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PETITIONER: CHHOTABHAI JETHABHAI PATEL AND CO.

       Vs.

RESPONDENT: THE UNION OF INDIA AND ANTHER,

DATE OF JUDGMENT: 11/12/1961

BENCH: AYYANGAR, N. RAJAGOPALA BENCH: AYYANGAR, N. RAJAGOPALA IMAM, SYED JAFFER KAPUR, J.L. GUPTA, K.C. DAS DAYAL, RAGHUBAR

CITATION:  1962 AIR 1006            1962 SCR  Supl. (2)   1  CITATOR INFO :  R          1963 SC 104  (9)  C          1963 SC1667  (15)  R          1967 SC1512  (40,67)  RF         1971 SC2039  (17)  RF         1972 SC1061  (48)  RF         1972 SC2563  (24)  R          1973 SC1034  (13)  RF         1984 SC 420  (41)  R          1984 SC1194  (31)  RF         1985 SC 537  (15)  E          1989 SC1829  (14)

ACT:      Excise duties-Retrospective  Levy-Validity of enactment-Legislative  competence  of  Parliament- Constitutional validity-Finance  Act 1951  (23  of 1951),  s.   7(2)-Constitution  of   India   Arts. 19(1)(f), 31, 265, Seventh Schedule, List I, Entry 84, List II, Entry 60.

HEADNOTE:      The appellants  who were carrying on business in  tobacco   had  in   their  licenced  warehouse considerable quantity  of tobacco  on February 28, 1951. On the same day a Bill was introduced in the House  of  the  People  containing  the  financial proposals of  the  Government  of  India  for  the fiscal year  beginning April  1, 1951. Clause 7 of the Bill  made provision  for the amendment of the Central Excises  and Salt  Act, 1944,  by  way  of alteration   of    duties,    inter    alia,    on unmanufactured tobacco  by imposing an excise duty of 8  annas per  1b. Under  the provisions  of the Provisional Collection  of Taxes  Act,  1931,  the duty could become leviable as from the date of the introduction of  the Bill  and it  was so made. In accordance therewith  the appellants  paid  excise duty on  tobacco in  their possession at the rates mentioned  in  the  Bill  and  obtained  clearance

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certificates. On  April 28,  1951,  the  Bill  was passed and became Finance Act, 1951, but as passed changes were effected as regards the duty proposed in the Bill. Under s. 7(1) of the Finance Act, the duty on unmanufactured tobacco was increased to 14 annas per  lb. Section 7 (2) thereof provided that "the amendments  made in  the Central  Excises and Salt Act,  1944, shall be deemed to have effect on and after  March 1,  1951 and  accordingly........ recoveries shall  be made of all duties which have not been  collected  but  which  would  have  been collected  if  the  amendment  had  so  come  into force." In  pursuance of s. 7(2) a demand was made upon the  appellants on June 22, 1951, for payment of the excess of the 2 excise duty  payable on tobacco cleared out of the warehouse from  March 1,  1951, to April 28, 1951. The appellants  challenged  the  legality  of  the demand on the grounds, inter alia, that (1) excise duty was  a tax  on goods  which must exist at the time when the tax was levied and it must have been intended and  expected by  the legislature that it would be  passed on  to the  consumer, and  as the retrospective operation of the duties deprived the tax of  these qualities  they did  not fall within the term "duties of excise" in Entry 84, List I of the Seventh Schedule to the Constitution of India, and, therefore,  s. 7(2) of the Finance Act, 1951, in  so   far  as   it  imposed   an  excise   duty retrospective before the date of its enactment was beyond the  legislative competence  of  Parliament and  (2)   the  impugned   levy  contravened  Art. 19(1)(f),  because  a  retrospective  levy  of  an excise duty deprived the tax payer of the right of passing it  on and  recovering it  from his buyer, and that this constituted a restraint on the right to hold property, which was not saved by cl.(5) of Art. 19. ^      HELD: (1)  Parliament acting  within its  own legislative field  had the  powers of  a sovereign legislature and  could make a law prospectively as well retrospectively and the duties leviable under the  Central   Excises  and  Salt  Act,  1944,  as provided by  s. 7(2)  of the  Finance  Act,  1951, notwithstanding     their      imposition     with retrospective effect  and even  if it be that they were incapable  of being passed on to a buyer from the taxpayer,  were "duties  of excise" within the meaning  of  Entry  84,  List  I  of  the  Seventh Schedule to the Constitution of India.      (2) The levy of the tax retrospectively under s. 7(2)  of the  Finance Act,  1951, was valid and did  not   contravene   Art.   19(1)(f)   of   the Constitution.      Per Kapur,  J.-(1) Entry  84 in  List I deals with taxes  on  goods  manufactured  or  produced, while Entry  60 in List II deals with the carrying on of  trade i.e.,  an activity  in the  nature of buying and  selling, and  the Central  Excises and Salt Act,  1944, in its pith and substance relates to duty  on goods manufactured or produced and has no relationship with Entry 60.      (2)  Reasonableness   of  tax   laws  is  not

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justiciable and  therefore they cannot fall within cl.(5) of  Art. 19.  Art. 19(1)(f)  and the cl.(5) are part of one scheme and the former is incapable of operating  where the  latter is inoperative. If considerations of Art. 19(5) are foreign to taxing laws Art.  19(1)(f) can  have  no  application  to them.      Case law reviewed. 3

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil  Appeals Nos. 140 to 142 of 1952.      Appeals from  the judgment  and  order  dated March 24, 1953, of the former Nagpur High Court in Misc. Petitions  Nos. 1795-1796  of 1951  and 1 of 1952.                        WITH      Petitions Nos. 24, 25 and 93 of 1952.      Petition under Art. 32 of the Constitution of India for enforcement of Fundamental Rights.      G.S. Pathak, S.N. Andley, J.B. Dadachanji and Rameshwar Nath, for the Appellants/petitioners.      H.N. Sanyal,  Additional Solicitor General of India, N.S.  Bindra, R.H. Dhebar and T.M. Sen, for the respondents.      C.R. Pattabhi  Raman and  R. Ganapathy  Iyer, for the interveners (in C.A. No. 141 of 1954).      1961, December 11. The judgment of S.J. Imam, K.C. Das  Gupta, Raghubar  Dayal and N. Rajagopala Ayyangar,  JJ.,   was  delivered   by   Rajagopala Ayyangar, J., J.L. Kapur, J., delivered a separate judgment.      AYYANGAR, J.-The  appellants in  Civil Appeal 140   of    1954   are   tobacco   merchants   and manufacturers   of   biris.   They   own   private warehouses licensed  under r.  140 of  the  Excise Rules, 1944  at Gondia  and other places in Madhya Pradesh.      On the  28th of  February, 1951  a  Bill  was introduced in  the House of the People, being Bill 13 of  1951 containing  the financial proposals of the  Government  of  India  for  the  fiscal  year beginning the  1st of April, 1951. Clause 7 of the Bill made provision for the amendment of the 4 Central Excise  Act (Act  1 of  1944)  by  way  of alteration of  duties on "tobacco manufactured and unmanufactured." In  particular, it  provided that "unmanufactured tobacco  other than flue-cured and ordinarily used otherwise than for the manufacture of cigarettes"  (which included   tobacco intended for manufacture  into biris)  should be charged to an excise  duty of  8 annas  per lb.  and it  also imposed a new duty of excise on biris varying from 6 to  9 annas per lb. depending upon the weight of tobacco contained in the biris.      Section 3  of the  Provisional Collection  of Taxes Act, 1931 (Act XVI of 1931) enacted "Where a bill  introduced   into  the   Indian   Parliament provided for  the imposition or increase of a duty of excise the Central Government might cause to be inserted in  the bill  a declaration  that it  was

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expedient  in   the  public   interest  that   any provision of  the bill relating to such imposition or increase shall have immediate effect under this Act". A declaration under this section was made in respect of  the provision  for imposing the duties on  tobacco  under  cl.  7  of  the  bill  already adverted to.  The effect of such a declaration was stated in s. 4 of Act XVI of 1931 in the following terms:-           "4. (1)  A declared provision shall have      the force of law immediately on the expiry of      the day  on which  the Bill  containing it is      introduced.      (2) A  declared provision shall cease to have the force of law under the provisions of this Act-                (a) When it comes into operation as           an enactment  with or without amendment,           or                (b) when  the Central Government in           pursuance of a motion passed by parlia- 5           ment, directs,  by notification  in  the           Official Gazette, that it shall cease to           have the force of law, or                (c) if it has not already ceased to           have the  force of  law under clause (a)           or clause (b), then on the expiry of the           sixtieth day  after the day on which the           Bill containing it was introduced."      In compliance  with this  law the  appellants      paid the  excise duty  at the  rates  imposed      under  cl.   7  of   the  bill  and  obtained      clearance  certificates   in  regard  to  the      tobacco moved  out from their warehouses from      and after  March 1, 1951. Bill 13 of 1951 was      passed into  law as  the Indian  Finance  Act      1951 (Act XXIII of 1951 on April 28, 1951 but      as passed,  changes were effected in the duty      proposed in  the bill, as a result of certain      alterations   suggested    by   the    Select      Committee. Under  s. 7 (1) of the Finance Act      1951 while  the  excise  duty  on  biris  was      abandoned, the duty on unmanufactured tobacco      (other  than   flue-cured  and  used  in  the      manufacture of  cigarettes) was  increased to      14 annas per lb. from the rate of 8 annas per      lb. in  the  bill.  Consequential  provisions      were enacted  in s.  7 (2) of the Finance Act      which read:           "The  amendments  made  in  the  Central      Excise and  Salt Act 1944, sub-cl. 1 shall be      deemed to  have effect  on and  from the  1st      March, 1951 and accordingly:-                (a) refund  shall be  made  of  all           duties collected  which would  not  have           been collected,  if  the  amendment  had           come into force on that day, and                (b) recoveries shall be made of all           duties which have not been collected but           which would  have been  collected if the           amendment had so come into force." 6      In pursuance  of s.  7 (2)  a demand was made upon the  appellants on  June  22,  1951  for  the payment of  the duty payable by them, after giving

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credit for  the refund  of the  duty paid on biris which had  been deleted by the Act. The appellants contested  the   legality  of  this  demand  by  a petition under  Art. 226  which they  filed in the High Court at Nagpur urging that the retrospective operation given  to s.  7(1) by  sub-s.(2) thereof was illegal,  ultra vires  and   unconstitutional, and besides  that the  provision in  r. 10  of the Excise Rules  which contained  the  machinery  for enforcing the  demand was not adequate to meet the situation arising  out of  the change  in the  law from the  provisions of  the bill  to those of the Act. The learned Judges of the High Court repelled all  the  contentions  disputing  the  legislative competence  and   the  constitutionality   of  the legislation contained  in s.  7(2) of  the Finance Act of  1951, but they upheld the objection to the adequacy of  the procedure  for recovery  based on the limited  scope of  r. 10  of the Excise Rules. Thereafter   the    Central   Government,   by   a notification dated  December 8  1951, amended  the Central Excise  Rules, 1944  by the  addition of a new r.  104 providing machinery specially designed f r  the enforcement  of a  demand  like  the  one arising in  the circumstances of the present case. On December  12, 1951 a further and a fresh demand was made  for the  payment of the duty in terms of s. 7(2)(b)  of the Finance Act quoted earlier, and the appellants thereupon once again moved the High Court of  Nagpur under  Art. 226  challenging  the validity of the demand on the very same grounds as before. This petition was heard by a Full Bench of the Court  and  every  contention  raised  by  the appellants including that based on the adequacy of the new  r. 10A  to cover  the  present  case  was rejected. The learned Judges granted a certificate under Art.  132  of  the  Constitution  which  was enabled the appellants to file this appeal. Before proceeding further  it is  only necessary to state that there  is no  material difference between the facts of the 7 cases covered by Civil Appeals 141, 142 as well as the points  raised in  the Writ Petitions and that this judgment  will cover and dispose of the other appeals and  the petitions. We might also, at this stage  mention   that  other   parties  who   were similarly situated  as  the  appellants  in  Civil Appeals 140  to 142  of 1954  and  who  had  filed petitions under  Art. 226  of the  Constitution in the High  Court of Madras which arc pending there, raising the  same points as the appellant’s before us, have intervened in these appeals and they have also been heard. Learned Counsel appearing for the interveners adopted the arguments urged in support of the appeal.      Mr. Pathak,  learned Counsel who appeared for the appellants urged three point in support of the appeals(1) Section  7 (2) of the Finance Act, 1951 in  so   far  as   it  imposed   an  excise   duty retrospectively before  the date  of its enactment (April  28,   1951)  was  beyond  the  legislative competence of  Parliament. The  contention on this head  was  briefly  this:  The  impugned  tax  was imposed by Parliament in purported exercise of the

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power to levy "a duty of excise on tobacco" within Legislative Entry 84 of Union list which reads:           "Duties of  excise on  tobacco and other      goods  manufactured   or  produced  in  India      except      An "excise"  was basically  an indirect  tax, i.e., a  tax or  duty not  intended by  the taxing authority to  be borne by the person on whom it is imposed and  from whom  it  is  collected  but  is intended to  be passed  on to  those who purchased the goods  on which  the duty  was collected;  but when such  a tax  was imposed  with  retrospective effect it  could not  be passed on, so such a levy deprived the  tax of  its essential characteristic of being  indirect. It  therefore ceased  to be  a "duty of excise" and 8 became a personal tax of a category quite distinct from "excise"  and so  was beyond  the legislative power of Parliament under that Entry. (2) That the impugned levy  was  unconstitutional  in  that  it contravened the  fundamental right  guaranteed  to the citizens  of India to hold property under Art. 19(1)(f),   the   point   urged   being   that   a retrospective levy  of an  "excise duty"  deprived the tax-payer  of the  right of  passing it on and recovering  it   from   his   buyer,   that   this constituted a  restraint on  "the  right  to  hold property" (the  amount of  the tax-levy) conferred by Art.  19(1)(f) and  was not  saved by  cl. 5 of that Article  as being  a reasonable restraint and should,  therefore,  be  struck  down  under  Art. 13(2). (3)  That the terms of r. 10A of the Excise Rules 1944 were insufficient to cover the cases of the appellants  and that in consequence the demand made on  them and  the attempt to recover the sums by resort  to the coercive process provided for by s. 11  of the  central Excise  Act was illegal and without statutory authority.      We shall now proceed to consider these points in that order. (1) Want of legislative competence: To appreciate the submission of learned Counsel it is necessary to set out the steps in the reasoning by which  he sought,  to establish that a "duty of excise" when  imposed  with  retrospective  effect ceased to  be a  "duty of excise" as used in Entry 84 of  the Union  List. The  submission of learned Counsel was  this: The  term "duty  of excise"  on goods was  universally recognized as a tax on home produced goods  and as  a typical  instance of  an indirect tax.  It was  a tax  on the  activity  of production or  manufacture  of  goods  within  the country and  that it  was levied  on or  collected from tho  producer or  manufacturer or  from those who held  such  goods.  It  was,  further,  not  a personal tax  but its essential and characteristic nature, which distinguished it from other types of taxes was  that it  was levied  on goods.  It had, therefore, in order that it might 9 truly be  "duty of  excise", to satisfy two tests: (a) It  had to  be an indirect tax, i.e. levied in such a  manner that  the person  from whom the tax was collected  was in a, position to pass it on to those who  acquired the goods from him or at least

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the taxing  authority expected  him to pass it on, and laid  no impediment  on his  ability to do it. (b) Being  a tax  on goods,  it was  levied on the producer or  manufacturer or  person in possession of the goods at the time when the person taxed was the owner  or had  possession and control over the goods. Where  neither of  these essential elements or attributes  was present,  and in  the  present, case,  according   to  learned   Counsel   neither condition was  satisfied, the  tax-levy would  not fall under the category of "duty of excise."      The same argument was Presented in a slightly different from  by saying  that though Parliament, generally speaking,  had the power to legislate in respect of  everyone of  the subjects  included in the   relevant    legislative   entries    whether prospectively,   or    retrospectively   including legislation with  regard to taxation, still if the retrospective  levy   of  a   taxes,  altered  its essential nature  and identity,  then the power to legislate  retrospectively   would  be   open   to Parliament only  if the  tax in  its altered from- i.e., a  tax direct  and personal-would be open to Parliament to  impose. In  the case  of a "duty of excise" as  the tax  in the  present case  was, if imposed  retrospectively,   deprived  it   of  its essential characteristic  of being in indirect tax and a tax on goods, and so the power of Parliament to  enact  such  retrospective  legislation  would depend upon  whether Parliament could impose a tax on a  person merely because he happened to produce goods at  an antecedent date, or, happened to have had in  his control goods of indigenous production at a  prior date and if this could not be done, it would follow  that Parliament  could not  impose a "duty of excise" with retrospective effect. 10      In support  of his  submission regarding  the nature of  an excise  duty and  that meaning  that ought to  be attributed  to the  expression as  it occurs in  Entry 84  of the union List, Mr. Pathak placed before us judgments of the Privy Council in appeals from  Canada and  some  decisions  of  the American Supreme  Court and of the Australian High Court.      First as  to the  decisions relating  to  the Canadian  constitution   though  learned   Counsel referred  us   to   several   decisions   on   the interpretation of  the word "excise" in connection with the  distinction between  direct and indirect taxes in  most of  the British  North America Act, 1867, we do not think it necessary to refer to all of them.      The general  line of  approach of  the  Privy Council  decisions  referred  by  learned  Counsel could be  gathered from  the observations  of Lord Cave in  City of Halifax v. Fairbanks’ Estate. The impugned  tax   legislation  was  a  business  tax imposed by  the Province of Nova Scotia to be paid by  every   occupier  of  real  property  for  the purposes  of   any  trade,  profession,  or  other calling carried  on for  the purpose  of gain, the assessment being according to the capital value of the premises.  This was  challenged inter  alia on the  ground  that  it  was  an  indirect  tax  and

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therefore not within the legislative competence of the Provincial Legislature. Lord Cave said:           "Thus, taxes  on property or income were      everywhere treated  as direct taxes; and John      Stuart Mill  himself, following  Adam  Smith,      Ricardo and  James Mill,  said that  a tax on      rents falls wholly on the landlord and cannot      be transferred to any one else............ On      the other  hand, duties of customs and excise      were  regarded   by  every   one  as  typical      instances   of    indirect   taxation.   When      therefore the  Act  of  Union  allocated  the      power  of   direct  taxation  for  Provincial      purposes to 11      the Province,  it must  surely have  intended      that the  taxation, for  those  purposes,  of      property and income should belong exclusively      to  the  Provincial  legislatures,  and  that      without  regard  to  any  theory  as  to  the      ultimate incidence  of such taxation. To hold      otherwise  would   be  to  suppose  that  the      framers of  the Act  intended to  impose on a      Provincial   legislature    the    task    of      speculating  as   to  the  probable  ultimate      incidence of  each particular  tax  which  it      might desire to impose, at the risk of having      such  tax  held  invalid  if  the  conclusion      reached  should  afterwards  be  held  to  be      wrong........... The  imposition of  taxes on      property and  income, of  death duties and of      municipal and  local rates  is, according  to      the common  understanding of the term, direct      taxation, just  as the  exaction of a customs      or  excise  duty  on  commodities............      would  ordinarily  be  regarded  as  indirect      taxation; and  although new forms of taxation      may  from  time  to  time  be  added  to  one      category or  the  other  in  accordance  with      Mill’s formula as a ground for transferring a      tax universally  recognised as  belonging  to      one class to a different class of taxation." Similar passages in relation to a "duty of excise" being an  indirect tax occur in other judgments of the Judicial  Committee to  which learned  Counsel drew our  attention. Of these, it is sufficient to refer to  one  more-Attorney-General  for  British Columbia v.  Kingcome Navigation  Company, Limited which raised  the question  as to  whether  a  tax which was  imposed upon every consumer of fuel-oil according to  the quantity  which he  had consumed imposed by the Fuel-Oil Tax Act of 1930 of British Columbia was  a direct tax under s. 92, head 2, of the  British   North  America   Act,  1867.  After extracting the  following  passage  from  Bank  of Toronto v. Lambe: 12           "A direct  tax is  one which is demanded      from the  very persons  who it is intended or      desired should  pay it.  Indirect  taxes  are      those which  are demanded  from one person in      the expectation  and intention  that he shall      indemnify himself  at the expense of another;      such are the excise or customs. Lord Moulton  who delivered  the judgment  of  the

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Board referred to the passage from the judgment of Lord Cave  in City of Halifax v. Fairbanks’ Estate just now quoted and went on to add:           "The ultimate  incidence of  the tax  in      the sense  of the  political economist, is to      be disregarded,  but where the tax is imposed      in  respect  of  a  transaction,  the  taxing      authority is  indifferent as  to which of the      parties to  the transaction  ultimately bears      the burden  ........... Similarly,  where the      tax is  imposed in  respect of  some  dealing      with commodities,  such as  their  import  or      sale, or  production for sale, the tax is not      a peculiar  contribution upon  the one of the      parties to  the  trading  in  the  particular      commodity who  is selected  as the tax payer.      This is  brought out  in the second paragraph      of Mill’s  definition, and  is  true  of  the      typical custom  and excise duties referred to      by Lord  Cave." The tax was therefore held to      be valid.      We consider that not much assistance could be derived   from    these    decisions    for    the interpretation of the scope or content of the term "duties of  excise" in Entry 84 of the Union List. The line of division in Canada between those taxes which a  Province could  impose and those which it could not  was, whether it was direct or indirect. In Canada,  taxing powers  are divided between the Dominion and  the Provinces  on the  basis of  the incidence of the tax, the Dominion power extending to "any  mode or  system of  taxation" (vide s. 91 (3) British North America Act, 1867) while that of the 13 Provinces is restricted to "direct taxation within the Province  in order  to the  raising of revenue for provincial  purposes"  (Section  92(2)  ibid). When therefore  the validity of any Provincial tax legislation is challenged in Canada the enquiry is as regards the normal incidence of the tax whether it is "direct" or "indirect." As these expressions had a  settled meaning  in  economic  theory,  the Courts had  necessarily to  find out  whether  the particular tax imposed by the Province fell within the class  of "indirect"  taxes or  not. In such a situation   naturally    the   classification   by economists of taxes as those which are "direct" as distinct from those which are "indirect" assumed a vital role in deciding whether the tax impugned is or is  not within Provincial power. As pointed out by Gwyer,  C.J. in the Province of Madras v. Boddu Paidanna:           "The Canadian  cases which were cited do      not seem  to  afford  any  assistance,  since      analogous  problems   in  Canada  are  always      concerned  with   questions  of   direct  and      indirect taxation; and if a Provincial tax is      held to be an indirect tax, it is unnecessary      for the  Court to consider whether it may not      also be  a duty  of excise:  see, for example      Att.-Gen.  for   British  Columbia   v.   The      Canadian Pacific Railway Co. (1927 A.C. 934),      where a tax on every person purchasing within      the Province  fuel oil  for  the  first  time

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    after  its  manufacture  in,  or  importation      into, the  Province was held to be invalid as      an indirect  tax, and the question whether it      might not  also be  bad as an excise duty was      left unanswered. In contrast to the case just      cited we  may refer  to Att. Gen. for British      Columbia v.  Kingcome  Navigation  Co.  (1934      A.C. 45) in which a fuel oil tax imposed by a      Province upon  every  consumer  of  fuel  oil      according to 14      the quantity  which he  had consumed was held      to be  valid as  a direct tax, because it was      demanded from  the very  persons who  it  was      intended or desired should pay it." Similarly,  Lord   Simonds  observed  in  Governor General in Council v. Province of Madras:           "little assistance is to be derived from      the   consideration    of    other    federal      constitutions   and    of   their    judicial      interpretation. Here  there is no question of      direct and  indirect  taxation,  nor  of  the      definition of specific and residuary powers." Under  the   Indian  Constitution  the  scheme  of division of  the taxing  powers between  the Union and the  States is  not  based  on  any  criterion dependent on the incidence of the tax. Sir Maurice Gwyer in In re the Central Provinces and Berar Act XIV of  1938 speaking  of  the  word  "excise"  as occurring  in   the  legislative   lists  in   the Government of  India Act  (and  for  this  purpose there is no variation in the lists in Schedule VII of the Constitution) said:           "Its primary  and fundamental meaning in      English is that of a tax on articles produced      or manufactured  in the  taxing  country  and      intended for home consumption. I am satisfied      that this is also its primary and fundamental      meaning in  India; and  no one  has suggested      that it has any other meaning in Entry No. 45      (corresponding  to  Entry  84  in  the  Union      List).           It was  then contended  on behalf of the      Government of  India that an excise duty is a      duty which  may be imposed upon home produced      goods  at   any  state   from  production  to      consumption; and  that therefore  the federal      legislative power extended to imposing excise 15      duties at  any stage.  This is to confuse two      things, the  nature of  excise duties and the      extent of  the federal  legislative power  to      impose them  ......... There can be no reason      in theory  why an  excise duty  should not be      imposed  even   on  the  retail  sale  of  an      article,  if  the  taxing  Act  so  provides.      Subject always  to the legislative competence      of the  taxing authority,  a  duty  on  home-      produced goods  will obviously  be imposed at      the stage  which the authority find to be the      most  convenient   and  the  most  lucrative,      wherever it  may be;  but that is a matter of      the machinery  of collection,  and  does  not      affect the  essential nature  of the tax. The      ultimate  incidence  of  an  excise  duty,  a

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    typical indirect  tax, must  always be on the      consumer, who pays as he consumes or expends;      and it  continues to  be an excise duty, that      is,  a   duty  on   home-produced  or   home-      manufactured goods,  no matter  at what stage      it is collected." As Lord  Simonds said  in the  decision, to  which reference has already been made after referring to the decision  of the  Federal Court  in  the  C.P. Petrol case:-           "Consistently with  this decision  their      Lordships are  of  opinion  that  a  duty  of      excise  primarily   a  duty   levied   on   a      manufacturer or  producer in  respect of  the      commodity manufactured  or produced.  It is a      tax on  goods not on sales or the proceeds of      sale of goods," and then speaking about taxes on sale of goods the learned Lord continued:           "The two  taxes, the  one  levied  on  a      manufacturer in  respect of  his  goods,  the      other on  a vender  in respect  of his sales,      may, as  is there  pointed out,  in one sense      overlap. But  in law there is no overlapping.      The taxes 16      are separate and distinct imposts. If in fact      they overlap,  that may be because the taxing      authority, imposing  a duty  of excise, finds      it convenient  to impose  that  duty  at  the      moment when the exciseable article leaves the      factory or workshop for the first time on the      occasion of  its sale.  But  that  method  of      collecting  the   tax  is   an  accident   of      administration; it  is not  of the essence of      the duty of excise, which is attracted by the      manufacture itself."      In view  of  this  clear  exposition  of  the content of the term "duty of excise" in the Indian setting we think, no assistance can be derived for the  meaning   ascribed  and  the  characteristics attributed to  it in  the decision  construing the relative taxing  powers of  the Dominion  and  the Provinces under  the  British  North  America  Act 1867.      Before dealing  with the  Australian decision to which  Mr. Pathak  drew our attention, we could conveniently dispose  of the  American cases which were referred to by the learned counsel bearing on the meaning  of the  word "excise". We might point out that  the American decisions do not assist the appellant   in   the   least   since   under   the Constitution  of  the  United  States  practically every tax other than a capitation, a poll tax or a tax on  land is  termed an  "excise duty" and even income-tax was  held to  be an  ’excise’ until the decision of the Supreme Court of the United States in Pollock  v. Farmers  Loan & Trust Co. It has to be borne  in mind  that the  American Constitution provides that  direct taxes have to be apportioned among the  States according  to  their  respective populations (Art.  1, s.  2, and Art. 1, s. 9, cl. 4). Hence  the attempt  in the  United States  has been  to   bring  taxes  which  according  to  the classification of economists would be direct taxes

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within the  category of  excise or  indirect taxes which need not follow the rule as to apportionment among the States. It follows, 17 therefore, that  neither the  American  decisions, nor  the  understanding  by  the  Courts  of  that country as  to what  a duty of excise connotes can be of any utility for deciding the content of that entry in the Indian Constitution. The relevance of the American decisions is, therefore, even remoter than the  decisions from  Canada which were relied on by the learned Counsel.      Mr.  Pathak   referred  us  to  some  of  the decisions in Australia and in particular to Parton v.  Milk   Board  (Victoria)  in  support  of  his submission that  the characteristic  of  being  an indirect tax and therefore the capability of being passed on  was an  essential ingredient  and  pre- requisite of an excise duty. In this connection it is necessary  to point  out that  the decisions in Canada which  were relied on by Mr. Pathak as aids for understanding  the import  of  the  expression "duty of excise" in Entry 84, have been treated by the Australian  Courts as not helpful to determine the  meaning   of  "excise"   in  s.   90  of  the commonwealth of  Australia Act.  As  explained  by Wynes:           "In Canada, the distribution of taxation      is  based   upon  the   direct  and  indirect      character thereof, the Provincial power being      limited  to   direct  taxation   within   the      Province. Hence  Canadian cases  such as  the      Bank of  Toronto v.  Lambe are of very little      use in settling the question whether or not a      tax is a duty of customs or excise within the      meaning of the Australian Constitution. It may  be pointed  out that  under the Australian Constitution taxes  levied on  commercial dealings in goods  produced, such  as taxes  on sales, have been held  to fall within the category of excises. Several of  the decisions  of the  Australian High Court  rendered   before  Parton   v.  Milk  Board (Victoria dealing with what constituted an excise 18 under s.  90 of the Commonwealth of Australian Act were cited to the Federal Court in the Province of Madras v.  Boddu Paidanna  and the  learned  Chief Justice,  after   referring  to  them  in  detail, observed:           "We find  it impossible  to say that the      expression  ’duties   of  excise’   even   in      Australia is  limited to  duties  imposed  in      connection with the production of a commodity      alone. We  should be  disposed to  say on the      contrary that  in Australia  all taxes on the      sale of  commodities are, or may be regarded,      as, duties  of excise............  Under  the      Australian  Constitution   power  to   impose      duties of  excise is,  as we  have said,  the      exclusive   right    of   the    Commonwealth      Parliament;  the   residuary   taxing   power      remains  in   the  States.   In  the   Indian      Constitution Act  the  whole  of  the  taxing      power in  this particular sphere is expressly      apportioned  between   the  Centre   and  the

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    Provinces, to  the  one  being  assigned  the      power to  impose duties  of  excise,  to  the      other taxes on the sale of goods."      The decision  in the  Milk Board case follows in general  the same  lines  as  did  the  earlier decisions which  have been  detailed and discussed by Sir  Maurice Gwyer C. J. in Paidanna’s case. In these circumstances  we do  not consider it useful or   necessary   to   discuss   these   decisions. Undoubtedly, there are passages in these judgments in the  Australian Courts  which refer to the fact that an  excise duty is an instance of an indirect tax. As  regards the general proposition, however, there is  little controversy,  but these decisions did not  lay down  that if  by reason  of the  tax being levied  retrospectively the  duty cannot  be passed on it ceased to be a duty of excise. On the other hand,  there is  express and  high authority for the  position that  a duty  of excise could be validly levied with retrospective effect under the Australian Constitution. The question for 19 consideration before the privy Council in Colonial Sugar Refining  Company Ltd.  v. Irving related to the constitutional  validity of  the Excise Tariff Act, 1902,  passed by the Commonwealth Parliament. One of  the objections raised to the levy was that on the  terms of the enactment which was passed on the 26th of July, 1902, the imposition of the duty could be  as and  from October 8, 1901, the day on which the  Minister had moved a resolution to that effect in  the committee  of Ways  & Means  of the House of  Representatives. The  respondent  before the Board  who were manufacturers of refined sugar in Brisbane  in the State of Queensland questioned the legality  of the  tax which  had been demanded and paid  by them in respect of the sugar produced by them  between October  8, 1901,  and  July  26, 1902. Lord  Davey delivering  the judgment  of the Board observed:           "It is  a little difficult to understand      the first  point taken by the appellants. The      Parliament  had  undoubted  power  to  impose      taxation under  the express words of s. 51 of      the Constitution,  and it is not now disputed      that the Parliament could, if it thought fit,      make the  Act retrospective  and  impose  the      duties from  the date of the resolution. That      practice  is  (it  is  believed)  universally      followed  in  the  imperial  Parliament,  and      (their Lordships  were told) is common in the      Colonial  Legislatures   in  Acts   of   this      description, and  for obvious  reasons it  is      convenient and  almost necessary.  There  was      nothing, therefore,  in  either  the  subject      matter of  the Act, or in the mode of dealing      with it,  which was  beyond the  power of the      Parliament."      In our opinion, the above aptly describes and covers the  point raised  by the appellants in the appeals now before us. 20      There is  no doubt  that excise  duties  have been referred  to by  the economists  and  in  the judgments of  the Privy  Council as well as in the

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Australian  decisions   as  an   instance  of   an "indirect tax",  but in  construing the expression "duty of  excise" as  it occurs in Entry 84 we are not concerned  so much  with whether  the  tax  is "direct" or  "indirect" as upon the transaction or activity on  which it  is imposed. In this context one  has  to  bear  in  mind  the  fact  that  the challenge to  the legislative  competence  of  the tax-levy is  not directed  to the  imposition as a whole but to a very limited and restricted part of it.  This   challenge  is   confined  (a)  to  the operation of  the tax  between the period March 1, 1951, and  April 28,  1951, and (b) even in regard to this  limited period,  it is  restricted to the imposition of the additional duty of six annas per lb. which  was levied,  beyond the eight annas per lb. collected from the appellants by virtue of the Finance  Bill   under  the   provisions   of   the Provisional Collection  of  Taxes  Act,  1931.  It would seem  to  be  rather  a  strange  result  to achieve  that  the  tax  imposed  satisfies  every requirement of a "duty of excise" in so far as the tax operates from and after April 28, 1951, but is not a  "duty of  excise" for  the duration  of two months before that date.      Learned Counsel  conceded, as he had to, that even on  the decision relied upon by him, the fact that owing  to the operation of economic forces it was not  possible for  the taxpayer to pass on the burden of the tax, did not alter the nature of the imposition and  detract from  its being a "duty of excise". For  instance, the  state of  the  market might be  such that  the  duty  imposed  upon  and collected from  the producer or manufacturer might not be  capable of  being passed on to buyers from him. Learned  Counsel urged  that this  would  not matter, as  one had to have regard to "the general tendency of the tax" and "the expectation 21 of the taxing authority" and to the possibility of its being  passed on  and not  to the facts of any particular case  which impeded  the  operation  of natural economic forces.      The impediment  to the  duty being  passed on might  be  due  not  merely  to  private  bargains between   the   parties   or   abnormal   economic situations such  as the  market  for  a  commodity being a  buyers’ market.  Such impediments  may be brought about by the operation of other laws which Parliament might  enact,  such  for  instance,  as control over  prices. If  in such a situation were the price  which the  producer  might  charge  his buyer is  fixed by  the  statute,  say  under  the Essential Supplies  Act, and a "duty of excise" is later imposed on the manufacturer, it could not be said that  the duty  imposed would  not answer the description of  an "excise  duty". Learned Counsel had really  no answer  to the situation created by such a  control of  economy except  to say that it would be  an abnormal economic situation. It could hardly be  open to argument that a tax levied on a manufacturer could  be stated not to be a "duty of excise", merely because by reason of the operation of other  laws the  tax payer was not permitted to pass on  the tax-levy. The retrospective levy of a

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tax  would   be  one   further  instance  of  such inability to  pass on,  which doses  not alter the real nature or true character of the duty.      It might  further be  pointed  out  that  the submission of the learned Counsel that a tax which according to economic theory is an indirect tax or a tax on goods becomes a direct and a personal tax and a  tax of  a different  nature or  category if imposed  retrospectively   because  it   was  then incapable of  being passed  on, does not correctly represent the  law as  laid down by this Court. In common with duties of customs and excise, a tax on the sale of goods is another instance of a typical indirect tax 22 Indeed Lord  Thankerton pointed  out in  Attorney- General   for   British   Columbia   v.   Kingcome Navigation Company Ltd.:           "The ultimate  incidence of  the tax  in      the sense  of political  economist is  to  be      disregarded and  referred to a tax imposed in      respect of  some dealings in commodities such      as their  import or  sale or  production  for      sale as  instances of indirect taxes, the tax      not being a peculiar contribution upon one of      the parties  to the trading in the particular      commodity selected as the tax-payer." The question  of the validity of the imposition of a sales  tax with retrospective effect came up for consideration before this Court in the Tata Iron & Steel Co.  Ltd. v. The State of Bihar. An argument similar to  the one  now presented  before us  was submitted to  this Court in challenge of that levy which was summarized by Das, C.J., in these terms:           "The retrospective levy by reason of the      amendment of  s. 4(1) (of the Bihar Sales tax      Act  which   was   impugned)   destroys   its      character as  a sales  tax  and  makes  it  a      direct  tax  on  the  dealer  instead  of  an      indirect  tax   to  be   passed  on   to  the      consumer." Dealing with  this point the learned Chief Justice said :           "The argument  is that  sales-tax is  an      indirect tax  on the  consumer. The  idea  is      that the  seller  will  pass  it  on  to  his      purchaser and  collect it  from them. If that      is the  nature of  the sales-tax  then, urges      the learned  Attorney-General, it  cannot  be      imposed  retrospectively   after   the   sale      transaction has been concluded by the passing      of title from the seller to the buyer, for it      cannot, at that 23      stage,    be     passed     on     to     the      purchaser............... Once  that time goes      past,  the   seller  loses   the  chance   of      realising it  from the  purchaser and  if  it      cannot be  realised from  the  purchaser,  it      cannot be  called sales-tax.  In our judgment      this argument is not sound. From the point of      view of  the economist  and  as  an  economic      theory, sales-tax  may be  an indirect tax on      the consumers,  but legally  in need  not  be      so......... This also makes it clear that the

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    sales-tax  need  not  be  passed  on  to  the      purchasers and  this fact  does not alter the      real nature  of the tax which, by the express      provisions of  the  law,  is  cast  upon  the      seller .......... If that be the true view of      sales-tax then  the Bihar  Legislature acting      within its  own  legislative  field  had  the      powers of  a sovereign  legislature and could      make  the   law  prospectively   as  well  as      retrospectively. We  do not  think that there      is any substance in this contention." In our  judgment this  passage covers the argument regarding a  duty of  excise getting its essential nature altered  and ceasing to be a duty of excise if  imposed   retrospectively.   The   submission, therefore, lacks any force and is rejected.      It is  also necessary to refer to one further matter : Even assuming that the learned Counsel is right in  his submission,  that to  be a  duty  of excise within  Entry 84  of  the  Union  List  the taxing authority  should have  expected the tax to be passed  on, we consider that learned Counsel is not right  in submitting  that  condition  is  not satisfied in  the case  of the  levy now impugned. The provisions  of the  impugned enactment have to be read  in the  light of  s. 64A  of the  Sale of Goods Act which enacts:           "In the  event of any duty of customs or      excise on  any goods being imposed, increased      decreased or remitted after the making of any 24      contract for  the sale  of such goods without      stipulation as  to the  payment of duty where      duty was  not chargeable  at the  time of the      making of  the contract,  or for  the sale of      such   goods   duty-paid   where   duty   was      chargeable at that time:-                (a) if  such imposition or increase           so  takes   effect  that   the  duty  or           increased duty,  as the  case-may be  or           any part  thereof, is  paid, the  seller           may add so much to the contract price as           will be equivalent to the amount paid in           respect of  such  duty  or  increase  of           duty, and  he shall  be entitled  to  be           paid and  to sue  for and  recover  such           addition, and                (b) if  such decrease  or remission           so takes  effect that the decreased duty           only or  no duty, as the case may be, is           paid, the  buyer may deduct so much from           the contract price as will be equivalent           to the decrease of duty or remitted duty           and he shall not be liable to pay, or be           sued  for   or  in   respect  of,   such           deduction." This provision  originally formed  s.  10  of  the Tariff Act  VIII  of  1894  and  was  subsequently enacted as  s. 10 in the Indian Tariff Act of 1934 (cl  Act   XXXII  of  1934).  The  object  of  the statutory provision  is that  where contracts  for the sale  of goods  are entered into and the price payable  therefor   determined  on  the  basis  of existing rates  of duty-either  of  excise  or  of customs-neither  party   shall  be  prejudiced  or

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advantaged by  reason of  the increase or decrease of the duty. The question as to the scope of s. 10 of  the   Tariff  Act   of  1894   came   up   for consideration before  a Bench  of the  Madras High Court whose  decision is  reported in Narayanan v, Kadir Sahib  (1). The suit out of which the second appeal before the High 25 Court arose  was by a buyer of salt for the refund of salt-excise  duty which  had been reduced after the date  of the contract. The transaction of sale between the plaintiff and the defendant took place on March  5, 1922,  and the  price payable  by the plaintiff was based on the rate of duty prevailing on that date. Subsequent thereto the Government of India reduced the duty on salt from Rs. 5/- to Rs. 2/8/- per  bag and  this was to have effect from a date prior  to March  5, 1922.  The defendant-firm (the sellers)  had obtained  from  the  Government refund of the duty on the salt sold by them to the plaintiff. It  was to  recover this amount of duty that the  suit was filed by the buyer. The learned Judges held  that on  the terms  of s,  10 of  the Tariff Act  of 1894 (indentical with s. 64A of the Sale of  Goods Act) the fact that the contract was no longer  executory but  that delivery  had  been made and  the  price  paid,  was  no  bar  to  the plaintiff succeeding in his suit.      It will  be seen that s. 64A is in two parts: the first  cl. (a)  dealing with  the case  of  an increase in  duty and conferring on the seller the right to  recover the amount of the increased duty from the buyer, and the second limb (cl. b) making provision  regarding  the  correlated  case  of  a reduction in the duty with corresponding rights to the buyer  to obtain  the benefit  of a reduction. Whatever argument  might be  raised baned upon the language of  the second limb of the section, it is not open  to doubt that in the case of an increase in duty,  the seller  would be entitled to recover the duty from the buyer provided: (a) there was no contract to the contrary by which he had precluded himself from  claiming such  enhanced duty, i. e., the  contract  having  negatived  or  limited  the seller’s right  to prefer  such a claim, or was at least silent  as regards what was to happen in the event of  the duty being increased, (b) the change in the rate of duty was effected after the date of the contract. In 26 these circumstances,  it appears  to us that there might  not   be  even  a  factual  basis  for  the complaint of  learned Counsel  for the  appellants that in  the case  of a  retrospective increase in duty, the  duty ceases  to be  a duty of excise by becoming a  "direct" tax  because it was incapable of being  passed on. The answer of learned Counsel to this point regarding the operation of s. 64A of the Sale  of Goods  Act was  merely that the Court could  not  take  account  of  the  provisions  of another statute for dealing with the validity of a provision of  the Finance Act 1911. The submission has no  force at all because s. 64A of the Sale of Goods Act  refers in  express terms  to "duties of excise" and  has therefore, to be read as part and

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parcel of  every legislation  imposing a  duty  of excise. In  view of  our conclusion, however, that the duty  in the present case, notwithstanding its imposition with  retrospective effect, and even if it be  that it was incapable of being passed on to a buyer  from the  tax-payer, was a duty of excise within Entry  84 as  properly understood it is not necessary to rest it upon this narrower ground.      In our  view, a  duty of excise is a tax-levy on home  produced goods  of a  specified class  or description, the  duty being  calculated according to quantity  or value  of the  goods and  which is levied because  of the  mere  fact  of  the  goods having been produced or manufactured and unrelated to and not dependent on any commercial transaction in them.  The duty  in the  present case satisfies this test  and therefore it is unnecessary to seek other grounds  for sustaining  the validity of the tax.      One further  aspect of  the matter  on  which some emphasis  was laid  by Mr.  Pathak was that a duty of  excise was  in its essence a tax on goods and not  a personal  tax a levied on the tax payer such as  an income-tax.  He urged that being a tax levied on goods notwithstanding that it was 27 collected from  the producer  or manufacturer,  it followed   that   the   essential   attribute   or characteristic of  that duty was that the producer or manufacturer  must own  or have  possession and control over  the goods at the moment of the levy. If  this   element  of  ownership,  possession  or control  over  the  goods  by  the  tax-payer  was lacking, learned  Counsel urged the duty would not be a  duty on  the goods but a personal tax levied on the tax-payer.      This is  really another  aspect of  the  same argument that a duty of excise is in its nature an indirect tax  but learned  Counsel submitted  that viewed from  this angle  it would be seen that the duty imposed  by the  impugned enactment was shown to be not a duty of excise. The grounds upon which the submission  of learned  Counsel that a duty of excise levied retrospectively was converted into a direct tax and therefore not a duty of excise have been repelled  by us  which ought  to  suffice  to repel the  contention in  this form also. Besides, it may  also be  pointed out  that even  in strict theory there  is no  basis for  the submission now under  consideration.  The  duty  imposed  by  the impugned Act  being retrospective,  it operates as from a  previous date  and admittedly  on the date when by force of the enactment the duty was levied the tax-payer  was the  owner or was in possession and control  of the  goods. To deny this, would in effect deny  the legal  effect of  the  tax  being imposed retrospectively  and fictionally deemed to be in force on an earlier date.      In dealing  with  the  arguments  of  learned Counsel on  the scope  and content  of Entry 84 of the  Constitution   and  of  the  meaning  of  the expression "duty  of excise" in that entry we have also covered  the special argument questioning the right of  Parliament to  impose retrospectively  a duty of  excise. It  was conceded, that Parliament

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has power  to enact laws with retrospective effect and as it was not suggested that laws 28 dealing with  taxation are  any exception  to that rule  the  only  ground  upon  which  the  learned Counsel could  rest this submission was that being an indirect tax, capability of being passed on was an essential  characteristic or  requirement of  a duty  of   excise,  and  so  its  imposition  with retrospective effect deprived it of that essential character and  therefore rendered  it a  duty of a different  nature   and   for   that   reasons   a retrospective imposition of an excise duty was not permissible. It  would be seen that this is really the same argument which we have dealt with earlier presented in another form. For the reasons already stated, we  find no  substance in  this form    of argument either  and  we  have  no  hesitation  in rejecting it.  It need  only be mentioned that the passage in  judgment of Lord Davey in the Colonial Sugar Refining  Company Ltd.  v.  Irving,  already extracted, is  sufficient precedent,  if authority were needed, to reject this argument.      The second  point raised  by learned  Counsel was that  the impugned  s. 7(2)  of  the  Act  was unconstitutional  in   that  it   contravened  the fundamental rights guaranteed under Arts. 19(1)(f) and 31(1)  and (2)  of the  Constitution.  It  was urged that  even if  the  impugned  provision  was within the legislative competence of Parliament as being covered  by Entry  84 of the Union List, the retrospective levy  of an excise duty violated the freedom guaranteed  by Art. 19 (1)(f)-the right to hold property-and  was not  saved  by  Art.  19(5) since the same was not "a reasonable restraint" on the rights  of the appellant. If Counsel was right so far, his next submission was that the threat to deprive the  appellant of  the amount  of the  tax levy was  a deprivation  without authority of law- Art.  31(1)   and   was   further   a   compulsory acquisition of  that property without compensation (Art.  31(2))   which  was   not  saved   by  Art. 31(5)(b)(i) because the 29 law contemplated  by that  sub-article was a valid law for  the imposition  of a  tax which satisfied the requirements  both of  legislative  competence and of  the rights  guaranteed by  Part III of the Constitution.      The submission  of Mr. Pathak on this part of the case  was briefly  as  follows.  A  law  which imposes a  tax  and  provides  for  its  levy  and collection is  as much a law, as a law under other non-taxation entries  of the legislative list. All laws including laws imposing taxes are within Part III of  the Constitution  being  laws  under  Art. 13(2) thereof  and unless  any particular  Article was inapplicable to such laws by reason of obvious irrelevance every  Article in the Part would apply to them and without such a law satisfying the test of reasonableness  or constitutionality  laid down in the  various Articles guaranteeing the several. Fundamental rights  the statute  in question could not be pronounced valid and enforceable.      We shall  be referring to the manner in which

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Mr.  Pathak  sought  to  urge  that  the  impugned provision offended  Art.  19(1)  (f),  but  before doing so, it is necessary to notice the submission which Mr. Sanyal invited us to accept.      He raised  a broad  contention  that  no  law imposing a  tax could be impugned on the ground of violation of  Part  III  of  the  Constitution  in general and  in particular  of Art.  19(1) (f)  or Art. 31.  His submission  was that the validity of tax laws were governed solely by Art. 265 and that such laws  were not  governed by  Part III  of the Constitution  and   specially  because  the  money sought to  be taken  by the State as tax by virtue of a  fiscal enactment  was not  "property" within Art. 19(1)  (f) and  that the expression "laws for the purpose  of imposing a tax" used in Art. 31(5) (b) (i)  saved all laws from the operation of Art. 31  whether   such  laws   be  within  legislative competence or not, as 30 also whether  or not  such laws  were repugnant to Part III of the Constitution.      Before adverting  to the  decisions on  which reliance was  placed for  this position two things might he  pointed out:  (1) that  Art. 265  merely enacts that  all taxation-the imposition, levy and collection shall  be by  law;  and  (2)  that  the Article beyond  excluding purely  executive action does not  by itself  lay down  any  criterion  for determining the  validity of such a law to justify any contention that the criteria laid down exclude others to  be found  elsewhere in the Constitution for laws  in general.  If by  reason of  Art.  265 every tax  has to  be imposed  by "law"  it  would appear to  follow that it could only be imposed by a law which is valid by conformity to the criteria laid  down   in  the   relevant  Articles  of  the Constitution. These are that the law should be (1) within   the   legislative   competence   of   the legislature  being   covered  by  the  legislative entries in  Schedule VII  of the Constitution; (2) the law should not be prohibited by any particular provision of the Constitution such as for example, Arts. 276(2),  286 etc.,  and (3)  the law  or the relevant portion  thereof should  not  be  invalid under Art.  13 for  repugnancy to  those  freedoms which  are   guaranteed  by   Part  III   of   the Constitution which  are relevant  to  the  subject matter of the law. The reference therefore to Art. 265  does  not  lead  necessarily  to  the  result envisaged by Mr. Sanyal.      The entire  argument of  Mr. Sanyal  on  this part of  the case  was rested  on the observations contained in two decisions of this Court, Ramjilal v. Income-tax Officer, Mohindargarh and Laxmanappa Hanumantappa Jamkhandi,  v. The Union of India. We do not  understand these  decisions as laying down any such broad proposition. We are further 31 satisfied that  the learned  Judges could not have meant that if a law imposing a tax was outside the legislative competence of the legislature enacting it, as  the argument before us appeared to suggest it could  be a  law under  which a person could be deprived of  his  property  under  Art.  31(I)  or

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regarding which a person could not move this Court for relief under Art. 32. Such a proposition would be contrary  to a  long catena  of cases  of  this Court of  which  it  is  sufficient  to  refer  to Mohammad  Yasin   v.  The   Town  Area  Committee, Jalalabad, State  of Bombay  v. The  United Motors (India) Ltd.,  The Bengal Immunity Company Limited v. The  State of  Bihar and  Ch. Tika Ramji v. The State of  Uttar Pradesh.  In all  these cases  the legislation imposing  the tax or the fee which had been held  not to have been within the legislative competence of  the authority  imposing the  tax or the fee  was struck  down on the ground that those laws violated  the freedom  guaranteed by Part III of the  Constitution. Learned  Counsel  laid  some stress on  the fact that in these cases the tax or fee was held to be unconstitutional as imposing an unreasonable restraint  on the right to carry on a trade or  business guaranteed by Art. 19(1)(g) and not as  an  infringement  of  the  right  to  hold "property" under  Art. 19(I)(f).  In  our  opinion nothing turns  on this,  for it is the deprivation of the  freedom "to  hold property"  that  is  the direct result  of the tax and the restraint on the business  by  reason  of  the  collection  of  the illegal tax  or the procedures prescribed for such collection is  only  an  indirect  and  incidental effect thereof.      Nor do we find it possible to accept even the more limited  proposition  that  whatever  be  the position  in   regard  to   tax  laws  which  lack legislative competence,  once a tax law is covered by an  entry in  the Legislative List and does not contravene direct prohibitions like those in Arts. 276 (2) or 286 32 etc., such  a law  is immune  from the limitations imposed by Part III of the Constitution.      Mr. Sanyal  is right  in his  submission that the levying  of  taxes  though  it  might  involve taking  private  property  for  a  public  use  is entirely distinct from the power of eminent domain which is  covered by  Art. 31(1)(2)  and that  the saving in Art. 31(5)(b) (i) of such laws is really by way  of abundant  caution. It  has been  stated that where  "property  is  taken  under  a  taxing power, the  persons so  taxed may  be said  to  be compensated for  their contribution by the general benefits which they receive from the existence and operation of  Government. But  this is  not to say that  the   burden  of   a   tax   that   may   be constitutionally laid  upon an individual needs to be justified  by a  showing that  he, individually will receive  benefit from  the expenditure of the proceeds of the tax, and much less that the degree of that  burden may  be measured  by the amount of benefit that  the tax payer is excepted to receive (1)". It  would, therefore,  be obvious that a tax law need not satisfy the tests of Art. 31(2).      But it  does  not  follow  that  every  other Article of  Part III  is inapplicable  to tax law. Leaving aside  Art. 31(2) that the provisions of a tax law  within legislative  competence  could  be impugned as  offending Art.  14 is  exemplified by such decisions of this Court as Suraj Mal Motha v.

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Sri A.  V. Visvanatha  Sastri and  Shree Meenakshi Mills Ltd.,  Madurai,  v.  Sri  A.  V.  Visvanatha Sastri. In  Moopil Nair  v. State  of  Kerala  the Kerela  Land   Tax  Act   was   struck   down   as unconstitutional   as    violating   the   freedom guaranteed by Art. 14. It also goes without saying that  if   the   imposition   of   the   tax   was discriminatory as  contrary to  Art. 15,  the levy would be invalid.      It might  very well  be  that  a  distinction might have to be drawn between the legality of the 33 quantum of a tax levied which might not be open to challenge under Art. 19(1)(f) and the incidence of the tax or the procedure prescribed therein either for the  assessment or  the collection which might be open for being tested with reference to all the freedoms  including   that   contained   in   Art. 19(1)(f). In  fact in  Moopil  nair  v.  State  of Kerala (1) already referred to, certain provisions of the Act therein challenged which prescribed the procedure for the levy of the tax were struck down on the ground of being obnoxious to Art. 19(1)(f). Having regard  to  the  very  limited  controversy before us  we do  not  consider  it  necessary  to embark on any further or more detailed examination of this  question, except  to say  that we  cannot accept the  argument  of  the  learned  Additional Solicitor General  that by  reason of Art. 265 tax laws are outside Part III of the Constitution.      In support  of  the  submission  that  a  tax levied    with     retrospective    effect     was unconstitutional   as    being   an   unreasonable restriction on  this right  to hold property (Art. 19(1)(f)). Mr.  Pathak relied  on the decisions in Nichols v.  Coolidge (2).  The tax in question was an estate duty on property passing on death and in the items  to be  included for computing the value of  the   estates  was  included  not  merely  all property of  which the deceased died possessed, on the date  of his  death but also that which he had transferred by  gifts within a period of two years fore  his   death.  This   inclusion  of  property transferred to  third persons not in contemplation of death  but by  the grantor  in the ordinary and natural course  of the  transaction of his affairs so that  the donees  might  enjoy  the  properties absolutely, was  held to  be  unconstitutional  as offending the  rule as  to "due process" contained in fifth  amendment to  the constitution.  Justice McReynolds delivering  the opinion  of  the  Court said: 34           "Under  the   theory  advanced  for  the      United States,  the arbitrary,  whimsical and      burdensome character of the challenged tax is      plain  enough  .....Real  estate  transferred      years ago,  when of small value, may be worth      an enormous sum at the death. If the deceased      leaves no  estate there can be no tax; if, on      the other  hand, he  leaves ten  dollars both      that  and  the  real  estate  become  liable.      Different estates  must bear disproportionate      burdens determined  by what  the deceased did      one or  twenty years  before  he  died.  This

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    Court   has   recognised   that   a   statute      purporting to  tax may  be so  arbitrary  and      capricious as  to amount  to confiscation and      offend the  fifth Amendment. We must conclude      that s.  402(c) of  the  statute  here  under      consideration, in  so far as it requires that      there shall  be included  in the gross estate      the  value   of  property  transferred  by  a      deceased prior  to its passage merely because      the conveyance was intended to take effect in      possession  or  enjoyment  at  or  after  his      death, is  arbitrary, capricious  and amounts      to confiscation." Learned Counsel  also referred  us to  a few later decisions of  the American  Supreme Court in which retrospective taxation has been held arbitrary and capricious and to amount to a violation of the due process clause  contained in the 5th Amendment. In regard to  these decisions,  two points have to be noted: (1)  that the decisions of Supreme Court of the United  States are  not uniform  and there are undoubtedly decisions of the Court of a later date which speak  the other way. In Third National Bank v. White  (1) the  Supreme Court  upheld an estate tax which  operated retrospectively. It is in view of these  decisions that  Mr. Ballard states in an article in  the Harvard  Law Review (*), referring to White’s case (1) 35           "It  seems  accurate  to  say  that  the      decision marks  for  practical  purposes  the      passing of  ’arbitrary retroactivity’  in the      field of  the  estate  tax...........And  the      present status  of Nichols v. Coolidge is not      entirely  clear.........  Since  the  Nichols      case can  be distinguished  on its  facts, it      may    well     give    way.........In    any      event.......it  would  seem  that  after  the      White case  no application  of the estate tax      can be  successfully resisted on the score of      retroactivity." For instance  in Welch  v. Henry (1) which related to an  enactment imposing  income  tax  which  had retrospective operation,  Justice Stone delivering the Judgment  of the Court referring to Nichols v. Coolidge (2) and other cases in which observations broadly  stating   that  any   retrospective   tax legislation was  obnoxious to  the requirement  of due process, stated:           "Even a  retroactive gift  tax has  been      held valid  where the donor was forewarned by      the statute  books of the possibility of such      a levy.  In each  case  it  is  necessary  to      consider  the  nature  of  the  tax  and  the      circumstances in  which it  is laid before it      can be  said that its retroactive application      is so  harsh and  oppressive as to transgress      the constitutional limitation."           "Any  classification   for  taxation  is      permissible which  has reasonable relation to      a  legitimate  end  of  governmental  action.      Taxation is but the means by which government      distributes the  burdens of  its  cost  among      those  who   enjoy  its   benefits.  And  the      distribution of a tax burden by placing it in

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    part on  a special  class which  by reason of      the taxing  policy of  the State  has escaped      all tax  during the  taxable period  is not a      denial of equal protection. 36      Nor is  the tax  any more  a denial  of equal      protection because retroactive..........A tax      is not  necessarily unconstitutional  because      retroactive. Milliken  v. United  States  and      cases there  cited. Taxtation  is  neither  a      penalty  imposed   on  the   taxpayer  not  a      liability he assumes by contract. It is but a      way of  apportioning the  cast of  government      among  those   who  in   some   measure   are      privileged to  enjoy its  benefits  and  must      bear its  burdens. Since  no  citizen  enjoys      immunity from  that burden,  its  retroactive      imposition does  not necessarily infringe due      process, and  to challenge the present tax is      not enough  to point  out  that  the  taxable      event, the  receipt of  income, antedated the      statute."      In  Untermyer   v.  Anderson  (1)  which  was concerned with  the validity  of a  tax  on  gifts which was  made to  operate from  a date before it was enacted, Justice Holmes stated:           "........I find  it  hard  to  state  to      myself articulately  the ground  for  denying      the power  of Congress to lay the tax. We all      know that we shall get a tax bill every year.      I suppose  that the  taxing act may be passed      in the middle as lawfully as at the beginning      of the  year. A  tax may  be levied  for past      privileges and  protection  as  well  as  for      those to come," and Justice  Brandeis made  the added observations which  have   been  repeatedly   quoted  in  later decisions as well as in text books:           "For more  than half  a century,  it has      been settled  that a law of Congress imposing      a   tax    may   be    retroactive   in   its      operation...... Each  of the  fifteen  income      tax acts adopted from time to time during the      last sixty-seven  years has been retroactive,      in that it applied 37      to income earned, prior to the passage of the      act, during  the  calendar  year........  The      need  of   the  government  for  revenue  has      hitherto    been    deemed    a    sufficient      justification  for   making  a   tax  measure      retroactive whenever  the  imposition  seemed      consonant with  justice  and  the  conditions      were not  such as  would  ordinarily  involve      hardship. On this broad ground rest the cases      in  which   a  special  assessment  has  been      upheld......  Liability   for   taxes   under      retroactive legislation  has been ’one of the      notorious incidents  of social  life’........      Recently this  Court recognized  broadly that      ’a tax  may be  imposed in  respect  of  past      benefit’."      It would  thus be  seen that  even under  the constitution of  the United  States of America the unconstitutionality  of  a  retrospective  tax  is

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rested on what has been termed "the vague contours of the  5th Amendment."  Whereas under  the Indian Constitution that  grounds on  which infraction of the rights  a property  is to be tested not by the flexible rule  of "due  process" but  on the  more precise criteria  set  out  in  Art.  19(5),  mere retrospectivity  in  the  imposition  of  the  tax cannot per  se render  the Law unconstitutional on the ground  of its  infringing the  right to  hold property under  Art.  19(1)(f)  or  depriving  the person of property under Art. 31(1). If on the one hand, the  tax enactment  in question  were beyond legislative competence  of the  Union or  a  State necessarily different  considerations arise.  Such unauthorised imposition would undoubtedly not be a reasonable  restriction   on  the  right  to  hold property beside being an unreasonable restraint on the  carrying  on  of  business,  if  the  tax  in question is  one which  is laid  on  a  person  in respect of his business activity.      Mr. Pathak  also presented  his  argument  on this  head   in  a  slightly  different  form.  He submitted   that   the   Constitution-makers   had contemplated  that  a  duty  of  excise  would  be imposed only when the 38 manufacturer or the producer was in possession and control  of   the  goods  at  the  moment  of  the imposition, and  therefore would  be in a position to  pass   it  on  and  obtain  payment  from  the purchaser of  the duty  paid by  him to State. The imposition of  the  levy  retrospectively  however deprive him  of this  benefit of  passing  on  the burden  which   he  would   normally  have.   This restriction or  impairment of his right to pass on the  duty,   he  urged  rendered  the  restriction imposed on  him in  the shape of the obligation to pay  the   duty  unreasonable.   Learned   Counsel admitted that as the imposition would yield to the Exchequer   more   money,   the   restriction   on appellants’ right  to hold  property could  not be denied to  be in  the  ’interest  of  the  general public" within  Art. 19(5)  but his submission was that it  lacked the  character of "reasonableness" because it  deprived him  of the  right to pass on the tax to others. It was further admitted that it was only  if learned  Counsel  was  right  in  his submission regarding the infraction of Art. 19 (1) (f) that  any question of the violation of Art. 31 (1) could  arise. It  would be seen that it is the same argument  as was  presented to  challenge the legislative competence  of Parliament to enact the legislation. Only  the  nomenclature  employed  is different and adapted to suit the need of bringing it into  the fold  of an impairment of fundamental rights under  Part III  of  the  Constitution.  As Evatt, J.  observed in  Broken Hill  South Limited (Public Officer)  v. The  Commissioner of Taxation (New South Wales) (1) "It is not proper to deny to the legislature  the  right  of  solving  taxation problems  unfettered   by  legal  categories."  If notwithstanding that  according to economic theory or doctrines  propounded by  economists a  duty of excise does  not cease  to be such, merely because it is  imposed at  a time  or in circumstances (as

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pointed out  earlier in  conjunction with a system of price control) in 39 which it  cannot be passed on one fails to see any substance in  the argument  that the imposition of such a  tax is  an unreasonable restriction on the exercise  of   the  fundamental   rights  to  hold property guaranteed by Art. 19 (1) (f).      The last  of the points urged was that r. 10A was not  apt to  cover the  recovery of  the  duty which was  a subject  of demand dated December 12, 1951.  The   learned  Judges  of  the  High  Court rejected this  submission  and,  in  our  opinion, correctly. Rule 10 under which the first demand of June 22, 1951, was made ran:           "10. Recovery of duties or charges short      levied or  erroneously refunded.-When  duties      or charges  have  been  short-levied  through      inadvertence,     error,     collusion     or      misconstruction on the part of an officer, or      through mis-statement  as  to  the  quantity,      description or  value of  such goods  on  the      part of  the owner,  or when any such duty or      charge, after  having been  levied, has  been      owing to any such cause, erroneously refunded      the  person   chargeable  with  the  duty  or      charge, so  short-levied,  or  to  whom  such      refund has  been erroneously  made shall  pay      the deficiency  or repay  the amount  paid to      him in excess, as the case may be, on written      demand  by  the  proper  officer  being  made      within three  months from  the date  on which      the duty  or charge  was paid  or adjusted in      the owners  account-current, if  any, or from      the date of making the refund." The contention  which was  then urged was that the short-levy which  led to the demand was not caused through inadvertence,  error etc.,  which are  set out in this rule and that consequently there was a defect in  the operative  machinery for collection of the  refund.  This  objection  of  the  present appellants was upheld by the Full Bench of the 40 Nagpur High  Court and  it was as a result of this decision that  rule 10  A was  framed.  This  rule reads:           10A. Residuary  powers for  recovery  of      sums due  to Government.-Where these rules do      not  make  any  specific  provision  for  the      collection of  any duty, or of any deficiency      in duty  if the  duty has for any reason been      short-levied, or of any other sum of any kind      payable to  the Central  Government under the      Act or  these Rules,  such duty deficiency in      duty or  sum shall,  on a written demand made      by the proper officer, be paid to such person      and at  such time  and place,  as the  proper      officer may specify." The words  "deficiency in duty if the duty has for any reason  been short-levied" are in our opinion, wide enough to include cases of deficiency arising like those  in the  circumstances of  the  present case, viz.,  where 8  annas out of the 14 annas of the duty  has been collected in the first instance but 6  annas remains to be collected. We consider,

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therefore, that  there  is  no  substance  in  the objection that  r. 10A is not wide enough to cover the recovery of the duty from the appellants.      The result is that these appeals fail and are dismissed with costs. There will, however, be only one hearing  fee  for  all  the  cases.  The  writ petitions also fail and are dismissed, without any order as to cost.      KAPUR J.-  The appellants  are manufacturers, warehousemen and  merchants of  tobacco  and  they have  private   licensed  warehouses   which   are governed by  r. 140  of the  Rules made  under the Central  Excise  &  Salt  Act  (Act  1  of  1944), hereinafter termed the "Act."      According  to   their  allegations   in   the petition under  Art. 226  of the Constitution, the appellants had  a considerable quantity of tobacco in their licensed 41 warehouses on  February 28,  1951. On the same day the  Central  Bill  (Bill  No.  13  of  1951)  was introduced in  the House of the People, one of the clauses of which related to the duty of excise for the  financial   year  beginning  April  1,  1951. According to the Bill, on unmanufactured tobacco a duty of  8 As.  per Ib.  and 6 to 9 As. (per 1000) Biris was to be imposed. This Bill was amended and by this  amendment the  duty on tobacco other than Biri tobacco  was fixed  at 6  As. per Ib. On Biri tobacco 14  As. per Ib. and no duty was imposed on manufactured Biris.  As a  result of the operation of ss.  3 &  4 of  the provisional  Collection  of Taxes act  (Act  XVI  of  1931)  the  duty  became leviable as  from the  date of the introduction of the Bill.  The  petitioner  have  stated  that  in accordance with  the provisions  of the  Bill that was   introduced, they paid excise duty on tobacco in their  possession at the rates mentioned in the Bill  and   obtained  clearance   certificates  in accordance with  the Rules under the Act. On April 28, 1951,  the Finance  Bill was passed and became Finance Act,  1951 (Act XXIII of 1951). By s. 7 of that Act  the first schedule to the Central Excise and Salt  Act was  amended in accordance with what has been stated above. By s. 7. (2) of the Finance Act. 1951, it was provided that the amendment made in the  first schedule  to the Act shall be deemed to have  effect on and from the first day of March 1951. A  demand was  subsequently  made  from  the appellants in  respect of  excess duty  payable on tobacco cleared out of the store houses from March 1, 1951, to April 28, 1951.      Thereupon the  appellants  filed  a  petition under Art.  226 of  the Constitution  in the  High Court at  Nagpur. The  grounds of the attack as to the constitutionality  of  the  tax  were  decided against the  appellants but the petition succeeded on the ground that there was no machinery 42 provided under  the Act  for recovery  of the tax. This judgment  is reported as Chhotabhai Jethabhai Patel & Co. v. The Union of India (1). On December 8, 1951,  the Central Government by a notification amended the  Central Excise Rules by adding r. 10A which provided  machinery for  the  collection  of

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tax. The rule was :-           "10-A. Residuary  powers for recovery of      sums due  to Government.-Where these rules do      not  make  any  specific  provision  for  the      collection of  any duty  or of any deficiency      in duty  if the  duty has for any reason been      short levied, or of any other sum of any kind      payable to  the Central  Government under the      Act or  these Rules, such duty, deficiency in      duty or sum shall on a written demand made by      the proper officer be paid to such person and      at such  time and place as the proper officer      may specify." After the introduction of this rule a fresh demand was made  on December 12, 1951, for excess duty on the tobacco  cleared. The appellants again filed a petition in  the High  Court of  Nagpur which  was decided against them and against that judgment the appellants  have   come  to   this  court   on   a certificate under  Art. 132  of the  Constitution. The question  submitted to this Court is as to the validity of  the said  tax on  the ground  of  its repugnancy to the Constitution of India.      Counsel for  the appellants  has  raised  two questions against  the legality  of the taxes; (1) The  Parliament   had   no   power   to   make   a retrospective legislation while making a law under item 84  of List  I so as to affect goods that had been cleared  from the warehouses after payment of proper duties  at the rates prevailing on the date that  the   goods   were   cleared   because   (a) Parliament’s power  to make  retrospective laws is subject to constitutional limitations, namely, the language 43 of item  84 of  List I;  (b)  duty  of  excise  as defined in  the Constitution  and its  nature  and character is  such that it is not capable of being exercised after  the goods  on which it is imposed are no  longer in  possession of  the warehousemen and after  they have  passed into the common stock of the  country; (2) legislation of this character imposes an  unreasonable restriction under Art. 19 (1) (f);  and (3)  r. 10-A  does not  apply to the facts of  the case  and  does  not  authorise  the collection of the duty imposed.      The first  point relates  to the  legislative competency  of  Parliament.  Item  84  of  List  I provides: Item 84 "Duties of excise on tobacco and other goods  manufactured or produced in India..." In the  corresponding item under the Government of India Act,  1935, the  same language  was used  so that the  nature of  the duties  remains the  same both  under   the  Constitution   and  under   the Government of India Act, 1935 Section 3 of the Act empowers the  levying of  duties specified  in the First Scheduled.  The  relevant  portion  of  that section is as follows:-           Section 3(1)  "There shall be levied and      collected in such manner as may be prescribed      duties 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

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    Schedule." By s.  7 (2)  of the  Act retrospective effect was given to  the duties  imposed by  the Finance  Act taking effect  as and from the First day of March, 1951.           S.  7(2)  "The  amendment  made  in  the      Central Excises  and Salt  Act, 1944, by sub-      section (1)  shall  be  deemed  to  have  had      effect on  and from  the first  day of  March      1951......." 44 The effect  of this  deeming provision is that the new rates  of duties  must be  taken to  have been imposed and  become operative  as if  they were in the bill  as and  when the  bill was introduced in Parliament:  Venkatachalam   v.  Bombay  Dyeing  & Manufacturing Co. Ltd.(1).      The contention  raised is as to the nature of the duty of Excise. It was argued that Excise Duty is a  tax on  goods which  must exist  at the time when the  tax is  levied and  it  must  have  been intended and  expected by  the legislature that it will  be   passed  on   to  the  consumer  and  as retrospective operation of such duties has not got these qualities  when the  goods are  no longer in possession of  the person  sought to be taxed they do not  fall within  the term "duty of excise" and therefore  they   are   beyond   the   legislative competence   of   Parliament.   To   support   his contention, counsel  for the  appellants relied on Bank of  Toronto v.  Lambe (2)  where the question for decision  was  as  to  whether  certain  taxes imposed on  commercial  corporations  carrying  on business were  direct taxes  or indirect  taxes of the Provinces or the Dominion. Lord Hobhouse at p. 582 relying  upon the  definitions given  by  John Stuart Mill said:-           "Taxes are  either direct or indirect. A      direct tax  is one which is demanded from the      very persons  who it  is intended  or desired      should pay it. Indirect taxes are those which      are  demanded   from  one   person   in   the      expectation  and   intention  that  he  shall      indemnify himself  at the expense of another;      such are the excise or customs."      The same  distinction was brought out in some other Canadian cases decided by the Privy Council; City of  Halifax v.  Estate of J. P. Fairbanks (3) which related  to the  nature  of  "Business  Tax" which was  held to  be  a  direct  tax;  Attorney- General 45 for British  Columbia v.  Mc Donald  Murphy Lumber Company Ltd.  (1); &  Attorney-General for British Columbia v.  Kingcome Navigation  Comapny  Limited (2) Attorney-General  for  Manitoba  v.  Attorney- General for  Canada (3)  and Brewers  &  Malster’s Association of  Onatario v.  The  Attorney-General for Ontario (4)      Reference was next made to an Australian case Parton v.  Milk Board  (Victoria)  (5)  where  two necessary qualities  of the  duty of  Excise  were stated to be that it must be levied on goods which are in  existence and  the taxpayer should be able to pass it on to the consumer.

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    But as was pointed out by Gwyer, C.J., in the Province of Madras v. Boddu Paidanna (6):      "The Canadian  cases which  were cited do not      seem to afford any assistance since analogous      problems in  Canada are always concerned with      direct and indirect taxation...." Dealing  with   the  same  distinction  the  Privy Council said  in Governor-General  in  Council  v. Province of Madras (7):-           "Little assistance is to be derived from      the   consideration    of    other    federal      constitutions   and    of   their    judicial      interpretations. Hence  there is  no question      of  direct   and  indirect  taxation..."  The      Indian Constitution  is unlike  any that have      been called  to their  Lordships’  notice  in      that it  contains  what  purports  to  be  an      exhaustive  enunciation   and   division   of      legislative powers  between the  Federal  and      Provincial Legislatures."      The Excise duty in England came to be imposed as a  scheme of  revenue and  taxing device by Pym and approved  by the Long Parliament. It consisted of charges on wine and tobacco and some 46 other  articles   were  added   later.  The  basic principle of  duties of  Excise was that they were taxes  on   the  production   and  manufacture  of articles which  could not  be  taxed  through  the customs  house.  The  revenue  derived  from  that source is called excise revenue proper. In England it was  later on  extended to comprise other taxes but the fundamental conception of the term is that it is  a tax  on articles produced or manufactured in the country. It was in this sense that the word "duty  of  excise"  was  understood  in  Australia (Peterswalad v. Bartley (1).      The importance  of legislative  practice of a country was  pointed out by the Privy Council in a Canadian case  Croft v.  Dunphy (2)  where it  was held that  when a  power is conferred to legislate on  a   particular  topic   it  is   important  in determining the  scope of the power to have regard to what  is ordinarily  treated as embraced within that topic in the legislative practice in England, U.S.A. and the Dominions and of India, the Federal Court considered  the nature  of duty of Excise in Re The  Central Provinces  & Berar  Sales of Motor Sprit &  Lubricants Taxation  Act (In re A Special Reference under s. 213 of Government of India Act, 1935)  (3),   generally  known   as  the  "Central Provinces" case.  In that  case  the  Act  of  the Provincial legislature  levying a  tax  on  retail sale of  motor spirit was held to fall within item 48  in   List  II  of  the  7th  Schedule  of  the Constitution Act  and not  a duty of Excise within the  meaning  of  entry  45  of  List  I  of  that Schedule. The nature of the duty was considered by the Court.  Gwyer, C.  J., after  referring to the distionary meaning of the word "excise" said at p. 41:-           "But its primary and fundamental meaning      in English is still that of a tax on articles      produced  or   manufactured  in   the  taxing      country and  intended for home consumption. I

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    am satisfied  that is  also its  primary  and      fundamental meaning in India; and no 47      one has  suggested  that  it  has  any  other      meaning in entry No. 45." At p. 47 the learned Chief Justice said:-           "The  expression   "duties  of  excise",      taken by  itself conveys  no suggestion  with      regard  to   them  time  or  place  of  their      collection. Only  the context  in  which  the      expression is  used can  tell us  whether any      reference to the time or manner of collection      is to  be implied. It is not denied that laws      are to be found which impose duties of excise      at  stages   subsequent  to   manufacture  or      production; but so far as I am aware, in none      of the  cases  in  which  any  question  with      regard to  such  a  law  has  arisen  was  it      necessary to  consider  the  existence  of  a      competing legislative  power such  as appears      in entry No. 48." But Mr.  Pathak relied  on the observations of the learned Chief Justice at p. 50 where he said:-           "Thus the  Central Legislature will have      the  power  to  impose  duties  on  excisable      articles  before  they  become  part  of  the      general stock of the Province, that is to say      at the  stage of  manufacture or  production,      and the  Provincial Legislature  an exclusive      power to impose a tax on sales thereafter." But these  observations only  mean this  that when there is  a competition  between the duty, imposed at the  stage of  manufacture of  production and a tax imposed on sales thereafter, the sphere of the Central and the Provincial Legislatures comes into operation but,  as the previous passages, show, it does not  in any  manner vary  the meaning  of the word  "excise"   nor  does  it  accept  a  further qualification which  is sought  to be  included in that phrase  as a  necessary quality  of that  tax that unless  it is  capable of  being passed on to the consumer  or the  person taxed  can indemnify, himself, it is not a duty of excise. At p. 47, the learned Chief Justice 48 observed that in the expression "duties of excise" no suggestion  as to  time or  place of collection was implied.  Sulaiman, J.,  pointed out  at p. 73 that  in   the  Indian  Constitution  it  was  not necessary  to   go  into   the  fine  niceties  of distinction between  direct and  indirect taxation because in the Indian Act no such division existed and that  ultimate incidence  of  tax  was  not  a crucial test  under the Indian Constitution. Again at p. 77, Sulaiman, J., said:-           "The  essence   of  a   tax   on   goods      manufactured or produced is that the right to      levy  it   accrues   by   virtue   of   their      manufacture or  production. It  is immaterial      whether  the   goods  are  actually  sold  or      consumed  by  the  owner  or  even  destroyed      before they can be used. If a duty is imposed      on the  goods manufactured  or produced  when      they issue from the manufactory then the duty      becomes leviable independently of the purpose

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    for which  they leave  it and irrespective of      what happens to them later." In a  subsequent case  The Province  of Madras  v. Messrs. Boddu  Paidnna &  Sons(1)  Gwyer,  C.  J., again went  into the question of the nature of the duty of  excise under  the expression  "duties  of excise" and said at p. 101:-           "There is  in theory  nothing to prevent      the Central  Legislature from imposing a duty      of excise  on a commodity as soon as it comes      into existence,  no matter what happens to it      afterwards, whether  it  be  sold,  consumed,      destroyed or  given away.  A taxing authority      will  not  ordinarily  impose  such  a  duty,      because   it    is   much   more   convenient      administratively to  collect the  duty (as in      the case  of most  of the Indian Excise Acts)      when the commodity leaves the factory for the      first time, and also 49      because  the   duty  is  intended  to  be  an      indirect  duty   which  the  manufacturer  or      producer  is  to  pass  on  to  the  ultimate      consumer,  which  he  could  not  do  if  the      commodity had,  for example been destroyed in      the  factory   itself.  It  is  the  fact  of      manufacture which  attracts  the  duty,  even      though it  may be collected later; and we may      draw attention  to the  Sugar Excise  Act  in      which it  is specially provided that the duty      is payable not only in respect of sugar which      is  issued  from  the  factory  but  also  in      respect of sugar which is consumed within the      factory." The Privy Council described the nature of the duty of  Excise   in  Governor-General  in  Council  v. Province  of   Madras  (1)  as  a  duty  which  is primarily levied  on a manufacturer or producer in respect of the commodity manufactured or produced. At p.  103 Lord  Simonds referred to In re Central Provinces &  Berear case (2) and to Baddu Paidanna case (3) and said:-           "The two  taxes, the  one  levied  on  a      manufacturer in  respect of  his  goods,  the      other on  a vendor  in respect  of his sales,      may as  is there  pointed out  in  one  sense      overlap. But in law there is no overlapping.-      The taxes  are separate and distinct imposts.      If in  fact they overlap, that may be because      the taxing  authority,  imposing  a  duty  of      excise finds  it convenient  to  impose  that      duty at the moment when the excisable article      leaves the  factory or workshop for the first      time on  the occasion  of its  sale. But that      method of  collecting the  tax is an accident      of administration;  it is  not of the essence      of the  duty of excise, which is attracted by      the manufacture  itself. That  this is  so is      clearly exemplified  in those  excepted cases      in which  the  Provincial,  not  the  Federal      legislature has  power to  impose a  duty  of      excise." 50      Thus according to the Indian cases decided on the nature  of duties of excise ultimate incidence

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is not  of any importance or relevance. In dealing with excise  duty (1)  there is  no mention  of  a direct or  indirect taxes;  the Indian Legislature has avoided this incidence to be characteristic of the tax;  (2) taxable  event is the manufacture or production of goods; it is immaterial what happens to  them   afterwards  whether   they  are   sold, consumed, destroyed or given away; (3) it is not a necessary incidence  that the manufacturer must be able to  pass it  on to  the consumer or indemnify himself; (4)  the general  tendency of  its  being passed on may be there but it may be prohibited by the circumstances, economic or otherwise. The fact that the manufacturer has no chance to get the tax from the buyer does not affect the legality of the tax; it  was so  held in  the case of sales tax in The Tata  Iron &  Steel Co.  Ltd. v.  The State of Bihar (1)  where the nature of the excise duty was discussed. At  page 1369 the observations of Gwyer C. J.  in Boddu Paidanna case (2) and of the Privy Council in Governor-General in Council v. Province of Madras (3) were quoted with approval. It may be noted that  in the  Tata Iron & Steel Co. case (1) the tax was a retrospective tax and was imposed at a time  when in the Sales Tax Act no provision was made  for   passing  on   the  Sales  Tax  to  the purchaser. In  the Union  of India  v. Madan Gopal Kabra (4)  it was  pointed out that Parliament was not  precluded   from  exercising   the  power  of imposing a  retrospective tax and therefore it was competent to  make a  law imposing  a tax  on  the income of  any year  prior to  the commencement of the Constitution.  As was pointed out in that case under Arts.  245 and  346 of the Constitution read with the  relevant entry in List I of Schedule VII Parliament is  empowered to  make laws with regard to taxes  and  no  limitation  or  restriction  is imposed in regard to 51 retrospective legislation.  See Sargood  Bros.  v. The  Commonwealth  (1)  where  retrospective  laws about the  levying of Customs were held valid. See also  Welch   v.  Henry   (2)  On  the  ground  of retrospectivity alone  therefore the  tax  is  not unconstitutional.      In view of what has been said above the cases decided in  Canada or  Australia cannot  have  any application.      It was  next contended  that a  retrospective tax purporting  to be  a duty  on goods  when  the goods had  been disposed  of would  be a  tax  not under item  84, List I of the Seventh Schedule but one under  item  60  of  List  II,  i.e.,  tax  on profession,  trade,   calling  and  employment-the submission  being  that  the  word  "trade"  would include manufacture. This contention was sought to be supported by the observations of Lords Davey in Commissioner of Taxation v. Kirk (3):-           "The word  ‘trade’  no  doubt  primarily      means traffic  by way  of sale or exchange or      commercial dealing,  but may  have  a  larger      meaning so as to include manufactures." In  National   Association  of   Local  Government Officers v. Bolton Corporation (4) Lord Wrights in interpreting the  word "trade"  in s.  11  of  the

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Industrial Courts Act, 1919, said:-           "Sect. 11  of the Act of 1919 shows that      ‘trade’ used  as including ‘industry’ because      it refers  to a trade dispute in the industry      of agriculture." But this  letter case  has no  application because there the word "trade" was interpreted in relation to a section of a particular Act and trade in that context has  quite a different meaning. In Skinner v. Jack  Breach Limited (5), Lord Hewart, C. J. in interpreting the  word "trade" in Trade Boards Act held that  the word "trade" indicates a process of buying 52 and selling  but it  was by no means an exhaustive definition.  It  might  also  mean  a  calling  or industry or class of skilled labour.      The duty of Excise in item 84 should be given the widest  construction unless for some reason it is cut  down either  by the  terms  of  that  item itself or  by other Parts of the Constitution. The legislative history  of the  duty of  Excise shows the nature of the tax. The word "trade" in item 60 of List  II has reference to the carrying on of an activity in  the nature  of buying and selling and may in  a different  context mean  a calling or an industry. Therefore reading the two items together it is  obvious that  item 84  deals with  taxes on goods manufactured  or produced  and item 60 deals with the carrying on of trade i.e., an activity in the nature  of buying  and selling  and the Act in its pith  and substance  relates to  duty on goods manufactured or  produced and  has no relationship with item 60 of List II.      Even assuming that the nature and tendency of the duty  of Excise is, as contended by Mr. Pathak that it  can be  passed on  to the  consumer, even than the  complaint of  the appellants  that  they have been deprived of that opportunity is not well founded, because  of s. 64-A of the Indian Sale of Goods Act  (3 of  1930), which  was s.  10 in  the Indian Tariff  Act, 1934.  It was originally taken from the  British Tariff Act, 1901, 1 Edw. VII Ch. 7. Section  64A of the Indian Sale of Goods Act is as follows :-           S. 64-A.  "In the  event of  any duty of      customs or excise on any goods being imposed,      increased, decreased  or remitted  after  the      making of  any contract  for the sale of such      goods without  stipulation as  to the payment      of duty  where duty was not chargeable at the      time of  the making  of the  contract, or for      the sale  of such  goods duty-paid where duty      was chargeable at that time,- 53           (a) if  such imposition  or increase  so      takes effect that the duty or increased duty,      as the  case may  be, or any part thereof, is      paid, the  seller may  add  so  much  to  the      contract price  as will  be equivalent to the      amount  paid  in  respect  of  such  duty  or      increase of duty, and he shall be entitled to      be paid  and to  sue  for  and  recover  such      addition; and           (b) if  such decrease  or  remission  so

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    takes effect  that the decreased duty only or      no duty,  as the  case may  be, is  paid, the      buyer may  deduct so  much from  the contract      price as  will be  equivalent to the decrease      of duty or remitted duty, and he shall not be      liable to  pay, or  be sued for or in respect      of, such deduction."      This section provides for the recovery by the seller of  the amount of increase in duty from the purchaser  where   the   increase   takes   effect subsequent to  the contract  and for  the right of the purchaser  to recover from the seller the duty in cases  where there  is a  similar decrease  and this right  exists both  before  the  delivery  is given, taken  and price  received or  paid as  the case  may   be  :   Narayanan  Chettiar  v.  Kidar Sahib(1). Counsel  for the appellants attempted to counter this submission by relying upon a judgment of the  Privy Council in Prbhudas v. Ganidada (2). In that  case the  Government duty  had  not  been reduced  but   the  Buyer   claimed  that  it  had constructively been  decreased because  the tariff valuation had  been reduced  and so constructively it must  be reckoned  that there was a decrease in the duty  on the  goods sold.  This contention was negatived by  the Privy  Council and  it was  held that a  change of  duty means a change in the rate of duty,  and not  a change  of tariff value. Thus assuming that  the contention of the appellants is correct as  to the  nature of  the excise  duty it cannot be  said  that  in  the  present  case  the appellants were 54 deprived of  the  opportunity  of  recovering  the additional duty  from the  purchaser and therefore the duty  lost its  character of being excise duty and was  transformed into  a different  tax.  This argument of  the appellants  is therefore  without substance and must be overruled.      The  constitutionality   of   the   tax   and retrospective  imposition   of  enhanced  duty  on tobacco was  further challenged  on the  ground of violation  of   the  fundamental   rights  of  the appellants under Art. 19(1)(f) of the Constitution which it  was submitted is not saved by cl. (5) of that  article  because  it  is  not  a  reasonable restriction in the interest of the general public. The grounds  of attack may be stated in this way : (1) that the nature of an excise duty is such that normally it  is passed  on to the purchaser by the manufacturer or  the  producer  and  it  has  that tendency and quality; (2) as the impugned duty was enhanced at a time when the appellants had cleared their goods after paying the then prevailing duty, it was not possible for them to realize the excise duty from any purchaser and (3) at the time of the clearance of the goods the appellants had paid all the taxes  under the then existing law and the new liability rendered  them liable  to pay an illegal exaction or  in  the  alternative  to  suffer  the consequences of non-payment which are of a drastic nature. On  this basis  it was  submitted that the imposition was  an unreasonable restriction on the fundamental rights  of the  appellants  guaranteed under Art. 19(1) (f).

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    At this stage an examination of the extent of the State’s  power of  taxation will  be  helpful. This power is one of the three governmental powers of the State; the other two being police power and power of eminent domain.      The power  of taxation  is the legal capacity of government  to impose  charges upon  persons or their property to raise revenue for governmental 55 purposes. A  tax is  neither a  penalty imposed on the taxpayer  nor a  liability which he assumes by contract. It is but a way of apportioning the cost of government  among those who in some measure are privileged to enjoy its benefits and must bear its burdens.   Welch    v.   Henry    (1),   but   the constitutionality of  a tax does not depend upon a showing of  benefits ; protection and taxation are not correlative terms. Willis Constitutional, Law, p. 224  : Tax is levied against the person and not against property.  Property only serves as a basis for  computing   the  measure   of  each  person’s liability. Weaver on Constitutional Law, p. 513 :           "The  power   of  taxation   is  one  so      unlimited  in   force  and  so  searching  in      extent, that  the courts  scarcely venture to      declare   that   it   is   subject   to   any      restrictions whatever, except such as rest in      the  discretion   of  the   authority   which      exercises it.  It reaches  to every  trade or      occupation to  every object of industry, use,      or enjoyment; to every species of possession;      and it imposes a burden which, in the case of      failure to  discharge it,  may be followed by      seizure and sale or confiscation of property.      No attribute of sovereignty is more pervading      and  at  no  point  does  the  power  of  the      government   affect   more   constantly   and      intimately all  the relations  of  life  than      through the exactions made under it."      (Cooley’s Constitutional Limitations, Vol. 2, 8th Ed.p. 987.) Chief  Justice   Marshall  said  in  M’Culloch  v. Maryland (2) :-           "The power  of  taxing  the  people  and      their property is essential to the very 56      existence   of   government,   and   may   be      legitimately  exercised  on  the  objects  to      which it  is applicable  to the utmost extent      to which  the government  may choose to carry      it. The  only security  against the  abuse of      this power  is found  in the structure of the      government itself."  (See Willough  by on the      Constitution of  the United States, Vol. 2 at      p. 666). As the  exigencies of  the  government  cannot  be limited,  no  limits  can  be  prescribed  to  the exercise  of   the  right   of   taxation.   Every individual must  bear a  portion of  public burden and that portion is determined by the legislature. According to  the American Supreme Court the power of taxation is very wide and uncontrolled. In M’Culloch v. Maryland(1) Chief Justice Marshall said :-           "....................it is unfit for the

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    judicial department to inquire what degree of      taxation is  the  legitimate  use,  and  what      degree may amount to the abuse of the power."      See also  Graves v.  Schmidlapp(2) (per Chief      Justice Stone). In Pacific  Insurance Co.  v. Soule(3)  the  Court said:-           "Congress may  prescribe the  basis  fix      the rate,  and require payment as it may deem      proper within  the limits of the constitution      it is  supreme in  its action.  No  power  of      supervision or control is lodged in either of      the other departments of the government." Again in Veazie Bank v. Fenno (4), it was said :-           "It is  insisted........that the  tax in      this case is excessive and so excessive as to      indicate  a   purpose  on  the  part  of  the      congress to  destroy  the  franchise  of  the      bank,   and    is,   therefore   beyond   the      constitutional power of 57      congress..............The  first   answer  to      this is that the judicial cannot prescribe to      the legislative  department of the Government      limitations  upon   the   exercise   of   its      acknowledged powers.  The power to tax may be      exercised oppressively  upon persons, but the      responsibility of  the legislature  is not to      the Courts  but to  the people  by  whom  its      members are elected." In Patton v. Brady(1), the Court observed:-           "It is  no part  of the  function  of  a      Court to  enquire into  the reasonableness of      the exercise  of the power of taxation either      as respects  the amount  or the  property  on      which it is imposed." In Welch v. Henry(2), at p. 94 it was observed :-           "The equitable distribution of the costs      of government through the medium of an income      tax is  a delicate and difficult task. In its      performance   experience    has   shown   the      importance of  reasonable opportunity for the      legislative body,  in  the  revision  of  tax      laws,  to   distribute  increased   costs  of      government among  its tax payers in the light      of  present   need  for   revenue  and   with      knowledge of  the sources  and amounts of the      various classes  of taxable income during the      taxable period  preceding  revision.  Without      that   opportunity   accommodation   of   the      legislative  purposes  to  the  need  may  be      seriously obstructed if not defeated." Thus according  to American  view (1) the power to tax is  an attribute of sovereignty; (2) tax is an rateable contribution  of  each  individual  in  a State towards  the  amount  of  revenue  which  is essential for  the existence  and operation  of  a public governing  body; (3) it being essential for the very  existence of  an organised State, it may be exercised  on objects  to the  utmost extent to which the  legislature may  choose to carry it and (4) the needs of 58 the revenue  are only known to the legislature and the court  cannot enquire  into the  necessity  of

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imposing  a  tax  or  the  objects  on  which  the imposition should  be made  or the  extent of  the imposition. In  the  very  nature  of  things  the courts are unable to go into the propriety, extent or economics  of a  particular tax  or the  policy underlying it,  which must depend upon a multitude of circumstances,  which can  only be known to the government or the legislature.      As the  appellants  have  relied  on  certain American  decisions   where  certain  taxing  laws operating  retrospectively   were  tested  on  the touchstone of  "due  process  of  law"  clause  it becomes necessary  to examine  the extent  of that doctrine.   "The    taxing   power    of   Federal Government,"  says  Prof.  Willis  (Constitutional Law,  p.  378),  "is  limited  by  the  procedural requirements of the due process clause. Notice and hearing,  though  not  a  judicial  tribunal,  are required where  the tax  is based  on the value of the property. Jurisdiction, also, is a requirement for all  forms of taxation, though the rules as to jurisdiction vary  with the  kind of  tax levied." According  to   Willoughby,  Constitution  of  the United States,  Vol. III, p. 1875, the due process of law obliges the exercise of the taxing power to conform to the following rules :-      1.   That the  tax  shall  be  for  a  public purpose.      2.   That it  shall  operate  uniformly  upon           those subject to it.      3.   That either  the person  or the property           taxed shall  be within  the jurisdiction           of the government levying the tax.      4.   That in the assessment and collection of           the  tax   certain  guarantees   against           injustice to  individuals, especially in           the case  of specific  as  distinguished           from ad  valorem taxes, by way of notice           and 59           opportunity  for   a  hearing  shall  be      provided. These principles  of taxation  are not peculiar to America but  are accepted  in all  countries which have  parliamentary  democracies  and  govern  the Indian taxation system also.      In some  American decisions  retroactive  tax laws were held to be inconsistent with due process : Nichols v. Coolidge(1); Helvering v. Helwholz(2) Blodgett v.  Holden (3). But the decision in those cases rested  on the ground that the tax could not reasonably be  anticipated by  the taxpayer at the time of  the voluntary act which the statute later made the  taxable event  e.g.,  the  gift  by  the descendent of  the whole or a part of his interest in property. As was explained in Welch v. Henry(4) at p. 93 :           "Since, in  each  of  these  cases,  the      donor might freely have chosen to give or not      to give  the taxation,  after the  choice was      made of  a gift  which  he  might  will  have      refrained from  making had he anticipated the      tax, was  thought  to  be  so  arbitrary  and      oppressive as  to be a denial of due process.      But there  are other  forms of taxation whose

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    retroactive, imposition  cannot be said to be      similarly offensive,  because their incidence      is not  on the voluntary act of the taxpayer.      And even a retroactive gift tax has been held      valid where  the donor  was forewarned by the      statute books  of the  possibility of  such a      levy, Milliken  v. United  States, 75  L. Ed.      809.............."      In that  case the  retroactive operation of a tax on  dividends was  upheld and the objection on the ground  of inconvenience in being called upon, after the  customary time  for levy and payment of the 60 tax had  passed, to  bear a governmental burden of which he  had no  warning and  which  he  did  not anticipate  was  held  to  be  unsustainable.  The contention that the retroactive application of the Revenue Acts  is  a  denial  of  the  due  process guaranteed  by   the  Constitution  has  not  been accepted in  America as  an invariable rule. Welsh v. Henry(1) and the other cases there cited.      The  doctrine  of  due  process  of  law  has received various  interpretations in America which have not  always been consistent. Sometimes it has favoured personal  liberty  and  sometimes  social control sometimes  personal liberty as a matter of substance. Sometimes  it  has  protected  personal liberty by  extending due  process to  matters  of substance and  sometimes it  has protected  social control by broadening the scope of police power or the power  of taxation  or the  power  of  eminent domain.  Willis’   Constitutional  Law,   p.  659. Brandeis J.,  in Untermyer  v. Anderson(2) dealing with the  presumption  of  validity  of  a  taxing statute observed :           "The presumption  should be particularly      strong where  as here the objection to an act      arises not  from  a  specific  limitation  or      prohibition on  congressional power  but only      out  of   the  ‘vague  contours  of  the  5th      Amendment  prohibiting   the  depriving   any      person of  liberty or  property  without  due      process of  law’. Holmes  J.,  in  Adkins  v.      Children’s Hospital, 76 L. Ed. 785, 800." It  was   because  of  the  varying  meanings  and concepts  which   have  from  time  to  time  been attached to  "due process of law" that the framers of the Indian Constitution did not adopt it in the Constitution; on the other hand they tried to give more defined boundaries to the area of fundamental rights in  Arts. 19  and 31 which deal with rights of property 61 and in  Arts. 19,  20, 21  and 22  which relate to protection of  personal  liberty  and  this  Court rejected it in A. K. Gopalan’s case (1) and in the State of West Bengal v. Subodh Gopal Bose (2).      The constitutionality  of the  duty of excise was challenged  in the  present case on the ground of  violation   of  Art.   19  (1)   (f)  of   the Constitution. he  argument is  that a  taxing  law under Art.  265 is  as much a law as any other and therefore falls within the definition of law under Art. 13(3)(a),  and if  it contravenes  any of the

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fundamental rights  under Part  III, then  to  the extent of  the contravention  it is  void. Counsel relied on the second Kochuni case (3).      Article  19   guarantees  personal   freedoms subject  to  certain  restrictions.  Its  relevant portion is as follows:           Art. 19(1)(f).  "All citizens shall have      the right  to acquire,  hold and  dispose  of      property;                Art. 19(5). "Nothing in sub-clauses           (d), (e)  and (f)  of  the  said  clause           shall  affect   the  operation   of  any           existing law  in so far as it imposes or           prevent the  State from  making any  law           imposing reasonable  restrictions on the           exercise of  any of the rights conferred           by the  said sub-clauses  either in  the           interests of  the general  public or for           the protection  of the  interests of any           Scheduled Tribe."      As has  already been said the power to tax is the legal  capacity of the State to raise from all those subject to its authority a certain amount of revenue essential  so the  existence and operation of government.  A tax  is  not  a  penalty  but  a contribution of  monies for  governmental purposes by 62 persons who  may  be  residents  or  non-residents citizens or  non citizens, living persons or legal personae who are privileged to enjoy its benefits, but those  are  not  co-relative.  It  implies  an equality of  burden and  regular  distribution  of expenses of government among the persons taxed. It is levied by authority of law equitably, uniformly or in echelons on all persons subject to it.      The appellants  alleged that  they  had  sold their goods  during the  period when  the  Finance Bill was  before  Parliament.  Variations  in  the rates of  duties  are  not  unexpected,  it  being within the  power of  Parliament  to  do  so  both prospectively  and   retrospectively.  It  is  not suggested that  such  variations  are  unknown  in legislative practice  or that the legislators were not entitled  to amend a money bill as introduced. If the appellants’ contention is sustained then it will mean  the deprivation  of Parliament  of  its right  to  choose  the  objects  of  taxation  and therefore Parliament  will only  vary the rates of duties proposed  by the  Executive or  the time of their effectiveness  at the  peril of  their being declared invalid  although they  may be within its legislative competence  and may  in its opinion be necessary for  the carrying out of its policies or subserve the proper governance of the country.      In  the   Indian  Constitution  there  is  an exhaustive   enunciation   and   distribution   of legislative  powers,   including  powers   as   to taxation,  between   the  State  Legislatures  and Parliament. Subjects  of taxation  are distributed in the  three Legislative  Lists and  areas of the respective  fields   of   Parliament   and   State Legislatures as to taxes are defined. In Parts XII and XIII  limitations on legislative competence of the  various   legislatures  as  to  taxation  are

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indicated  and   emphasis   is   placed   on   the preservation of the economic unity of 63 India. Article  265 is in Chapter XII and provides :-      "No tax  shall be  levied or collected except by  authority   of  law,"  which  means  that  all taxation has  to be  under  a  law  enacted  by  a legislature of  competent jurisdiction and subject to constitutional  limitations. This Court in 1950 rejected the applicability of the doctrine of "due process of law" to Indian constitutional problems: A. K. Gopalan’s case (1); The state of West Bengal v. Subodh  Gopal Bose  (2). In  the latter case it was  also   held  that   the  Indian  Constitution recognises no  fundamental right  to immunity from taxation   and   that   is   why   presumably   no constitutional protection  is provided against the exercise of  that  power.  Per  Patanjali  Sastri, C.J., p.  614. Das,  J. (as he then was), held the power of taxation to be distinct from police power (i.e. regulatory power of the State) and the power of Eminent  Domain (i.e. the power of the State of compulsory acquisition  of property). Dealing with protection against  taxation  he  said  in  Subodh Gopal’s case (2) at p. 652 :-           "Our   Constitution   makers   evidently      considered the protection against deprivation      of property in exercise of police power or of      the power  of eminent domain by the executive      to  be   of  greater   importance  than   the      protection against  deprivation  of  property      brought about by the exercise of the power of      taxation by  the executive,  for they found a      place for  the first  mentioned protection in      Art. 31  (1) and  (2) set  out  in  Part  III      dealing with  fundamental rights  while  they      placed  the   last  mentioned  protection  in      article 265  to be  found in Part XII dealing      with finance  etc. So  with regard to all the      three  sovereign   powers  we  have  complete      protection against the executive organ of the      State." 64 Again at p. 653 he observed :-           "Apart from  this, what  I ask  is,  our      protection against  the  legislature  in  the      matter of  deprivation  of  property  by  the      exercise of  the power  of  taxation  ?  None      whatever. By exercising its power of taxation      by law  the State  may deprive us, citizen or      non-citizen of  almost sixteen  annas in  the      rupee of our income." (See also p. 654). In Ramjilal  v. Income Tax Officer (1) Das, J. (as he then was), observed at pp. 136-137 :-           "Reference  has   next  to  be  made  to      article 265 which is in Part, XII, Chapter 1,      dealing with ’Finance’. That article provides      that no  tax shall  be  levied  or  collected      except by  authority of  law.  There  was  no      similar  provision   in   the   corresponding      chapter of the Government of India Act, 1935.      If collection of taxes amounts to deprivation      of property  within the  meaning  of  article      31(1), then  there was  no point  in making a

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    separate provision  again as has been made in      article  265.  It,  therefore,  follows  that      clause (1)  of article 31 must be regarded as      concerned  with   deprivation   of   property      otherwise   than   by   the   imposition   or      collection of  tax, for otherwise article 265      becomes  wholly   redundant.  In  the  United      States of  America the  power of  taxation is      regarded as  distinct from  the  exercise  of      police   power   or   eminent   domain.   Our      Constitution  evidently   has  also   treated      taxation   as    distinct   from   compulsory      acquisition  of   property   and   has   made      independent   provision   giving   protection      against taxation  save by  authority of  law.      When Dr.  Tek Chand was asked if that was not      the correct  position, he did not advance any      cogent or  convincing answer  to  refute  the      conclusion put  to him.  In our  opinion, the      protection against imposition 65      and collection  of taxes save by authority of      law directly  comes from  article 265, and is      not secured  by clause  (1)  of  article  31.      Article 265  not being  in Chapter III of the      Constitution,  its   protection  is   not   a      fundamental right which can be enforced by an      application to  this court  under article 32.      It is  not our  purpose to say that the right      secured by  article 265  may not be enforced.      It may  certainly  be  enforced  by  adopting      proper proceedings. All that we wish to state      is that  this application  in so  far  as  it      purports to  be founded  on article  32  read      with  article   31(1)  to   this   court   is      misconceived and must fail." A similar  decision was given and similar language used by  Mahajan, C.J., in Laxmanappa Hanumantappa v. Union of India (1) :-           "It was  held by  this Court in Ramjilal      v. Income Tax Officer, Mohindergarh (2), that      as there  is a  special provision  in article      265 of  the constitution that no tax shall be      levied or  collected except  by authority  of      law, clause  (1) of article 31 must therefore      be regarded  as concerned with deprivation of      property otherwise  than by the imposition or      collection of  tax,  and  inasmuch  as  right      conferred by  Article  265  is  not  a  right      conferred by Part III of the constitution, it      could not be enforced under article 32." Ramjilal’s case  (2) was  quoted with  approval in Bengal Immunity  Co. Ltd.  v. State  of Bihar (3). Thus early  after the  establishment of this Court opinion was  expressed excluding the applicability of  fundamental  rights  in  Part  III  to  taxing Statutes. But  it is  important to notice that the Article which  was sought  to be  applied in those cases was Art. 31 (1) which deals with deprivation of property 66 and not  Art. 19 which is regulatory of the rights of a  citizen of  personal liberty,  property  and avocation.      It  was   contended  that  the  impugned  tax

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illegally  deprives   the  appellants   of   their property and  was therefore  unconstitutional.  In support reference  was made  to Suraj  Mal Mohta & Co. v.  A. V.  Viswanatha Sastri  (1) (under  Art. 14); Shree  Meenakshi Mills  Ltd.  v.  Sri  A.  V. Viswanatha Sastri  (2) (under Art. 14); Purshottam Govindji Halai  v. Shree  B. M.  Desai, Additional Collector of  Bombay (3)  (under Arts. 14 and 21); M. Ct.  Muthiah v. The Commissioner of Income-tax, Madras (4)  (under  Art.  14);  A.  Thangal  Kunju Mudaliar v.  M. Venkatchalam Potti (5) (under Art. 14); Bidi  Supply Co.  v. The  Union of  India (6) (under Art.  14); Panna  Lal Binjraj  v. Union  of India (7)  (under  Arts.  14  and  19(1)(g);)  and Collector of  Malabar v. Erimal Ebrahim Hajee (8). These are  the cases  in  which  the  validity  of taxation laws  was  attacked  under  the  Articles above mentioned.      In Panna  Lal Binjraj  v. The  Union of India (7), the assault was not against the imposition or the vires  of the  tax but against the vires of s. 5(7A) of  the Indian Income-tax Act which empowers the Commissioner  of Income-tax  to  transfer  any case from  one Income-tax  Officer subordinate  to him to  another and  empowers the Central Board of Revenue to  transfer any  case from one Income-tax officer to  another. This  attack was based on the contravention of  Arts. 14  and 19(1)(g).  It  was held that the discretion vested in the authorities empowered   to    make   the   transfer   is   not discriminatory and  there was no interference with the right  of the citizen to carry on his trade or calling. In collector of Malabar v. Erimal Ebrahim Hajee (8)  the  attack  against  the  recovery  of income-tax under  s. 46  (2) of the Income-tax Act was based  on Arts. 14, 19 and 22. There again the question for  decision was  not the  imposition of the tax but 67 the mode  of recovery  and at Page 976 this ground of attack  was rejected  and reference  was  there made to  the State  of Punjab  v. Ajaib Singh (1); Purshottam Govindji  Halai v.  Shree B.  M. Desai, Additional Collector  of Bombay  (2). Another case relied upon by the appellant’s counsel was Western India Theatres v. The Cantonment Board, Poona, (3) in which the tax was imposed on cinema houses with larger seating  capacity and the attack was on the ground of Art. 14 but that was repelled. The  appellant’s  counsel  also  referred  to  the Bengal Immunity  Co. Ltd.  v. State  of Bihar  (4) where the vires of the sales tax imposed on inter- State transactions was attacked. The High Court in the case had held that the petition under Art. 226 was misconceived  overlooking the  fact  that  the contention raised  was that  in so  far as the tax purported to  act on  non-residents in  respect of inter-State  sales  it  was  ultra  vires  of  the Constitution. At. p. 619, Das, C. J., observed :-           "It is  also true  that article 31 which      protects  citizens   and  non-citizens  alike      cannot  be   availed  of  as  it  deals  with      deprivation of property otherwise than by way      of levying  or collecting  taxes as  held  by      this Court in Ramjilal v. Income-tax Officer,

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    Mohindergarh [1951]  S. C.  R. 127, and that,      therefore the  Act  does  not  constitute  an      infringement  of  the  fundamental  right  to      property under  that article. It is, however,      clear from  article 265  that no  tax can  be      levied or  collected except  by authority  of      law which must mean a good and valid law. The      contention of  the appellant  company is that      the  Act  which  authorises  the  assessment,      levying and collection of sales tax on inter-      State trade  contravenes and  constitutes  an      infringement of  Art. 286  and is, therefore,      ultra  vires,  void  and  unenforceable.  If,      therefore, this contention be well founded, 68      the  remedy   by  was  of  a  writ  must,  on      principle and  authority, be available to the      party aggrieved.      The next  case relied upon by counsel for the appellants was  Kailash Nath v. State of U. P. (1) which was  a case  under the  U. P. Sales Tax Act, the plea  of the  petitioners was  that the  goods sought to  be taxed had been exported overseas and therefore not  liable to  sales tax.  It was  held that  if   a  tax  is  levied  without  due  legal authority on any trade or business then it is open to the  citizen to  approach this Court under Art. 32, since  his right to carry on trade is violated or infringed by the imposition of the tax and Art. 19 (1)(g)  "comes  into  play".  There  again  the taxation law  itself was  not  challenged  on  the ground of violation of any fundamental right which has reference  to property,  but the imposition of the tax was assailed on the ground that it was not imposeable on  the  transactions  which  had  been entered into.      In  support   of  the  proposition  that  the taxation laws  are assailable under the provisions of  Art.   19(1)  State  of  Travancore-Cochin  v. Shanmuga Vilas  Cashew Nut  Factory (2) was relied upon. That  was not  a petition under Art. 32 or a matter under  Art. 19(1)(f)  but  one  under  Art. 286(1) and the question in dispute was whether the transaction  was  in  the  course  of  inter-State trade. Himatlal  Harilal Mehta  v.  The  State  of Madhya  Pradesh  (3)  was  also  a  similar  case. Article  19(1)(g)   was  applied  because  of  the unconstitutionality  of   the   tax   under   Art. 286(1)(a). M/s.  Ram Narain  Sons  Ltd.  v.  Asst. Commissioner of  Sales Tax  (4) was  also  a  case under Art.  286 of  the Constitution and was not a matter   falling   under   Art.   19(1)   of   the Constitution.      In all these cases relied upon by counsel for the appellants  the basis  of attack  was (1) that the 69 tax was  not within  the legislative competence of the legislature imposing the tax and therefore the tax  was   being  illegally   recovered  from  the assessee or  (2) an  objection was  taken  to  the differential mode of imposition and collection and use of  a more  stringent procedure  i.e., illegal discrimination between  persons similarly situated e.g.,  under  Taxation  on  Income  (Investigation

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Commission) Act.  The imposion  of an  illegal tax not  within  the  legislative  competence  of  the legislature, a  colourable  piece  of  legislature imposing a  tax which  is not  a  tax  but  is  an imposition of  a confiscatory  nature, a breach of principles  of  natural  justice  or  imposing  an unimposeable  tax   have  all   been  held  to  be violative of  the right  to carry  on trade  under Art.  19(1)(g).   But  they  do  not  support  the proposition that the tax if otherwise valid can be declared unconstitutional  and can  be subject  to judicial review  on the  ground of being excessive or  being  retrospective  in  operation  or  being imposed on  one article rather than another. These cases do  not support  the proposition  which  has been contended for by the appellants that the very imposition of  the tax  is a  contravention of the right of the assessee to acquire, hold (or own) or dispose  of   property  or   on  the   ground   of contravention of Art. 31.      In the  State of  Bombay v. Bhanji Munji (1), it was  also held that Art. 19(1)(f) read with cl. (5) postulates the existence of the property which can be  enjoyed  and  over  which  rights  can  be exercised   because   otherwise   the   reasonable restriction  contemplated   by  cl.(5)  cannot  be brought into  play. That was the uniform view held in this Court till the majority judgment in Moopil Nair’s case(2)  which relied on the second Kochuni case i.e.,  Kavalappara Kottarathil  Kochunni etc. etc. v.  The State  of Madras  (3). But the latter was not  a taxation case. It was held in that case (Kochuni case) that all laws within 70 Art. 13 are subject to Part III and that for a law to be valid it must satisfy two tests (1) of being enacted  by   a  legislature   having  legislative competence and (2) it should not contravene any of the fundamental rights.      The above  opinion is  not in accord with the opinion of this court in A. K. Gopalan’s case (1); Ram Singh  v. State  of Delhi (2); State of Bombay v. Bhanji  Munji (3);  The Daily  Express case (4) and The Hamdard Dawakhana case (5).      The question  of the  applicability  of  Art. 19(1)(f) of the Constitution to taxing matters was considered in  K. T.  Moopil Nair  v. The State of Kerala (6).  That was  a case  in which a tax at a flat rate  was levied on forest lands in the State of Kerala and this Court by majority held that the tax so  imposed was unconstitutional on the ground of infringement  of Arts.  14  and  19(1)(f).  The reasons given by the learned Chief Justice were:      (a) In  the procedure  to be  adopted for the levying of  the tax,  there was no provision for a notice to be given to the assessee;      (b) There  was no procedure for rectification of   mistakes    committed   by    the   assessing authorities;      (c) There  is no  procedure for obtaining the opinion of a superior Civil Court on a question of law as is generally found in all taxing stautes      (d) No  duty  was  cast  upon  the  assessing authority to act judicially; and      (e) There  was no right of appeal provided to

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the assessee. The  provisions  of  the  Act  were  held  in  the majority  judgment  to  be  confiscatory.  It  was observed by the learned Chief Justice at p. 559:-           "That the  provisions aforesaid  of  the      impugned Act are in their effect confiscatory      is clear on their face. Taking the extreme 71      case, the  facts of  which we  have stated in      the early  part of  this judgment,  it can be      illustrated that  the provisions  of the Act,      without proposing  to acquire  the  privately      owned forests  in the  State of  Kerala after      satisfying the  conditions laid  down in Art.      31 of  the Constitution,  have the  effect of      eliminating the  private owners  through  the      machinery of the Act." Thus the impugned statute in that case was held to be  violative   of  Art.   19(1)(f)  because   its procedural part  made no  provision for  giving  a hearing to the assessees or for appeal nor was the Assessing Authority required to act judicially and the imposition  though called  a tax was in effect confiscatory and  therefore a  colourable piece of legislation. Sarkar,  J., in his minority judgment remarked that  reasonableness of  the rate was not assailed but  what was assailed was the imposition of a  flat rate  per acre without any reference to productivity.      Undoubtedly Moopil  Nair’s case  (1) did hold that a  law under  Art. 265  was also a law within Art. 13  and if  it contravened  Art. 14,  it  was liable to  be struck  down and  that such law must also pass  the test  of the limitations prescribed in Part III of the Constitution but it did not lay down that  all  Articles  in  Part  III  would  be applicable to  taxation laws  nor  did  it  decide contrary to  Ramjilal’s case  (2) that Art. 31 (1) would apply  to taxation  law which  is  otherwise invalid. But  it  is  difficult  to  hold  that  a regulatory Article like Art. 19(1) was intended to limit the  powers of  the  Legislature  to  impose taxes and  thus to discharge its duty in regard to country’s financial needs and policies.      The  contention   of  infringement   of   the appellants’ right  under Art. 19(1) (f) is unsound and must be rejected and the reasons are these:-      Firstly: Clause  (5) of  Art. 19  allows  the enacting  of   laws   which   impose   "reasonable restrictions" 72 in the interests of the general public. The use of the term  "reasonable restrictions"  is indicative of regulation  of the right to the personal rights mentioned in  sub-cl. (f)  of the first clause. It must have  relation to  the existence of the thing to be  regulated. There  can be  no regulation  of things not in existence. Therefore where an Act is deprivatory as  the imposition  of  a  tax  is  it cannot fall  within Art.  (19)(1)  but  under  the specific Art.  31, which relates to deprivation of property. Imam, J., in The Collector of Malabar v. E. Ebrahim Hajee (1) said at p. 976:-           "If  the   property  itself   is   taken      lawfully under  Art. 31, the right to hold or

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    dispose of  it  perishes  with  it  and  Art.      19(1)(f) cannot be invoked." That was  a  case  where  the  Income-tax  Officer issued a  certificate  under  s.  46  (2)  of  the Income-tax Act  and  the  Collector  proceeded  to recover under  s. 48  of Madras  Revenue  Recovery Act.      Secondly: All  taxation, as shown by its very nature and  object, is  in  the  interest  of  the general public  because it  is a  contribution for governmental expenditure  from all  persons who in some measure are entitled to its benefit.      Thirdly: There  is no  means or  measure  for determining the reasonableness of the restrictions which is  an objective determination. The needs of the revenue  cannot be  known to  the  courts  and cannot be  determined by  them, and the sources of revenue are  entirely within  the knowledge of the legislature and  it is  for that department of the State  to   determine  how   the  burden  will  be distributed and  why, because  that department  is the policy  making body  and is  familiar with the economics and the resources of the country and its needs. It is for that department in its discretion to select 73 anything for  taxation or  to exclude it. Cooley’s Constitutional  Limitations,   Vol.  II,   p.  986 (note).      Fourthly: The power to tax is an attribute of sovereignty and  it is  an accepted principle that the exercise  of that  power  is  not  subject  to judicial   control   because   no   Constitutional Government can  exist without  the power  to raise money for  its needs and the only security against abuse is  in the structure of the Government. That power carries  with it the power to determine when and   how    the   tax   shall   be   levied.   S. Ananthakrishnan  v.   The  State  of  Madras  (1), M’Culloch v.  The State  of Maryland (2). There is no indication  that the  Indian  Constitution  has rejected or  modified the  American concept of the sovereignty of the State in regard to the power of taxation.      Fifthly: Article 19 (1) declares the right of a citizen  and cl. (5) prescribes its limits. If a taxation statute  is within  Art. 19(1)(f) it must be  capable   of  being  upheld  as  a  reasonable restriction on the holding of property etc. On the submission of  the appellants  all taxes  will  be restrictions. If  they are restrictions then their reasonableness will  be justiciable depending upon the appreciation of established facts. How are the courts to  judge ?  All  the  necessary  data  for determining reasonableness  can never  be before a court which  in  the  very  nature  of  things  is available only  to the  legislature. Can the court say  that   a  particular   tax  is  excessive  or unreasonable or can the court say which particular source should be taxed and which particular income group should  bear the  burden of taxation or what the policy  of the State as to taxation should be. It would seem therefore that the reasonableness of tax laws  is not  justiciable and  therefore  they cannot fall within clause (5) of Art. 19. Article

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74 19(1)(f) and  cl. 5 are part of one scheme and the former is  incapable of operating where the latter is inoperative.  If considerations  of Art.  19(5) are foreign  to taxing laws Art. 19(1)(f) can have no application to them.      Sixthly: Applicability  of Art.  19(1)(f)  to taxation  laws  will  mean  that  laws  which  are otherwise valid  will be  inapplicable to citizens but will  be applicable  to non-citizens.  At  any rate such  law will operate differentially between one set  of taxpayers  and another  i.e.,  between citizens and  non-citizens. This  will violate the very principles  of due process relied upon by the appellants.      Seventhly: In  American due process which has a  variable   concept  has  not  been  applied  to retrospective operation  of tax laws except to tax on voluntary  gifts of  property and that also was doubted in Welch v. Henry (1).      Eighthly: Retroactive  duty of excise will be a valid imposition in the case of persons who have not sold  their tobacco  between the period of the introduction of  the bill and the enactment of the Finance Act  but will  be invalid  in the  case of persons placed as the appellants.      Ninthly: The  acceptance of  the  appellants’ argument would  mean that  they  can  recover  any excess duty  paid, excess  because  of  subsequent decrease, but  would not  be  liable  to  pay  any similar increase  in duty  in spite  of s. 64-A of the  Indian   Sale  of   Goods  Act   under  which variations in the rates of duties become operative on contracts of sale and purchase.      Tenthly: It  has been  held that  Art. 31  is inapplicable   to    deprivation   by    taxation. Ramjilal’s case  (2); Lakshmanppa  Hanumantappa v. The Union  of India  (3); and  taxation  laws  are expressly excluded  from  the  operation  of  Art. 31(2) by 75 cl. 5(b)(i)  of that  Article. If  the appellants’ contention is  correct then  deprivation  although not protected  under Art.  31 will  be subject  to regulatory control under Art. 19(1)(f).      Eleventhly: To  put it  in the  words of  the American Supreme Court in Odgen v. Saunders(1)      "It is but a decent respect due to the wisdom the  integrity   and   the   patriotism   of   the legislative  body,  by  which  law  is  passed  to presume in  favour  of  its  validity,  until  its violation of the Constitution is proved beyond all reasonable doubt".      Twelfthly: The  challenge to  the legality of the  tax   in  dispute   is  not   based  and   is unsustainable on the ground of specific limitation or prohibition on Parliamentary power but has been raised on  the ground  of the  infringement of  an article containing  the principles  of the State’s power  of   control.  The   cases   dealing   with legislative incapacity  are  inapplicable  to  the latter ground  of assault.  Cases such as Mohammad Yasin v.  The Town Area Committee, Jalalabad(2) (a case of  a licence  fee which  is not  a tax), The State of  Bombay v.  United Motors India Ltd.(3)(a

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case of inter-State trade) and Bengal Immunity Co. case (4)  (which was  also a  case of  inter-State trade and  some of  the provision  of the impugned Act there were held to be unreasonable restriction on the  right to  carry on  trade)  and  Ch.  Tika Ramji’s  case   (5)  (a   case  dealing  with  the imposition of  the restriction  on  the  right  to purchase except through a particular society) were not cases  in which  the imposition  of a  tax was challenged on  the ground  of infringement of Art. 19(1)(f).      I, therefore, agree that appeals be dismissed with costs. One hearing fee.                                  Appeal dismissed. 76