# A KALYANI STORES v. THE STATE OF ORISSA AND OTHERS

- **Citation:** [1966] 1 S.C.R. 865
- **Court:** Supreme Court of India
- **Decided:** 1965-09-21
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/a-kalyani-stores-v-the-state-of-orissa-and-others-3649
- **Pages:** 20

## Headnote

I
.A
KALYANI STORES
v.
THE STATE OF ORISSA AND OTHERS
September 21, 1965
B
[P. B. GAJENDRAGADKAR, C.J., K. N. WANCHOO,
c
D
E
F
G
M. HIDAYATULLAH, J. C. SHAH AND S. M. Snau, JJ.]
Bihar d: Orissa Excise Act. 1915, S. 21-Countervailing duty-Nature
of-Whether can only be Imposed on imparted goods when similar goods
mtJnufactured or produced in the State-Validity of levy before and after
tire constitution came into force,.
Constitution of India, Articles 301 to 305-Scope of-Whether combination of Act and notification issued under it constitute existing law
under Articles 305 and 372.
In a petition under Article 226, the appellant challenged the imposition
of a duty of excise on 'foreign liquor' imported into the State which had
been levied at Rs. 40/- per L.P. Gallon until March 31, 1961, by virtue of·
a ootification issued in 1937 under s. 27 of the Bihar and Orissa Excise
Act, 1915, and which had been enhanced w.e.f. !st April 1961 by a fresh
nC11.ification.
It was contended on behalf of the appellant that since no 'foreign
liquor' was manufactured within the State and consequently no excise duty
was being levied on any locally manufactured 'foreign liquor', countervailM
ing duty could not be charged on such liquor brought from outside the
State; that the impose was in violation of Articles 301, 303 and 304 of
the Constitution; that even if the original countervailing duty of Rs. 40/ -
could be held to be leviable, the enhancement of the existing duty made·
the imposition a new tax which could not be levie.d if there was no corresponding duty on locally manufactured goods of the same kind. The
petition was dismissed by the High Court.
On appeal to this Court,
HELD (per majority)
(i) The notification dated March 31, 1961, enhancing the duty on
'foreign liquor' by Rs. 30/ - per gallon was invalid as it infringed the
guarantee of freedom of trade etc. under Art. 301. [874 m
A restriction on the freedom of trade, commerce and intercourse
throughout the territory of India declared by Art. 301 cannot be ju.•tified
unless it falls within Article 304.
Exercise of power under Article 3041 a)
can be effective only if the tax or duty imposed on goods imported from
other States and the tax or duty imposed on similar goods manufactured
or produced in that State are such that there is no discrimination.
As no
foreign liquor was produced or manufactured within the State, the protection of Article 304 was not available in the present case. [872 F, GJ
I
Power to levy countervailing duties under Entry 51 List II is
meant to be exercised for the purposes of equalising the burden on alcoholic
liquors imported from outside the State and the burden placed by excise
H
duties on alcoholic liquors manufactured or produced in the State. Therefore countervailing duties can only be le,;ed if similar goods are actually
produced or manufactured in the State on which excise duties are being
levied.
[869 H: 870 A]
L8SupCIJ65-12
865
866
SUPllEMB COUllT REPORTS
[1966] l S.C.R.
(ii) Although no 'foreign "liquor' was manufactured within the State,
A
.the State could continue to levy duty at the rate of Rs. 40/ - per gallon
prescribed by the notification of 1937 even after the Constitu1ion came
into force because that notification, and the provisions of s. 27 of tho Bihar
and Orissa Excise Act under which it was issued, constituted an existing
law or a law in force that was protected by Articles 305 and 372. But
the notification of March 1961, which enhanced the duty by Rs. 30/ -
and altered the existing law could be valid only if it complied with the
constitutional requirements.
Existing law within the meaning of Art. 305
B
was the provision in s. 27 of Act 2 of 1915 authorising the State Government to issue a notification, and the notification issued in exercise of that
.authority. A fresh notification issued alter the Constitution could be
valid only if it complied with the constitutional requirements.
[872 H873 C]
The Bangak>re W.C. &: 5 Mills Co. v. The Bangalo

## Text

_Characters 0–39,716 of 49,706. This is a partial read: ask again with offset=39716 for what follows._

I
.A
KALYANI STORES
v.
THE STATE OF ORISSA AND OTHERS
September 21, 1965
B
[P. B. GAJENDRAGADKAR, C.J., K. N. WANCHOO,
c
D
E
F
G
M. HIDAYATULLAH, J. C. SHAH AND S. M. Snau, JJ.]
Bihar d: Orissa Excise Act. 1915, S. 21-Countervailing duty-Nature
of-Whether can only be Imposed on imparted goods when similar goods
mtJnufactured or produced in the State-Validity of levy before and after
tire constitution came into force,.
Constitution of India, Articles 301 to 305-Scope of-Whether combination of Act and notification issued under it constitute existing law
under Articles 305 and 372.
In a petition under Article 226, the appellant challenged the imposition
of a duty of excise on 'foreign liquor' imported into the State which had
been levied at Rs. 40/- per L.P. Gallon until March 31, 1961, by virtue of·
a ootification issued in 1937 under s. 27 of the Bihar and Orissa Excise
Act, 1915, and which had been enhanced w.e.f. !st April 1961 by a fresh
nC11.ification.
It was contended on behalf of the appellant that since no 'foreign
liquor' was manufactured within the State and consequently no excise duty
was being levied on any locally manufactured 'foreign liquor', countervailM
ing duty could not be charged on such liquor brought from outside the
State; that the impose was in violation of Articles 301, 303 and 304 of
the Constitution; that even if the original countervailing duty of Rs. 40/ -
could be held to be leviable, the enhancement of the existing duty made·
the imposition a new tax which could not be levie.d if there was no corresponding duty on locally manufactured goods of the same kind. The
petition was dismissed by the High Court.
On appeal to this Court,
HELD (per majority)
(i) The notification dated March 31, 1961, enhancing the duty on
'foreign liquor' by Rs. 30/ - per gallon was invalid as it infringed the
guarantee of freedom of trade etc. under Art. 301. [874 m
A restriction on the freedom of trade, commerce and intercourse
throughout the territory of India declared by Art. 301 cannot be ju.•tified
unless it falls within Article 304.
Exercise of power under Article 3041 a)
can be effective only if the tax or duty imposed on goods imported from
other States and the tax or duty imposed on similar goods manufactured
or produced in that State are such that there is no discrimination.
As no
foreign liquor was produced or manufactured within the State, the protection of Article 304 was not available in the present case. [872 F, GJ
I
Power to levy countervailing duties under Entry 51 List II is
meant to be exercised for the purposes of equalising the burden on alcoholic
liquors imported from outside the State and the burden placed by excise
H
duties on alcoholic liquors manufactured or produced in the State. Therefore countervailing duties can only be le,;ed if similar goods are actually
produced or manufactured in the State on which excise duties are being
levied.
[869 H: 870 A]
L8SupCIJ65-12
865
866
SUPllEMB COUllT REPORTS
[1966] l S.C.R.
(ii) Although no 'foreign "liquor' was manufactured within the State,
A
.the State could continue to levy duty at the rate of Rs. 40/ - per gallon
prescribed by the notification of 1937 even after the Constitu1ion came
into force because that notification, and the provisions of s. 27 of tho Bihar
and Orissa Excise Act under which it was issued, constituted an existing
law or a law in force that was protected by Articles 305 and 372. But
the notification of March 1961, which enhanced the duty by Rs. 30/ -
and altered the existing law could be valid only if it complied with the
constitutional requirements.
Existing law within the meaning of Art. 305
B
was the provision in s. 27 of Act 2 of 1915 authorising the State Government to issue a notification, and the notification issued in exercise of that
.authority. A fresh notification issued alter the Constitution could be
valid only if it complied with the constitutional requirements.
[872 H873 C]
The Bangak>re W.C. &: 5 Mills Co. v. The Bangalore Corporation,
A.1.R. 1962 S.C. 562 and 1263; distinguished.
(per Hidayatullah, J. dissenting)
The Bihar and Orissa Excise Act, 1915 was valid under the Govem-
·ment of India Act, 1935 and in view of cl. (3) of tho Adaptation of Laws
Order, 1937, could not be questioned in a court of law. By reason of
c
Art. 372 of the Constitution, the Act must be deemed to be valid even
D
today. The absence of manufacture of foreign liquor within the State is
of no significance because section 27 is saved. The law which was saved
was not a combination of the Act and the notification but the Act (partioularly s. 27) itself. What was done under its authority in the past and
what was being done today was equally valid. The notification of 1961
derived its force from s. 27, which is a \Ud enactment, even as the notification oi 1937 did before from the same section and the new notification
could not be said to run against any constitutional provision. If the duty E
at Rs. 40/ - could be sustained, the duty at Rs. 70/ - must also be val.id,
for the same reasons apply.
[883 G, H]
Articles 301 and 304 (a) could not come into play in the present case.
Article 304(a) imposes no han but lifts the ban imposed by Articles 301
and 303 subject to one condition. That Article is enabling and prospective
and is available in respect of other taxes such as Sales Tax, etc. imposed by
the State legislature. The power to levy excise and countervailing duties
F
is conferred on the State legislature by Entry 51 of List II, and if Article
301 stands in the way, the protection of Article 305 is available. The
Bihar and Orissa Excise Act was sustained by Articles 305 and 372 indopendently of Art. 304(a). [883 C, E]
Crvn. APPELLATE JURISDICTION:
Civil Appeal No. 20 of
t964.
G
Appeal by Special Leave from the judgment and order dated
the October 29, 1962 of the Orissa High Court in O.J.C. No.
241 of 1961.
Santosh Chatterjee and "/). V . Misra, for the appellant.
H
N. S. Bindra, and R. N. Sachthey, for the respondents.
C. B. Agarwala and 0 . P. Rana, for the intervener.
a
\
-
-4
~
~
I
A
B
c
D
E
F
G
H
KALYAN! STORES V. STATE (Shah, ].)
867
The Judgment of Gajendragadkar C.J., Wanchoo, Shah and
Sikri, JJ. was delivered by Shah J., Hidayatullah, J. delivered a
dissenting Opinion.
Shah, J.
The appe!Iants-Kalyani Stores-deal in liquor at
Rourkela, District of Sundergarh in the State of Orissa.
The
appellants held a Jisence as retail vendors for "all types of foreign
liquor" under the Bihar and Orissa Excise Act, 1915. The expression "foreign liquor" apparently includes Ale, Beer, Port, Cider
and other fermented liquors, cordials, mixtures and other preparations containing spirit, perfumed spirit and all sorts of wines
whether manufactured in India or abroad.
Under the Bihar &
Orissa Excise Act, 1915 by a notification issued in 193 7 under
s. 27 a duty of Rs. 40/- per L.P. Gallon was imposed and realised
by the State of Orissa on foreign liquor of Indian manufacture
imported into State of Orissa from other parts of India. For the
year April I, 1960 to March 31, 1961 duty was levied on "foreign
liquor" imported by the appellants at the rate fixed in the notification issued in 1937. On March 31, 1961 in exercise of the
powers conferred by s. 90 of the Bihar & Orissa Excise Act 2 of
1915 the Board of Revenue enhanced the duty with effect from
April 1, 19°6 l in respect of "foreign liquors" from Rs. 40 /- to
Rs. 70 /- per L.P. Gallon, and also raised duty in respect of other
excisable articles. The licence held by the appellants was in due
course renewed from April l, 1961 to March 31, 1962. On
November 14, 1961 the Sub-Inspector of Excise, Panposh called
upon the appellants to pay the difference at the rate of Rs. 30/-
. per L.P. Gallon in respect of the stocks of liquor found in the
shop of the appellants on April 1, 1961 and to pay duty at the
rate of Rs. 70/- per L.P. Gallon in respect of fresh stocks received
after April 1, 1961. The appellants challenged the lagality of this
levy by a petition under Art. 226 of the Constitution filed before
the High Court of Orissa.
The appellants contended, inter alia,
that the State could levy under s. 27 of the Bihar and Orissa Act
duty on excisable articles produced or manufactured in the State
and a countervailing duty on excisable articles imported into the
State, imposed with a view to equalize the burden on the imported
articles with the burden on manufactured articles in the State, but
no countervailing duty on liquor imported could be levied if there
was in the year of licence no liquor, similar to the imported liquor.
manufactured within the State, and as there was no distillery in
the State manufacturing "foreign liquor" the levy of countervailing
duty was without authority of law. The High Court dismissed the
petition holding that under Entry 51, List II, in Sch. VII of the Constitution, the State Legislature had the power to legislate for levying
868
SUPREME
COURT
REPORTS
[1966] l S.C.R.
duties of excise on alcoholic liquors for human consumption manuA
factured or produced in the State and countervailing duties at the
aame or lower rates on similar goods manufactured or produced elsewhere in India, and it was admitted that the rate of duty on liquor
produced in Orissa levied by the State of Orissa was identical with
the countervailing duty required to be paid on imported liquor,
the impugned notification was not invalid.
With special leave
B
granted by this Court, the appellants have appeale<l to this Court.
The Bihar & Orissa Excise Act 2 of 1915 was enacted with the
object, amongst others, to control the import, export, transport,
manufacture, possession and sale of certain kinds of liquor and
intoxicating drugs.
Section 27 of the Act as amended by the c
Adaptation Order, 1950, provides :
"An excise duty or a countervailing duty, as the case
may be, at such rate or rates as the State Government
may direct, may be imposed, either generally or for any
specified local area, on-
( a) any excisable article imported, or
Explanation.-
..
D
The appellants submit that the levy of duty at the rate of Rs. 70/-
E
per L.P. Gallon under the notification dated March 31, 1961, is
without authority of law, in that it contravenes Entry 51 List II,
Sch. VII of the Constitution.
The argument presented in this
laconic form is founded on what is contended is the true character
of countervailing duties. We may observe that the challenge was
restricted to the raising of the duty by the notification dated March
F
31, 1961: the appellants did not challenge before the High Court
the notification issued in 1937. The validity of the levy at the
rate of Rs. 40/- per L.P. Gallon before the Constitution is therefore not under consideration in this appeal. Power of the Legislature to legislate for imposition of duties on excisable articles
manufactured within the State and to impose countervailing dutie3
G
upon excisable articles imported into the State is not denied.
It
ill said however that the expression "countervailing duty" means a
duty levied on similar articles imported from outside the State,
with a view to equalise the burden of taxation on articles produced
or manufactured within the State and articles imported, and a
countervailing duty on imported articles cannot be levied by the
H
State unless articles similar to those imported are produced <K
manufactured in the State and an excise duty is levied thereon.
•
..
•
KALYANI STORES v. STATE (Shah, !.)
869
A
The High Court has observed in its judgment that it was
admitted that the rate of duty on liquor produced in Orissa levied
by the State Government was identical with the countervailing
duty required to be paid on imported foreign liquor. Counsel for
the appellants says that it was not admitted by the appellants that
at the material time foreign liquor was manufactured or produced
B within the State of Orissa.
The High Court has apparently not
stated that "foreign liquor" was manufactured within the State of
Orissa at the material time. From the affidavits filed in this Court
by the parties it is clear that no "foreign liquor" was being produced
in tl1e State at the material time; nor was any such liquor produced
at any time after the Constitution was brought into force. Counsel
C for the State has, therefore, very fairly not supported this part of
the reasoning of the High Court.
D
This brings us to the consideration of the meaning of the
expression "countervailing duties" used in Entry 51, List II of the
Seventh Schedule to the Constitution.
The expression "countervailing duties" has not been defined in the Constitution or the
Bihar & Orissa Act 2 of 1915. We have, therefore, to depend upon
its etymological sense and the context in which it has been used
in Entry 51. In its etymological sense, it means to counter-balance;
to avail against with equal force or virtue; to compensate for someE thing or serve as an equivalent of or substitute for: see Black's Law
Dictionary, 4th Edn. 421. This would suggest that a countervailing duty is imposed for the purpose of counterbalancing or to avail
against something with equal force or to compensate for something as an equivalent. Entry 51 in List II of the Seventh Schedule
F
G
H
to the Constitution gives power to the State Legislature to impose
duties of excise on alcoholic liquors for human consumption where
the goods are manufactured or produced in the State. It also gives
power to levy countervailing duties at the same or lower rates on
similar goods manufactured or produced elsewhere in India. The
fact that countervailing duties may be imposed at the same or
lower rates ~,uggests that they are meant to counterbalance the
duties of excise imposed on goods manufactured in the State. They
may be imposed at the same rate as excise duties or at a lower
rate, presumably to equalise the burden after taking into account
the cost of transport from the place of manufacture to the taxing
State. It seems, therefore, that countervailing duties are meant to
equalise the burden on alcoholic liquors imported from outside
the State and the burden placed by excise duties on alcoholic liquors
manufactured or produced in the State. If no alcoholic liquors
similar to those imported into the State are produced or manufac-
870
SUPREME
COURT REPORTS
[1966] 1 S.C.R.
tured, the right to imp.pse counterbalancing duties of excise levied
A
on the goods manufactill:M.in. the State will not arise. It may,
therefore, be accepted that countervailing duties can only be levied
if similar goods are actually produced or manufactured in the
State on which excise duties are being.levied.
But the Bihar and Orissa Act 2 of 1915 was ena_cted. by the
appropriate legislature in 1915 and by virtue of Art. 371 of tlie B
Constitution it was a law in force and continues to remain in
force until altered, repealed or amended by a competent legislature
or by a competent authority, and therefore countervailing duty
on imported foreign liquor could be levied by the State Government as it was levied before the Constitution, unless there is something to the contrary to be found therein. It is admitted that the
Government of Orissa continued to levy a duty of Rs. 40 per L.P.
Gallon under Act 2 of 1915 even after Constitution came into
force.
By the notification of 1961 the duty was enhanced from
Rs. 40 per L.P. Gallon to Rs. 70 per L.P. Gallon. Levy at the
rate prescribed"under the notification of 1937 in operation immediately before the Constitution remained effective until it was
lawfully altered.
The only contention raised in the High Court
in support of the plea of invalidity of the levy in its entirety based
on the nature of countervailing duty cannot prevail for a part of
the duty wa5 already being levied before the Constitution came into
force, and the appellants by their petition did not challenge in the
High Court the validity of that levy before the 26th January, 1950.
The duty of Rs. 70 per L.P. Gallon may be broken up into two
parts, Rs. 40 per L.P. Gallon which was in force before the
Constitution came into force, ·and which continued to be levied
thereafter, and Rs. 30 which was the added levy in 1961. The
contention based on the nature of countervailing duty cannot in
the face of Art. 305, to which we shall presently refer prevail in
as far as it is levied under the notification issued in 1937, though
the enhancement of Rs. 30 in 1961 after the Constitution came
into force may be open to challenge.
The argument of counsel
for the appellants that the levy of duty at the rate of Rs. 70 per
L.P. Gallon in its entirety is invalid must therefore fail.
.
Whether the enhancement of the levy by notification dated
March 31, 1961 insofar as it enhanced the levy from Rs. 40
to Rs. 70 per L.P. Gallon infringes any constitutional prohibitions
may be considered. By s. 27 of Act 2 of 1915 the State. Government is given the power to impose a countervailing duty at the
rate or rates as the State Government may direct.
Before the
Constitution, duty was imposed at the rate of Rs. 40 per L.P.
Gallon on foreign liquors. The imposition remained in operation
'
c
D
E
F
G
H
'
•
A
B
c
D
KALYANI STORES V. STATE (Shah, J.)
871
till the date on which the Constitution was brought into force,
and has not been challenged in the petition.
The Act merely
authorised the levy of duty as may be fixed by the Government.
To effectuate the power to levy the duty authorised, the rate of
duty must be fixed by notification by the State Government. In
1937 the power was exercised by issuing a notification under s. 27
authorising the levy of duty at the rate of Rs. 40 per L.P. Gallon.
Section 27 of the Act authorised the imposition of excise and
countervailing duties : the section however did not by its own force
impose liability to pay any specific duties. To complete the levy
the State Government had to issue a notification levying the duty
and prescribing the rates thereof. By the notification dated March
31, 196 J that law was altered and the duty was raised to Rs. 70
per L.P. Gallon. Till the enactment of the Constitution the existing law relating to the levy of countervailing duty on excisable
articles was contained in s. 27 supplemented by the notification
issued by the Government of Orissa in 1937. By the notification
dated March 31, 1961, the rate of levy was altered, and the validity
of the altered rate of duty has to be adjudged in the light of the provisions of the Constitution.
The validity of the imposition of the new rate of Rs. 70 per
L.P. Gallon may be examined in the light of the restrictions imposed by the Constitution on the legislative power. By Art. 301
E
of the Constitution, subject to the other provisions of Part XIII,
trade, commerce, and intercourse throughout the territory of India
is to be free.
By Art. 303 no power is conferred upon the State
Legislature to make any law giving, or to authorise the giving of,
any preference to one State over another, or to make, or authorise
F
G
H
the making .of, any discrimination between one State and another,
by virtue of any entry relating to trade and commerce in any of
the Lists in the Seventh Schedule. The material part of Art. 304
is as follows :
"Notwithstanding anything in article 301 or article
303, the Legislature of a State may by law-
( a) impose on goods imported from other States or
the Union territories any tax to which similar
goods manufactured or produced in that State are
subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced; and
(bl impose such reasonable restrictions
on
the
freedom of trade, commerce or intercourse with
872
SUPREME
COURT
REPORTS
[1966] l S.C.R.
or within that State as may be required in the
A
public interests :
Provided that
"
Articles 305, insofar as it is material, provides :
"Nothing in articles 301 and 303 shall affect the provisions of any existing law except in so far as the President may by order otherwise direct;
"
B
Arcicle 304 is in terms prospective : it authorises the Stale Government to legislate notwithstanding anything in article 301 or 303 to
impose on goods imported from other States any tax to which
similar goods manufactured or produced in that State are subject,
C
so, however, as not to discriminate between goods imported and
goods manufactured or produced or to impose such reasonable
restrictions on the freedom of trade, commerce or intercourse with
or within that State as may be required in the public interest. The
notification levying duty at the enhanced rate is purely a fiscal
measure and cannot be said to be a reasonable restriction on the
freedom of trade in the puhlic interest. Article 30 I has declared
freedom of trade, commerce and intercourse throughout the territory of Jndia, and restriction on that freedom may only be justified
if it falls within Art. 304. Reasonableness of the restriction would
have to be adjudged in the light of the purpose for which the restriction is imposed, that is "as may he required in the public
interest".
Without entering upon an exhaustive categorization of
what may be deemed "required in the public interest", it may he
said that restrictions which may validly be imposed under Art.
304( b) arc those which seek co protect public health, safety, morals
and property within the territory. Exercise of the power under Art.
304 (a) can only be effective if the tax or duty is imposed on
goods imported from other States and the tax or duty imposed on
similar goods manufactured or produced in that State arc such that
there is no discrimination against imported goods. As no foreign
liquor is produced or manufactured in the Seate of Orissa the power
to legislate given by Art. 304 is not available and the restriction
which is declared on the freedom of trade, commerce or intercourse by Arc. 30 I of the Constitution remains unfettered.
Mr. Bindra appearing on behalf of the State of Orissa contended that the Legislature having empowered the State Government by s. 2 7 to levy duty at a rate which may be prescribed, the
notification elated March 31, 1961, enhancing the tax derived its
validity from the Act it~elf and did not amount to any law modifying the existing law.
Therefore, it was said, the levy of duty at
D
E
F
G
H
•
•
A
B
c
D
KALYANI STORES V. STATE (Shah, J.)
873
the enhanced rate was supported by the power conferred by s. 27
which was "existing law". This argument cannot, in our view, be
sustained. By Art. 3 66 (I 0) unless the context otherwise requires,
the expression "existing law" means any law, Ordinance, order, byelaw, rule or regulation passed or made before the commencement
of the Constitution by any Legislature, authority or person having
power to make such a law, Ordinance, order, bye-law, rule or
regulation.
Existing law within the meaning of Art. 305 was
therefore the provision contained in s. 27 of the Bihar & Orissa
Act 2 of 1915 authorising the State Government to issue a notification imposing a duty at the rate fixed thereby and the notification issued pursuant thereto before the Constitution.
The notificiation of March 31. 1961, which imposed an additional burden
may therefore be valid only if it complies with the constitutional
requirements.
The decision in The Bangalore Woollen, Cotton and Silk Mills
Company Ltd .. Bangalore and another v. The Corporation of the
City of Bangalore, (1) on which reliance was placed by Mr. Bindra
does not assist his contention.
In that case by resolution dated
March 31, 1954, the Municipal Corporation of Bangalore purporting to act under the authority conferred by s. 98 of the City
of Bangalore Municipal Corporation Act 69 of 1949 resolved
E
to levy octroi duty on cotton and wool.
The authority of the
Municipal Corporation to levy the tax was challenged. It was
held by a Division Bench of this Court in Bangalore Woollen,
Cotton and Silk Mills v. Bangalore Corporation(') that the Legislature had laid down the powers of the Municipal Corporation to tax
F
G
H
animals and goods, brought within the Octroi limits and had
enumerated certain articles and animals in Part V of Sch. Ill and
by class VITI read with s. 97 had authorised the Corporation to
impose a tax on other articles or goods. This power in the view
of the Court was granted by conditional legislation and was not
liable to be st .. ·· 0k down on the score of excessive delegation. The
question whe1,,_r the imposition of the octroi duty offended
Arts. 276 and 301 was then referred to a larger Bench and the
Court held in The Bangalore Woollen. Cotton and Silk Mills Co.
Ltd., Bangalore's case(') that the combined effect of ss. 97 and 130
and Part V of Sch. Ill including class VIII is that the words of a
general nature used by the Legislature had the same effect as if
all articles were intended to be included, and the impugned octroi
duty did not contravene the provisions of Arts. 276 and 301 of the
Consitution. It was urged on behalf of the tax-payers that the source
(I) A.LR. 1%2 S.C. 562.
(2) A.I.R. 1962 S.C 1263.
874
SUPREME
COURT REPORTS
[1966] I S.C.R.
of the authority to1evy o_ctroi duty on cotton and wool was the A
resolutiop of the Municipal -Corporation, which was in the nature
of subordinate legislation, which amended or altered the existipg
law.
This ~ontention was rejected.. The Court in that case held
that the combined effect of ss. 97, 130 and Part V of Sch. III
including class VIII in the City of Bangal~re Municipal Corporation Act was that all articles were intended to be included in the
parent statute. It is implicit in the reasoning that there was no
alteration or modification of the existing Jaw, by the resolution .of
the Corporation. The decision of that case turned entirely upon
the interpretation of the special provisions the like of which are
not found in the Bihar & Orissa Act 2 of 1915.
In the present case, it is clear that under the existing law duty
had been imposed in exercise of the power contained in ss. 27, 28
and 90 of the Act and the notifications issued from time to time
before the Constitution was enacted, and that Jaw was altered by
c
the notification dated March 31, 1961. It is not the case of the
D·
Siate that ip exercise of any pre-existing conditional legislation,
duty at enhanced rate was made leviable on foreign liquor. The
sole authority for the levy of the duty at the enhanced rate is the
notification of the State Government dated March 31, 1961. That
notification infringes the guarantee of freedom under Art. 301,
and may be saved only if it ,falls within the exceptions contained
E
in Arts. 302, 303 and 304. Articles 302 and 303 are apparently
not attracted and have not been relied upon, and the notification
does not comply with the requirements of the Constitution contained in Art. 304 els. (a) & (b). The notification dated March
31, 1961, enhancing the levy by Rs. 30 per L.P. Gallon must,
therefore, be regarded as invalid.
That however does not affect 'F
the validity and the enforceability of the earlier notification issued
m 1937 which must remain operative in view of Art. 305. That
Article specifically protects existing Jaw and as the levy of countervailing duty at Rs. 40 per L.P. Gallon was an existing law it is
protected under Art. 305. In fact this position was not challenged
by the appellants in their writ petition.
G
The appeal is, therefore, partially allowed, and it is declared
that the notification dated March 31, 1961, enhancing duty on
foreign liquor at the rate of Rs. 30 per L.P. Gallon is invalid as
offending Art. 304 of the Constitution and is therefore unenforceable. The right of the State to enforce the liability against the appellants to pay duty at the rate prescribed in the earlier notification
which held the field, remains however unaffected. In view of the
H
~
~-- --------------~
KALYAN! STORES v. STATE (Hidayatul/ah, J.)
875
A divided success of the parties, there will be no order as to costs in
this Court and the High Court.
Hidayatullah, J.
The appellant is a firm which deals in liquor
at Rourkela in the Orissa State. It challenges 1'rl toto the imposition of a duty of excise on foreign liquor levied at first at Rs. 40
B per London proof gallon and from April 1, 1961, at Rs. 70 under
s. 27 of the Bihar and Orissa Excise Act, 1915. The original duty
at Rs. 40 was fixed by a notification issued in 193 7 and it was
enhanced by a notification issued on March 31, 1961. The
appellant on being asked to pay the difference in respect of stocks
c
D
E
F
G
H
held in its shop filed a petition under Art. 226 of the Constitution
challenging the enhancement of the duty as well as the duty at
the original rate.
Section 27 of the Bihar & Orissa Act (Act II of 1915), for our
purpose, reads as follows :
"27. Power to impose duty on import, export, transport and manufacture-
( 1) An excise duty or a countervailing duty, as the
case may be at such rate or rates as the State Government
may direct, may be imposed, either generally or for any
specified local area, on-
( a) any excisable article imported, or
(b) any excisable article exported, or
( c) any excisable article transported, or
( d) any excisable article (other than tari)
manufactured under any license granted in respect of clause
(a) of Section 13, or
(e)
(f) any excisable article manufactured in any distillery
or brewery licensed, established, authorised, or
continued under this Act.
Explanation-
(2)
( 3) Notwithstanding anything contained in subsection ( J ) ,-
( i) duty shall not be imposed thereunder on any
article which has been imported into (India) and was
876
SCPREME COURT
REPORTS
(1966] I S.C.R.
liable, on such importation, to duty under the Indian
A
Tariff Act, 1894 or the Sea Customs Act, 1878, if-
( a) the duty as aforesaid has heen already paid, or
( b) a bond has been executed for the payment of
such duty.
"
The argument is that since foreign liquor is not manufactured
in the State of Orissa and no duty of excise as such can be levied
on locally manufactured foreign liquor, a countervailing duty
cannot be charged on foreign liquor brought from an extra-State
point in India. It is also contended that this impost offends Arts.
301, 303 and 304 of the Constitution and is a colourable piece of
legislation because countervailing duties of excise can only be
levied when corresponding products can be subjected to an equal
or more excise duty.
It is submitted that the whole of the duty
must foil as contrary to the intcndmcnt of the Constitution. It is
also argued that even if the original countervailing duty at the rate
of Rs. 40 per London proof gallon could be said to be leviable
by virtue of Arts. 305 and 3 72 of the Constitution which preserve
existing laws or the laws in force, the enhancement of the existing
duty makes the imposition a new tax and such notification cannot
be made if there is no possibility of the levy of corresponding duty
on locally manufactured goods of the same kind.
The Constitution divides the subject of duties of excise between
the Union and the States.
What the division is, may be seen by
comparing Entry 84 of List I with Entry 51 of List JI.
£nm 84 of List I
EnJ•y 51 of List I/
Duties of excises o~- toba~~-~d--j .. Outi~s ofc~clse- ~~-t-;-r~J10..ins ~
ot.IM:r aoods manufactured or produ~
I raanufac1ur.:d or produced in the State
c~d in lndia except
and countcrvailings duties al the same
B
c
D
E
or
lower
rates on similar
aoods
. manufactured or produocd d!\cwherc in
1 India:-
G
(a) alcoholic liquors for human con·
i;umption;
(b) opium Indi.in ho:mp and other
narcotic drugs and narcotics, but
including m'!dical
and toikt
preparations containing alcohol
or any substance indudcd in
~uh-paragraph (b) this entry.
(a) alcoholic liquors for human comrun ..
ption.
, (b) opium Indian hemp other narootic
!
drugs and narcotics; but not includ·
ins medicinal and toilet preparations
containing alcohol or any aul»taocc
included in sub-paragraph (b) of this
entry.
ff
-
'
KALYAN! STORES V. STATE (Hidayatu//ah, J.)
877
A
It is to be noticed that the power to levy duties of excise on
alcoholic liquors for human consumption, with which we are
presently concerned, is given to the States. Entry 51 goes a little
further and allows the levy of countervailing duties at the same
or at lower rates on similar goods manufactured or produced elsewhere in India. A duty of excise is a tax on production and as
B the Legislatures of the States are not authorized to legislate beyond
the States such duty can only be levied in respect of goods produced within the State. The Entry, however, allows the State to
levy a countervailing duty at the same or a lower rate on goods
produced or manufactured in India and brought into th11 State
from outside. Three questions arise.
First there is the general
C question : must a countervailing duty be only imposed on imported
articles when articles similar to those are produced or manufactured within the State on which excise duty is levied ? If the
answer to this question is in the negative there is an end to all
dispute for then the old law, the old notification and new notificaD tion must be above reproach. The next two questions are narrower
than the first.
They are : (a) was the imposition and collection
of the countervailing duty at Rs. 40 per London proof gallon valid
and (b) is the notification enhancing the duty of excise and the
countervailing duty to Rs. 70 per London proof gallon beyond
the powers of the State Government ?
E
A countervailing duty is not defined in the Act. In the Concise
Oxford Dictionary "countervailing duty" is stated to be :
"a countervailing duty--one put on imports that are
bounty-fed to give home goods an equal chance".
This brings out the true character of a countervailing duty.
It
F is imposed to make incidence of excise duty equal.
How these
countervailing duties came to exist in India is a matter on which
something may be said before the challenge to the legality of the
imposition may be considered.
The Bihar & Orissa Excise Act was passed on January 19,
G
1916. It was thus passed under the Government of India Act,
1915.
Section 27 as originally passed opened with the words
"A duty at such rate or rates ........ " instead of the words "An
excise duty or a countervailing duty as the case may be at such
rate or rates ...... " which are now to be found there. The original Act made no difference between excisable articles manufactured
H
locally and those imported into the Province. The clauses of s. 27
which have retained their original form and which have been
quoted by me above, when read with the former opening words
878'
SJJPREME
COURT REPORTS
[1966] I S.C.R.
clearly indicate this.
In the Devolution Rules (Part II dealing
with the Provincial subjects) under the Government of India Act,
Item 16 read as follows :
"16. Excise, that is to say, the control of production, manufacture, possession, transport, purchase and
sale of alcohqlic liquor and intoxicating drugs, apg_j:he.
levying of excise duties and license fees on or in relation
to such articles, but excluding, in the case of opium,
control of cultivation, manufacture and sale for export."
This may be compared with preamble to the Bihar & Orissa Excise
Act, 1915, as it originally stood:
"Whereas it is expedient to amend and re-enact the
law in the Province of Bihar and Orissa relating to the
import, export, transport, manufacture, possession, and
sale of certain kinds of liquor and intoxicating drugs;
'
AlJd whereas the previous sanction of the GovernorGeneral has been obtained, under section 5 of the Indian
Councils Act, 1892, to the passing of this Act_;
It is'hereby enacted as follows :-"
The word "excise" was also given the same wide meaning in
entry 16. Ii included not only the control of production but also
the control of purchase and sale of alcoholic liquor and the levying of excise duty in relation to the articles without indicating the
place of their manufacture, that is to say, that they should be manufactured within the Province.
When the Government of India Act, 1935, was in the process
of being drafted the White Paper proposals introduced a new
scheme for division of resources available under the head of excise
duties. It was recommended that the federating units should be
allotted a share of the yield of excise duty on goods produced,
other than those specifically assigned to the Provinces. This was
given effect to by including in the Government of Inrua Act 1935
two entries which were Entry No. 45 of List I (which corresponded
to Entry 84 of List I of the present Constitution) and Entry 40
in List II (which corresponded to Entry 51 of List II of the
present Constitution). When the Government of India Act 1935
was passed it was possible for the first time to impose countervailing duties.
The intention was that taxation in the matter of
excisable goods should be uniform in Inrua and one Province
should not try to take advantage of another Province by exporting
excise free goods, thus making them bounty-fed. By this means
A
•
B
c
D
E
F
G
.,
H
'
A
B
c
D
E
KALYAN! STORES v. STATE (Hidayalullah, /.)
879
duties of excise on all goods of the same kind could be kept uniform.
But the Excise Acts in India, including the Bihar and Orissa Act,
were not harmonious with the constitutional provision. They
made no distinction between duties of excise levied on goods produced locally and duties of excise levied on goods which were
imported into or transported within the Province. They would
have, after L'ie enactment of the Government of India Act, 1935,
been rendered ultra vires if th.~ duty was unequal in such a way
as to make it more on imported goods unless they were amended
suitably.
Instead of amending them by the ordinary legislative
process which would have been cumberous and slow, recourse was
taken to the power to adapt laws given by s. 293 of the Government of India Act, 193 5. It provided :
"293. Adaptation of existing Indian laws &c.
His Majesty may by Order in Council to be made at
any time after the passing of this Act provide that, as
from such date as may be specified in the Order, any law
in force in British India, or in any part of British India,
shall, until repealed or amended by a competent Legislature or other competent authority, have effect subject to
such adaptations and modifications as appear to His
Majesty to be necessary or expedient for bringing the
provisions of that law into accord with the provisions
thereof which reconstitute under different names governments and authorities in India and prescribe the distribution of legislative and executive powers between the
Federation and the Provinces :
Provided that no such law as aforesaid shall be
F
made applicable to any Federated State by an Order in
Council made under this section.
In this section the expression "law" does not include
an Act of Parliament, but includes any ordinance, order,
byclaw, rule or regulation having in British India the
G
force of law."
Thus by an Order-in-Council, which was called the Government of India (Adaptation of Indian Laws) Order, 1937 s. 27
of the Bihar & Orissa Excise Act was adapted to read as we find
it today.
The opening words were altered to mention countervailing duties also.
This adaptation was made not only in the
H
Bihar and Orissa Act but every Excise and Abkari Act in the rest
of India and was intended to bring all Excise Acts into accord
with the distribution of legislative powers as indicated in s. 293.
880
SUPREME
COURT
REPORTS
[1966] I S.C.R_
'
In all those- Acts, previously a duty was Jeviable not only on
A
excisable goods produced in the Province but also imported from
outside. J:he duties could be at different rates. After the Adaptation of Laws'Order- the duty.