)   affect   the   immunity  of   any   such               Government as aforesaid from                927               taxation in respect of any income or  property               to which sub-section (1) of this section  does               not apply ; or               (b)...            ...  ..." A  similar provision was enacted in India in the  Government Trading  Taxation Act, 1926 (Act 3 of 1926).   Its  preamble recited :               "WHEREAS  it  is expedient  to  determine  the               liability  to taxation for the time  being  in               force  in British India of the  Government  of               any part of His Majesty’s Dominions, exclusive               of  British India, in respect of any trade  or               business  carried on by or on behalf  of  such               Government.   It is hereby enacted as  follows               :-"               The operative provision was s. 2 and it ran  :-               "2. (1) Where a trade or business of any  kind               is   carried  on  by  or  on  behalf  of   the               Government  of  any  part  of  his   Majesty’s               Dominions,  exclusive of British  India,  that               Government  shall, in respect of the trade  or               business  and  of  all  operations   connected               therewith,  all property occupied  in  British               India and all goods owned in British India for               the  purposes thereof, and all income  arising               in connection therewith, be liable               (a)   to taxation under the Indian  Income-tax               Act, 1922, in the same manner and to the  same               extent as in the like case a company would  be               liable;               928               (b)   to all other taxation for the time being               in  force in British India in the same  manner               as in the like case any other person would  be               liable.               (2) For    the   purposes  of  the  levy   and               collection  of  income-tax  under  the  Indian               Income-tax  Act, 1922, in accordance with  the               provisions  of sub-section (1) any  Government               to  which  that sub-section applies  shall  be

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             deemed  to be a company within the meaning  of               that Act, and the provisions of that Act shall               apply accordingly.               (3)   In  this  section  the  expression  "His               Majesty’s  Dominions"  includes any  territory               which is under His Majesty’s protection  or in               respect of which a mandate is being  exercised               by the Government of any part of His Majesty’s               Dominions." This,  it  would be seen, applied to  a  foreign  Government carrying on a trade or business or owning property or  using property  within  British India.  The Act has  been  adapted subsequently  to bring it into line with the  constitutional changes  that  have  taken  place  since  1926,  but  it  is unnecessary to refer to them.  Proviso (a) to sub-s. (1)  of s. 155 enacted the exemption in the same terms as in the Act of  1926 in favour of the Provinces under the Government  of India Act, 1935.  This bodily incorporation was done without any  reference  to the distribution  of  legislative  powers effected by Sch. 7 of the Government of India Act.    This being the historical origin of this provision, it is not  easy to relate it to the exemption in Art. 289. (1)  or to  construe  the exemption with its aid.  Bearing  in  mind this antecedent history it  929 appears to me that it would not be proper to read the  scope of  the  saving  in  favour  of the  Union  in  cl.  (2)  as reflecting on the scope of Art. 289 (1).    There  is also another angle from which the relevance  of clause  (2)  to the Construction of clause (1) of  Art.  289 might  be  tested.  One of the more  serious  arguments  put forward on behalf of the States to which I have adverted was that if the expression ’taxes’ in relation to the  exemption of  property  from  tax were confined  to  direct  taxes  on property  the  exemption would be unmeaning, as  such  taxes could  not  be imposed by the Union.  Now, let me  take  the taxes  specified  in  Art.  289  (2).   They  include,   for instance,  taxes  on  "property used  or  occupied  for  the purpose  of  such trade or business".  A tax on the  use  of property or on the property itself which is occupied for the purpose of trade would obviously be a direct tax on property which   ex-concessis  the  Central  legislature  under   the Government   of   India  Act  and   Parliament   under   the Constitution  are  incompetent  to impose.  It  is  not  the contention of the States that the Centre has such a power to levy  a tax on occupation or use of property where it is  in connection  with a trade or business.  This would  at  least show  that  it is not justifiable to imply from  clause  (2) that but for that provision Parliament would be entitled  to impose  such a tax.  The other points urged have been  dealt with  in the opinion of my Lord the Chief justice and  I  do not propose to cover the same ground.  I concur in the  view that  the questions referred to this Court for  its  opinion should be answered as they have been by the Chief justice.    By  Court:  In view of the opinion of  the  majority  the answer  to  the  three  questions  referred  to  is  in  the negative. Questions answered accordingly. 930