# [1964] 3 S.C.R. 787 - **Citation:** [1964] 3 S.C.R. 787 - **Court:** Supreme Court of India - **Decided:** 1964 - **Case number:** Special Reference No. 1 of 1962 - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1964-3-s-c-r-787-3024 - **Pages:** 143 ## Headnote 3 S.C.R. SUPREME COURT REPORTS 787 We are of opinion that the order of the High Court is correct and therefore dismiss the appeal with costs. u.i. ... 1 '""' • •• M "'41• T.lal.llc.\ Appeal dismissed. &1Ji.Hr D,,,,J J • IN RE. THE BILL TO AMEND S. 20 OF THB SEA CUSTOMS ACT, 1878, AND S. 3 OF THE CENTRAL EXCISES AND SALT ACT, 1944 (B. P. SINHA c. J., s. K. DAS, P. B. GAJENDIU.· G.olDKAR, A. K. SARKAR, K. N. WANCHOO, M. HIDAYATULLAH, K.C. DAS GUPTA, J.C. SHAJI, and N. RAJAGOPALA AYYANGAR JJ.) Pre6ident'• Reference-Ouatom., dutiea and dutiea of e11:ci1tParliamenl'• power to levy such dutiea on the property of Btolt•- Direct and indirect taxes-Distinction, if valid under 00111titution-·Ouatoms duties and duties of exciBe, if ta:u1 Oii properly-"Taxation", Definition-Bea Oustoma Act, 1878 (8 of 1878), s 20-0entral Excises and Bait Act, 1944 (1 of 1944). •· 3 (11-Go•vernment of India Act, 1935 (25 It 25 Geo. Ii, Oh. 42), as. 154, llili-Oon•titution of India, .frll. 246, 246, 285, 289, 366 \28). As a result of a proposal to introduce in Parliament a Bill to amend s. 20 of the Sea Customs Act, 1878, ands. 3 of the Central Excises and Salt Act, 1944, with a view to apply· ing the provisions of the ·said two Acts to goods belonging to the State Governments, in regard to which certain doubts arose as to whether the provisions of the Bill were inconsistent with Art. 289 of the Constitution of India, the President of India referred under Art. 143 of the Constitution certain questio111 for the opinion of the Supreme C mrt to ascertain if the proposed amendment• would be constitutional. The question was whether the provisions of Art. 289 of the Constitution precluded the Union from imposing, or authorising the impo1i• tion of (a) custom• duties on the import or export, or (b) excise duties on the production or manufacture in India, of 1he /HJ M9 II ~~. -' ha,, s,a· Cwtonil · ..let. .. · \ 788 SUPREME COURT REPORTS (1964] VOL. property of a State used for purposes other than those specified In cl. (2) of that Article. Held (S. K. Das, A. K. Sarkar, Hidayatullah and K. C. Das Gupta,JJ, dissmting), that the provisions of Art. 289 (1) of the Constitution of India were in the nature of an exception to the exclusive field of legislation reserved to Par hament and were limited to taxes on property and on income of a State ; that the immunity granted in favour of States had to be restricted to taxes levied directly on property and .income ; and, that even though import and export duty or duties of excise had refeience to goods and commodities, they were not taxes on property directly and were not within the exemption In Art. 289 (1). Per Sinha C. J., Gajendragadkar, Wanchoo, Shah and Rajagopala Ayyangar JJ.-(1} Though the expression "taxation", as defined in Art. 366 (28), "includes the Imposition of any tax or impost, whether general or local or special", the amplitude of that definition has to be cut down if the context otherwise so requfres. (2) Whereas the Union Parliament has been vested with the exclusive pnwer to regulate trade and commerce and with , the sole responsibility of imposing export and import duties and duties of excise, with a view to regulating trade and commerce and raising revenue. an exception has been engrafted In Art. 289 (1) in favour of States granting them immunity from certain kinds of Union taxation and it is necessary that the general words of the exemption in that Article should be limited in their scope so as not to come in conflict with the power of the Union to regulate trade and commerce. (3) Though the Constitution of India does not make a clear distinction between direct and indirect taxes, the exemption provided in Art., 289 (I) from Union taxation to property must refer to what arc known to economists as direct taxes on property and not to indirect taxe< like duties of customs and excise which are in their essence trading taxes and not tax on property. Per Das, Sarkar and Das GuptaJJ.-(1} The exemption clause ## Text _Characters 0–39,931 of 270,660. This is a partial read: ask again with offset=39931 for what follows._ 3 S.C.R. SUPREME COURT REPORTS 787 We are of opinion that the order of the High Court is correct and therefore dismiss the appeal with costs. u.i. ... 1 '""' • •• M "'41• T.lal.llc.\ Appeal dismissed. &1Ji.Hr D,,,,J J • IN RE. THE BILL TO AMEND S. 20 OF THB SEA CUSTOMS ACT, 1878, AND S. 3 OF THE CENTRAL EXCISES AND SALT ACT, 1944 (B. P. SINHA c. J., s. K. DAS, P. B. GAJENDIU.· G.olDKAR, A. K. SARKAR, K. N. WANCHOO, M. HIDAYATULLAH, K.C. DAS GUPTA, J.C. SHAJI, and N. RAJAGOPALA AYYANGAR JJ.) Pre6ident'• Reference-Ouatom., dutiea and dutiea of e11:ci1tParliamenl'• power to levy such dutiea on the property of Btolt•- Direct and indirect taxes-Distinction, if valid under 00111titution-·Ouatoms duties and duties of exciBe, if ta:u1 Oii properly-"Taxation", Definition-Bea Oustoma Act, 1878 (8 of 1878), s 20-0entral Excises and Bait Act, 1944 (1 of 1944). •· 3 (11-Go•vernment of India Act, 1935 (25 It 25 Geo. Ii, Oh. 42), as. 154, llili-Oon•titution of India, .frll. 246, 246, 285, 289, 366 \28). As a result of a proposal to introduce in Parliament a Bill to amend s. 20 of the Sea Customs Act, 1878, ands. 3 of the Central Excises and Salt Act, 1944, with a view to apply· ing the provisions of the ·said two Acts to goods belonging to the State Governments, in regard to which certain doubts arose as to whether the provisions of the Bill were inconsistent with Art. 289 of the Constitution of India, the President of India referred under Art. 143 of the Constitution certain questio111 for the opinion of the Supreme C mrt to ascertain if the proposed amendment• would be constitutional. The question was whether the provisions of Art. 289 of the Constitution precluded the Union from imposing, or authorising the impo1i• tion of (a) custom• duties on the import or export, or (b) excise duties on the production or manufacture in India, of 1he /HJ M9 II ~~. -' ha,, s,a· Cwtonil · ..let. .. · \ 788 SUPREME COURT REPORTS (1964] VOL. property of a State used for purposes other than those specified In cl. (2) of that Article. Held (S. K. Das, A. K. Sarkar, Hidayatullah and K. C. Das Gupta,JJ, dissmting), that the provisions of Art. 289 (1) of the Constitution of India were in the nature of an exception to the exclusive field of legislation reserved to Par hament and were limited to taxes on property and on income of a State ; that the immunity granted in favour of States had to be restricted to taxes levied directly on property and .income ; and, that even though import and export duty or duties of excise had refeience to goods and commodities, they were not taxes on property directly and were not within the exemption In Art. 289 (1). Per Sinha C. J., Gajendragadkar, Wanchoo, Shah and Rajagopala Ayyangar JJ.-(1} Though the expression "taxation", as defined in Art. 366 (28), "includes the Imposition of any tax or impost, whether general or local or special", the amplitude of that definition has to be cut down if the context otherwise so requfres. (2) Whereas the Union Parliament has been vested with the exclusive pnwer to regulate trade and commerce and with , the sole responsibility of imposing export and import duties and duties of excise, with a view to regulating trade and commerce and raising revenue. an exception has been engrafted In Art. 289 (1) in favour of States granting them immunity from certain kinds of Union taxation and it is necessary that the general words of the exemption in that Article should be limited in their scope so as not to come in conflict with the power of the Union to regulate trade and commerce. (3) Though the Constitution of India does not make a clear distinction between direct and indirect taxes, the exemption provided in Art., 289 (I) from Union taxation to property must refer to what arc known to economists as direct taxes on property and not to indirect taxe< like duties of customs and excise which are in their essence trading taxes and not tax on property. Per Das, Sarkar and Das GuptaJJ.-(1} The exemption clause under Art. 289 (I) ha• to be interpreted with the key furnished by Art. 366 (28) Under the Constit11tion the word "taxation" has been defined by the Constituiion itflelf, and the Court is not free to give a different meaning to the word so as to make a diotinction between direct and indirect a s.c.R. SUPREME COURT REPORTS 789 taxation, nor is the Court free to make a distinction between a tax on property and a tax in respect of it. (2) The problem is not the nature of the impost, but rather the extent of the immunity granted by Art. ·289 and the extent of the immunity really depends on the true scope and effect of Arts. 245, 285, 289, and 366 (28). (3) The Union's power to legislate to regulate foreign trade contained in the legislative list is subject to the provisions of the Constitution, and the Union cannot, in view of Att. 289 (I), impose a customs duty on things imported by the State and seek to justify it as an exercise of its power to regulate foreign trade. ( 4) The exemption given to State proporty from _Union taxation by Art. 289 does not conflict in any way with the power of control whicti the Union ha• over foreign trade or inter-State trade. (5) In the Constitution of India the "taxing power" is treated as different from the "regulatory power" and the classification between "direct" and ''indirect'~ taxes hasot been adopted in the Constitution, Ptr Hidayatullah J.-(1) The fact that the word otaxation" is used in one place only in the Constitution saves us from tbe task ol examining the context, because the definition would become a dead letter if it were not used in Art. 289 in the sense defined. (2) Taking the language of Art. 289 (I) by itself or even as modified by that of els. (2) and ( 3) the conclusion is inescapable that properties ot all kmds belongiug to the States aavc those used or occupied for trade or business, were meant to be exrmpted from taxation. The •Cherne of Art. 289 does not admit that the word "property" at.ould be read in ·any specialized sense and goods imported and goods manufactured or produced by the States are included in the word "property." (3) The provisions of Art, 289 preclude the Union from imposing, or authorising the imposition, of customs duties on the import or export of the property of a State used for purposes other than those specified in cl. (2) of that Article if the imposition is to raise revenue but not to regula1e externai trade, (4) The intention being to raise revenue the amendment if mad1 would be hit by Art. 289, , '·f·· ,., s., Galtem.t A.it. ~ 1963 u '' Se• Customs .Ad 790 SUPREME COURT REPORTS (1964) VOL. Ptr Rajagopala Ayyangar ].-Though no express distinc .. tion has been made in the Uonstitution between direct and indirect taxes, taxes in the shape of duties of customs including· export duties, and excise, particularly when imposed with a view to regulatjng trade and commerce in so far as such matters arc within the competence of Parliament being covered by various entries in List I, cannot be called taxes on property ;. for they are imposts with reference to the movement of property by way of import or export or with reference to the production or manufacture of goods. American, Australian and Candian cases reviewed. ADVISORY JURISDICTION: Special Reference No. 1 of 1962. Reference by the President of India under Art. 143 (1) of the Constitution regarding the propo· aed amendments to sub-section (2) of Section 20 of the Sea Customs Act, 1878 (Act 8 of 1878) and sub· section 1 (a) of Section 3 of the Central Excise and Salt Act, 1944 (Act l of 1944). 0. K. Daphtary, Solicitor-General of India, H. N. Sanyal, Additional Solicitor .General of India, G.N. Joshi and R.H. Dhebar, for the Union of India. D. Narsa Raju, Advocate-General for the State of Andhra Pradesh and T. V. R. Tatachari, for the State of Andhra Pradesh. . B. 0. Baru,a, Advocate-General for the State of Aaaam and Naunit Lal, for the State of Assam. Mahabir Prasad, Advocate·General for the State of Bihar and S. p, Va.rma, for the State of Bihar . .A. V. Viswanatha Saatri, J. B. Dadachanji, 0. 0. Mathur and Ravinder Narain, for the State of Maharashtra. J. M. Thakore, Advocate-General for the State of Gujarat and H.L. Hathi, for the State of Gujarat. 3 S.C.R. SUPREME COURT REPORTS 79! D. Sahu, Advocate-General for the St.ate of Ori&sa and K. L. Hathi, for the State of Orissa. V. P. Gopalan Nflmbyar, Advocate-General for the State of Kerala and Sardar Bahadur, for the State of Kerala. A. Ranganadham Chetty and A. V. Rangam, for the State of Madras. G. R. Ethirajulu Naidu, Advocate-General for the State of Mysore and R. Gopalakrishnan, for the State of Mysore. S. M. Sikri, Advocate-General for the State of Punjab, S. K. Kapur and Gopal Singh, for the State of Punjab. G. 0. Kasliwal. Advocate-General for the Stat~ of Rajasthan, S. K. Kapur, V. N. Sethi and K. K. Jain, for the State of Rajasthan. B. Ben, M. K. Banerjee and P. K. Bose. for the State of West Bengal. M. Adhikari, Advocate-General for the State of Madhya Pradesh and I. N. Shroff, for the State of Madhya Pradesh. K. B. Hajela and G. P. Lal, for the State of Uttar Pradesh. . 1963. May 10. The opinion of B. P. Sinha, C.J., P. B. Gajendragadkar, K. N. Wanchoo and J.C. ShahJJ. was delivered by Sinha, C.J. The · opinion of S. K, Das, A. K. Sarkar and K. C. Das Gupta JJ., was delivered by Das, J M. Hidayatullah, J., and N. Rajagopala Ayyangar, J., delivered separate opinions. SINHA C. J.-The main question, on this reference by the President of India under Art. 143 (1) of . 196J la '' Sia C&isJMnl J.d. s.-..u c.1. )$63 - . :;i/a '' St• Gtu,_1 .dd. 792 SUPREJHE COURT REPORTS [1964]VOL. the Constitution, depends upon the true scope and interpretation of Art. 289 of the Constitution relating to the immunity of States from Union taxation. On receipt of the reference notices were issued to the tiAttorney-General of India and to the AdvocatesGeneral of the States. In pursuance of that the case of the Union Government has been placed before us by the learned Solicitor-General and that of the States of Andhra Pradesh, Assam, Bihar, Gujarat, Kerala, Madhya Pr;adesh, Madras, Maharashtra, Mysore, Orissa, Punjab and West Bengal was presented to us by their respective counsel. On the date the hearing of this case started, an application was made on behalf of the State of Uttar Pradesh also to be heard, but no statement of case had been put in on behalf of that State, and as no grounds were made out for condoning the delay, we refused the application. The reference is in these terms : "Whereas sub-section {l) of section 20 of the Sea Customs Act, 1878 (Act 8 of 1878), provides for the levy of customs duties on goods imported or ex· ported by sea to the extent and in the manner specified in the said sub.section ; And whereas sub.section (2) of section 20 of the said Act applies the provisions of sub-section (I) of that section in respect of all goods belonging to tbe Government of a State and used for the purposes of a trade or business of any kind carried on by, or on behalf of, that Government, or of any operations connected with such trade or business as they apply i11 respect of goods not belonging to any Govern· ment; And whereas it is proposed to amend sub-section (2) of section 20 o~ the said Act so as. to '.1PPIY the provisions of sub-section (1) of that sect10n m respect of all goods belonging to the Government of a State; 3 S.C.R. SUPREME COURT REPORTS 793 irrespective of whether such goods are used or not for the purposes set out in the said sub-section (2) as at present in force; And whereas sub-section (1) of section 3 of the Central Excises and Salt Act, 19!4 (Act l of 1944), provides for the levy of duties of excise on all excisable goods other than salt which are produced or manufactured in India and a duty on salt manufactured in, or imported by land into any part of India in the manner specified in the said sub-section; And whereas sub-section ( 1 A )of section 3 of the said Act applies the provisions of sub-section (1) of that section in respect of all excisable goods other than salt which arc produced or manufactured in India by, or on behalf of, the Government of a State and used for the purposes of a trade or business of any kind carried on by, or on behalf of, that Government, or of any operations connected with such trade or business as they apply in respect of goods which are not produced or manufactured by any Government; And whereas it is proposed to amend sub-section ( 1 A) of section 3 of the said Act so as to apply the provisions of sub section ( l) of that section in respect of all excisable goods other than salt which are produced or manufactured in India by, or on behalf of the Government of a State, irrespective of whether such goods are used or not for the purposes set out in the said sub-section (lA) as at present in force; And whereas it is proposed to introduce in Parliament a Bill, the draft of which is annexed here to and marked 'Annexure', to amend for the purpose aforesaid sub-section (2) of section 20 of the Sea Customs A~t, 1878 (Act 8 of 1878) and sub-section (lA) of scct10n 3 of the Central Excises and Salt Act, 1944 (Act 1 of 19!4); ,JffJ 111 r1 S1~ ,Cf#,_, .dd .sw...c.1. 794 SUPREME COURT REPORTS (1964) VOL. /ffl And whereas Governments of certain States · r•ri sea c.,,,,., have expressed the view that the amendments as proAct posed in the said draft of the Bill may not be constis;Md c:. 1• tutionally valid as the provisions of article 289 read with the definitions of 'taxation' and 'tax' in clause . (28) of article 366 of the Constitution of India preclude the Union from imposing or authorising the imposition of any tax, including customs duties and excise duties; or in relation to any property of a State except to the extent permitted by clause (2) . read with clause (3) of the said article 289; And whereas the Government of India is on the other hand inclined to the view- (i) that the exemption from Union ti.xation granted by clause (1) of article 289 is restricted to Union taxes on the property of a State and does not extend to Union taxes in relation to the property of a State and that clauses (2) and (3) of that article have also to be construed accordingly; (ii) that customs duties are taxes on the import or export of property and not taxes on property as such and further that excise duties are taxes on the production or manufacture of property and not taxes on property as such; and (iii) that the union is not precluded by the provisions of article 289 of the Constitution of India from imposing or auchorising the imposition of customs duties on the import or export of the property of a State and other Union taxes on the property of a State which are not taxes on property as such; And whereas doubts have arisen as to the true interpretation and scope of article 289 of the Consti- . tution of India and, in particular, as to the constitutional validity of the amendments to the Sea Customs -· 3 S.C.R. SUPREME COURT REPOKTS 791i Act. 18i8 (Act 8 of 18i8) and the Central Excises and Salt Act, 1944 (Act 1 of 1944) as proposed in the aforesaid draft Bill; And wherea~ in view of what has been hereinbefore stated, it appears to me that the questions of Jaw hereinafter set out have arisen and are of such a nature and are of such public importance that it is expedient to obtain the opinion of the ::iupreme Court of India thereon; Now, therefore, in exercise of the powers conferred upon me by clause ( l) of article 143 of the Constitution of India, I, Rajendra Prasad, President ef India, hereby refer the following question to the Supreme Court of India for consideration and report of its opinion thereon; ''(I ) Do the provisions of article 289 of the Constitution preclude the Union from imposing, or authorising the imposition of, customs duties on the import or export of the property of a State used for purposes other than those specified in clause ( 1) of that article ? (2) Do the provisions of article 289 of the Constitution of India preclude the Union from imposing, or authorising the imposition of, excise duties on the production or manufacture in India of the property of a State used for purposes other than those specified in clause (~) of that article ? (3) Will sub section (2) of section 20 of the Sea Customs Act, 18i8 (Act 8 of 1878) and subsection (IA) of section 3 of the Central Excises and Salt Act, 1944 (Act 1 of 1944) as amended by the Bill set out in the Annexure be inconsistent with the prel".risions of article 289 of the Constitution of India ?" t\ew Delhi: Dated the 19-4-1962. Sd/-Rajendra Prasad, President of India. /11 " Sia Ctui""" · Act. Sln/llo c. '. . 196' ,,. ,, ~.C';. c.,,,..., · Att SU:M CJ, 796 SUPREME COURT REPORTS (1964) VOL . DRAFT BILL A BILL Annexure Further to amend the Sea Customs Act, 1878, and the Central Excises and Salt Act, 1944. , Be it enacted by Parliament in the the year of the Republic of India as follows :- 1. Short title-This Act may be called the Sea Customs and Central Excises (Amendment) Act, 19. 2. Amendment of section 20, Act 8 of 1878, - In section 20 of the Sea Customs Act, 1878 for sub· section (2) the following sub-section shall be substituted, namely :- "(2) The provisions of sub-section (l) shall apply in respect of all goods belongin~ to the Government as they apply in respect of goods not belonging to the Government." 3. Amendment of section 3, Act 1 of 1944.- In section 3 of the Central Excises and Salt Act, 1944, for sub-section (IA) the following sub.sectbn shall be substituted, namely:- "(lA) The provisions of sub-section (I) shall apply in respect of all excisable goods other than salt which are produced or manufactured in India by, or on behalf of, the Government as they apply in respect of goods which are not pro• duced or manufactured by the Govem· .meut." 3 S.C.R. SUPREME COURT REPORTS 707 . It has been argued on behalf of the Union of India that cl. (1) of Art. 289 properly interpreted would mean that the immunity from taxation granted by the Constitution to the States is only in respect of tax on property and on income, and that the immunity does not extend to all taxes; the clause should not be interpreted so as to include taxation in relation to property; a tax by way of import or export duty is not a tax on property but is on the fact of importing or exporting goods into or out of the country; similarly, an excise duty is not a tax on property but is a tax on production or manufacture of goods; though the measure of the tax may have reference to the value, weight or quantity of the goods, according to the relevant provisions of the statute imposing excise duty, in essence and truly speaking import or export duties or excise duty are not taxes on property, including goods, as such, but on the happening of a certain event in relation to goods. namely, import or export of goods or production or manufacture of goods; the true meaning of Art. 289 is to be derived not only from its language but also from the scheme of the Indian Constitution distributing powers of taxation between the Union and the States in and the context of those provisionq; Arts. 285 and 289 of the Constitution are complementary and the true construction of the one has a direct bearing on that of the other; those articles have to be construed in the back5round of the corresponding provisions of the Government of India Act 1935, ss. 1!54 an:! 155; cl. (2) of Art. 289 is only explana· tory and not an exception to cl. (I) in the sense that the entire field of taxation covered by cl. (1) is also covered by the terms of cl. (2); as Parliament has exclusive power to make laws with respect to trade and commerce with foreign countries :md with respect to duties of customq, including export duties and duties of excise on certain goods manufactured or produced in India, the Union is competent to impose or to authorise the impD'lition of cust~ duties on - J#I. ht ,. .\';• °"""'. . Ari•' Sinlul C. F. 1161 .. In '' Sia Cuslonu Act . SW.• C.). 798 SUPREME COURT REPORTS [1964) VOL. the import or export of goods by a State which may be its property or excise duty on the production or manufacture of goods by a State; if cl. ( 1) of Art. 289 were to be interprrted as including the exemption of a State in respect of customs duties or excise duty, it will amount to a restriction on the exclusive competence of Parliament to make Jaws with respect to trade and commerce-a restriction which is not warranted in view of the scheme of the Constitution; that the term "taxation" has been used in a very wide sense, as per Art. 366 (28); the wide sweep of that expression has to be limited with respect to the words "property" or "income"; the juxtaposition of the words "property" and "income" in cl. (1) of Art. 289 would show that the exemption of the States from Union taxation was only in respect of tax on property and tax on income; in other words, the exemp· tion granted by Art. ?89 (1) is in respect of property taxes properly so called in the sense of taxes directly . on property; a tax on property means a tax in respect of ownership, possession or enjoymrnt of property, in contradistinction to customs duties and duties of excise, which in their true meaning are not taxes on property but only in relation to property, on a parti· cular occasion; Cl. (2) of Art. 28fl of the Constutition shows clearly that trade or business carried on by States will. be liable to taxation; by cl. (3) of Art. 289 Parliament has been authorised to legislate a1 to what trade or businrs3 would be incidental to the ordinary functions of government and which, there· fore would not be subject to taxation by the Union; any trade or busine~s not so declared by parliament will be within the operation of cl. (c), i.e., liable to Union taxation. On the other hand. it is argued on behalf of the States that in interpreting Art. 289 of the Constitution, on which the answer to the question referred by the President depends, it has to. be borne in mind that our 9,s1nstitution does not make a distinction - 3 S.C.R.. SUPREME COURT REPORTS 799 between direct and indirect taxation; that trade and /96J' commerce and industry have been distributed 1." i,. c.,,..., between the Union and the States; that the power of Act taxation is different from the power to regulate trade li•ha c. 1. and commerce; that the narrower construction of rhe Article, contended for and on behalf of the Union, will seri·ously and adversely affect the activities of the States and their powers under the Constitution; that a comparison and contrast between the terms of s. 155 of the Government of India Act and those of Art. 289 of the Constitution would clearly emphasize that the wider meaning contended for on behalf of the States should be preferred; that the legislative practice iu respect of excise and customs duties is a permissible guide to the interpretation of the Article in question and would support the wider construction, and that even on a narrower construction, insisted upon by the Union, customs duties and duties of excise affect property and are, therefore, within the imm'unity granted by Art. ~89 (1); properly construed Art. :!89 ( 1) grants complete immunity from all taxation on any kind of property; and any kind of tax on property or in relation to property is within the immunity; therefore, the distinction sought to be made on behalf of the Union between tax on property and tax in relation to property is wholly irrelevant; cl. (2) of Art. 289 is not explanatory, as contended on behalf of the Union, but is an exception or in th.: nature of a proviso to cl. (1) of the Article; cl. (t) really carves out something which is included in cl. (I) and similarly cl. (3) is an exception to cl. (2) and carves out something which is included in cl. (2). It should be noted that all the States which were represented before us were agreed in their contention, as set out above, except the State of l\faharashtra. The learned Counsel for the State of Maharashtra agreed with the contention on behalf of the Union that there was a clear distinction between 1'61 r. ,. s.. cru1 .... .dd . Si,,Jui C. J. 800 SUPREME COURT REPORTS [196+] VOL. tax on property and excise duties. In other words, excise duty is not within the immunity granted by cl. ( l) of Art. 289, which is in the nature of an exception to the general power of a State to regulate trade and commerce and its right to tax, and as such it should be very strictly construed. But he supported the other States in so far as they contended that duties of import and export were within the exemption granted by cl. (1) of Art. 289. It will thus be seen that whereas the Union is for interpreting cl. (I) of Art, 289 in the restricted sense of the immunity being limited to a direct tax on property and on the income of a State, the States contend for an all-embracing exemption from Union taxes which have any relation to or impact on State property and income. In spite of this wide gulf between the two view points. both are agreed that the terms "property", "income' and "tax" have been used in their widest sense. 'They are also agreed that the immunity granted to the Union in respect of its property by Art. 285 corresponds to the immunity granted to the States by Art. 289, and that, therefore, the term "property" "taxation" and "tax'' hwe to be interpreted in the same comprehensive sense in both the Articles. It will be noticed that whereas not only the term "property" but also "income" occurs in Art. 289, in Art. 285 the term ''income' is not ust>d apparently because the Constitution makers were aware of the legal position that tax on "income" (as distinct from agricultural income) is exclusively in the Union List and wa~ so even before the advent of the Constitution. It was agreed, and it is manifest that the terms of Art. 285 and 289 are very closely parallel to those of ss. 154 and L5.5, respectively, of the Government of India Act, 1935 (2.) & 26 Geo. VC. 42), except for the differences in expression occasioned by the change in the constitutional position and the integration of the Indian States after • $.C.R. stJPREM:E COURT REPORTS 801 1947. The language of the two parellel provisions may lie set out below in order to bring out the points of similarity aRd contrast. Government of India Act. Constitution of India. S. 154 : Property vested in His Majesty for purposes of the Go· vernment of the Federation shall, save in so far as any Fede· ral -law may other· wise provide, be exempt from all taxes imposed by, or by any authority within, a Province or Federa' ted State; Provided that, until any Federal law otherwise provides, any property so ves· ted which was im· mediately before the commencement of Part Ill of this Act liable, or treated as liable, to any such tax, shall, so long as that tax continues, continue to be liable, or to be treated as liable, thereto . S. 155-(1) Subject as hereinafter provided, the Government of a Province and the Art. 285. (1) The pro· perty of the Unien shall, save in so far as Parliament may lily law otherwise provide, be exempt from all taxes imposed by a State or by any Authority within a State. (2) Nothing in clause ( 1) shall, until Par· liament bv law other· wise pro~ides, pre· vent any authority within a State from levying any tax on any property of the Union to which such property was imme· diately before the commencement of this Constitution liable or treated as - lial;>le, so long as that tax con· tinues to be levied in that State. Art. 289. (1) The pro· perty and -income of a State shall be ex· empt - from ' U'nion l 1 '' s,. Customr Act . Sinhc C J. 802 StJPl.EME COURT REPORTS [1964] VOL. JS6J I•" Se• Cust•ms Ruler of a Federated A" State shall not be Sik•• c. 1. liable to Federal taxa· tion in respect of lands or buildings situate in British India, or mcome accruing, arising or received in British India: Provided that- (a) where a trade or buaincn of any kind ii carried on by. or on behalf of the Gevern · ment of a Province in any part of British India outside that Province or by a Ruler in any part of British India, nothing in thi1 1u b-1ection 1hall ellempt that Government or Ruler from any Federal taxation in respect of that trade or business, or any operations con· ncctcd therewith, or any income ariaing in connection therewith, or any property occupied for the purpo1e1 thereof; (b) nothing in this 1uh· aection shall ellcmpt Oona#itutfon of btdia. taxation. (2) Nothin1 ia cla111e ( l) shall prevent the Union from imp01in1. or authorising tll.e imposition of any tall to such extent, if any aa Parliament may by I aw provide in respect of a trade or bu1ine11 of any kind carried on by, Or OD behalf of the Government of a State, or any operations connected there· with, or any property used or occupied for the purposes of auch trade or business, or any income accuring or arising in conncc· tion therewith. (3) Nothing in clause (2) shall apply to any trade or business, or to any clau of trade or bu1ineu which Parliament may by law declare to be incidental to the ordinary !unctiona or government. 3 S.C.R. SUPlt~M'.! OOUllT REPORTS soa Government of India Act. 0on&tit1'1ton of In&ia. 1118 a Ruler frqm any Federal taxation in raspect of any lands, buildings or income being .hi1 penonal property or personal income. (2) Nothing in this Act affects any exemption from taxation enjoyed aa of right at the passing of this Act by the Ruler of an Indian State in respect of any Indian Government seci.trities issued before that date. ' It will thus appear that both 1. IM and Art. 285 set out above speak only of "property" and lay down that property vested in the Union shall be exempt from all taxes imposed by a State or by any authority within a St'!lte, subject to one exception of saving the pre-existing taxes on such property until Parliament may by law otherwise provide. Similarly, whereas s. 155 of the Government of India Act exempts from federal taxes the Government of a Province in respect of lands or building• situate in British India or income accruing, arising or received in British India, Art. 289( l) says "the property and income of a State shall be exempt from Union taxation". Section 156 aforesaid has two provisos {a) &. (b); (a) relating to trade or business of any kind carried on by or on behalf of the Government or a Province, and (b) which is not relevant, relating to a Ruler. It will be seen that "income" is repeated in both the provisions, but what was "lands" or "buildings" has brcome simply "property" in Art. 289(1). be re Sn Cust~J Act 804. 'SUPREME COURf ttEi>tiR:t1S[l96!j \lot · l!iJ ' The question, naturally• arises°'i•why "income" Jn ,. &• Cui!.,,,, was at all mentioned when it is common ground that Art · "income" would be included in ·the ··generic term Sinha c. 1. ''property". It was suggested on 'bWalf of the• U12ien that the juxta ·position of the termi "property" alild "income" of a State which have' b'een declared to be exempt from Union taxation would ·indicate that the tax from which they were to be immune was tax en "property" and on "Income", i.e., in both cases a direct tax, and not an indirect tax, which may be levied in rtlation to the property o! a State, namely, excise duty, which is a tax on the manufacture er production of goods and customs duty which is"a tax on the event of importation or exportation of goods. j, • Before dealing with the' argument on either side, whether the restricted meaning attributed to the words of Art. 289(1) on behalf of the Union, or.the wider significance claimed for those words on behalf of the States, was intended by the Constitution makers, it is necessary to bear in mind certain general considerations and the scheme .Gf the' 'con>titutional provisions bearing on the powh 'of the Union to impose the taxes contemplated by the proposed legislation. Neither the Union nor W.e States. can claim unlimited right as regard> the are area of taxation. The right has been hedged i:n by considerations of respective powers and responsibilities of the Union in relation to the States, and those of the States in relation to citizens or inter se or in relation to the Union. Part XII of the Constitution relates· to "Finances etc." At the very outset Art. 265 lays down that no tax shall be levied or collected except by authority of law. That authority has' to be found in the three fats in the Seventh Schedule, subject to the provisions of Part XI which deals with the relations between the Union and the''States, particularly Chapter I relating to legislative re_la~ions and distribution of legislative powers, with .. sp~Cial reference· to Art. 246. Under that Article' tile legislature of a State has exclusive powers to make 'laws with 'respect I 3 S.C.·R. SUPREME COURT REPOR.TS 805 to th.e matters enumerated in List II and Parliament 1963 and the Legislature of a State have powers to make I• ,,.s .. Cust•ms laws with respect to the matters enumerated in List &<1 III (the Concurrent List), and notwithstanding those s;••• c 1. two lists, Parliament has the exclusive power to make laws with respect to any of the matters enumerated in List I (the Union List). Parliament also has power to make laws with respect to any of the matters enumerated in the State List with respect to any part of the territory of India which is not included in a State. By Art. 248 Parliament has been vested with exclusive power to make laws with respect to any matters not enumerated in the State list or the Concurrent list,. including the power of making a law imposing a tax not mentioned in either of those lists. It is not nece~sary to refer to the extended power of legislation vested in Parliament in abnormal circumstances, as contemplated by Arts. 249, 250 and 252. In short, though the States have been vested with exclusive powel's of legislation with respect to "the matters enumerated in List II, the authority of Parliament to legislate in respect of taxation in List I is equally exclusive. The scheme of distribution of powers of legislation, with particular reference to taxation, is that Parliament has the exclusive power to legislate imposing taxes on income other than agricultural income (Entry 82); duties of customs · including export duties