# M/S. GURUSWAMY & CO. ETC v. STATE OF MYSORE & ORS

- **Citation:** [1967] 1 S.C.R. 548
- **Court:** Supreme Court of India
- **Decided:** 1966-09-26
- **Case number:** Civil Appeals Nos. 15801588 and 1590-1600 of 1966
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-guruswamy-co-etc-v-state-of-mysore-ors-3877
- **Pages:** 38

## Headnote

M/S. GURUSWAMY & CO. ETC.
A
V.
STATE OF MYSORE & ORS.
September 26, 1966
(K. SUBBA RAO, C. J., M. HIDAYATULLAH, S. M. SIKRI, R. S.
B
.
BACHAWAT AND RAGHUBAR.DAYAL, JJ.)
Mysore Health Cess Act, 1962-Competence of the State Legislature
to levy health cess-Validity of Act-Cess
whether excise duty under
lttm 1 of Schedule A of the Act.
Mysore Excise Act (Act S of 1901) s. 18, and
Hyderabad Abkarl
Act (Act 1 of 1916 F)-Levy of duty on liquor by way of shop rentHighest bidder given exclusive right to sell-Such duty whether an excise
duty within meaning of Entry S 1 of List II of the Constitution.
The Mysore Health Cess Act 1962 provided in s. 3 for the levy and
collection of a health cess at the rate of nine naye paise in the rupee,
inter alia, on the items of the State revenue mentioned in Schedule A.
Item I of Schedule A mentioned duties of excise leviable by the State
under any law for the time being in force in any area of the State on
alcoholic liquors for human consumption (and opium etc.) manufactured
or produced in the State and for countervailing duties levied on similar
g?Ods manufactured or produced elsewhere.
The Mysore Excise Act,
1901 empowered the State Government to grant exclusive or other privi~
lege of selling by retail any country liquor or intoxicating drugs to any
person or persons on such conditions and for such period as it thought
fit.
According to s. 18 of the Act the
privilege of sale in a specified
shop was to be disposed of periodically by public auction held by the
exctse authorities. As a result of such public auctions held subject
to
the terms and conditions notified by the Slate Government the appellant.!
were granted the exclusive privilege of selling country liquor in certain
arrack shops, beer tavcrcs and toddy shops in
consideration of their
agreeing to pay specified 'shop rent' thereon at the rate of nine naye paise
in the rupee. The appellants challenged the levy of tho health cess on
the shop rent in writ petition before the High C-Oun and thereafter appealed to this Coun wirh the following contentions :
(I) That the Mysore Lcgisllture was not
competenr to enact the
impugned Act because no entry in List II or List Ill authorities a tax on
tax or a health-tax and that if the inlention was to levy a surcharge on
existing items of revenue the State legislature could have easily used the
words "surch3rge' or 'additiol)al revenue'.
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(2) Even if the impugned tax was valid the Act did nor empower the
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levy of health cess on shop rent because shop rent was not an excise duty
falling within Schedule A of the impugned Act or Entry 51 of List II.
HELD: Per Subba Rao,
C. J., Sikri
and Dayal, JJ. (i)
By the
impugned Act the State Legislature was levying a health cess on a number of items of State revenue or tax and it adopted the form of calling it
a cess and prescribed the rate of nine naye paise in the rupee on the
State revenue or tax.
Section 4 of the impugned Act
makes it quite.
H
clear that the cess is Ieviable and recoverable
in the same manner u 1
items of land revenue, State revenue or tax. In the context,
the word
'on' in s. 3 does not indicate that the subject matter of taxation is land
1
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GURUSWAMY & CO. V. MYSORE (Sikri, I.)
549
revenue or State Revenue but that 9% of the land revenue or Stato
revenue is to be. levied and collected, the subject matter remaining the
same as in the law imposing liμ1d revenue or any duty or tax. .It wo
read ss. 3 and 4 together the fact that the words 'stircbarge' or 'additional
duty' bav~ not been mentioned does not detract from the real substance
of the legislation, Accordingly the Mysore Legislature was com.Potent to
enact the law under the various entries of List II which enable 1t to !en:
land revenue or the duties of excise or the
other taxes mentioned m
s. 3(iii) of the impugned Act. [560 A-CJ
(ii) For a duty to be a duty of excise it must be shown that the duty
bas Leen levied on goods which have been produced or manufai:tured,
the

## Text

_Characters 0–39,735 of 101,526. This is a partial read: ask again with offset=39735 for what follows._

M/S. GURUSWAMY & CO. ETC.
A
V.
STATE OF MYSORE & ORS.
September 26, 1966
(K. SUBBA RAO, C. J., M. HIDAYATULLAH, S. M. SIKRI, R. S.
B
.
BACHAWAT AND RAGHUBAR.DAYAL, JJ.)
Mysore Health Cess Act, 1962-Competence of the State Legislature
to levy health cess-Validity of Act-Cess
whether excise duty under
lttm 1 of Schedule A of the Act.
Mysore Excise Act (Act S of 1901) s. 18, and
Hyderabad Abkarl
Act (Act 1 of 1916 F)-Levy of duty on liquor by way of shop rentHighest bidder given exclusive right to sell-Such duty whether an excise
duty within meaning of Entry S 1 of List II of the Constitution.
The Mysore Health Cess Act 1962 provided in s. 3 for the levy and
collection of a health cess at the rate of nine naye paise in the rupee,
inter alia, on the items of the State revenue mentioned in Schedule A.
Item I of Schedule A mentioned duties of excise leviable by the State
under any law for the time being in force in any area of the State on
alcoholic liquors for human consumption (and opium etc.) manufactured
or produced in the State and for countervailing duties levied on similar
g?Ods manufactured or produced elsewhere.
The Mysore Excise Act,
1901 empowered the State Government to grant exclusive or other privi~
lege of selling by retail any country liquor or intoxicating drugs to any
person or persons on such conditions and for such period as it thought
fit.
According to s. 18 of the Act the
privilege of sale in a specified
shop was to be disposed of periodically by public auction held by the
exctse authorities. As a result of such public auctions held subject
to
the terms and conditions notified by the Slate Government the appellant.!
were granted the exclusive privilege of selling country liquor in certain
arrack shops, beer tavcrcs and toddy shops in
consideration of their
agreeing to pay specified 'shop rent' thereon at the rate of nine naye paise
in the rupee. The appellants challenged the levy of tho health cess on
the shop rent in writ petition before the High C-Oun and thereafter appealed to this Coun wirh the following contentions :
(I) That the Mysore Lcgisllture was not
competenr to enact the
impugned Act because no entry in List II or List Ill authorities a tax on
tax or a health-tax and that if the inlention was to levy a surcharge on
existing items of revenue the State legislature could have easily used the
words "surch3rge' or 'additiol)al revenue'.
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(2) Even if the impugned tax was valid the Act did nor empower the
G
levy of health cess on shop rent because shop rent was not an excise duty
falling within Schedule A of the impugned Act or Entry 51 of List II.
HELD: Per Subba Rao,
C. J., Sikri
and Dayal, JJ. (i)
By the
impugned Act the State Legislature was levying a health cess on a number of items of State revenue or tax and it adopted the form of calling it
a cess and prescribed the rate of nine naye paise in the rupee on the
State revenue or tax.
Section 4 of the impugned Act
makes it quite.
H
clear that the cess is Ieviable and recoverable
in the same manner u 1
items of land revenue, State revenue or tax. In the context,
the word
'on' in s. 3 does not indicate that the subject matter of taxation is land
1
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E
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G
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GURUSWAMY & CO. V. MYSORE (Sikri, I.)
549
revenue or State Revenue but that 9% of the land revenue or Stato
revenue is to be. levied and collected, the subject matter remaining the
same as in the law imposing liμ1d revenue or any duty or tax. .It wo
read ss. 3 and 4 together the fact that the words 'stircbarge' or 'additional
duty' bav~ not been mentioned does not detract from the real substance
of the legislation, Accordingly the Mysore Legislature was com.Potent to
enact the law under the various entries of List II which enable 1t to !en:
land revenue or the duties of excise or the
other taxes mentioned m
s. 3(iii) of the impugned Act. [560 A-CJ
(ii) For a duty to be a duty of excise it must be shown that the duty
bas Leen levied on goods which have been produced or manufai:tured,
the taxable event being production or manufacture of goods.
However,
it is not easy to decide in a particular case whether the particular levy is
a levy in respect of manufacture or production of ~oods. This question
bas to be decided on the facts of each case but Ill deciding it certain
principles must be borne in mind. First, one of the essential ·characteristics of an excise duty is uniformity of
incidence.
Secondly, the duty
inust be closely related to production or manufacture of goods. It does
not matter if the levy is made not at the moment of production or manufacture but at a later stage. If a duty has been levied on an excisable
article but this duty is collected from a retailer it does not necessarily
cease to be an excise duty. Thirdly, if a levy is made for the privilege
of selling an excisable article and the excisable article has already borne
the duty and the duty has been paid, there must be clear terms in the
chargin~ section to indicate that what is being levied for the Pll!JlOSe of
the privilege of sale is in fact a duty of excise. [562 E-F; 563 HJ
There is no presumption that if no othe·r taxable event has intervened, the levy must be treated to be connected with
production or manu ..
facture.
The levy in the present case was a payment for the exclusive privilege
of selling today from certain shops. The licencee paid what he considered to be equivalent to the value of the right. Secondly, it had no close
relation to the production or manufacture of toddy.
Thirdly, the only
relation it had to the production or manufacture of toddy, was that 1t
enabled the licencee to seU it. But he might sell little, less .or more than
he anticipated, depending on various factors. Fourthly, toddy had already paid one excise duty in the form of tree tax, but he need not tap
himself.
Fifthly, the duty was not uniform in incidence because the
amount collected had no relation to the quantity or quality of the produce but bad only relation to what the petitioner thought be could recoup by the ·sale of the excisable articles. What be recouped would depend upon the amount of sales and the conditions prevailing during the
licensing year.
Sixthly, thete were no express words showing that what
was being realised by the appellants was an excise duty. Seventhly the
privilege of selling was auctioned
well before the goods came into
existence.
[564 B-E]
For the above reasons the duty was not an excise duty within the
meaning of item (i) of Schedule A of the Health Cess Act or Entry 51
of List II of the Constitution. The State of My>ore bad therefore no
authority to levy and collect health cess on shop rent [567 0-H]
·Per Bachawat J (concurring) :
A chaige for
licence
to sell an
excisable article may be a fee or a tax: If it is a tax, it can satisfy the
test of a duty of excise when it is so connected with the manufacture o:r
production of an article as to be in effect a tax on the manufacture or
production.
Otherwise such a tax does not fall within the c1assificatiou
of a duty of excise.
In the present case the sh~p rent was not connect-
550
SUPRl!MB COURT REPORTS
[1967] I S.C.R.
ed with the production or manufacture of arrack, beer or toddy and was
therefore not a duty of excise.
The State Legislature was not compe·
tent to make a law levying a surcharge on the shop rent under Enrry 51,
List ll. [584 C-Fl
Per Hidayatullah, I. (dissenting) : The persons who bid at these auc.
tions were themselves the producers or manufacturers. They bid for the
exclusive priviJegc or selling. which in so far as Government was con ..
cemcd was a means of collecting the anticipated
excise duty at one go
from a producer or manufacturer before the goods became a part of tho
general stock of goods in the country.
Jn other words the person who
was charged was the producer or manufacturer and the duty was levied
from him before he could sell or obtain liquor
which
had not borne
excise duly so far.
The duty was therefore clearly
a duty of excise
whether the matter was considered in the light of economic theory, legislative practice or judicial authority. [572 0-E]
Case law considered.
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 15801588 and 1590-1600 of 1966.
Appeals from the judgment and order dated November 17,
1965 of the Mysore High Court in Writ Petitions Nos. 295 to 300,
453 and 914/63, 1076, 1175 to 1175, 2053 and 2076/64 and 1132,
1260, 1420 and 1321165.
D.R. Venkatesa Iyer, 0. C. Mathur, J. B. Dadachanji and
Ravinder Narain, for "the appellants (in C. As. Nos. 1580-1586
and 1588 of 1966).
M. K. Nambyar, D. R. Venkatesa Iyer, 0. C. Mathur, J. B·
Dadachanji and Ravinder Narain, for the appellants (in C. As.
Nos. 1590-1594, 1596 and 1599-1600 of 1966).
M. C. Setalvad, D. R. Venkatesa Iyer, 0. C. Mathur, J. B.
Dadachanji and Ravinder Narain, for the appellants (in C. As.
Nos. 1597 and 1598 of 1966).
K. R. Chaudhuri, S. P. Satyanarayana Rao and K. Rajendra
Chaudhuri, for the appellant (in C. A. No: 1595 of 1966).
R. H. Dhebar, for the respondents (in C. As. Nos. 1580-1586,
1588 and 1595 of 1966).
H. R. Gokhale, B. R. L. Iyengar and R. H. Dhebar, for the
respondents (in C. As. Nos. 1590-1600 of 1966).
The Judgment of SUBBA RAO, C.J. and SIKRI and RAGHUBAR
DAYAL, JJ. was delivered by SIKRI, J. HIDAYATULLAH, J. delivered
a dissenting Opinion. BACHA WAT, J. delivered a separate concurring
Opinion
Sikri, J. These appeals are directed against the judgment of
the High Court of Mysore, dated November 17, 1965, disposing
of 49 petitions filed under art. 226 of the Constitution. The High
Court disposed of the petitions by one common judgment as
B
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GURUSWAMY & CO. V. MYSORE (Sikri, J.)
551
A
identical questions of law were involved in all of them. We will
also dispose of these appeals by this judgment because they raise
substantially identical questions of law. These appeals may, however, be divided into two groups; one dealing With the licences for
the sale of Toddy and the other dealing with the licences for the
sale of arrack.
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We may give the facts in one appeal, Civil Appeal No. 1590
of 1966, arising out of Writ Petition No. 1076 of 1964. The appellant, M/s Guruswami & Co.-hereinafter referred to as the peti- ·
tioner-filed writ petition alleging that the firm was a licensed
Excise contractor with its principal office at Bangalore, and that
<it had been the licensee of the Bangalore Urban group of 26 shops
f!;ir the year July 1, 1963 to June30, 1964. Thepetitionercontinued
to be the licensee for the same group of shops with five more new
shops to be opened for two more years, viz., 1964-65 and 1965-66.
The petitioner paid shop rent or the 'kist' for this group of toddy
shops amounting to Rs. 3,61,116 a month during the year 1963-64
and Rs. 4,41,216 a month for the next two years. This kist amount
was determined at the tender-cum-auction sale of the exclusive
privilege of vending toddy in the shops of this group during the
relevant period. The petitioner paid amount equal to two months
kist as initial and security dep_osit for each of these years. It was
further stated that notice was given under the notification dated
April 20, 1963, that the exclusive privilege of selling country liquors
during the twelve months, beginning from July l, 1963, and ending
with June 30, 1964, in the shops or groups of shops specified in
Schedules I and II of the notification, situated in th.e district of
Bangalore will be disposed of by tender-cum-auction by the Deputy
Commissioners of the respective districts or other officers specially
empowered by the Deputy Commissioners for the purpose. _The
notification, in para 16, mentioned rates of duty, price, efo. on the
11
several kinds of excisable articles. For instance, on molasses arrack
35° U.P. the duty was Rs. 2 ·73 per litre, price Rs. 0 · 55 per litre
and the minimum retail selling price Rs. 0·61 per decilitre. Under
the head Toddy is given:
G
H
"
l. Date . ,.
2. Coconut
. Tree tax per tree
·Rs. 7·50
Rs. 8·50
· (per each half-year
ending December
and June)."
Then the. minimum selling price of toddy is prescribed. It was
further stated in para 25 of the notification as follows :
"25. For the shops of Bangalore North and South
Taluks, City and Civil Area, tapping may be allowed
M16Sup;CI/66-7
552
SUPRBMB COURT REPORTS
[1967] l S.C.R.
in such areas of Tumkur and Hassan Districts or other
Districts as may be notified by the Excise Commissioner
and the areas so notified may at any time be ·altered by
notification by the Excise Commissioner.
For .shops of Taluks of Bangalore, Rural District,
similar facilities may be given if found necessary."
Para 18 of the notification further provides that "sales tax and
octroi at the prescribed rates and other taxes that may be levied
under any other law shall also be payable."
The petitioner further alleged that he was paying tree rent
to the owners of toddy-yielding trees for allowing him to draw
today from the trees. The petitioner also paid education and health
cess at the prescribed rates in pursuance of the condition in para
No. I 7 of the aforesaid notification.
A similar notification was issued on April 27, 1964, for the
sale of excise privileges for 1964-65, and alternatively for 1965-66.
It was mentioned in para 18 of this notification that health cess
at the rate of nine naye paise per rupee shall also be payable on
the shop rent and tree tax on toddy and other duties of extjse levied
on the following articles in accordance with the Mysore Health
Cess Act (Mysore Act No. 28 of 1962), hereinafter referred to
as the impugned Act, namely, (I) Mandya made Special Liquor;
(2) I.M.F.L.; (3) arrack; and (4) beer. The petitioner alleged that
as a result of the impugned Act it would have to pay Rs. 86,518
more as health cess for the year 1964-65.
The petitioner then challenged the impugned Act as ultra
vires on various grounds which need not be mentioned at this stage.
The petitioner claimed the following reliefs:
(a) to declare that the State of Mysore has no authority
to levy and collect 'health cess' under the Mysore
Health Cess Act 1962, and its predecessor Act of
1951 on shop-rent, tree-tax, tree-rent or any other
item of revenue payable by the petitioner in respect
of its business in toddy;
(b) to issue a writ, order or direction quashing condition No. 18 in the notification dated April 27, 1964,
which relates to the levy of health cess on their business of toddy;
(c) to issue a writ of prohibition or order or direction
in the nature of a writ restraining all or any of the
respondents from enforcing the above impugned condition or by any other similar demand for payment
of health cess under the Health Cess Act; and
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GURUSWAMY & CO. v: MYSORE (Sikri, I.)
553
A
(d) to issue a writ of mandamus directing refund of
B
health cess illegally collected from the petitioner or
any other consequential order and direction as may
meet the ends of justice, for refund of Health Cess
already collected under the provisions of the Health
Cess Act of 1962 and 1951 in respect of toddy.
We may mention that before the High Court a number of
points were raised which have not been debated before us. Before·
the High Court it was agreed by all the parties that. the levy made
under the impugned Act was a tax though called a cess. In view of
this concession, the High Court considered it unnecessary to examine
the nature of the levy made under the Act. The High Court held
C
that the impugned Act, except the Explanation to Clause I of
Schedule A, was valid and it accordingly allowed the petition
D
· only to the. extent of striking down the Explanation.
Mr. Nambyar, who appears for the appellants, in the appeals
connected with sale of toddy, has taken two main points before
us :
(a) That the Mysore Legislature was not competent to enact
the impugned Act because (a) the health cess under the iinpugned
Act was in reality a tax and not a mere cess; (b) the State Legislature had no competence to levy a health ~ax; and ( c) the levy was
in suootance a tax on tax not pernlissible under the Constitution.
I
(2) If the impugned Act was valid, the Act did not empower
I'
the levy of health cess on shop rent because shop rent did not fall
within Schedule A of the impugned Act or Entry 51 of Llst II.
We may mention that he conceded that the tree-tax was
ali excise duty and he confined his case to shop rent or kist.
Before we deal with the points raised by the learned counsel,
it is necessary to set out the relevant provisions of the Mysore
Excise Act (Act V of 1901) and the impugned Act. We may .mention that in some appeals the relevant law is the Hyderabad Abkari
Act No. 1 of 1316 Fasli, and not the Mysore Excise Act, but it
is common ground between the parties that there is no materia:.
O
difference between the provisions contained in the Mysore Excise
Act and the Abkari Act. The Mysore Excise Act was eiyicted
in 1901. Jn· s. 3(1) it defined "excise revenue" to mean "revenue
derived or derivable from any duty, fee, tax, rent, fine or confiscation
imposed or ordered under the provisions of this Act or of any
other law for the time being in force relating to liquor or intoxicatR
ing drugs". There was no defiilition of the words "excise duty"
in this Act at all. This Act substantially . followed the Madras
Abkari Act, 1886 (Madras Act I of 1886). It is interesting to note
that the Madras Abkari Act was amended by. the Adaptation of
554
SUP.IUIMJ! COURT .IUIPOR.TS
[1967] l S.C.R.
Indian Laws Order, 1937, and clause (22) was inserted in the definition section, s. 3, as follows :
"(22) "excise duty" and "countervailing duty" mean
any such excise duty or countervailing duty, as the case
may be, as is mentioned in item 40 of List II in the Seventh
Schedule to the Government of India, Act 1935."••
But the definition of "abkari-revenue" continued to exist in the
Madras Abkari Act even after the Adaptation of Indian Laws
Order, 1937. Clause (14) of s. 3 of the Mysore Excise Act defined
"sale" or "selling" as including any transfer otherwise than by
way of gift. Clause (18) defined "manufacture" as including every
process, whether natural or artificial, by which any fermented,
spirituous or intoxicating liquor or intoxicating drug is produced or
prepared, and also re-distillation and every process for the rectification of liquor. Section 12 provides as under :
"12. No liquor or intoxicating drug shall be manufactured; no hemp plant (Cannobis Sati1•a or lndica) or
coca plant (Erythroxylum coca) shall be cultivated; no
toddy-producing trees
shall be
tapped;
no toddy
shall be drawn from any tree; no
portion of the
hemp or coca plant from which any intoxicating drug can
be manufactured shall be collected; no distillery or brewery
shall be constructed or worked;
no liqour shall be bottled for sale; and no person shall
. use, keep, or have in his possession any materials, still,
utensil, implement or apparatus whatsoever for the
purpose of manufacturing any liquor other than toddy or
any intoxicating drug except under the authority and
subject to the terms and conditions of a license granted
by the Deputy Commissioner in that behalf, or under
the provisions of Section 21:
Provided that the Government may, by notification,
direct that in any local area it shall not be necessary to
take out a license for the manufacture of liquor for bona
fide home consumption.
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Licenses granted under this section shall extend to and
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include servants and other persons employed by the
licensees and acting on their behalf."
•• We have seen various acts which were in force in some of the erstwhile
provinces of British lndiB and similar definition was inserted in all these
Acts; e.g.
(I) Tho Pul\iab Excise Act (Punjab 'Act·l of 1914)
H
(2) Tho Bombay Abkari Act (Bombay Act S of 1878)
(3) The Bengal Excise Act (Bengal Act S of 19D9)
(4) The United Provinces Excise Act (U.P. Act 6 of 1910)
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In short, the section prohibits the manufacture of liquor or
intoxicating drugs except under the provisions of the Act.
Section 15 prohibits the sale of liquor and intoxicating drugs without license, and gives power to exempt sale of toddy. Section
16 reads thus :
"It shall be lawful for the Government to grant to
any person or persons on such conditions and for such
period as may seem fit the exclusive or other privilege-
(!) of manufacruring or supplying by wholesale, or
(2) of selling by retail, or
(3) of manufacturing or supplying by wholesale and selling by retail, any country liquor or
intoxicating drugs within any local area.
No grantee of any privilege under this section shall exercise
the same until he has received a license in that behalf from
the Deputy Commissis:mer.
In such cases, if the Governn\ent shall, by notification,
so direct, the provisions of section 12 relating to toddy
and toddy-producing trees shall not apply."
The notifications set out above may be taken to have been issued
under s;· 16 for the purpose of giving a privilege of selling by retail
[see s. 16(2)). Sections 17 and 18 may be set out in full :
"17. A duty shall, if the Government so direct, be
levied on all liquor and intoxicating drugs-
(a) permitted to be imported under section 6;
or
(b) permitted to be exported under section 7;
or
(c) manufactured under any license granted under
section 12; or
(d) manufactured at any distillery established
under section 14; or
(e) permitted under section 11 to be transported;
(ee) issued from a distillery or warehouse licensed
or established under section 12 or section 14; or
(f) sold in any part of Mysore;
of such amount as the Government may, from time to
time. prescribe."
556
SUPRBMB COURT REPORTS
!I 967] I S.C.R.
"18. Such duty may be levied in one or more of
the following ways :-
(a) by duty of excise to be charged in the case
of spirits or beer either on the quantity produced
in or passed out of a distillery, brewery or warehouse licensed or established under section 12
or section 14 as the case may be; or in accordance
with such scale of equivalents, calculated on the
quantity of materials used or by the degree of
attenuation of the wash or wort, as the case may
be, as· the Government may prescribe;
(b) in the case of intoxicating drugs, by a
duty to be rateably cilarged on the quantity
produced or manufactured or sold by wholesale
or issued from a warehouse licensed or established
under section 14;
(c)· by payment of a sum in consideration of
the grant of any exclusive or other privilege-
(!) of manufacturing or supplying by wholesale; or
(2) of selling by retail, or
(3) of manufacturing or supplying by wholesale and selling by retail any country liquor
or intoxicating drug in any local area and for
any specified period of time;
(d) by fees on licensed for manufacture or of
sale;
(e) in the case of toddy, or spirits manufactured frpm toddy, by a tax on each tree from
which toddy is drawn, to be paid in such
instalments and for such period as the Government
may direct; or
(f) by
import, export or transport-duties
assessed in such manner as the Government may
direct.
Provided that when there is a difference of duty as
between two license periods such difference may be collected in respect of all stocks of country liquor or intoxi.
eating drugs held by licensees at the close of the former
period."
.
It would be noticed that the words "a duty" OCCilr in s. 17 and in
s. 18{a) the words "duty of excise" occur. In the Madras Abkari
Act, J886, s. l7, before the Adaptation Order, 1937, was also in
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GURUSWAMY & CO. v. MYSORE (Sikri, !.)
557
similar terms, but after the Adaptation· Order the opening part of
s. 17 read as follows :
~
"An excise duty or countervailing .duty of such
:imount . as tJ:te State G?vernment may prescribe shall,
if they so direct, be levied on all excisable articles."
We may mention that "excisable article" was defined in s. 3(23)
or the Madras Abkari Act to mean (a) any alcoholic liquor for
human consumption; or (b) any intoxicating drug. Section 28 of
the Mysore Excise Act is also relevant and the relevant part reads
as follows :
"All duties, taxes, fines and fees payable to the Government direct under any of the provisions of this Act or
of any license or permit issued under it, and all amounts
due to the Government by any grantee of a privilege
or by any farmer under this Act or by any person on
account of any contract relating to the Excise revenue,
may be recovered from the person primarily liable to
pay the same, or from his surety (if any), as if they were
arrears of land revenue ...... "
Section 29 enables rules to be made and the rules throw some
light on the conditions of the license and the privilege obtained
by the petitioner. Section V of the Mysore Rules regulating sales
of Excise Privileges prescribes the conditions applicable to toddy
licenses. Condition No. 2 reads as follows :
"For the supply of toddy to his shops, the licensee
shall have the privilege of obtaining subject to tree-tax
rules, toddy-yielding trees in the groves assigned to his
shops or groups of shops, and he shall be at liberty to
manufacture toddy from the trees in private lands under
private arrangements, between himself and the owners
of such lands ...... "
Condition No. 2 further enables the Deputy Commissioner to
refuse to grant license for tapping certain trees. Licensees are
entitled to purchase toddy from any licensed toddy shop-keeper
on application to the Inspector or Assistant Inspector who will
grant the required permits on proof of the necessity for the same
in certain cases. Condition No. 4 reads as follows :
"l'he licensee shall be responsible to Government for
all payments of instalments of fees due on account of
tree-tapping licenses granted on his application in his own
name or in the names of his nominees under the conditions
set forth therein and in the rules relating thereto."
Condition No. 7 provides for tree rent at Rs. 0-8-0 per tree on
Government trees sought to be tapped. Condition No. 8 prescribes
558
SUPREME COUllT llBPORTS
(1967) I S.C.R.
conditions for tapping the trees. Condition No. 17 enables treeA
tapping licenses to be given to the licensed toddy shop-keepers.
Let us first examine the above provisions of the Mysore Excise
Act, and the rules and notifications made under it. It appears to
us that by ss. 12 and 15 of the Act manufacture and sale of toddy
is prohibited, but s. 16 enables the government to grant an exclusive or other privilege, illler alia, of manufacturing or selling
by retail. It is the latter privilege which was auctioned under the
two notifications mentioned above. Section 17 is the charging
section and it is quite clear that the word 'duty' in the opening
sentence docs not mean only excise duty. If an import duty or
export duty is levied under s. 17 it would not be an excise duty
within Entry 51 List II. Section 18 prescribes the modes of levy
Qf the duti¥. We are concerned with the mode mentioned in s.
18(c) (2), i.e. by payment of a sum in consideration of the grant of
exclusive or other privileges of selling by retail. It is noteworthy
that s. 28 distinguishes amount due to the government by any
grantee of a privilege from duties, taxes and fees.
·
Mr. Setalvad, who appears for the appellants in arrack appeals
draws our attention to the existence of the words "duty of acise"
in s. 18(a) and the absence of the word "excise" in s. IS(b), and
contends that apart from the duties collected under s. 18(a) no
other duty was excise duty. We are unable to accept this contention because some at least of the duties collected under s. 18(b)
would be excise duties. However, this much may be conceded
that the Mysore Excise Act not only does not expressly call the duty
collected under s. 18(c) (2) an excise duty, but in s. 28 seems to
mention it differently.
The licences granted to the petitioner were governed by detailed
regulatory provisions regarding sale, but condition No. 2 makes
it clear that the license is in the main for selling. Further if he
taps toddy he has to obtain toddy-tapping licenses and pay fees.
We have already mentioned that the petitioner obtained thAi
privilege of selling toddy at certain shops by bidding at auctions
held in pursuance of the two notifications mentioned above.
We may now notice the provisions of the Mysore Health
Cess Act, 1962. Sectim;1 3 is the charging soction and reads as
follows :
"3. Levy of health cess-There shall be levied and
collected a health cess at the rate of nine naye paise in
the rupee on,-
(i) all items of land revenue;
(ii) the items of State Revenue mentioned in
Schedule A;. and
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GURUSWAMY & CO. v. MYSORE (Sikri, J.)
559
(iii) the items of taxes mentioned in Schedule B
levied under any law for the time being in
force by a local authority."
Section 4 reads thus :
"4. Recovery of health cess-The health cess payable
under section 3 shall be levied, assessed and recovered
alongwith the items of land revenue, State revenue or
tax on which such cess is levied, and the provisions of the
law and the rules, orders and notifications made or issued
thereunder for the time being in force, shall apply to the
levy, assessment and recovery of the health cess as they
apply in respect of the levy, assessment and recovery of
the said items of land revenue, State revenue or tax."
We are concerned with s. 3(ii), i.e. items of State revenue mentioned
in Schedule A, and these items in Schedule A are as follows :
"SCHEDULE A.
I. Duties of excise leviable by the State under any law
for the time being in force in any area of the State, on the
following goods manufactured or produced in the State
and countervailing duties levied on similar goods manufactured or produced elsewhere :-
(a) Alcoholic liquors for human consumption;
(b) Opium, Indian hemp and other narcotic drugs
and narcotics.
Explanation.-The duty of excise leviable under this
item includes the duties, payments, fees and other amounts
payable under section 18 of the Mysore Excise Act, 1901,
and similar impost or payment by whatever name called
payable under any other law in force in any area of the
State of Mysore."
We have already mentioned that the Explanation has been held
by the High Court to be ultra vires. It will be noted that the remaining part of Item I in Schedule A is in substance a reproduction of
entry 51 of List II of the Constitution.
VYe may now take up the points raised by Mr. Nambyar. Regarding the first point, he says that it is a tax on a tax and as no entry
in List II or List III mentions a tax on a tax, or health tax, the
impugned Act is invalid. He further says that if it was the intention
to levy a surcharge on existing items of revenue, the legislature
could '1ave easily used the words 'surcharge' or 'additional duty'
in a,,;ordance with the existing legislative practice. He says that it
:Is not open to us to add or omit any words and that the nature
or identity of thL subject-matter can only be gathered from s. 3
560
SuPUMB COtlaT. ltBPOl.TS
(1967] I S.C.R.
which is the charging section. We are, however, not impressed
by any of these- arguments. It seems to us clear that the legislature was levying a health cess on a number of items of State revenue
or tax and it adopted the form of calling it a cess and prescribed
the rate of nine naye paise in the rupee on the State revenue or
tax. Section 4 of the impugned Act makes it quite clear that the cess
is leviable and recoverable in the same manner as items of land
revenue, State revenue or tax. ·In the context, the word 'on' in
s. 3 does not indicate that the subject-matter of taxation is land
revenue or State revenue, but that 9 % of the land revenue or State
revenue is to be levied and collected, the subject-matter remaining
the same as in ,the law imposing land revenue or any duty or tax.
If we read ss. 3 and 4 together the fact that the words "surcharge"
or "additional duty" have not been mentioned does not detract
from the real substance of the legislation. Accordingly we hold
that the Mysore Legislature was competent to enact the law under
the various entries of List II which enable it to levy land revenue or
the duties of excise, or the other taxes mentioned in s. 3(iii) of the
impugned Act.
This takes us to the second point raised by the learned counsel.
He says that the shop rent is not a duty of excise and does not fall
within Entry 51 of List II, or Schedule A of the Act. We have
already mentioned that he has conceded that the tree-tax is an excise
duty and we need not consider the question of tree-tax at all. His
argument in brief is as follows :
The duty of excise is primarily a duty levied on manufacture
or production of goods, the taxable event being the manufacture
or production. He says that the . taxable event in this case is not
manufacture or production. He further says that the shop rent
is the price given by the petitioner for the privilege of selling toddy,
i.e., for the privilege of carrying on a business. 1bis privilege of
selling, he says, had no relation to production or manufacture of
toddy because the production or manufacture of toddy was complete
before· the petitioner started to sell toddy in his shops. He further
says that the petitioner pays tree-tax which is an excise duty. He
also contrasts the language of ss. 17 and 18 of the Mysore Excise
Act and says that the words "excise duty" are used in s. 18(a) and
not in s. 18( c). He has relied on a number of cases which we will
presently consider.
Mr. Gokhale, the learned counsel for the State, controvcru
these arguments, but we may mention that he has not sought to
sustain the levy on shop rent on any other entry apart from· entry
51 of List II. Therefore, we should not be taken to have expressed
any opinion on the point whether· levy on shop rent or kist can be
justified under any other entry in List II. The point was
e~pressly
put to him and he said that he relied only on Entry 51, List ll.
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GURUSWAMY & CO. V. MYSORE (Sikri; J.)
561
Mr. Gokhale. relies strongly on A. B. Abdulkadir v. The State
of Kera/a('), and says that the. appeal cannot be decided against
him without dissenting from the decision in that case. Mr. Gokhale
has put two propositions before us. He says: (1) that every duty
on goods produced or manufactured is excise duty unless it is
established that it is some other duty; and (2) that, at any rate,
if it is a levy made from the stage of production to the stage of
consumption it is an excise duty. If in this period no other taxable
event has intervened then the levy must be treated to be connected
with production or manufacture and the method by which the
levy is collected is not decisive.
The nature of excise duty has been considered by the Federal
Court, the Privy Council and this Court on a number of occasions,
and it will serve no useful purpose to reproduce the relevant portions
of the judgments in these cases. It will suffice if we mention two
decisions of this Court and the language employed by this Court
in those cases.
~
In R. C.Jall v. Union of India(2), Subba Rao, J., as he then
was, speaking for the Court, after noticing In re the Central Provinces and Berar Act No. XIV of 1938,(3) The Province of Madras
v. Boddu Paidanna & Sons,(4) and Governor-General in Council v.
Province of Madras(•) observed as follows :
"With great respect, we accept the principles laid down
by the said three decisions, in the matter of levy of an
excise duty and the machinery for collection thereof.
Excise duty is primarily a duty on the production or
manufacture of goods produced or manufactured within
the country. It is an indirect duty which the manufacturer or producer passes on to the ultimate consumer, that
is, its ultimate incidence will always be on the consumer.
Therefore,_ subject always to the legislative competence
of the taxing authority, the said tax can be levied at a
convenient stage so long as the character of the impost,
that is, it is a duty on the manufacture or production,
is not lost. The method of collection does not affect the
essence of the duty, but only relates to the machinery of
collection for administrative convenience. Whether in a
particular case the tax ceases to be iri essence an excise
duty, and the rational connection between the duty and the
person on whom it is imposed ceased to exist, is to be
decided on a fair · construction of the provisions of a
particular Act."
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(I) (1962] Supp. 2 S.C.R. 741.
(3) (1939] F.C.R. 18.
(5) 72 I.A. 91.
(2) [1962] Supp. 3 S.C.R. 436.
(4) [1942] F.C.R. 90.
562
SUPREME COUllT REPOllTS
(1967) l S.C.R.
Sinha, C. J., speaking for the Full Court in In re The bill to
amends. 20 of the Sea Customs Act l 878 etc.(') quoted with
approval the passage set out above and added:
"This will show that the taxable event in the case
of duties of excise is.the manufacture of goods and the duty
is not directly on the goods but on the manufacture thereof. We may in this connection contrast sales tax which
is also imposed with reference to goods sold, where
the taxable event is the act of sale. Therefore, though
both excise duty and sales-tax are levied with reference
to goods, the two are very different imposts; in one case
the imposition is on the act of manufacture or production
while in the other it is on the act of sale. In neither case
therefore can it be said that the excise duty or sales tax
is a tax directly on the goods for in that event they will
really become the same tax. It would thus appear that
duties of excise partake of the nature of indirect taxes
as known to standard works on economics and are to be
distinguished from direct taxes like taxes on property and
income."
These cases establish that in order to be an excise duty (a) the
levy must be upon 'goods' and (b) the taxable event must be the
manufacture or production of goods. Further the levy need not
be imposed at the stage of production or manufacture but may be
imposed later.
But it is not easy to decide in a particular case whether the
particular levy is a levy in respect of manufacture or production
of goods. It appears ,to us that this question has to be decided on
the facts of each case, but in deciding the question certain principles
must be borne in mind. First, one of the essential characteristics
of an excise duty is unifonnity of incidence. This characteristic
was mentioned by the Privy Council in Governor-Genera/ in Council
v. Proyinci: of Madras(2) in these terms :
"The tax imposed by the Madras Act is not a duty of
excise in the cloak of a tax on sales. Lacking the characteristic features of a duty of excise, such as uniformity of
incidence and discrimination in subject-matter, it is in
the general scope and in its detailed provisions a "tax on
sales."
This also seems to follow from the wording of the en try
itself. Entry 51 List II reads thus :
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"Duties of excise on the following goods manuH
facturcd or produced in the State and countervailing
(t) [t964j 3 S.C.R. 787
(2) 119451 F.C.R. 179.
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GURUSWAMY & CO. V. MYSORE (Sikri, J.)
563
duties at the same or lower ptes on similar goods manufactured or produced elsewhere in India :-
(a) alcoholic liquors for human consumption;
(b) opium, Indian hemp and other narcotic drugs
and narcotics;
B
but not including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph
(b) of this entry."
It is difficult to see how the State can fix countervailing duties
at the same or lower rates unless the rate of excise as such is known
or can be ascertained. Similarly, s. 64A of the Indian Sale of Goods
C
Act, 1950, contemplates a uniformity of incidence and reads thus :
D
B
II'
a
B
"64. A.