# • THE SUPREME COURT REPORTS CHHOTABHAI JETHABHAI PATEL AND CO v. THE UNION OF INDIA AND ANOTHER

- **Citation:** [1962] Supp. 2 S.C.R. 1
- **Court:** Supreme Court of India
- **Decided:** 1962
- **Case number:** Civil Appeals Nos. 140 to 142 of 1952
- **Bench:** S. J. Imam, J. L. Kapur, K. c. DAS GUPTA, Raghubar Dayal, N. Rajagopala Ayyangar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-supreme-court-reports-chhotabhai-jethabhai-patel-and-co-v-the-union-of-2590
- **Pages:** 75

## Headnote

Excise duties-Retrospective Levy-Validity of enactmentlegislative competence of Po.rliament-Constitutional validityFinance Act J.951 (23 of 1951), •· 7(2)-Constitution of India
Arts. 19(1)(/), 31, 265, Seventh Schedule, List I, Enlry 84,
List II, Entry 60.
The appellants who were carrying on business in tobacco
had in their Jicenced warehouse considerable quantity of
tohacco on February 28, 1951.
On the same day a Bill was
introduced in the House of the People containing the financial
proposals of the Government of India for the fiscal year
beginning April 1, 1951.
Clause 7 of the Bill made provision
for the amendment of the Central Excises and Salt Act,
1944,
by way of alteration of duties, inter alia, on unmanufactured
tobacco by imposing an excise duty of 8 annas per lb, Under
the provisions ofihe Provisional Collection of Taxes Act, 1931,
the duty could become leviable as from
the date of the
introduction of the Bill and it was so made. In accordance
therewith the appellants paid excise duty on tobacco in their
p:>ssession at the rates mentioned in the Bill and obtained
clearance certificates. On April 28, 1951, the Bill was passed
and became Finance Act, 1951, but as
passed changes were
effected as regards the duty proposed in the Bill. Under
s. 7(1) of the Finance Act, the duty on unmanufactured tobacco
was increased to 14 annas per lb. Section 7 (2) thereof
provided that "the amendments made in ~he Central Excises
and Salt Act, 1944,
shall be deemed to have, effect on and
after March 1, 1951, and accordingly ..... , recoveries shall be
made of all rluties which have not been collected but which
would have been collected if the amendment had so come into
force." In pursuance ofs. 7(2) a deinand \Vas made upon the
appellants on June 22, 1951, for payment of the excess of the
1961
Dtcemher 11.
lhhotaLhai J ethobh•i
Par,.! and Co.
v
Thi L'ni~ oj ~nii•
2
SUPREME COURT REPORTS [1116:!] SUPP.
excise duty payable on tohacco cleared out of the warehouse
from March I, 1951,
to April 28,
1951.
The appe!lanlS
challenged the legality of the clernand on the grounds, inter
alia, that (1) excise duty \vas· a tax on goods \\•hic:h must exist
at the time- \vhen the tax \\·as levied and it
1nu~t have been
intended and
expected by the
kgislatur. that it would be
passed on to the consumer, and as the retro~;>«ctive operation
of the duties deprived
the tax of these qualitirs they did not
fall within the term "duties of excise" in Emry 84, List I of
the Seventh Schedule to the Constitution of India, and
therefore, s. 7(2) of the Finance Act,
1951, in so far as it
imposed an excise
duty retrospectively before the date of irs
enactment was beyond the legislative competence of Parliament
and (2) the impugned levy contravened Art. l'l(l)(f), because
a retrospective levy of an excise duty deprived the tax payer of
the right of passing it on and rrcovering it from his buyer, and
that this constituted a restraint on the right to h0Id property,
which was not saved by c!.(5) of Art. 19.
lleld:
(I)
Parliament acting within its own legislative
field had the pnwers of a soverei"n legislature and could make
a law
pr0:spec1ively as
well
retrosperth·ely
and the dutie!'\
leviable under 1he Central
Excises and Salt
Act, 194-4, as
provided by s.7(2) <>fthe Finance Act. 1951. notwithstanding
their imposition with retrospective effect and even if it be that
they were incaμahle of being passed on to a buyer from the tax·
nayer, were "duties of excise" within the meaning of Entry ~4,
List I of the Seventh Schedule
to the Con,titution of India.
(2)
The levy of the tax retrospectivdy ·under s. 7(2) of
the Finance Act, 19.51, was
valid and did not contravene
Art. 19(l)(f) of the Constitution.
Pe.r Kapur, J.-(1~ Entry 84 in List I deals \o.·ith taxes on
1toods
manufactured or
produced. while Entry 60 in List 11
deals with the carrying on of trade i.e., an activity in the nature
of buying and <elling, and the Central Excises and Salt Ac!,
1944, in its pith and substan

## Text

_Characters 0–39,048 of 147,743. This is a partial read: ask again with offset=39048 for what follows._

•
THE SUPREME COURT REPORTS
CHHOTABHAI JETHABHAI PATEL AND CO.
v.
THE UNION OF INDIA AND ANOTHER
(S. J. IMAM, J. L. KAPUR, K. c. DAS GUPTA,
RAGHUBAR DAYAL AND N. RAJAGOPALA
AYYANGAR, JJ.)
Excise duties-Retrospective Levy-Validity of enactmentlegislative competence of Po.rliament-Constitutional validityFinance Act J.951 (23 of 1951), •· 7(2)-Constitution of India
Arts. 19(1)(/), 31, 265, Seventh Schedule, List I, Enlry 84,
List II, Entry 60.
The appellants who were carrying on business in tobacco
had in their Jicenced warehouse considerable quantity of
tohacco on February 28, 1951.
On the same day a Bill was
introduced in the House of the People containing the financial
proposals of the Government of India for the fiscal year
beginning April 1, 1951.
Clause 7 of the Bill made provision
for the amendment of the Central Excises and Salt Act,
1944,
by way of alteration of duties, inter alia, on unmanufactured
tobacco by imposing an excise duty of 8 annas per lb, Under
the provisions ofihe Provisional Collection of Taxes Act, 1931,
the duty could become leviable as from
the date of the
introduction of the Bill and it was so made. In accordance
therewith the appellants paid excise duty on tobacco in their
p:>ssession at the rates mentioned in the Bill and obtained
clearance certificates. On April 28, 1951, the Bill was passed
and became Finance Act, 1951, but as
passed changes were
effected as regards the duty proposed in the Bill. Under
s. 7(1) of the Finance Act, the duty on unmanufactured tobacco
was increased to 14 annas per lb. Section 7 (2) thereof
provided that "the amendments made in ~he Central Excises
and Salt Act, 1944,
shall be deemed to have, effect on and
after March 1, 1951, and accordingly ..... , recoveries shall be
made of all rluties which have not been collected but which
would have been collected if the amendment had so come into
force." In pursuance ofs. 7(2) a deinand \Vas made upon the
appellants on June 22, 1951, for payment of the excess of the
1961
Dtcemher 11.
lhhotaLhai J ethobh•i
Par,.! and Co.
v
Thi L'ni~ oj ~nii•
2
SUPREME COURT REPORTS [1116:!] SUPP.
excise duty payable on tohacco cleared out of the warehouse
from March I, 1951,
to April 28,
1951.
The appe!lanlS
challenged the legality of the clernand on the grounds, inter
alia, that (1) excise duty \vas· a tax on goods \\•hic:h must exist
at the time- \vhen the tax \\·as levied and it
1nu~t have been
intended and
expected by the
kgislatur. that it would be
passed on to the consumer, and as the retro~;>«ctive operation
of the duties deprived
the tax of these qualitirs they did not
fall within the term "duties of excise" in Emry 84, List I of
the Seventh Schedule to the Constitution of India, and
therefore, s. 7(2) of the Finance Act,
1951, in so far as it
imposed an excise
duty retrospectively before the date of irs
enactment was beyond the legislative competence of Parliament
and (2) the impugned levy contravened Art. l'l(l)(f), because
a retrospective levy of an excise duty deprived the tax payer of
the right of passing it on and rrcovering it from his buyer, and
that this constituted a restraint on the right to h0Id property,
which was not saved by c!.(5) of Art. 19.
lleld:
(I)
Parliament acting within its own legislative
field had the pnwers of a soverei"n legislature and could make
a law
pr0:spec1ively as
well
retrosperth·ely
and the dutie!'\
leviable under 1he Central
Excises and Salt
Act, 194-4, as
provided by s.7(2) <>fthe Finance Act. 1951. notwithstanding
their imposition with retrospective effect and even if it be that
they were incaμahle of being passed on to a buyer from the tax·
nayer, were "duties of excise" within the meaning of Entry ~4,
List I of the Seventh Schedule
to the Con,titution of India.
(2)
The levy of the tax retrospectivdy ·under s. 7(2) of
the Finance Act, 19.51, was
valid and did not contravene
Art. 19(l)(f) of the Constitution.
Pe.r Kapur, J.-(1~ Entry 84 in List I deals \o.·ith taxes on
1toods
manufactured or
produced. while Entry 60 in List 11
deals with the carrying on of trade i.e., an activity in the nature
of buying and <elling, and the Central Excises and Salt Ac!,
1944, in its pith and substance relates to duty on goods manu~
factured or produced and has no relationship with Entry 60.
(2) Reasonableness of tax laws is not justiciable aod therefore thev cannot fall within cl.(5) of Art. 19. Art. !9(1)(fl and
the cl.(5) are part of one scheme and the former is incapable of
opera tin.~ where the latter is_ inoperative.
If conctiderations
of Art. 19(5) are foreign to taxmg laws Art. !9(1)(f) can have
no application to them.
Case law reviewed.
•
• ..
.'
2 S.C.R.
SUPREME COURT REPORTS
3
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 140 to 142 of 1952.
Appeals from the judgment and order dated
March 24, 1953, of tbe former Nagpur High Court in
Misc.
Petitions Nos. 1795-1796 of 1951 and 1 of
1952.
WITH
Petitions Nos. 24, 25 and 93 of 1952.
Petition under Art. 32 of the Constitution of
India for enforcement of Fundamental Rights.
G. S. Pathak, 8. N. Andley, J. B. Dadachanji and
Rame,~hwar Nath, for the appellants/petitioners.
H. N. Sanyal,
Additional Solicitor General of
India, N. S. Bindra, R.H. Dhehar and.T. M. Sen, for
the respondents.
C.R. PaUabhi Raman and R. Ganapathy Iyer,
for the interveners (in C. A. No. 141 of 1954).
1961, December II. The judgment of S. J.
Imam, K. C. Das Gupta, Raghubar Dayal and
N. Rajagopala AJyangar. JJ., was delivered by
Rajagopala Ayyangar, J., J. L. Kapur, J., delivered
a separate judgment.
AYYANGAR, J.-ThA appellants in Civil Appeal
140 of 1954 are tobacco merchants and manufacturers of hiris.
They own private warehouses
licensed under r. 140 of the Excise Rules, 1!!44
at Gondia and other places in Madhya Pradesh.
On tlw 28th of February, 1951 a Bill was
introduced in the House of, the People, bein.g
Bill 13 of 1951 containing the fimtncial proposals
of the . Government of In<lia for the fiscal year
be.ginning the I st of April, Hl51.
Clause 7 of the
bill ma<le provision for the nm<'n<lment of the
1961
Ohhotabhai Jethabhai
Patel and Co,
v.
The Unio11 of India
Ayyangar J
•
Ch 1.~tabhai J ethail:a.i
P«tel an.d c •.
••
The Uni4n •f lntii11
S1JPREME COURT REPORTS 0962] SUPP.
Central Excise Act (Act 1 6f 194-i) by· w-iy of
alteration
of cfuties on "tobacco manufactured
and unmanufactured." In particular;· it pi:ovided
that "unrrran'ufactured.tobacco other.thap fhie.-cured
and ordinarily used other\vis\l .. tl:pn .fdr. ~hJ:lptanu
facture of cigarettes"(which in9iude<;l•toJ)ac<;fo':jqJ;e11d'-
ed for manufactur13 into biris) shorila "'l;ie:· t;l\:arged
to an excise duty of .8 amias per -lb .. apcl'it' al:;,q
imposed a new duty of excise <?n. ·biris. 'v;arying
from 6 to 9 annaS: per lb. depepdiijg 'ti p9n .the
weight of tobaQCO ,contained in the b'iris."
Section 3 of . the Provisional Collection of'
Ta:ree Act,.1931 (Act X'\'.I of 1931) enacted."" Where
a. bill introduced into the Indian Parliament provided for the imposition .or increase of ,a duty of
excise the Ci,ntral Government might ca,.use to· be
insert!Jdin ,the bill a declaration thatj,t w:a,s e.xpedient
in t1J,1i public interest. that any pr.ovision of the bill
relating to such imposition or ir,cr~ase shall hav.e
immediate effept under this Act".
_A, declaration
under thi~ S\)Ction was ri1ade in i-especj.. pf the pro·
vision for \mpqsing the qutles 9n toq~cco Uil~er.'ci. 7
of the bill 11lteady .adverted to.. ']'.!he .effect o( ~uch
a deolarat'ion wall -stated iii s. f 'ofAct XVI.of l!l3l
in the following terms.·,_
·
"4;. fl) A declare.cj, '.·J'.iro'v,ision . .,h~lJ;.> 4ave ,
the for.ce of law ilJlrilcqfately 'On ·the· 6.f'~i r}r.o.f
the day on which the' Bi\L cb,n);aini()g')tiJ"i~_
introduced.
·
.. J
(2) A declared provis'~or; ~haD ~.il.E~. to .have· ili,e'
force of law under the prov1s10mv.of ~his Act-+ ,,
(a)
Wh~n 'it c"orp:es fl)t?-·'o'p~~ifiori:.
as an enactment, with
or' ":withi:ii1£
amendment~ or
·,'
. .,,
~, -~ '""i.b.~~ /~
(b)
whei1 the C<(n'tra'l 'Goy;erniiiJ~J!
in pursuance of a ·mo\;ion passcd'9'y ·Pl:t'(li;>- ,
,.
.....
•"1'
~!. r!
\'.:"
, .
. ' (
' .
i
•
2 S.C.R.
SUPREME COURT REPORTS
5
ment, directs, by notification in the
Official Gazette, that it shall cease to
have the force of law, or
(c) if it has not already ceased to
have the force of law under clause (a)
or clause (b), then on the expiry of the
sixtieth day after the day on which the
Bill containing it was introduced."
·In compliance with this law the appellants
paid the excise duty at the rates imposed under
cl. 7 of the bill and obtained clearance certificates
in regard to the tobacco moved out from their warehouses from and after March 1, · 1951.
Bill 13
of 1951 was passed into law as the Indiai1 Finance
Act 1951 (Act XXIII of 1951 on April 28, 1951 but
· as passed, changes were effected in the duty proposed in the bill, as a result of certain alterations
suggested by the Select Committee. lTnder s. 7 ( l)
of the Finance Act 1951 while the excise duty on
biris was a,bandoned, the duty on unmanufactured
tobacco (other than flue, cured and used in the
manufacture of cigarettes) was increased to 14 annas
per lb. from the rate of 8 annas per lb. in the bill.
Consequential provisions were enacted in w. 7 (2)
of the Finance Act which read :
"The amendments made in the Central
Excise and Salt .'\ct 1944, sub-cl. 1 shall be
deemed to have effect on and from the 1st
March, 1951 and accordingly:-
(a) refund shall be made of all dutie8
collected which would not have been
collected, if the amendment had come into
force on that day, and
(b) recoveries shMl be made of all
duties which have not been collected but
which would have been collected if the amendment had so come into force."
1961
Chhotabhai J dhabh•
Pate/ nnd C•.
••
The Cnion. of btii•
.Ayyan,:•r J.
1961
Chlrotabhai J11habhai
Patti and Oo.
v
"f k Union of lnd:·a
A.y;·angar J.
(j
SUPREME OOURT REPORTS [1962] SUPP.
In pursuance of s. 7 (2)a demand was made
upon the appellants on June 2~.1951 for the payment
of the duty f>•>yable by them, after givi11g credit for
the refund of the duty paid on Liris which had been
deleted by the Act.
The nppellnnts contested the
legality of this demand by a petition Hnder Art. 22H
which they filed in the High Court nt Xagpur urging
that the retrospective operation given to 8.7( J) by
suo-s.(2) thereof was illegal, ultra m'res and unconstitutional, and besides that the provision in r. IO
of the Excise Hules which contained the machinery
for enforcing the demand was not adequate to meet
the situation arising out of the chango in the law
from the previsions of the bill to those of the Act.
The learned J udgcs of the High Court repelled all
the contentions disputing the legislative competence
and the constitutionality of the legislation contained in s.7(2) of the Finance Act of 1951, but
they upheld the objection to the adequacy of the
procedure for recovery based on the limi.tcd scope
of r. 10 of the Excise Rules. Thereafter the Central
Gov.ernment, by a notification dated December 8,
1951, amended the Central Excise Rules, 1944 by
the addition of a new r. IOA providing machinery
Hpeci.1lly deBigned for the enforcement of a demand
like the one arising in the circumstances of the
present case. On December 12, 1951 a further and a
fresh demand was made for the payment of the duty
in terms of s.7(2J(b) of the .Finance Act quoted earlier,
and the appellants thereupon once again moved the
High Court of Nagpur under Art. 226 challenging
the validity of the demand on the very same grounds
as before. This petition was heard by a .Full Bench
of the Court and every contention raised by the
appellants including that based on the adequacy of
the new r. JOA to cover the present case was
rejected. The learned Judges granted a certificate
under Art. 132 of the Constitution which has enabled
the appellants to file this appeal.
Before proceeding further it is only nece8sary tu state that there
is no material difference between the facts of the
•
•
2 S.C.R.
SUPREME COURT REPORTS
7
cases covered by Civil Appeals 141, 142 as well as
the points raised in the Writ Petitions and that
th\s judgment will cover and dispose of the other
appeals aud the petitions. We might also, at this
stage. mention that other parties who were similarly
situated as the appellants in Civil Appeals 140 to
142 of 1954 and who had filed p8titio11s under
Art. 226
of the Constitution
in
the High
Court of :\Iadras which are pending there, raising
the same points as tho appellant's before us,
have
intervened in these appeals and they have also
been heard.
Learned Counsel appearing for the
interveners adopted the arguments urged in support
of the appeal.
Mr. Pathak, learned Counsel who appeared for
the appellants urged three point in support of the
appeals( 1) Secti0n 7 ( 2) of the Finance Act, 1951 in so
far as it imposed an excise duty retrospectively
before the date of its enactment (April 28, 1951)
was beyond the legislative competence of Parliament. The contention on thi~ head was briefly
this : The impugned tax was imposed by Parliament
in purported exercise of the power to levy "a duty
of excise on tobacco" within Legislative Entry 84
of Union List which reads :
"Duties of excise on tobacco and other
goods manufactured or produced in
India
t
"
excep ................. .
An "exc'ise" was basically an indirect tax,
i. e., a tax or duty not intended by the taxing
authority to be borne by the person on whom it is
hnposcd and from whom it iB collected but is
intended to be passed on to those who purchased
the goods on which the duty was collected ; but
when .such a tax was imposed with retrospeetive
effect it could not be passed on, so such a levy deprived the tax of its ess'enti&l nharacteristic of being indirect. It there£ore ceased to be a "duty of excise" and
1961
Ohholalihai Je1hr L
Patei and lo.
v.
The Union of India
.A.yyanza,.. J.
11111
:Mot'lhhai Jtthahhni
Patti and c •.
••
'71# Union of India
.d.Y.l""I"' J.
8
SUPRE::lfE COCRT REPORTS [l!l62] SUPP.
became a pmsonal tax of a category quite di1ltinc•t from
"excise" am! so wiis beyond the lc·gislati,·e power uf
Parliament under that Entry.(:!) That the impugned
Jeyy was unconstitutional in that it ccmtravcncd the
fundamental right guaranteed to the citizens of India
to hold property under Art. Ill( I )(fJ, the point urged
being that a rctrOSJll'Ctive levy of an ""xcise duty"
deprived thP, tax-payer vf the right of passing it
on and r<'covering it from his buyer, that this
wnstitutcd a restraint· 011 "the right to hold property" (the amount of tlw tax-levy) conferred Ly
Art.
19( I )(f) and was not HR\'('() by cl. 5 of that
Article as being a reaso11able restraint and should,
thernfore, Le struck down under Art. 13('.2 ). (:l) That.
the terms 1,f r. IOA of the Excise Rules l !J44· \\·ere
insufficient to cover the ca8CS of the appellants
and that in consequence the demand made on them
and the attempt to n'cover tl"' sums by resort to the
coercive proces' provided for
by s. I I of the
Central Exciso Ac:t waH illc·gal am! without statutory
authority.
We shall now proceed to c11n>ider these pointo
in that order. (I) Wmd of lcui ,/utice c-nnpetci-u: To
appreciate the submi8nion of learned Cu1,11scl it is
necessary to eet out the steps in the reasoning hy
whiC"h he sought to establish that a
"duty of
cxdse"' when imposed with retrospective
effect
cea~cl to be a "duty of excise'" as used iu Entry t;.J
of the Vnion List. Th .. submiRsio11 of learned
Comisel was this : The term "duty ,,f excise" on
goods was universally reeognizecl as a. tax on home·
produced goods and as a typical instirncc of an
indirect ti..x.
[t was a tax on the 11cti\'it v uf
productiull or manufacture of goods within the coun·
try and that it was levied on or C'ollccte<I from tho
producer or manufacturer or froru those who held
.uch goods. H was, further, not a pernonal tax but its
essential and characteristie nature, which distingui·
shed it frow other typ<'S of taxes was that it was levi·
ed on goods. It had, thcn·fore, in order that it might
'
'
...
,
2 S.C.R..
SUPREME COURT REPORTS
truly be
a "duty of excise", to satisfy two
t'ests : (a} It had to be an indirect tax, i. e., levied
in such a manner that the person from wbom the
tax was collected was in a position to pass it OII •.o
those who acquired the goods from him or at least
the taxing
authority
expected him to pass
it on, and laid no impediment on his ability to
do it. (b} Being a tax on goods, it was levied on the
producer or manufacturer or person in possession
of the goods at the time when the person taxed
was the owner or had possession and control over
the goods. Where neither of these essential elements or attributes was present, and in" the present
case, according to learned Counsel neitr,er condition was satisfied, the tax-levy would not fall under
the category of "duty of excise."
The same argument was Presented in a slightly different from by saying that thougb Parliament,
generally speaking, had the power to legislate in respect of everyone of the subjects included in the
relevant legislative entries whether prospectively,
or retrospectively including legislation with regard
to taxation, still if the retrospective levy of a tax,
altered its essential nature and identity, then the
power to legislate retrospectively would he open to
Parliament only if the tax in its altered frorn-i.e.,
a tax direct and personal-would be open to Parliament to impose. Jn the case of a "duty of excise" as
the tax in the present case was, if imposed retrospectively, deprived it of its essential characteristic of being an indirect tax .and a tax on goods,
and so the power of Parliament to enact such
retrospeeti ve legislation would
depend
upon
whether Parliament could impose a tax on a person
merely because he happened to produce goods at
an antecedent date, or, happened to have had in
his control goods of indigenous production at a
prior date and if this could not be done, it would
follow that Parliament could not impose a "duty
of excise" with retrospective effect.
1:16)
Chhotabhai Jethahba~
Patel and Co,
v.
The Union of India
Ayyangar J,
1961
l.-~;1,,, i1.:'1•J1 .!tthabhi.i
/'111,/ r·nd (."(J
,.
Ti;e Cn1011 of lwlrn
.·!y_;nn::or .I.
1 t1
SUPREME COURT l~EPORT8 [l!J6~J 8Ul'l'.
In support of his submission r"garding the na·
tun· of an <>xciRc rluty and that 1m·aning that ought to
b" ;ittributcd to that expression M it occurn in Entry
S~ of the union List, !\Ir. P.-thak placed before us
jurlgments of the Privy Council in appeals from
Ca na<la and Ao me decisions of the American Supreme
Conrt and of the Austral inn High Court.
Fir,;t as to the decisi:i:,., relating lo tho Canadian ConHtilution though karned Counsel referred
us to several decioiom; on the interpretation of tho
word "excise·· in connection with the distinction
between direct and indirect taxes in most of tho
BritiHh Xorth America Act, 18<ii, we <lo not think it
11cccssary to n•frr to all of thPm.
The ~"ncrnl line of approM:h of the Privy
Council decision,; referred by learned Counsel could
be g11thererl from tbe observat.ions of Lord Cave in
Cd•/ of lfolifux v. F·1irbm1l:s' Est11IE"(').
The impugned t.nx legislation was a b11Hi1u·ss tax imposed by
the Province of N ovn Scotia to be paid by (n·ery
occupier of rP.al
property for the purposes of
any trade, profession, or other calling carried on for
the purpose of gain, the assassrnent being according
to the capital value of the premises.
This was
challenged infer (l/i•t on the ground that it was an
indirP.ct t.a.x and therefore not within the legislative
competence of the Provincial Legislature.
Lord
Cave said :
"Tlnrn, taxes on propnty or income were
everywheri' treated as direct taxes ; anrl John
Stuart :\lill himself, following Adam 8mitb,
Ricarclo and .James Mill, said that a tax on
rents fallH wholly on the landlord uncl cannot
be transforre<I to any one else ............... On
the f'1ther han•l. duties of customs and excise
w~re regarded
by every one as typical
i1rnt1mces of indirect taxation. When therefore th" Act of Vnion allocated the power of
direct t;ixa.tion for
Provincial pnrposes to
111
ll'U8J c .. ~. 111.
..
..
•
2 S.C.R. SUPREME COURT REPORTS
11
the Province, it must surely have intended
that the taxation, for those purposes, of property and income should belong exclusively
to the Provincial legislatures, and that without regard to any theory as to the ultim~te
incidence of such taxation. To hold otherwise
would be' to suppose that the framers of the
Act intended to impose on a Provincial legislature the task of speculating as to the probable
ultimate incidence of each particular tax which
it might dljsire to impose, at the risk of having
such tax held invalid if the conclusion reached
should afterwards be held to be wrong ......... ..
The imposition of taxes on property and
income, of death duties and of municipal and
local rates is, according to the common
understanding of the term, direct taxation,
just as the exaction of a customs or excise
duty on commodities ............ would ordinarily
be regarded as indirect taxation ; and although
new forms of taxation may from time to time
be added to one category or the other in accordance with Mill's formula as a ground for
transferring a tax universally recognized as
belonging to one class to a different class of
taxation."
Similar passages in relation to a "duty of excise"
being an indirect tax occur in other judgments of
the Judicial Committee to which learned Counsel
drew our attention. Of these, it is sufficient to
refer to one more-Attorney-General for British
Columbia v. Kingcome Navigatwn Company, Limit·
ed (1 ) which raised the question as to whether a .tax
which was imposed upon every consumer of fuel-oil
according to the quantity which he had consumed
imposed by the Fuel-Oil Tax Act of 1930 Of British
Columbia was a direct tax under s. 92, head 2, of
the British North America Act, 1867. After extracting the following passage from Bank of Torrm;to
v. Lambe('} :
(2)
12 A. C. 575.
1901
Chhotahhfli Jethabhai
Pa:el and Co.
•.
The Union of India
Ay.vongor J.
J9f.J
·1.·o/,Jt/,1.; .frthnb.~-n
/'1111: 11<1d C:o.
v.
l1r l,"r,.'.11 of frldi~
12
Sl.IPRE:IIE COCRT REPORTS [1962) SUPP.
"A direct tax is one whi~h is demanded
from the v"ry persons who it is intended
or desired should pay it.
Indirect taxes are
those which are demanded from one pPrson
in the expectation and int<11lio11 that he shall
indemnify himself at the expense of another;
sm:h are the excise or customs.
Lord .Moulton who delive1cd the judgment of the
Board r!'ferred to tho p'issa;;e from the judgment of
Lord Cave in City of f/u/ifax v. Fairbanks' Estate(')
just now quoted 1md went on to add :
"The ultimate incidence of the tax in the
sense of the political economist, is to be
disregarded, but where the tax is imposed in
respect of a transaction, the taxing authority
is imlifferen t as to which of the parties to the
transaction ultimately
bears
the burden
.......... $imilarly, whe1e the t.ax is imposed in
n"1-.ect of some dealing with commodities,
such as their import or sale, or produe:tion
for sal!', the tax is not a peculiar contribution
upon the one of the parties to the trading in
the particular commodity who is selected as
the tax payer.
This is brought out in the
second paragraph of l\Iill's definition, and is
true of the typical custom and exci8e duties
referred to by Lord Cave." Tho tax was
therefore held to be valid.
We consider that not much assistance could
lie derived from these decisions for the interpretation
of the scope or content of the term "duties of
excise" in Entry 84 of the Union List.
The line of
division in Canada between those tuxes which a
Province could impose and those which it could not
wns, whether it was direct or indirect. In Canada,
taxing powers are divided between the Dominion
and the Provinces on tho basis of the incidence of
the tax, the Dominion power extending to "any
mode or system of taxation" (vide s. 91 (3) British
North America Act, 1867)
while that of the
(I) [1928) A. C. 117.
•
•
•.
•
,
•
2 S.C.R.
SUPREME COURT REPORTS
13
Provinces is restricted to "direct taxation within
the Province in order to the raising of revenue for
provincial purposes" (Section 92(2) ibid). When
therefore the validity of any Provincial tax legislation is challenged in Canada the enquiry is as
regards the normal incidence of the ta:x: whether
it is "direct" or "indirect." As these expressions
had a settled meaning in economic theory, the
Courts had necessarily to find out whether the
particular tax imposed by the Province fell within
the olass of "indirect" taxes or not. In such a
situation naturally the classification by economists
of taxes as those which are "direct" as distinct
from those which are "indirect" assumed a vital
role in deciding whether the tax impugned is or is
not within Provincial power. As pointed out by
Gwyer, C. J. in the Province of Madras v. Boddu
Paidanna (') :
"The Can'l.dian cases which were cited do
not seem to afford any assistance, since
analogous problems in Canada are always
concerned with questions of direct and indirect
taxation ; and if a Provincial tax is held to
be an indirect t'l.x, it is unnecessary for the
Court to consider whether it may not also be
a duty of excise: see, for example Att.-Gen.
for British Columbia v. The Canadian Pacific
Railway Co.
(1927 A.C. 934), where a tax ou
every person purchasing within the Province
fuel oil for the first time after its manufacture
in, or importation in·to, the Province was held
to be invalid as an indirect tax, and the
question whether it might not also be bad
as an excise duty was left unanswered. In
contrast to the case just cited we may refer to
Att. Gen. for British Columliia v. Kingcome
NavigatWn, Co. (1934 A. C. 45) in which a
fuel oil tax imposed by a Provinoe upon
every consumer of fuel oil according to
(I) [1942] F.C.R. 90, 103.
1961
Chhotahfiai Jethab~
Patel and Co.
v.
The Union of Ind
Ayyangar J,
1961
Clih1ttJ~hai J 1thalhai
Pt1trl and Co.
v.
7 hr CJni,m of India
A yyan,;ar J.
14
SUPREME COURT REPORTS (1962] SUPP·
the quantity which he had consumed was held
to he rnlid aa a direct tax, because it was
<lemande<l from t.he very persons who it was
intended or desired ~hould pay it."
Similarly,
J,ord 8imonds observl'd in Governor
&'cneral in Council v. Prm:inr,e of Madras{'):
"little aAaistance is to be derived from the
consideratinn of other fpdcral constitutions
and of their judicial interprct11tion. Hore
there is no question of direct and indirect
taxation, nor of the definition of specific and
residuary powers."
rnder the Indian Comtitution the scheme or
division of the taxing powers between the Union
and the 8tates is not based on any criterion dopendfmt on tho incidence or the tax. 8ir Maurice
Gwver in In re the Central Province-~ and Berar Act
X IT' of 1938 (') speaking of the word "excise" as occurring in the le~islativc lists in the Government of
Jnida Act (and for this purpose there is no variation
in the lists in .Schedule VII of the Constitution) said:
"Its primary and fundamental meaning in
English is that of a tax on articles pro<luced
or manufactured in the taxing country and
intended for home consumption. I am ~atisfied
that this is also its primary and fundamental
meaning in India ; and no one has suggested
that it has any other meaning in Entry No.
45 (corresponding to Entry 84 in the Union
List).
It was then contended on behalf of the
Government of India that an excise duty is
a duty which may be imposed upon home produced goods at any st.age from production to
consumption; and that therefor~ the ~ederal legislative power ext{'nded to 1mpoemg exc,1se
(I)
721. A. 91, IO'l.
(21
[1939] I F.C.R. 18, 40.
-
.....
•
'f
-
•
2 S.C.R.
SUPREME COURT REPORTS
15
duties at any stage.This is to confuse two things,
the nature of excise duties and the extent of
the federal legislative power to impose them
.... , .... There can be no reason in theory why
an excise duty should not be imposed even
on the retail sale of an article, if the taxing Act
so provides. Subject always to the legislative
competence of the taxing authority, a duty
on home-produced goods will obviously be
imposed at the stage which the authority find to
be the most convenient and the most lucrative,
wherever it may be; but that is a matter of the
machinery of collection, and does not affect
the essential nature of the tax. The ultimate
incidence of ar. excise duty, a typical indirect
tax, must always be on the consumer, who pays
as he consumes or expends ; and it continues
to be an excise duty, that is, a duty on homeproduced or home-manui:'actured goods, no
matter at what stage it is collected."
As Lord Simonds said in the decision, to which
reference has already been made after referring to
the decision of the Federal Court in the C.P. Petrol
case( 1):-
"Consistently with this
decision their
Lordships are of opinion that a duty of excise
primarily a duty levied on a manufacturer or
producer in respect of the commodity manufactured or produced. It is a tax on goods
not on sales or the proceeds of sale of
goods,"
and then speaking about taxes on sale of goods the
· learned Lord continued :
"The two· taxes, the one levied on a manufacturer in respect of his goods, the other on
a _vender in respect of his sales, may, as is
there pointed out, in one sense overlap. But
in law there is no overlapping. The taxes
(1) (1939) I. F. C.R. I~
Chhotabhai J1thabhai
Patel and Ca.
V,
The Union of lnd(o
Ayyangar J.
1901
Chhotabhni .T1t 1Mbhai
/'atrl a11d C:'J,
v.
Th~ l:rdr.n ".f India
lti
SUPREME COURT REPORTS (1962) SUPP.
are separate antl distinct imposts. If in fact
they overlap, that may be bt,causo the taxing
authol'ity, imposing a duty of t>XCise, fintls it
convenient to u11posc that duty at the moment
when the exciseable article leiwes the factory
or work~hop fur the first time on the occasion
of its sale.
But that methotl of collecting the
tax is an accident of administration; it is not
oft he es;ence of the duty 0f excise, which is
attracted by the manufacture it!lelf."
In view of this clear exposition of the content of
the term "duty of exciAe" in the Indian setting we
think, no assistance can be derived for the meaning
a!lcribecl and the characteristics attributed to it in
the dt•cision cunstruing the relative taxing powers
0ft.he Dominion anrl the Provinces under the BritiHh
North America Act I 8l\'i.
Before dealing with the Australian decision to
which !\Ir. Pathak drew our attt>ntion, we could con·
veni<'ntly dispose of the American Mses which were
referred to
b~· the learner! counsel hearing on the
mPaning of the word "excise". We might point
out that the American decisions do not assist the
appP II ant in the ]pa,t ~ince under the Constitution
of the Unitl'tl States practically every tax other
than a capitation, a poll tax or a tax on land is
termed an "exise dnt y"' 11.nd even income.tax was
held t.o be an 'exclsP' until the det·ision of tho
Supreme Court of the 1"nited States in l'ollock v.
Farmers Loan & Trust Co ( 1) • It. has to be borne in
mintl that the American Co1rntit ntion provides that
tlirect taxeH have to be apportioned amonir the
StatPs according to their r·cspective pop11l11tions
{Art. I, s. 2, and Art. I, s. 9, el. .t), Hence the at·
tempt in the l 'nited States has been to bring taxes
which according to the classification of economista
woul<l be direct taxt-s within tile category of excise
or indirect taxf's which need not follow the rule
as to apportionment among the States. It follows,
(Ii
1"8 U.S. GO!.
-
• '
2 S.C.R.
SUPREME COURT REPORTS
17
therefore, that neither the American decisions, nor
the understanding by the Courts of t,hat country as
to what a duty of excise connotes can be of any
utility for deciding the content of that entry in the
Indian Constitution. The relevance of the American
decisions is, therefore, even remoter than the
decisions from Canada which were relied on by the
learned Counsel.
Mr. Pathak referred us to some of the decisions in Australia and in particular to Parton v.
Milk Board (Victoria)(') in support of his submission
that the characteristic of being an indirect tax and
therefore the capability of being passed on wa~ an
essential ingredient anrl pre-requisite of an excise
duty. In this connection it is necessary to point
out that the decisions in Canada which were relied
on by Mr. Pathak as aids for understanding the
import of the expression "duty of excise" in Entry
84, have been treated by the A11stralian Courts as
not helpful to determine the meaning of "excise"
in s. 90 of the comm<:mwealth of Austrnlia Act.
As
explained by Wync-s * :
"In Canada, the distribution of taxation
is based upon the direct and indirect character thereof, the Provincial power being limited to direct taxation within the Pr.ovince.
Hence Canadian cases such as the Bank of
Toronto v. Lambe are of verv little use in
settling the qu~stion whether or. not a tax is
a duty of customs or excise within the
meaning of the Australian Constitution.
It may be pointed out that under the Australian
~onstitution taxes levied on commercial dealings
m goods prodnced, such as taxes on sales, have
been held to fall within the category of excises.
Several of the decisions of the Australian High
Court rendered before
Parton v. Milk Boar<l
(Victoria (1) dealing with what constituted an excise
(I) 80C.L.R. 229.
"' \Vynes' Legislative, ExecutiYe and Judicial Powers in Austr1lia
(Second Edition). at page 504.
1961
Chiolabhai J ethabhai
Patd and Co.
v.
The Union of India
Ay)'angar J.
1961
Chhotabhai J eth•bhai
'
Po.tel and Co
v.
Tiu Unioii of India
AY..10.ngar J.
18
SUPREME COURT REPOR'fS [19621 SUPP.
under s. 90 of the Commonwealth of Austtalian Act
wero cited to the Federal Court in the Province of
Madras v. Bod.du Paidanoo (1) and the lear.ned. Chief
Justic"e, after referring to them in detail, observed:
"Yf e find it impossible to say t)lat the
expressii:Jn 'duties of•«i<xcise' even jn Australia is limited to duties imposed ii) c~mnection
with tlie producti9n of a commodity alone.
We s~ould be d!spose<'l to say ,on the con!!'?-P'
that m Australia all taxes on the sale «~f commodities are, or may be regarded, as, duties
of excise.:-:-:.._. .............. Under t"qe Australian
Constitution 'power to impose duties .of
excise is,· as we have said, ,the exclusive
right of the Qommonwealtb.-Parliamerit; th.e
residuary taxing power remains in the .States.
In the Indian Constitution Act the·whole o"f-the
taxing power ':in .this particular sphere is expressly apportioned between the Centre and
the Provinces, to .the one being -assigged the
power" to impose duties ·of excise, to the
other taxes on the sale of gocids."
The decision in the Milk, Board case follows iii"
gener'al the same·lines as did the earlier decisiqns
which have been detailed and discussed by Sir Maurice
Gwyer C. J. in P1t·idannn's case('). fn these circumstances we do not consider it useful or necessary to
discuss these decision~. Undoubtedly, there .are
passages in those
judgments in the Australian
Courts which refer to the fact that an excise duty
is an instance of ;m indirect tax. As regards the
general proposition, however, thcre:is little controvercy, but these decisions di<l not Jay down that .if
by reason 'of the tax being levied retrospectively
the duty cannot be passed on it. coase<l to be a du~y
of excise.
On the other hand, there is express and
high a.uthority for t!ie posjtion that a duty of excise could be validly levied ;With retrospective effect
nnder the Australian.Constitutjon. The question for
dl [19{2] F.C.R 90. !03.
·~
2 S.C.R.
SVPREME COURT REPORTS
19
consideration before the privy Council in Colonial
Sugar Refining Company Ltd. v. Irving(') related to the
constitutional validity of the Excise Tariff Art,1902,
passed by the Commonwealth Parliament. One of
the objections raised to the levy was that on the
terms of the enactment which was passed on the 26th
of July, 1902, the imposition of the duty could be
as and from October 8, 1901, the day on which the
Minister had moved a resolution to that effect in
the committee of Ways & Means of the House of
Representatives. The respondent before the Board
who were manufacturers of rofinod sug'u in Brisbane in the State of Queensland questioned the
legality of the tax which had been demanded and
paid by them in respect of the sug1'r produced by
them between October 8, HJOI, and July 26, HJ02.
Lord Davey delivering the jndgmf'nt of tho Board
observed:
"It is a little difficult to understand the
first point taken by the appellants. The
Parliament !rad undoubted power to impose
taxation under the express words of s. 51 of
the Constitution, and it is not now disputed
that the Parliament could, if it thought fit,
make the Act retrospective and impose the
duties from the date of the resolution. That
practice is (it is believed) universally followed
in the imperial Parliament, and (their Lordships were told) is common in the Colonial
Legislotures in Acts of this description, and
for obvious reasons it is convenient and almost
necessary.
There was nothing, therefore, in
either the subject matter of the Act, or in the
mode of dealing with it, \vhich was beyond
the power of the Parliament."
In our opinion, the above aptly describes
and covers the point raised by .the appellants in
the appeals now before us.
·
(I)
[1906] A.C. JGO
Chhotabhai Jethabhai
Patel and Co.
v.
The Un ion of Iniia
A vyangar J.
Ch~11l•ihai .1,11ul.bh11i
l'•ltl ani r: o.
v.
T"6 l'nioli of lr.J1c
20
SUPRElltE COURT REPORTS. [196~] SUPP.
There is no doubt th<it excise duties have
been referred to hy the economists and in the
judgments of the Privy Counci I RS well as in the
Australian c!Pcisions a' an instance of an "indirect
tax", hut in construing the l·xpression " duty of
excifie " as it
o~c·urn in , Entry 84 we are not. cc;nccrned so much "·ith whethC'r the tt•x is " direct''
or " imlirect ., aK upon the transH.ction or actiYity
on whir:h it i;; impnscrl. In this context one has
to bear in mind the fad thnt the challenge to the
legislative
competence of th" tax-levy
is not
directerl to the imposition as a whole hut to a very
limited and restriderl part of it.
This r·ballenge
i;i C••nfined (a) t.o t.he operation of t.h<' tax between
tho period March I, I 951.. and April :.'8, 19;)], and
( b) e\·en in regard to this limited period, it is
restrietecl to the impo>ition uf
the additional
duty of six .'\nnas per lb. which was h•vied, bPyond
the "ight annas per lb. eollect<•d ·from the appellnnts liy virtiw of th" Financ<' Bill urulcr the provisions
of the
Provisio11al r,i;illection of Taxes
Art, l!lill.
ft wuulrl F<'l'm to be rather a Htrangc
result to ad1ievc that tht' tax impos('(l Hatistics
PVC!'.)" requin·ment "f a " duty of <>Xcise " in so
far aR the tax 01wratc;; from a11d after i\pril 28,
19.'il, hut is not a "dutv of excise" for the durat.inn nf two months l1efor~• that. d<tf<'.
Le<L11wd
Coun>cl
conccd .. d,
as h<· had.