14 March 1950
Supreme Court


Case number: Appeal (civil) 3 of 1948






DATE OF JUDGMENT: 14/03/1950


CITATION:  1950 AIR   11            1950 SCR   15  CITATOR INFO :  RF         1966 SC1089  (55)

ACT:    Government  of India Act, 1935, es. 100, 143,  292;  Sch. VII,  List 1, Entry 45; List 11, Entry  49--Central  Excises and Salt Act (1 of 1944, es. 2, 3--Central Provinces Munici- palities Act (11 of 1922), s. 66 (1) (e)--Import of  tobacco within municipality .for manufacturing bidis--Tobacco liable to  Central  excise  duty--Levy of  octroi  duty  by  munic- ipality--Legality.

HEADNOTE:     Section 66 (1) (e) of the Central Provinces  Municipali- ties Act, 1922, empowered municipalities within the Province to levy an octroi duty on goods brought within their  limits for sale, consumption or use within those limits.  Section 3 of  the  Central Excises and Salt Act, 1944, an Act  of  the Central Legislature, provided that there shall be levied and collected duties of excise on all excisable goods other than salt which were produced or manufactured  in  British India, and  included  tobacco in the list of excisable goods.   The question  being whether a municipality situated in the  Cen- tral   Provinces could levy octroi duty on  tobacco  brought within its limits for the purpose of manufacturing bidis, in view  of  the exclusive power of the Central  Government  to levy  excise  duty under Entry 45 of List I of  the  Seventh Schedule  to  the  Government of india Act,  1935,  and  the provisions the Central Excises and SaIt Act: Held,  that  excise duty and octroi were  taxes  essentially different  in their nature and the power of the Province  to levy  octroi  was  not inconsistent with the  power  of  the Centre to levy excise duty on the some goods, and a  munici- pality  could therefore validly levy an octroi duty on  such tobacco under s. 66 (1)(e) of the Central Provinces  Munici- palities Act of 1922.     Held  further,  that there was nothing  in  the  Central Excises  and   Salt  Act or its provisions contrary  to  the provisions of s. 66 (1) (e) of the Central Provinces Munici-



palities  Act or to the levy of octroi duty under  the  same and  s. 143 of the Government of India Act, therefore,  pre- served  the  right of the municipality to levy  octroi  duty under the Act of 1922.     Province  of  Madras v. Boddu Paidanna and  Sons  [1942] F.C.R..  90,  Governor-General  in Council  v.  Province  of Madras  [1942] F.C.R. 129, In re the Central  Provinces  and Berar Act No, XIV of 1938, 16 [1939]  F.C.R.  80, Miss Kishori Sherry v. The  King  [1949] F.C.R. 650 referred to.      Administrator, Lahore Municipality v. Daulat Ram [1942] F.C.R. 31 distinguished. Judgment of the High Court of Nagpur affirmed.

JUDGMENT:     APPEAL from the High Court of Judicature at Nagpur: Case No. III of 1948.    This was an appeal from a judgment and order of the  High Court  of  Nagpur  (Mis. Civil No. 158 of  1946)  dated  9th April,  1948,  made  on a reference under s.  83  (2)of  the Central  Provinces Municipalities Act (11 of. 1922)  by  the Extra Assistant Commissioner, Nagpur.  The facts of the case and the arguments of counsel appear in the judgment.      T.J. Kedar and B.B. Tawakley (Sir Narain Andley with them) for the appellant. Lobo, for the respondent.     M.   C.  Setalvad,  Attorney-General  of   India,  (S.M. Sikri with him), for the Union of India.     1950 March, 14.  The Judgment of the Court was delivered by     KANIA  C.J.--This  is an appeal from  the  judgment  and order of the High Court at Nagpur, made on a reference under Section  83 (2) of the Central Provinces Municipalities  Act 11  of  1922, by the EXtra Assistant  Commissioner,  Nagput. The appellant is a trader in Kamptee who manufactures bidis. On  the 30th of November, 1945, he brought to  Kamptee  from outside tobacco to make bidis.  A declaration form signed on his  behalf  stated that the 254 bags of tobacco  liable  to octroi  duty, which had that day arrived at octroi post  No. 3,  had  been  brought for use and  consumption  within  the limits  of the Municipality.  He however put on  record  his protest against the recovery of the duty which was fixed  at Rs.  1,128-2-0.  Against the order claiming the amount,  the appellant filed an appeal to the Extra Assistant Commission- er with revenue appellate powers, Nagput. He contended  that the  municipality claimed to levy the duty under Section  66 (1) (e) of the Municipal Act, but they had 17 no right to do so as under Section 3 of the Central  Excises and  Salt Act, 1944, that excise duty was levied on  tobacco by the Central Government and the levy of the octroi duty on the  tobacco in question was covered by the excise duty  and therefore  not permissible. The Appellate Assistant  Commis- sioner  in  making the reference to the  Nagpur  High  Court expressed  his opinion that the appellant’s contention  that as the bidis were not sold within the municipal limits, duty was  not  leviable, was unsound.  He  however  thought  that because  under Section a of the Excise Act, excise duty  was levied by the Central Government the levy of the octroi duty was ’not in consonance with Section 100 of the Government of India Act, 1935, and was ultra vires the Provincial  Govern- ment. The High Court rejected the appellant’s contention and



disagreed  with the view of the Appellate Commissioner.  The High  Court however granted a certificate under Section  205 (1)  of the Constitution Act and the appellant has  come  in appeal to this Court.     The  Central Provinces Municipalities Act was passed  in 1922  and  the relevant notifications fixing  the  rates  of octroi  duty  were issued in 1928.  No  question  about  the validity  of  the Act when passed, or of  the  notifications issued in pursuance thereof has been raised before us.   The argument  on  behalf of the appellant is that as  under  the Central  Excises  and Salt Act, I of  1944,  tobacco  became excisable  goods under Item 9 in Schedule I to that Act  and continued  to  be so till it got converted into  bidis,  the Central Government alone was entitled to levy excise duty on it till then.  According to the definition of  ’manufacture’ in the Excise Act that duty could be levied at any stage  in the  manufacture  of bidis and therefore  any  tax  imposed, while  tobacco  was being converted into bidis,  was  excise duty.  Legislation in connection with excise duty is  within the  exclusive province of the Central Legislature as  shown by  Entry 45 of List I in Schedule VII of  the  Constitution Act. The impost of octroi duty in pursuance of the Municipal Act, before tobacco was made into bidis, is it was argued in conflict with the legislative powers of the Centre. In this 18 connection  our attention was drawn to Administrator  Lahore Municipality  v. Daulat Ram Kapur(1), in which it  was  held that  the  levy of octroi duty on salt was  not  within  the powers  of the Provincial legislature. It was argued  there- fore that under Section 100 of the Government of  India Act, octroi  duty levied on tobacco under the legislative  powers of  the Provincial Government was invalid.  The only way  to reconcile  the two Entries, namely, Entry 45 in List  I  and Entry 49 in List II of the Seventh Schedule, was to read the words  "for consumption or use" in Entry 49 as  meaning  for consumption  or  use  except for  manufacture  of  excisable articles". So read, the levy of octroi duty on the facts  of this  case was invalid.  In reply to the argument that  Sec- tion  292 of the Government of India Act kept alive the  old Provincial legislation, namely, the Central Provinces Munic- ipalities  Act, and the right to levy octroi duty was  saved under  Section 143 of the Constitution Act, it was urged  on behalf  of the appellant that the. provisions of the  Excise Act  were contrary to the right to levy octroi duty  and  as that  Act was passed in 1944 the right to levy  octroi  duty saved by Section 148 of the Constitution Act had lapsed.  It was  argued that although there was no express provision  in the Excise Act to that effect, the definition of  "excisable goods" and "manufacture" read with Entry 9 in Schedule I and the  charging Section 3 in the Act led to  that  conclusion. It is clear that both parts of this argument are thus  based on the plea that the impost of any duty at any stage  before bidis are manufactured is excise duty and therefore the levy of octroi duty is illegal.     Section 66 (1) (e) of the Central Provinces  Municipali- ties Act, 1922, runs as follows :--     "an  octroi  on  animals, or goods  brought  within  the limits  of  the municipality for sale,  consumption  or  use within those limits;"     The  words "excisable goods" and. " manufacture  ’’  are defined  in Section 2 of the Central Excises and Salt  Act,, 1944,. as follows .--.’ (1) [1942] F.C.R. 91 . 19     2.  (d) "excisable goods" means goods specified  in  the



First  Schedule  as being subject to a duty  of  excise  and includes salt;"  2.  (f)  "manufacture" includes any process  incidental  or ancillary to the completion of a manufactured product; and      (i)  in relation to tobacco includes the preparation of cigarettes,   cigars,  cherots, bidis, cigarette or pipe  or hokkah tobacco, chewingtobacco or snuff; and (ii)  ...... Section 3 of the Excise Act runs as follows :--     "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  Brit- ish  India, and a duty on salt manufactured in, or  imported by land into any part of British India as, and at the rates, set forth in the First Schedule  ......  "     Entry  9 to the First Schedule of the Excise Act  is  in these terms :--    "9.  TOBACCO, CURED-    "  Tobacco’ means any form of tobacco, whether  cured  or uncured,  and whether manufactured or not,and  includes  the leaf,  stalks  and stem of the tobacco plant  but  does  not include any part of a tobacco plant while still attached  to the earth;" (Then follows a list of various articles into which  tobacco can  be converted, like bidis, cigarettes,  snuff,etc.  with different rates of duty mentioned against each article.) Sections 143 and 292 of the Government of India Act, 1935, run as follows :--   "143.   (1) Nothing in the foregoing provisions.  of  this Chapter affects any duties or taxes levied in any  Federated State  otherwise  than by virtue of an Act  of  the  Federal Legislature applying in the State.       (2)  Any taxes, duties, cesses or fees which,  immedi- ately before the commencement of Part III,of this Act 20 were  being  lawfully levied by any  Provincial  Government, municipality  or other local authority or body for the  pur- poses of the Province, municipality, district or other local area  under  a  law in force on the first  day  of  January, nineteen hundred and thirty-five, may, notwithstanding  that those  taxes,  duties, cesses or lees are mentioned  in  the Federal  Legislative List, continue to be levied and  to  be applied to the same purposes until provision to the contrary is made by the Federal Legislature".   "292.   Notwithstanding  the  repeal by this  Act  of  the Government of India Act, but subject to the other provisions of  this Act, all the law in force in British India  immedi- ately before the commencement of Part III of this Act  shall continue in force in British India until altered or repealed or  amended  by a competent legislature or  other  competent authority."      Section  143  can be considered in two  ways.   If  the Government of India Act did not bring the particular  impost of  tax by the Provincial Government within the  legislative powers of the Centre, by reason of the inclusion of such tax in List I of the Seventh Schedule, the pre-existing right of the  Provincial Government to levy such tax  remained  unaf- fected.  If so, Section 143  of the Government of India  Act did not affect such legislation and the same continued to be valid  and operative under Section 202 of  the  Constitution Act.  If  however the levy of .such tax  by  the  Provincial Government  was  a subject which  was within  the  exclusive legislative power of the Centre by reason of such tax  being included in List I of the Seventh Schedule, the levy of such tax  under the Provincial legislation continued to be  valid



until  the Central Legislature passed an Act the  provisions whereof  were contrary to the provisions of  the  Provincial legislature  or  to the levy of a tax under  the  Provincial Act.  Examining  next the contentions of  the  appellant  it seems  clear  that octroi duty as levied by  the  respondent comes within the exact wording of Entry 49 of List 11 of the Seventh.  Schedule  to the Constitution Act.   Prima  facie, therefore, there is no reason, to 21 consider  the levy of the octroi duty under  the  Provincial legislation  invalid.   Such  levy  remained  unaffected  by reason of Section 292 of the Constitution Act. The  argument of  the appellant is that the levy of the octroi duty  being at a stage after the excisable article, viz., tobacco,  came into  existence and became liable to excise duty  under  the Excise  Act, the levy of octroi duty before bidis were  made from  tobacco, is invalid. In support of this  argument  the definition of ’excisable goods’, ’manufacture’ and the Entry 9  in the Schedule to that Act were relied upon.  The  error underlying  the argument of the appellant is the  assumption that  any  impost  of tax from the time  tobacco  came  into existence  till the same was converted into bidis is  neces- sarily excise duty.     The  Federal Court had to consider the  distinction  be- tween  the duty of excise and a tax on sale in The  Province of  Madras  v. Boddu Paidanna and Sons(1). It is  there  ob- served as follows:--"Plainly, a tax levied on the first sale must,  in the nature of things, be a tax on the sale by  the manufacturer  or  producer; but it is levied  upon  him  qua seller and not qua manufacturer or producer.  It may well be that  ’a  manufacturer  or  producer  is  sometimes   doubly hit  ......  If the tax-payer who pays a sales tax is also a manufacturer or producer of commodities subject to a central duty  of  excise, there may no doubt be overlapping  in  one sense,  but there is no overlapping in law.  The  two  taxes which  he is called on to pay are economically two  separate and  distinct  imposts.   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  ......  It is the  fact of  manufacture which attracts the duty even though ’it  may be collected later.  In the case of a sales tax, the liabil- ity  to tax arises on the occasion of a sale and a sale  has no  necessary  connection with manufacture  or  production." The Court further observed that in the Constitution Act  the whole (1) [1942] F.C.R. 90. 22 of  the  taxing power in this particular  sphere  (power  to impose  duties of excise) is  expressly apportioned  between the Centre and the Provinces, to the one being assigned  the power to impose duties of excise, to the other taxes on  the sale  of goods.  It is natural enough, when considering  the ambit  of  an express power in relation  to  an  unspecified residuary  power,  to  give a broad  interpretation  to  the former  at the expense of the latter.  The case  however  is different  where  as in the Constitution Act there  are  two complementary powers,each expressed in precise and  definite terms.   There can be no reason in such a case for giving  a broader  interpretation  to  one power rather  than  to  the other;  and there is certainly no reason for  extending  the meaning of the expression "duties of excise" at the  expense of the Provincial power to levy taxes on the sale of goods.   In  The  Governor-General in Council v.  The  Province  of



Madras (1), the Judicial Committee approved of the  distinc- tion drawn in this case between the excise duty and a tax on sale.   There  the question arose in respect of tax  on  the sale  of excisable goods.  Their Lordships observed as  fol- lows :--" An exhaustive discussion of this subject  (namely, the  meaning  of the term duty of excise )from  which  their Lordships  have obtained valuable assistance is to be  found in  the  judgment  of the Federal Court in  Re  The  Central Provinces  and Berar Act No. XIV of  1938(2).   Consistently with  this  decision their Lordships are of opinion  that  a duty of excise is 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.  Here, again,their Lordships  find  them- selves in complete accord with the reasoning and conclusions of  the  Federal Court in Boddu Paidann case  (3).  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    (1) [1942] F.C.R. 129.          (3) [1942] F.C.R. 90    (2) [1939] F.C.R. 80. 23 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.  In such cases there appears to be  no reason why the  Provincial  legislature  should not impose  a  duty  of excise  in respect of the commodity manufactured and then  a tax on first or other sales of the same commodity.   Whether or  not  such a course is followed appears to  be  merely  a matter  of  administrative  convenience. So,  by  parity  of reasoning,  may  the Federal Legislature impose  a  duty  of excise on the manufacture of excisable goods and the Provin- cial legislature impose a tax on the sale of the same  goods when manufactured."     This discussion clearly shows that the relevant question is  what is the nature of the tax. Excise duty is a  tax  on manufactured  goods.   Octroi duty is a tax  levied  on  the entry  of goods within a particular area. Under  the  Excise Act,  tobacco becomes excisable goods within the meaning  of Item 9 in the Schedule.  The subsequent use of such manufac- tured.  goods in making different articles only affects  the rate  of tax.  Therefore, tobacco becomes subject to  excise duty  when it reaches the stage of manufacture mentioned  in Item 9 of the Schedule to the Excise Act.  Even before it is converted  into bidis or any other article mentioned in  the entry it has become excisable goods and liable to pay excise duty.  The  levy of such duty is therefore not  in  conflict with the levy of an impost on the entry of the goods within a certain area.     It was argued that under the rules framed by the Govern- ment  under the Central Excises and Salt Act, 1944,  Govern- ment retained control over the movement of the 24 goods from the beginning till the end.  This argument is not of  assistance in determining the nature of the octroi  tax. As  Government  has to collect excise duty and the  rate  of



duty  varies  in respect of different shapes  in  which  the excisable  goods are ultimately converteD, there is  nothing unnatural  in the Government keeping a control and  note  of the articles till the manufactured article becomes a commod- ity, and is mixed up with the commodities used by the people at  large.  The argument that Entry 49 in List 11  being  in conflict  with Entry 45 in List I of Schedule Seven  to  the Constitution  Act, Entry 49 should be read as "for  consump- tion or use, except for manufacture of goods", in our  opin- ion,  is  unsound. In the first place, the approach  to  the question  itself  is wrong. When  a  particular  legislation falls  within the exact words of an Entry in the  Provincial List,  under  section 100 it is valid and   no  question  of reconciliation  arises.   A  similar  argument  advanced  in regard to a supposed conflict between Entry 19 of List I and Entry  31  of List II was rejected by us in Case No.  27  of 1949:  Miss Kishori Shetty v. The King (1).  In the  present case  if  the  question of the validity  of  the  Provincial legislation  arises,  on the interpretation of Entry  49  in List II, it appears that the answer must be in favour of the validity of the legislation.  The decision in Administrator, Lahore Municipality v. Daulat Ram Kapur(2) does not help the appellant  because in that case Entry 47 in List I  is  only "salt".   A  comparison with Entry 45 in List I  shows  dis- tinctly  that Entry 45 is limited to excise duty and is  not wide  enough to cover tobacco or other goods  generally  for all  purposes of legislation. The observations in that  case therefore are not helpful to the appellant.      On the second part of the contention the appellant  can succeed  only if he establishes that the provisions  of  the Excise  Act  are contrary to the levy and recovery  of  duty under the Provincial Act of 1922. There is no express provi- sion  in  the Excise Act contrary to the provisions  of  the Municipal Act.  Unless, therefore, it is necessarily implied under the Excise Act, the levy of (1) [1949] F.C.R. 650            (1) [1942] F.C.R. 31 25 the  octroi  duty under the Municipal Act  continues  to  be valid.  On this point again the appellant’s argument is that the levy of a duty at any stage of the manufacture of  bidis out  01  tobacco would be the levy of the  excise  duty  and therefore  those provisions were contrary to the  provisions permitting  the  levy of the octroi duty.  We  have  already discussed  and  rejected in the first part of  the  judgment this contention.  It is wrong to think that two  independent imposts  arising  from two different sets  of  circumstances were not permitted in law. In our opinion, therefore,  there is nothing in the Excise Act to make its provisions contrary to  the  provisions  of Section 66 (1) (e)  of  the  Central Provinces  Municipalities Act or to the levy of octroi  duty under the same. The appeal therefore fails and is  dismissed with costs.     Appeal dismissed. Agent for the appellants: Rajinder Narain. Agent for the respondent: S.P. Varma. Agent for the Union of India: P.A. Mehta.