Civil Appeals Nos
140 to 142 of 1952
Appeals from the judgment and order dated March 24 1953 of the 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 article 32 of the Constitution of India for enforcement of Fundamental Rights
GS Pathak SN Andley JB Dadachanji and Rameshwar Nath for the Appellantspetitioners
HN Sanyal Additional Solicitor General of India NS Bindra RH Dhebar and TM Sen for the respondents
CR Pattabhi Raman and R Ganapathy Iyer for the interveners in CA No 141 of 1954
1961 December 11
The judgment of SJ Imam KC Das Gupta Raghubar Dayal and N Rajagopala Ayyangar JJ was delivered by Rajagopala Ayyangar J JL Kapur J delivered a separate judgment
AYYANGAR J The appellants in Civil Appeal 140 of 1954 are tobacco merchants and manufacturers of biris
They own private warehouses licensed under r 140 of the Excise Rules 1944 at Gondia and other places in Madhya Pradesh
On the 28th of February 1951 a Bill was introduced in the House of the People being Bill 13 of 1951 containing the financial proposals of the Government of India for the fiscal year beginning the 1st of April 1951
Clause 7 of the Bill made provision for the amendment of the 4 Central Excise Act Act 1 of 1944 by way of alteration of duties on tobacco manufactured and unmanufactured In particular it provided that unmanufactured tobacco other than flue cured and ordinarily used otherwise than for the manufacture of cigarettes which included tobacco intended for manufacture into biris should be charged to an excise duty of 8 annas per lb
and it also imposed a new duty of excise on biris varying from 6 to 9 annas per lb
depending upon the weight of tobacco contained in the biris
Section 3 of the Act XVI of 1931 enacted Where a bill introduced into the Indian Parliament provided for the imposition or increase of a duty of excise the Central Government might cause to be inserted in the bill a declaration that it was expedient in the public interest that any provision of the bill relating to such imposition or increase shall have immediate effect under this Act
A declaration under this section was made in respect of the provision for imposing the duties on tobacco under cl 7 of the bill already adverted to
The effect of such a declaration was stated in section 4 of Act XVI of 1931 in the following terms 4
1 A declared provision shall have the force of law immediately on the expiry of the day on which the Bill containing it is introduced
2 A declared provision shall cease to have the force of law under the provisions of this Act a When it comes into operation as an enactment with or without amendment or b when the Central Government in pursuance of a motion passed by parlia 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 Indian 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
Under section 7 1 of the Finance Act 1951 while the excise duty on biris was abandoned 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 section 7 2 of the Finance Act which read The amendments made in the Central Excise and Salt Act 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 duties collected which would not have been collected if the amendment had come into force on that day and b recoveries shall be made of all duties which have not been collected but which would have been collected if the amendment had so come into force 6 In pursuance of section 7 2 a demand was made upon the appellants on June 22 1951 for the payment of the duty payable by them after giving credit for the refund of the duty paid on biris which had been deleted by the Act
The appellants contested the legality of this demand by a petition under article 226 which they filed in the High Court at Nagpur urging that the retrospective operation given to section 71 by sub s2 thereof was illegal ultra vires and unconstitutional and besides that the provision in r 10 of the Excise Rules which contained the machinery for enforcing the demand was not adequate to meet the situation arising out of the change in the law from the provisions of the bill to those of the Act
The learned Judges of the High Court repelled all the contentions disputing the legislative competence and the constitutionality of the legislation contained in section 72 of the Finance Act of 1951 but they upheld the objection to the adequacy of the procedure for recovery based on the limited scope of r 10 of the Excise Rules
Thereafter the Central Government by a notification dated December 8 1951 amended the Central Excise Rules 1944 by the addition of a new r 104 providing machinery specially designed f r 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 section 72b of the Finance Act quoted earlier and the appellants thereupon once again moved the High Court of Nagpur under article 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 10A to cover the present case was rejected
The learned Judges granted a certificate under article 132 of the Constitution which was enabled the appellants to file this appeal
Before proceeding further it is only necessary to state that there is no material difference between the facts of the 7 cases covered by Civil Appeals 141 142 as well as the points raised in the Writ Petitions and that this judgment will cover and dispose of the other appeals and 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 petitions under article 226 of the Constitution in the High Court of Madras which arc pending there raising the same points as the 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 appeals1 Section 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 this 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 except An excise was basically an indirect tax ie a tax or duty not intended by the taxing authority to be borne by the person on whom it is imposed and from whom it is 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 retrospective effect it could not be passed on so such a levy deprived the tax of its essential characteristic of being indirect
It therefore ceased to be a duty of excise and 8 became a personal tax of a category quite distinct from excise and so was beyond the legislative power of Parliament under that Entry
2 That the impugned levy was unconstitutional in that it contravened the fundamental right guaranteed to the citizens of India to hold property under article 191f the point urged being that a retrospective levy of an excise duty deprived the tax payer of the right of passing it on and recovering it from his buyer that this constituted a restraint on the right to hold property the amount of the tax levy conferred by article 191f and was not saved by cl 5 of that Article as being a reasonable restraint and should therefore be struck down under article 132
3 That the terms of r 10A of the Excise Rules 1944 were insufficient to cover the cases of the appellants and that in consequence the demand made on them and the attempt to recover the sums by resort to the coercive process provided for by section 11 of the central Excise Act was illegal and without statutory authority
We shall now proceed to consider these points in that order
1 Want of legislative competence To appreciate the submission of learned Counsel it is necessary to set out the steps in the reasoning by which he sought to establish that a duty of excise when imposed with retrospective effect ceased to be a duty of excise as used in Entry 84 of the Union List
The submission of learned Counsel was this The term duty of excise on goods was universally recognized as a tax on home produced goods and as a typical instance of an indirect tax
It was a tax on the activity of production or manufacture of goods within the country and that it was levied on or collected from tho producer or manufacturer or from those who held such goods
It was further not a personal tax but its essential and characteristic nature which distinguished it from other types of taxes was that it was levied on goods
It had therefore in order that it might 9 truly be duty of excise to satisfy two tests a It had to be an indirect tax ie levied in such a manner that the person from whom the tax was collected was in a position to pass it on to 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 neither 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 though 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 taxes altered its essential nature and identity then the power to legislate retrospectively would be open to Parliament only if the tax in its altered from ie a tax direct and personal would be open to Parliament to impose
In 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 in indirect tax and a tax on goods and so the power of Parliament to enact such retrospective 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
10 In support of his submission regarding the nature of an excise duty and that meaning that ought to be attributed to the expression as it occurs in Entry 84 of the union List Mr Pathak placed before us judgments of the Privy Council in appeals from Canada and some decisions of the American Supreme Court and of the Australian High Court
First as to the decisions relating to the Canadian constitution though learned Counsel referred us to several decisions on the interpretation of the word excise in connection with the distinction between direct and indirect taxes in most of the British North America Act 1867 we do not think it necessary to refer to all of them
The general line of approach of the Privy Council decisions referred by learned Counsel could be gathered from the observations of Lord Cave in City of Halifax vs Fairbanks  Estate
The impugned tax legislation was a business tax imposed by the Province of Nova Scotia to be paid by every occupier of real property for the purposes of any trade profession or other calling carried on for the purpose of gain the assessment being according to the capital value of the premises
This was challenged inter alia on the ground that it was an indirect tax and therefore not within the legislative competence of the Provincial Legislature
Lord Cave said Thus taxes on property or income were everywhere treated as direct taxes and John Stuart Mill himself following Adam Smith Ricardo and James Mill said that a tax on rents falls wholly on the landlord and cannot be transferred to any one else 
On the other hand duties of customs and excise were regarded by every one as typical instances of indirect taxation
When therefore the Act of Union allocated the power of direct taxation for Provincial purposes to 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 ultimate 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 desire 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 recognised 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 vs Kingcome Navigation Company Limited 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 section 92 head 2 of the British North America Act 1867
After extracting the following passage from Bank of Toronto vs Lambe 12 A direct tax is one which is demanded from the very persons who it is intended or desired should pay it
Indirect taxes are those which are demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another such are the excise or customs
Lord Moulton who delivered the judgment of the Board referred to the passage from the judgment of Lord Cave in City of Halifax vs Fairbanks  Estate just now quoted and 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 indifferent as to which of the parties to the transaction ultimately bears the burden   
Similarly where the tax is imposed in respect of some dealing with commodities such as their import or sale or production for sale 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 Mill s definition and is true of the typical custom and excise duties referred to by Lord Cave
 The tax was therefore held to be valid
We consider that not much assistance could be 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 taxes which a Province could impose and those which it could not was whether it was direct or indirect
In Canada taxing powers are divided between the Dominion and the Provinces on the basis of the incidence of the tax the Dominion power extending to any mode or system of taxation vide section 91 3 British North America Act 1867 while that of the 13 Provinces is restricted to direct taxation within the Province in order to the raising of revenue for provincial purposes Section 922 ibid
When therefore the validity of any Provincial tax legislation is challenged in Canada the enquiry is as regards the normal incidence of the tax 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 class 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 CJ in the Province of Madras vs Boddu Paidanna The Canadian 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 tax it is unnecessary for the Court to consider whether it may not also be a duty of excise see for example Att
for British Columbia vs The Canadian Pacific Railway Co  where a tax on every person purchasing within the Province fuel oil for the first time after its manufacture in or importation into 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 Columbia vs Kingcome Navigation Co in which a fuel oil tax imposed by a Province upon every consumer of fuel oil according to 14 the quantity which he had consumed was held to be valid as a direct tax because it was demanded from the very persons who it was intended or desired should pay it
 Similarly Lord Simonds observed in Governor General in Council vs Province of Madras little assistance is to be derived from the consideration of other federal constitutions and of their judicial interpretation
Here there is no question of direct and indirect taxation nor of the definition of specific and residuary powers
 Under the Indian Constitution the scheme of division of the taxing powers between the Union and the States is not based on any criterion dependent on the incidence of the tax
Sir Maurice Gwyer in In re the Central Provinces and Berar Act XIV of 1938 speaking of the word excise as occurring in the legislative lists in the Government of India 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 produced or manufactured in the taxing country and intended for home consumption
I am satisfied 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 state from production to consumption and that therefore the federal legislative power extended to imposing excise 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 an 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 home produced or home manufactured 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 CP Petrol case 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 16 are separate and distinct imposts
If in fact they overlap that may be because the taxing authority imposing a duty of excise finds it convenient to impose that duty at the moment when the exciseable article leaves the factory or workshop for the first time on the occasion of its sale
But that method of collecting the tax is an accident of administration it is not of the essence of the duty of excise which is attracted by the manufacture itself
 In view of this clear exposition of the content of the term duty of excise in the Indian setting we think no assistance can be derived for the meaning ascribed and the characteristics attributed to it in the decision construing the relative taxing powers of the Dominion and the Provinces under the British North America Act 1867
Before dealing with the Australian decision to which Mr Pathak drew our attention we could conveniently dispose of the American cases which were referred to by the learned counsel bearing on the meaning of the word excise
We might point out that the American decisions do not assist the appellant in the least since under the Constitution of the United States practically every tax other than a capitation a poll tax or a tax on land is termed an excise duty and even income tax was held to be an excise  until the decision of the Supreme Court of the United States in Pollock vs Farmers Loan  Trust Co It has to be borne in mind that the American Constitution provides that direct taxes have to be apportioned among the States according to their respective populations article 1 section 2 and article 1 section 9 cl 4
Hence the attempt in the United States has been to bring taxes which according to the classification of economists would be direct taxes within the category of excise or indirect taxes which need not follow the rule as to apportionment among the States
It follows 17 therefore that neither the American decisions nor the understanding by the Courts of that 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 vs Milk Board Victoria in support of his submission that the characteristic of being an indirect tax and therefore the capability of being passed on was an essential ingredient and 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 Australian Courts as not helpful to determine the meaning of excise in section 90 of the commonwealth of Australia Act
As explained by Wynes 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 Province
Hence Canadian cases such as the Bank of Toronto vs Lambe are of very little use in settling the question 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 Constitution taxes levied on commercial dealings in goods produced 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 vs Milk Board Victoria dealing with what constituted an excise 18 under section 90 of the Commonwealth of Australian Act were cited to the Federal Court in the Province of Madras vs Boddu Paidanna and the learned Chief Justice after referring to them in detail observed We find it impossible to say that the expression duties of excise  even in Australia is limited to duties imposed in connection with the production of a commodity alone
We should be disposed to say on the contrary that in Australia all taxes on the sale of commodities are or may be regarded as duties of excise 
Under the Australian Constitution power to impose duties of excise is as we have said the exclusive right of the Commonwealth Parliament the residuary taxing power remains in the States
In the Indian Constitution Act the whole of the taxing power in this particular sphere is expressly apportioned between the Centre and the Provinces to the one being assigned the power to impose duties of excise to the other taxes on the sale of goods
 The decision in the Milk Board case follows in general the same lines as did the earlier decisions which have been detailed and discussed by Sir Maurice Gwyer C J in Paidanna s case
In these circumstances we do not consider it useful or necessary to discuss these decisions
Undoubtedly there are passages in these judgments in the Australian Courts which refer to the fact that an excise duty is an instance of an indirect tax
As regards the general proposition however there is little controversy but these decisions did not lay down that if by reason of the tax being levied retrospectively the duty cannot be passed on it ceased to be a duty of excise
On the other hand there is express and high authority for the position that a duty of excise could be validly levied with retrospective effect under the Australian Constitution
The question for 19 consideration before the privy Council in Colonial Sugar Refining Company Ltd vs Irving related to the constitutional validity of the Excise Tariff Act 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 refined sugar 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 sugar produced by them between October 8 1901 and July 26 1902
Lord Davey delivering the judgment of the Board observed It is a little difficult to understand the first point taken by the appellants
The Parliament had undoubted power to impose taxation under the express words of section 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 Legislatures 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 which 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
20 There is no doubt that excise duties have been referred to by the economists and in the judgments of the Privy Council as well as in the Australian decisions as an instance of an indirect tax but in construing the expression duty of excise as it occurs in Entry 84 we are not concerned so much with whether the tax is direct or indirect as upon the transaction or activity on which it is imposed
In this context one has to bear in mind the fact that the challenge to the legislative competence of the tax levy is not directed to the imposition as a whole but to a very limited and restricted part of it
This challenge is confined a to the operation of the tax between the period March 1 1951 and April 28 1951 and b even in regard to this limited period it is restricted to the imposition of the additional duty of six annas per lb
which was levied beyond the eight annas per lb
collected from the appellants by virtue of the Finance Bill under the provisions of the 
It would seem to be rather a strange result to achieve that the tax imposed satisfies every requirement of a duty of excise in so far as the tax operates from and after April 28 1951 but is not a duty of excise for the duration of two months before that date
Learned Counsel conceded as he had to that even on the decision relied upon by him the fact that owing to the operation of economic forces it was not possible for the taxpayer to pass on the burden of the tax did not alter the nature of the imposition and detract from its being a duty of excise
For instance the state of the market might be such that the duty imposed upon and collected from the producer or manufacturer might not be capable of being passed on to buyers from him
Learned Counsel urged that this would not matter as one had to have regard to the general tendency of the tax and the expectation 21 of the taxing authority and to the possibility of its being passed on and not to the facts of any particular case which impeded the operation of natural economic forces
The impediment to the duty being passed on might be due not merely to private bargains between the parties or abnormal economic situations such as the market for a commodity being a buyers  market
Such impediments may be brought about by the operation of other laws which Parliament might enact such for instance as control over prices
If in such a situation were the price which the producer might charge his buyer is fixed by the statute say under the Essential Supplies Act and a duty of excise is later imposed on the manufacturer it could not be said that the duty imposed would not answer the description of an excise duty
Learned Counsel had really no answer to the situation created by such a control of economy except to say that it would be an abnormal economic situation
It could hardly be open to argument that a tax levied on a manufacturer could be stated not to be a duty of excise merely because by reason of the operation of other laws the tax payer was not permitted to pass on the tax levy
The retrospective levy of a tax would be one further instance of such inability to pass on which doses not alter the real nature or true character of the duty
It might further be pointed out that the submission of the learned Counsel that a tax which according to economic theory is an indirect tax or a tax on goods becomes a direct and a personal tax and a tax of a different nature or category if imposed retrospectively because it was then incapable of being passed on does not correctly represent the law as laid down by this Court
In common with duties of customs and excise a tax on the sale of goods is another instance of a typical indirect tax 22 Indeed Lord Thankerton pointed out in Attorney General for British Columbia vs Kingcome Navigation Company Ltd The ultimate incidence of the tax in the sense of political economist is to be disregarded and referred to a tax imposed in respect of some dealings in commodities such as their import or sale or production for sale as instances of indirect taxes the tax not being a peculiar contribution upon one of the parties to the trading in the particular commodity selected as the tax payer
 The question of the validity of the imposition of a sales tax with retrospective effect came up for consideration before this Court in the Tata Iron  Steel Co Ltd vs The State of Bihar
An argument similar to the one now presented before us was submitted to this Court in challenge of that levy which was summarized by Das CJ in these terms The retrospective levy by reason of the amendment of section 41 of the Bihar Sales tax Act which was impugned destroys its character as a sales tax and makes it a direct tax on the dealer instead of an indirect tax to be passed on to the consumer
 Dealing with this point the learned Chief Justice said  The argument is that sales tax is an indirect tax on the consumer
The idea is that the seller will pass it on to his purchaser and collect it from them
If that is the nature of the sales tax then urges the learned Attorney General it cannot be imposed retrospectively after the sale transaction has been concluded by the passing of title from the seller to the buyer for it cannot at that 23 stage be passed on to the purchaser  
Once that time goes past the seller loses the chance of realising it from the purchaser and if it cannot be realised from the purchaser it cannot be called sales tax
In our judgment this argument is not sound
From the point of view of the economist and as an economic theory sales tax may be an indirect tax on the consumers but legally in need not be so 
This also makes it clear that the sales tax need not be passed on to the purchasers and this fact does not alter the real nature of the tax which by the express provisions of the law is cast upon the seller  
If that be the true view of sales tax then the Bihar Legislature acting within its own legislative field had the powers of a sovereign legislature and could make the law prospectively as well as retrospectively
We do not think that there is any substance in this contention
 In our judgment this passage covers the argument regarding a duty of excise getting its essential nature altered and ceasing to be a duty of excise if imposed retrospectively
The submission therefore lacks any force and is rejected
It is also necessary to refer to one further matter  Even assuming that the learned Counsel is right in his submission that to be a duty of excise within Entry 84 of the Union List the taxing authority should have expected the tax to be passed on we consider that learned Counsel is not right in submitting that condition is not satisfied in the case of the levy now impugned
The provisions of the impugned enactment have to be read in the light of section 64A of the Sale of Goods Act which enacts In the event of any duty of customs or excise on any goods being imposed increased decreased or remitted after the making of any 24 contract for the sale of such goods without stipulation as to the payment of duty where duty was not chargeable at the time of the making of the contract or for the sale of such goods duty paid where duty was chargeable at that time a if such imposition or increase so takes effect that the duty or increased duty as the case may be or any part thereof is paid the seller may add so much to the contract price as will be equivalent to the amount paid in respect of such duty or increase of duty and he shall be entitled to be paid and to sue for and recover such addition and b if such decrease or remission so takes effect that the decreased duty only or no duty as the case may be is paid the buyer may deduct so much from the contract price as will be equivalent to the decrease of duty or remitted duty and he shall not be liable to pay or be sued for or in respect of such deduction
 This provision originally formed section 10 of the Tariff Act VIII of 1894 and was subsequently enacted as section 10 in the Indian Tariff Act of 1934 cl Act XXXII of 1934
The object of the statutory provision is that where contracts for the sale of goods are entered into and the price payable therefor determined on the basis of existing rates of duty either of excise or of customs neither party shall be prejudiced or advantaged by reason of the increase or decrease of the duty
The question as to the scope of section 10 of the Tariff Act of 1894 came up for consideration before a Bench of the Madras High Court whose decision is reported in Narayanan v Kadir Sahib 1
The suit out of which the second appeal before the High 25 Court arose was by a buyer of salt for the refund of salt excise duty which had been reduced after the date of the contract
The transaction of sale between the plaintiff and the defendant took place on March 5 1922 and the price payable by the plaintiff was based on the rate of duty prevailing on that date
Subsequent thereto the Government of India reduced the duty on salt from Rs 5 to Rs 28 per bag and this was to have effect from a date prior to March 5 1922
The defendant firm the sellers had obtained from the Government refund of the duty on the salt sold by them to the plaintiff
It was to recover this amount of duty that the suit was filed by the buyer
The learned Judges held that on the terms of s 10 of the Tariff Act of 1894 indentical with section 64A of the Sale of Goods Act the fact that the contract was no longer executory but that delivery had been made and the price paid was no bar to the plaintiff succeeding in his suit
It will be seen that section 64A is in two parts the first cl
a dealing with the case of an increase in duty and conferring on the seller the right to recover the amount of the increased duty from the buyer and the second limb cl
b making provision regarding the correlated case of a reduction in the duty with corresponding rights to the buyer to obtain the benefit of a reduction
Whatever argument might be raised baned upon the language of the second limb of the section it is not open to doubt that in the case of an increase in duty the seller would be entitled to recover the duty from the buyer provided a there was no contract to the contrary by which he had precluded himself from claiming such enhanced duty i e the contract having negatived or limited the seller s right to prefer such a claim or was at least silent as regards what was to happen in the event of the duty being increased b the change in the rate of duty was effected after the date of the contract
In 26 these circumstances it appears to us that there might not be even a factual basis for the complaint of learned Counsel for the appellants that in the case of a retrospective increase in duty the duty ceases to be a duty of excise by becoming a direct tax because it was incapable of being passed on
The answer of learned Counsel to this point regarding the operation of section 64A of the Sale of Goods Act was merely that the Court could not take account of the provisions of another statute for dealing with the validity of a provision of the Finance Act 1911
The submission has no force at all because section 64A of the Sale of Goods Act refers in express terms to duties of excise and has therefore to be read as part and parcel of every legislation imposing a duty of excise
In view of our conclusion however that the duty in the present case notwithstanding its imposition with retrospective effect and even if it be that it was incapable of being passed on to a buyer from the tax payer was a duty of excise within Entry 84 as properly understood it is not necessary to rest it upon this narrower ground
In our view a duty of excise is a tax levy on home produced goods of a specified class or description the duty being calculated according to quantity or value of the goods and which is levied because of the mere fact of the goods having been produced or manufactured and unrelated to and not dependent on any commercial transaction in them
The duty in the present case satisfies this test and therefore it is unnecessary to seek other grounds for sustaining the validity of the tax
One further aspect of the matter on which some emphasis was laid by Mr Pathak was that a duty of excise was in its essence a tax on goods and not a personal tax a levied on the tax payer such as an income tax
He urged that being a tax levied on goods notwithstanding that it was 27 collected from the producer or manufacturer it followed that the essential attribute or characteristic of that duty was that the producer or manufacturer must own or have possession and control over the goods at the moment of the levy
If this element of ownership possession or control over the goods by the tax payer was lacking learned Counsel urged the duty would not be a duty on the goods but a personal tax levied on the tax payer
This is really another aspect of the same argument that a duty of excise is in its nature an indirect tax but learned Counsel submitted that viewed from this angle it would be seen that the duty imposed by the impugned enactment was shown to be not a duty of excise
The grounds upon which the submission of learned Counsel that a duty of excise levied retrospectively was converted into a direct tax and therefore not a duty of excise have been repelled by us which ought to suffice to repel the contention in this form also
Besides it may also be pointed out that even in strict theory there is no basis for the submission now under consideration
The duty imposed by the impugned Act being retrospective it operates as from a previous date and admittedly on the date when by force of the enactment the duty was levied the tax payer was the owner or was in possession and control of the goods
To deny this would in effect deny the legal effect of the tax being imposed retrospectively and fictionally deemed to be in force on an earlier date
In dealing with the arguments of learned Counsel on the scope and content of Entry 84 of the Constitution and of the meaning of the expression duty of excise in that entry we have also covered the special argument questioning the right of Parliament to impose retrospectively a duty of excise
It was conceded that Parliament has power to enact laws with retrospective effect and as it was not suggested that laws 28 dealing with taxation are any exception to that rule the only ground upon which the learned Counsel could rest this submission was that being an indirect tax capability of being passed on was an essential characteristic or requirement of a duty of excise and so its imposition with retrospective effect deprived it of that essential character and therefore rendered it a duty of a different nature and for that reasons a retrospective imposition of an excise duty was not permissible
It would be seen that this is really the same argument which we have dealt with earlier presented in another form
For the reasons already stated we find no substance in this form of argument either and we have no hesitation in rejecting it
It need only be mentioned that the passage in judgment of Lord Davey in the Colonial Sugar Refining Company Ltd vs Irving already extracted is sufficient precedent if authority were needed to reject this argument
The second point raised by learned Counsel was that the impugned section 72 of the Act was unconstitutional in that it contravened the fundamental rights guaranteed under articles 191f and 311 and 2 of the Constitution
It was urged that even if the impugned provision was within the legislative competence of Parliament as being covered by Entry 84 of the Union List the retrospective levy of an excise duty violated the freedom guaranteed by article 19 1f the right to hold property and was not saved by article 195 since the same was not a reasonable restraint on the rights of the appellant
If Counsel was right so far his next submission was that the threat to deprive the appellant of the amount of the tax levy was a deprivation without authority of law article 311 and was further a compulsory acquisition of that property without compensation article 312 which was not saved by article 315bi because the 29 law contemplated by that sub article was a valid law for the imposition of a tax which satisfied the requirements both of legislative competence and of the rights guaranteed by Part III of the Constitution
The submission of Mr Pathak on this part of the case was briefly as follows
A law which imposes a tax and provides for its levy and collection is as much a law as a law under other non taxation entries of the legislative list
All laws including laws imposing taxes are within Part III of the Constitution being laws under article 132 thereof and unless any particular Article was inapplicable to such laws by reason of obvious irrelevance every Article in the Part would apply to them and without such a law satisfying the test of reasonableness or constitutionality laid down in the various Articles guaranteeing the several
Fundamental rights the statute in question could not be pronounced valid and enforceable
We shall be referring to the manner in which Mr Pathak sought to urge that the impugned provision offended article 191 f but before doing so it is necessary to notice the submission which Mr Sanyal invited us to accept
He raised a broad contention that no law imposing a tax could be impugned on the ground of violation of Part III of the Constitution in general and in particular of article 191 f or article 31
His submission was that the validity of tax laws were governed solely by article 265 and that such laws were not governed by Part III of the Constitution and specially because the money sought to be taken by the State as tax by virtue of a fiscal enactment was not property within article 191 f and that the expression laws for the purpose of imposing a tax used in article 315 b i saved all laws from the operation of article 31 whether such laws be within legislative competence or not as 30 also whether or not such laws were repugnant to Part III of the Constitution
Before adverting to the decisions on which reliance was placed for this position two things might he pointed out 1 that article 265 merely enacts that all taxation the imposition levy and collection shall be by law and 2 that the Article beyond excluding purely executive action does not by itself lay down any criterion for determining the validity of such a law to justify any contention that the criteria laid down exclude others to be found elsewhere in the Constitution for laws in general
If by reason of article 265 every tax has to be imposed by law it would appear to follow that it could only be imposed by a law which is valid by conformity to the criteria laid down in the relevant Articles of the Constitution
These are that the law should be 1 within the legislative competence of the legislature being covered by the legislative entries in Schedule VII of the Constitution 2 the law should not be prohibited by any particular provision of the Constitution such as for example articles 2762 286 etc and 3 the law or the relevant portion thereof should not be invalid under article 13 for repugnancy to those freedoms which are guaranteed by Part III of the Constitution which are relevant to the subject matter of the law
The reference therefore to article 265 does not lead necessarily to the result envisaged by Mr Sanyal
The entire argument of Mr Sanyal on this part of the case was rested on the observations contained in two decisions of this Court Ramjilal vs Income tax Officer Mohindargarh and Laxmanappa Hanumantappa Jamkhandi vs The Union of India
We do not understand these decisions as laying down any such broad proposition
We are further 31 satisfied that the learned Judges could not have meant that if a law imposing a tax was outside the legislative competence of the legislature enacting it as the argument before us appeared to suggest it could be a law under which a person could be deprived of his property under article 31I or regarding which a person could not move this Court for relief under article 32
Such a proposition would be contrary to a long catena of cases of this Court of which it is sufficient to refer to Mohammad Yasin vs The Town Area Committee Jalalabad State of Bombay vs The United Motors India Ltd The Bengal Immunity Company Limited vs The State of Bihar and Ch
Tika Ramji vs The State of Uttar Pradesh
In all these cases the legislation imposing the tax or the fee which had been held not to have been within the legislative competence of the authority imposing the tax or the fee was struck down on the ground that those laws violated the freedom guaranteed by Part III of the Constitution
Learned Counsel laid some stress on the fact that in these cases the tax or fee was held to be unconstitutional as imposing an unreasonable restraint on the right to carry on a trade or business guaranteed by article 191g and not as an infringement of the right to hold property under article 19If
In our opinion nothing turns on this for it is the deprivation of the freedom to hold property that is the direct result of the tax and the restraint on the business by reason of the collection of the illegal tax or the procedures prescribed for such collection is only an indirect and incidental effect thereof
Nor do we find it possible to accept even the more limited proposition that whatever be the position in regard to tax laws which lack legislative competence once a tax law is covered by an entry in the Legislative List and does not contravene direct prohibitions like those in articles 276 2 or 286 32 etc
 such a law is immune from the limitations imposed by Part III of the Constitution
Mr Sanyal is right in his submission that the levying of taxes though it might involve taking private property for a public use is entirely distinct from the power of eminent domain which is covered by article 3112 and that the saving in article 315b i of such laws is really by way of abundant caution
It has been stated that where property is taken under a taxing power the persons so taxed may be said to be compensated for their contribution by the general benefits which they receive from the existence and operation of Government
But this is not to say that the burden of a tax that may be constitutionally laid upon an individual needs to be justified by a showing that he individually will receive benefit from the expenditure of the proceeds of the tax and much less that the degree of that burden may be measured by the amount of benefit that the tax payer is excepted to receive 1
It would therefore be obvious that a tax law need not satisfy the tests of article 312
But it does not follow that every other Article of Part III is inapplicable to tax law
Leaving aside article 312 that the provisions of a tax law within legislative competence could be impugned as offending article 14 is exemplified by such decisions of this Court as Suraj Mal Motha vs Sri A V Visvanatha Sastri and Shree Meenakshi Mills Ltd Madurai vs Sri A V Visvanatha Sastri
In Moopil Nair vs State of Kerala the Kerela Land Tax Act was struck down as unconstitutional as violating the freedom guaranteed by article 14
It also goes without saying that if the imposition of the tax was discriminatory as contrary to article 15 the levy would be invalid
It might very well be that a distinction might have to be drawn between the legality of the 33 quantum of a tax levied which might not be open to challenge under article 191f and the incidence of the tax or the procedure prescribed therein either for the assessment or the collection which might be open for being tested with reference to all the freedoms including that contained in article 191f
In fact in Moopil nair vs State of Kerala 1 already referred to certain provisions of the Act therein challenged which prescribed the procedure for the levy of the tax were struck down on the ground of being obnoxious to article 191f
Having regard to the very limited controversy before us we do not consider it necessary to embark on any further or more detailed examination of this question except to say that we cannot accept the argument of the learned Additional Solicitor General that by reason of article 265 tax laws are outside Part III of the Constitution
In support of the submission that a tax levied with retrospective effect was unconstitutional as being an unreasonable restriction on this right to hold property article 191f
Mr Pathak relied on the decisions in Nichols vs Coolidge 2
The tax in question was an estate duty on property passing on death and in the items to be included for computing the value of the estates was included not merely all property of which the deceased died possessed on the date of his death but also that which he had transferred by gifts within a period of two years fore his death
This inclusion of property transferred to third persons not in contemplation of death but by the grantor in the ordinary and natural course of the transaction of his affairs so that the donees might enjoy the properties absolutely was held to be unconstitutional as offending the rule as to due process contained in fifth amendment to the constitution
Justice McReynolds delivering the opinion of the Court said 34 Under the theory advanced for the United States the arbitrary whimsical and burdensome character of the challenged tax is plain enough  Real estate transferred years ago when of small value may be worth an enormous sum at the death
If the deceased leaves no estate there can be no tax if on the other hand he leaves ten dollars both that and the real estate become liable
Different estates must bear disproportionate burdens determined by what the deceased did one or twenty years before he died
This Court has recognised that a statute purporting to tax may be so arbitrary and capricious as to amount to confiscation and offend the fifth Amendment
We must conclude that section 402c of the statute here under consideration in so far as it requires that there shall be included in the gross estate the value of property transferred by a deceased prior to its passage merely because the conveyance was intended to take effect in possession or enjoyment at or after his death is arbitrary capricious and amounts to confiscation Learned Counsel also referred us to a few later decisions of the American Supreme Court in which retrospective taxation has been held arbitrary and capricious and to amount to a violation of the due process clause contained in the 5th Amendment
In regard to these decisions two points have to be noted 1 that the decisions of Supreme Court of the United States are not uniform and there are undoubtedly decisions of the Court of a later date which speak the other way
In Third National Bank vs White 1 the Supreme Court upheld an estate tax which operated retrospectively
It is in view of these decisions that Mr Ballard states in an article in the Harvard Law Review  referring to White s case 1 35 It seems accurate to say that the decision marks for practical purposes the passing of arbitrary retroactivity  in the field of the estate tax  And the present status of Nichols vs Coolidge is not entirely clear 
Since the Nichols case can be distinguished on its facts it may well give way 
In any event it would seem that after the White case no application of the estate tax can be successfully resisted on the score of retroactivity
 For instance in Welch vs Henry 1 which related to an enactment imposing income tax which had retrospective operation Justice Stone delivering the Judgment of the Court referring to Nichols vs Coolidge 2 and other cases in which observations broadly stating that any retrospective tax legislation was obnoxious to the requirement of due process stated Even a retroactive gift tax has been held valid where the donor was forewarned by the statute books of the possibility of such a levy
In each case it is necessary to consider the nature of the tax and the circumstances in which it is laid before it can be said that its retroactive application is so harsh and oppressive as to transgress the constitutional limitation Any classification for taxation is permissible which has reasonable relation to a legitimate end of governmental action
Taxation is but the means by which government distributes the burdens of its cost among those who enjoy its benefits
And the distribution of a tax burden by placing it in part on a special class which by reason of the taxing policy of the State has escaped all tax during the taxable period is not a denial of equal protection
36 Nor is the tax any more a denial of equal protection because retroactive 
A tax is not necessarily unconstitutional because retroactive
Milliken vs United States and cases there cited
Taxtation is neither a penalty imposed on the taxpayer not a liability he assumes by contract
It is but a way of apportioning the cast of government among those who in some measure are privileged to enjoy its benefits and must bear its burdens
Since no citizen enjoys immunity from that burden its retroactive imposition does not necessarily infringe due process and to challenge the present tax is not enough to point out that the taxable event the receipt of income antedated the statute
 In Untermyer vs Anderson 1 which was concerned with the validity of a tax on gifts which was made to operate from a date before it was enacted Justice Holmes stated  
I find it hard to state to myself articulately the ground for denying the power of Congress to lay the tax
We all know that we shall get a tax bill every year
I suppose that the taxing act may be passed in the middle as lawfully as at the beginning of the year
A tax may be levied for past privileges and protection as well as for those to come and Justice Brandeis made the added observations which have been repeatedly quoted in later decisions as well as in text books For more than half a century it has been settled that a law of Congress imposing a tax may be retroactive in its operation
Each of the fifteen income tax acts adopted from time to time during the last sixty seven years has been retroactive in that it applied 37 to income earned prior to the passage of the act during the calendar year 
The need of the government for revenue has hitherto been deemed a sufficient justification for making a tax measure retroactive whenever the imposition seemed consonant with justice and the conditions were not such as would ordinarily involve hardship
On this broad ground rest the cases in which a special assessment has been upheld
Liability for taxes under retroactive legislation has been one of the notorious incidents of social life  
Recently this Court recognized broadly that a tax may be imposed in respect of past benefit 
 It would thus be seen that even under the constitution of the United States of America the unconstitutionality of a retrospective tax is rested on what has been termed the vague contours of the 5th Amendment Whereas under the Indian Constitution that grounds on which infraction of the rights a property is to be tested not by the flexible rule of due process but on the more precise criteria set out in article 195 mere retrospectivity in the imposition of the tax cannot per se render the Law unconstitutional on the ground of its infringing the right to hold property under article 191f or depriving the person of property under article 311
If on the one hand the tax enactment in question were beyond legislative competence of the Union or a State necessarily different considerations arise
Such unauthorised imposition would undoubtedly not be a reasonable restriction on the right to hold property beside being an unreasonable restraint on the carrying on of business if the tax in question is one which is laid on a person in respect of his business activity
Mr Pathak also presented his argument on this head in a slightly different form
He submitted that the Constitution makers had contemplated that a duty of excise would be imposed only when the 38 manufacturer or the producer was in possession and control of the goods at the moment of the imposition and therefore would be in a position to pass it on and obtain payment from the purchaser of the duty paid by him to State
The imposition of the levy retrospectively however deprive him of this benefit of passing on the burden which he would normally have
This restriction or impairment of his right to pass on the duty he urged rendered the restriction imposed on him in the shape of the obligation to pay the duty unreasonable
Learned Counsel admitted that as the imposition would yield to the Exchequer more money the restriction on appellants  right to hold property could not be denied to be in the interest of the general public within article 195 but his submission was that it lacked the character of reasonableness because it deprived him of the right to pass on the tax to others
It was further admitted that it was only if learned Counsel was right in his submission regarding the infraction of article 19 1 f that any question of the violation of article 31 1 could arise
It would be seen that it is the same argument as was presented to challenge the legislative competence of Parliament to enact the legislation
Only the nomenclature employed is different and adapted to suit the need of bringing it into the fold of an impairment of fundamental rights under Part III of the Constitution
As Evatt J observed in Broken Hill South Limited Public Officer vs The Commissioner of Taxation New South Wales 1 It is not proper to deny to the legislature the right of solving taxation problems unfettered by legal categories
 If notwithstanding that according to economic theory or doctrines propounded by economists a duty of excise does not cease to be such merely because it is imposed at a time or in circumstances as pointed out earlier in conjunction with a system of price control in 39 which it cannot be passed on one fails to see any substance in the argument that the imposition of such a tax is an unreasonable restriction on the exercise of the fundamental rights to hold property guaranteed by article 19 1 f
The last of the points urged was that r 10A was not apt to cover the recovery of the duty which was a subject of demand dated December 12 1951
The learned Judges of the High Court rejected this submission and in our opinion correctly
Rule 10 under which the first demand of June 22 1951 was made ran 10
Recovery of duties or charges short levied or erroneously refunded
When duties or charges have been short levied through inadvertence error collusion or misconstruction on the part of an officer or through mis statement as to the quantity description or value of such goods on the part of the owner or when any such duty or charge after having been levied has been owing to any such cause erroneously refunded the person chargeable with the duty or charge so short levied or to whom such refund has been erroneously made shall pay the deficiency or repay the amount paid to him in excess as the case may be on written demand by the proper officer being made within three months from the date on which the duty or charge was paid or adjusted in the owners account current if any or from the date of making the refund
 The contention which was then urged was that the short levy which led to the demand was not caused through inadvertence error etc which are set out in this rule and that consequently there was a defect in the operative machinery for collection of the refund
This objection of the present appellants was upheld by the Full Bench of the 40 Nagpur High Court and it was as a result of this decision that rule 10 A was framed
This rule reads 10A Residuary powers for recovery of sums due to Government
Where these rules do not make any specific provision for the collection of any duty or of any deficiency in duty if the duty has for any reason been short levied or of any other sum of any kind payable to the Central Government under the Act or these Rules such duty deficiency in duty or sum shall on a written demand made by the proper officer be paid to such person and at such time and place as the proper officer may specify
 The words deficiency in duty if the duty has for any reason been short levied are in our opinion wide enough to include cases of deficiency arising like those in the circumstances of the present case viz where 8 annas out of the 14 annas of the duty has been collected in the first instance but 6 annas remains to be collected
We consider therefore that there is no substance in the objection that r 10A is not wide enough to cover the recovery of the duty from the appellants
The result is that these appeals fail and are dismissed with costs
There will however be only one hearing fee for all the cases
The writ petitions also fail and are dismissed without any order as to cost
KAPUR J
The appellants are manufacturers warehousemen and merchants of tobacco and they have private licensed warehouses which are governed by r 140 of the Rules made under the Central Excise  Salt Act Act 1 of 1944 hereinafter termed the Act
 According to their allegations in the petition under article 226 of the Constitution the appellants had a considerable quantity of tobacco in their licensed 41 warehouses on February 28 1951
On the same day the Central Bill Bill No 13 of 1951 was introduced in the House of the People one of the clauses of which related to the duty of excise for the financial year beginning April 1 1951
According to the Bill on unmanufactured tobacco a duty of 8 As
per Ib
and 6 to 9 As
per 1000 Biris was to be imposed
This Bill was amended and by this amendment the duty on tobacco other than Biri tobacco was fixed at 6 As
per Ib
On Biri tobacco 14 As
per Ib
and no duty was imposed on manufactured Biris
As a result of the operation of sections 3  4 of the provisional Collection of Taxes act Act XVI of 1931 the duty became leviable as from the date of the introduction of the Bill
The petitioner have stated that in accordance with the provisions of the Bill that was introduced they paid excise duty on tobacco in their possession at the rates mentioned in the Bill and obtained clearance certificates in accordance with the Rules under the Act
On April 28 1951 the Finance Bill was passed and became Finance Act 1951 Act XXIII of 1951
By section 7 of that Act the first schedule to the Central Excise and Salt Act was amended in accordance with what has been stated above
By section 7
2 of the Finance Act
1951 it was provided that the amendment made in the first schedule to the Act shall be deemed to have effect on and from the first day of March 1951
A demand was subsequently made from the appellants in respect of excess duty payable on tobacco cleared out of the store houses from March 1 1951 to April 28 1951
Thereupon the appellants filed a petition under article 226 of the Constitution in the High Court at Nagpur
The grounds of the attack as to the constitutionality of the tax were decided against the appellants but the petition succeeded on the ground that there was no machinery 42 provided under the Act for recovery of the tax
This judgment is reported as Chhotabhai Jethabhai Patel  Co vs The Union of India 1
On December 8 1951 the Central Government by a notification amended the Central Excise Rules by adding r 10A which provided machinery for the collection of tax
The rule was  10 A Residuary powers for recovery of sums due to Government
Where these rules do not make any specific provision for the collection of any duty or of any deficiency in duty if the duty has for any reason been short levied or of any other sum of any kind payable to the Central Government under the Act or these Rules such duty deficiency in duty or sum shall on a written demand made by the proper officer be paid to such person and at such time and place as the proper officer may specify After the introduction of this rule a fresh demand was made on December 12 1951 for excess duty on the tobacco cleared
The appellants again filed a petition in the High Court of Nagpur which was decided against them and against that judgment the appellants have come to this court on a certificate under article 132 of the Constitution
The question submitted to this Court is as to the validity of the said tax on the ground of its repugnancy to the Constitution of India
Counsel for the appellants has raised two questions against the legality of the taxes 1 The Parliament had no power to make a retrospective legislation while making a law under item 84 of List I so as to affect goods that had been cleared from the warehouses after payment of proper duties at the rates prevailing on the date that the goods were cleared because a Parliament s power to make retrospective laws is subject to constitutional limitations namely the language 43 of item 84 of List I b duty of excise as defined in the Constitution and its nature and character is such that it is not capable of being exercised after the goods on which it is imposed are no longer in possession of the warehousemen and after they have passed into the common stock of the country 2 legislation of this character imposes an unreasonable restriction under article 19 1 f and 3 r 10 A does not apply to the facts of the case and does not authorise the collection of the duty imposed
The first point relates to the legislative competency of Parliament
Item 84 of List I provides Item 84 Duties of excise on tobacco and other goods manufactured or produced in India  In the corresponding item under the Government of India Act 1935 the same language was used so that the nature of the duties remains the same both under the Constitution and under the Government of India Act 1935 Section 3 of the Act empowers the levying of duties specified in the First Scheduled
The relevant portion of that section is as follows Section 31 There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India and a duty on salt manufactured in or imported by land into any part of India as and at the rates set forth in the First Schedule By section 7 2 of the Act retrospective effect was given to the duties imposed by the Finance Act taking effect as and from the First day of March 1951
section 72 The amendment made in the  by sub section 1 shall be deemed to have had effect on and from the first day of March 1951  44 The effect of this deeming provision is that the new rates of duties must be taken to have been imposed and become operative as if they were in the bill as and when the bill was introduced in Parliament Venkatachalam vs Bombay Dyeing  Manufacturing Co Ltd1
The contention raised is as to the nature of the duty of Excise
It was argued that Excise Duty is a tax on goods which must exist at the time when the tax is levied and it must have been intended and expected by the legislature that it will be passed on to the consumer and as retrospective operation of such duties has not got these qualities when the goods are no longer in possession of the person sought to be taxed they do not fall within the term duty of excise and therefore they are beyond the legislative competence of Parliament
To support his contention counsel for the appellants relied on Bank of Toronto vs Lambe 2 where the question for decision was as to whether certain taxes imposed on commercial corporations carrying on business were direct taxes or indirect taxes of the Provinces or the Dominion
Lord Hobhouse at p 582 relying upon the definitions given by John Stuart Mill said Taxes are either direct or indirect
A direct tax is one which is demanded from the very persons who it is intended or desired should pay it
Indirect taxes are those which are demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another such are the excise or customs
 The same distinction was brought out in some other Canadian cases decided by the Privy Council City of Halifax vs Estate of J P Fairbanks 3 which related to the nature of Business Tax which was held to be a direct tax Attorney General 45 for British Columbia vs Mc Donald Murphy Lumber Company Ltd 1  Attorney General for British Columbia vs Kingcome Navigation Comapny Limited 2 Attorney General for Manitoba vs Attorney General for Canada 3 and Brewers  Malster s Association of Onatario vs The Attorney General for Ontario 4 Reference was next made to an Australian case Parton vs Milk Board Victoria 5 where two necessary qualities of the duty of Excise were stated to be that it must be levied on goods which are in existence and the taxpayer should be able to pass it on to the consumer
But as was pointed out by Gwyer CJ in the Province of Madras vs Boddu Paidanna 6 The Canadian cases which were cited do not seem to afford any assistance since analogous problems in Canada are always concerned with direct and indirect taxation  Dealing with the same distinction the Privy Council said in Governor General in Council vs Province of Madras 7 Little assistance is to be derived from the consideration of other federal constitutions and of their judicial interpretations
Hence there is no question of direct and indirect taxation  The Indian Constitution is unlike any that have been called to their Lordships  notice in that it contains what purports to be an exhaustive enunciation and division of legislative powers between the Federal and Provincial Legislatures
 The Excise duty in England came to be imposed as a scheme of revenue and taxing device by Pym and approved by the Long Parliament
It consisted of charges on wine and tobacco and some 46 other articles were added later
The basic principle of duties of Excise was that they were taxes on the production and manufacture of articles which could not be taxed through the customs house
The revenue derived from that source is called excise revenue proper
In England it was later on extended to comprise other taxes but the fundamental conception of the term is that it is a tax on articles produced or manufactured in the country
It was in this sense that the word duty of excise was understood in Australia Peterswalad vs Bartley 1
The importance of legislative practice of a country was pointed out by the Privy Council in a Canadian case Croft vs Dunphy 2 where it was held that when a power is conferred to legislate on a particular topic it is important in determining the scope of the power to have regard to what is ordinarily treated as embraced within that topic in the legislative practice in England USA and the Dominions and of India the Federal Court considered the nature of duty of Excise in Re The Central Provinces  Berar Sales of Motor Sprit  Lubricants Taxation Act In re A Special Reference under section 213 of Government of India Act 1935 3 generally known as the Central Provinces case
In that case the Act of the Provincial legislature levying a tax on retail sale of motor spirit was held to fall within item 48 in List II of the 7th Schedule of the Constitution Act and not a duty of Excise within the meaning of entry 45 of List I of that Schedule
The nature of the duty was considered by the Court
Gwyer C J after referring to the distionary meaning of the word excise said at p 41 But its primary and fundamental meaning in English is still that of a tax on articles produced or manufactured in the taxing country and intended for home consumption
I am satisfied that is also its primary and fundamental meaning in India and no 47 one has suggested that it has any other meaning in entry No 45
 At p 47 the learned Chief Justice said The expression duties of excise taken by itself conveys no suggestion with regard to them time or place of their collection
Only the context in which the expression is used can tell us whether any reference to the time or manner of collection is to be implied
It is not denied that laws are to be found which impose duties of excise at stages subsequent to manufacture or production but so far as I am aware in none of the cases in which any question with regard to such a law has arisen was it necessary to consider the existence of a competing legislative power such as appears in entry No 48 But Mr Pathak relied on the observations of the learned Chief Justice at p 50 where he said Thus the Central Legislature will have the power to impose duties on excisable articles before they become part of the general stock of the Province that is to say at the stage of manufacture or production and the Provincial Legislature an exclusive power to impose a tax on sales thereafter
 But these observations only mean this that when there is a competition between the duty imposed at the stage of manufacture of production and a tax imposed on sales thereafter the sphere of the Central and the Provincial Legislatures comes into operation but as the previous passages show it does not in any manner vary the meaning of the word excise nor does it accept a further qualification which is sought to be included in that phrase as a necessary quality of that tax that unless it is capable of being passed on to the consumer or the person taxed can indemnify himself it is not a duty of excise
At p 47 the learned Chief Justice 48 observed that in the expression duties of excise no suggestion as to time or place of collection was implied
Sulaiman J pointed out at p 73 that in the Indian Constitution it was not necessary to go into the fine niceties of distinction between direct and indirect taxation because in the Indian Act no such division existed and that ultimate incidence of tax was not a crucial test under the Indian Constitution
Again at p 77 Sulaiman J said The essence of a tax on goods manufactured or produced is that the right to levy it accrues by virtue of their manufacture or production
It is immaterial whether the goods are actually sold or consumed by the owner or even destroyed before they can be used
If a duty is imposed on the goods manufactured or produced when they issue from the manufactory then the duty becomes leviable independently of the purpose for which they leave it and irrespective of what happens to them later
 In a subsequent case The Province of Madras vs Messrs Boddu Paidnna  Sons1 Gwyer C J again went into the question of the nature of the duty of excise under the expression duties of excise and said at p 101 There is in theory nothing to prevent the Central Legislature from imposing a duty of excise on a commodity as soon as it comes into existence no matter what happens to it afterwards whether it be sold consumed destroyed or given away
A taxing authority will not ordinarily impose such a duty because it is much more convenient administratively to collect the duty as in the case of most of the Indian Excise Acts when the commodity leaves the factory for the first time and also 49 because the duty is intended to be an indirect duty which the manufacturer or producer is to pass on to the ultimate consumer which he could not do if the commodity had for example been destroyed in the factory itself
It is the fact of manufacture which attracts the duty even though it may be collected later and we may draw attention to the Sugar Excise Act in which it is specially provided that the duty is payable not only in respect of sugar which is issued from the factory but also in respect of sugar which is consumed within the factory The Privy Council described the nature of the duty of Excise in Governor General in Council vs Province of Madras 1 as a duty which is primarily levied on a manufacturer or producer in respect of the commodity manufactured or produced
At p 103 Lord Simonds referred to In re Central Provinces  Berear case 2 and to Baddu Paidanna case 3 and said The two taxes the one levied on a manufacturer in respect of his goods the other on a vendor in respect of his sales may as is there pointed out in one sense overlap
But in law there is no overlapping
The taxes are separate and distinct imposts
If in fact they overlap that may be because the taxing authority imposing a duty of excise finds it convenient to impose that duty at the moment when the excisable article leaves the factory or workshop for the first time on the occasion of its sale
But that method of collecting the tax is an accident of administration it is not of the essence of the duty of excise which is attracted by the manufacture itself
That this is so is clearly exemplified in those excepted cases in which the Provincial not the Federal legislature has power to impose a duty of excise
 50 Thus according to the Indian cases decided on the nature of duties of excise ultimate incidence is not of any importance or relevance
In dealing with excise duty 1 there is no mention of a direct or indirect taxes the Indian Legislature has avoided this incidence to be characteristic of the tax 2 taxable event is the manufacture or production of goods it is immaterial what happens to them afterwards whether they are sold consumed destroyed or given away 3 it is not a necessary incidence that the manufacturer must be able to pass it on to the consumer or indemnify himself 4 the general tendency of its being passed on may be there but it may be prohibited by the circumstances economic or otherwise
The fact that the manufacturer has no chance to get the tax from the buyer does not affect the legality of the tax it was so held in the case of sales tax in The Tata Iron  Steel Co Ltd vs The State of Bihar 1 where the nature of the excise duty was discussed
At page 1369 the observations of Gwyer C J in Boddu Paidanna case 2 and of the Privy Council in Governor General in Council vs Province of Madras 3 were quoted with approval
It may be noted that in the Tata Iron  Steel Co case 1 the tax was a retrospective tax and was imposed at a time when in the Sales Tax Act no provision was made for passing on the Sales Tax to the purchaser
In the Union of India vs Madan Gopal Kabra 4 it was pointed out that Parliament was not precluded from exercising the power of imposing a retrospective tax and therefore it was competent to make a law imposing a tax on the income of any year prior to the commencement of the Constitution
As was pointed out in that case under articles 245 and 346 of the Constitution read with the relevant entry in List I of Schedule VII Parliament is empowered to make laws with regard to taxes and no limitation or restriction is imposed in regard to 51 retrospective legislation
See Sargood Bros vs The Commonwealth 1 where retrospective laws about the levying of Customs were held valid
See also Welch vs Henry 2 On the ground of retrospectivity alone therefore the tax is not unconstitutional
In view of what has been said above the cases decided in Canada or Australia cannot have any application
It was next contended that a retrospective tax purporting to be a duty on goods when the goods had been disposed of would be a tax not under item 84 List I of the Seventh Schedule but one under item 60 of List II ie tax on profession trade calling and employment the submission being that the word trade would include manufacture
This contention was sought to be supported by the observations of Lords Davey in Commissioner of Taxation vs Kirk 3 The word trade  no doubt primarily means traffic by way of sale or exchange or commercial dealing but may have a larger meaning so as to include manufactures In National Association of Local Government Officers vs Bolton Corporation 4 Lord Wrights in interpreting the word trade in section 11 of the Industrial Courts Act 1919 said Sect
11 of the Act of 1919 shows that trade  used as including industry  because it refers to a trade dispute in the industry of agriculture
 But this letter case has no application because there the word trade was interpreted in relation to a section of a particular Act and trade in that context has quite a different meaning
In Skinner vs Jack Breach Limited 5 Lord Hewart C J in interpreting the word trade in Trade Boards Act held that the word trade indicates a process of buying 52 and selling but it was by no means an exhaustive definition
It might also mean a calling or industry or class of skilled labour
The duty of Excise in item 84 should be given the widest construction unless for some reason it is cut down either by the terms of that item itself or by other Parts of the Constitution
The legislative history of the duty of Excise shows the nature of the tax
The word trade in item 60 of List II has reference to the carrying on of an activity in the nature of buying and selling and may in a different context mean a calling or an industry
Therefore reading the two items together it is obvious that item 84 deals with taxes on goods manufactured or produced and item 60 deals with the carrying on of trade ie an activity in the nature of buying and selling and the Act in its pith and substance relates to duty on goods manufactured or produced and has no relationship with item 60 of List II
Even assuming that the nature and tendency of the duty of Excise is as contended by Mr Pathak that it can be passed on to the consumer even than the complaint of the appellants that they have been deprived of that opportunity is not well founded because of section 64 A of the Indian Sale of Goods Act 3 of 1930 which was section 10 in the Indian Tariff Act 1934
It was originally taken from the British Tariff Act 1901 1 Edw
VII Ch
Section 64A of the Indian Sale of Goods Act is as follows  section 64 A In the event of any duty of customs or excise on any goods being imposed increased decreased or remitted after the making of any contract for the sale of such goods without stipulation as to the payment of duty where duty was not chargeable at the time of the making of the contract or for the sale of such goods duty paid where duty was chargeable at that time 53 a if such imposition or increase so takes effect that the duty or increased duty as the case may be or any part thereof is paid the seller may add so much to the contract price as will be equivalent to the amount paid in respect of such duty or increase of duty and he shall be entitled to be paid and to sue for and recover such addition and b if such decrease or remission so takes effect that the decreased duty only or no duty as the case may be is paid the buyer may deduct so much from the contract price as will be equivalent to the decrease of duty or remitted duty and he shall not be liable to pay or be sued for or in respect of such deduction
 This section provides for the recovery by the seller of the amount of increase in duty from the purchaser where the increase takes effect subsequent to the contract and for the right of the purchaser to recover from the seller the duty in cases where there is a similar decrease and this right exists both before the delivery is given taken and price received or paid as the case may be  Narayanan Chettiar vs Kidar Sahib1
Counsel for the appellants attempted to counter this submission by relying upon a judgment of the Privy Council in Prbhudas vs Ganidada 2
In that case the Government duty had not been reduced but the Buyer claimed that it had constructively been decreased because the tariff valuation had been reduced and so constructively it must be reckoned that there was a decrease in the duty on the goods sold
This contention was negatived by the Privy Council and it was held that a change of duty means a change in the rate of duty and not a change of tariff value
Thus assuming that the contention of the appellants is correct as to the nature of the excise duty it cannot be said that in the present case the appellants were 54 deprived of the opportunity of recovering the additional duty from the purchaser and therefore the duty lost its character of being excise duty and was transformed into a different tax
This argument of the appellants is therefore without substance and must be overruled
The constitutionality of the tax and retrospective imposition of enhanced duty on tobacco was further challenged on the ground of violation of the fundamental rights of the appellants under article 191f of the Constitution which it was submitted is not saved by cl
5 of that article because it is not a reasonable restriction in the interest of the general public
The grounds of attack may be stated in this way  1 that the nature of an excise duty is such that normally it is passed on to the purchaser by the manufacturer or the producer and it has that tendency and quality 2 as the impugned duty was enhanced at a time when the appellants had cleared their goods after paying the then prevailing duty it was not possible for them to realize the excise duty from any purchaser and 3 at the time of the clearance of the goods the appellants had paid all the taxes under the then existing law and the new liability rendered them liable to pay an illegal exaction or in the alternative to suffer the consequences of non payment which are of a drastic nature
On this basis it was submitted that the imposition was an unreasonable restriction on the fundamental rights of the appellants guaranteed under article 191 f
At this stage an examination of the extent of the State s power of taxation will be helpful
This power is one of the three governmental powers of the State the other two being police power and power of eminent domain
The power of taxation is the legal capacity of government to impose charges upon persons or their property to raise revenue for governmental 55 purposes
A tax is neither a penalty imposed on the taxpayer nor a liability which he assumes by contract
It is but a way of apportioning the cost of government among those who in some measure are privileged to enjoy its benefits and must bear its burdens
Welch vs Henry 1 but the constitutionality of a tax does not depend upon a showing of benefits  protection and taxation are not correlative terms
Willis Constitutional Law p 224  Tax is levied against the person and not against property
Property only serves as a basis for computing the measure of each person s liability
Weaver on Constitutional Law p 513  The power of taxation is one so unlimited in force and so searching in extent that the courts scarcely venture to declare that it is subject to any restrictions whatever except such as rest in the discretion of the authority which exercises it
It reaches to every trade or occupation to every object of industry use or enjoyment to every species of possession and it imposes a burden which in the case of failure to discharge it may be followed by seizure and sale or confiscation of property
No attribute of sovereignty is more pervading and at no point does the power of the government affect more constantly and intimately all the relations of life than through the exactions made under it Cooley s Constitutional Limitations Vol 2 8th Edp 987 Chief Justice Marshall said in M Culloch vs Maryland 2  The power of taxing the people and their property is essential to the very 56 existence of government and may be legitimately exercised on the objects to which it is applicable to the utmost extent to which the government may choose to carry it
The only security against the abuse of this power is found in the structure of the government itself See Willough by on the Constitution of the United States Vol 2 at p 666
As the exigencies of the government cannot be limited no limits can be prescribed to the exercise of the right of taxation
Every individual must bear a portion of public burden and that portion is determined by the legislature
According to the American Supreme Court the power of taxation is very wide and uncontrolled
In M Culloch vs Maryland1 Chief Justice Marshall said      it is unfit for the judicial department to inquire what degree of taxation is the legitimate use and what degree may amount to the abuse of the power See also Graves vs Schmidlapp2 per Chief Justice Stone
In Pacific Insurance Co vs Soule3 the Court said Congress may prescribe the basis fix the rate and require payment as it may deem proper within the limits of the constitution it is supreme in its action
No power of supervision or control is lodged in either of the other departments of the government
 Again in Veazie Bank vs Fenno 4 it was said  It is insisted  that the tax in this case is excessive and so excessive as to indicate a purpose on the part of the congress to destroy the franchise of the bank and is therefore beyond the constitutional power of 57 congress  
The first answer to this is that the judicial cannot prescribe to the legislative department of the Government limitations upon the exercise of its acknowledged powers
The power to tax may be exercised oppressively upon persons but the responsibility of the legislature is not to the Courts but to the people by whom its members are elected
 In Patton vs Brady1 the Court observed It is no part of the function of a Court to enquire into the reasonableness of the exercise of the power of taxation either as respects the amount or the property on which it is imposed
 In Welch vs Henry2 at p 94 it was observed  The equitable distribution of the costs of government through the medium of an income tax is a delicate and difficult task
In its performance experience has shown the importance of reasonable opportunity for the legislative body in the revision of tax laws to distribute increased costs of government among its tax payers in the light of present need for revenue and with knowledge of the sources and amounts of the various classes of taxable income during the taxable period preceding revision
Without that opportunity accommodation of the legislative purposes to the need may be seriously obstructed if not defeated Thus according to American view 1 the power to tax is an attribute of sovereignty 2 tax is an rateable contribution of each individual in a State towards the amount of revenue which is essential for the existence and operation of a public governing body 3 it being essential for the very existence of an organised State it may be exercised on objects to the utmost extent to which the legislature may choose to carry it and 4 the needs of 58 the revenue are only known to the legislature and the court cannot enquire into the necessity of imposing a tax or the objects on which the imposition should be made or the extent of the imposition
In the very nature of things the courts are unable to go into the propriety extent or economics of a particular tax or the policy underlying it which must depend upon a multitude of circumstances which can only be known to the government or the legislature
As the appellants have relied on certain American decisions where certain taxing laws operating retrospectively were tested on the touchstone of due process of law clause it becomes necessary to examine the extent of that doctrine
The taxing power of Federal Government says Prof Willis Constitutional Law p 378 is limited by the procedural requirements of the due process clause
Notice and hearing though not a judicial tribunal are required where the tax is based on the value of the property
Jurisdiction also is a requirement for all forms of taxation though the rules as to jurisdiction vary with the kind of tax levied According to Willoughby Constitution of the United States Vol
III p 1875 the due process of law obliges the exercise of the taxing power to conform to the following rules  1
That the tax shall be for a public purpose
That it shall operate uniformly upon those subject to it
That either the person or the property taxed shall be within the jurisdiction of the government levying the tax
That in the assessment and collection of the tax certain guarantees against injustice to individuals especially in the case of specific as distinguished from ad valorem taxes by way of notice and 59 opportunity for a hearing shall be provided
These principles of taxation are not peculiar to America but are accepted in all countries which have parliamentary democracies and govern the Indian taxation system also
In some American decisions retroactive tax laws were held to be inconsistent with due process  Nichols vs Coolidge1 Helvering vs Helwholz2 Blodgett vs Holden 3
But the decision in those cases rested on the ground that the tax could not reasonably be anticipated by the taxpayer at the time of the voluntary act which the statute later made the taxable event eg the gift by the descendent of the whole or a part of his interest in property
As was explained in Welch vs Henry4 at p 93  Since in each of these cases the donor might freely have chosen to give or not to give the taxation after the choice was made of a gift which he might will have refrained from making had he anticipated the tax was thought to be so arbitrary and oppressive as to be a denial of due process
But there are other forms of taxation whose retroactive imposition cannot be said to be similarly offensive because their incidence is not on the voluntary act of the taxpayer
And even a retroactive gift tax has been held valid where the donor was forewarned by the statute books of the possibility of such a levy Milliken vs United States 75 L Ed 809    In that case the retroactive operation of a tax on dividends was upheld and the objection on the ground of inconvenience in being called upon after the customary time for levy and payment of the 60 tax had passed to bear a governmental burden of which he had no warning and which he did not anticipate was held to be unsustainable
The contention that the retroactive application of the Revenue Acts is a denial of the due process guaranteed by the Constitution has not been accepted in America as an invariable rule
Welsh vs Henry1 and the other cases there cited
The doctrine of due process of law has received various interpretations in America which have not always been consistent
Sometimes it has favoured personal liberty and sometimes social control sometimes personal liberty as a matter of substance
Sometimes it has protected personal liberty by extending due process to matters of substance and sometimes it has protected social control by broadening the scope of police power or the power of taxation or the power of eminent domain
Willis  Constitutional Law p 659
Brandeis J in Untermyer vs Anderson2 dealing with the presumption of validity of a taxing statute observed  The presumption should be particularly strong where as here the objection to an act arises not from a specific limitation or prohibition on congressional power but only out of the vague contours of the 5th Amendment prohibiting the depriving any person of liberty or property without due process of law 
Holmes J in Adkins vs Children s Hospital  800
 It was because of the varying meanings and concepts which have from time to time been attached to due process of law that the framers of the Indian Constitution did not adopt it in the Constitution on the other hand they tried to give more defined boundaries to the area of fundamental rights in articles 19 and 31 which deal with rights of property 61 and in articles 19 20 21 and 22 which relate to protection of personal liberty and this Court rejected it in A K Gopalan s case 1 and in the State of West Bengal vs Subodh Gopal Bose 2
The constitutionality of the duty of excise was challenged in the present case on the ground of violation of article 19 1 f of the Constitution
he argument is that a taxing law under article 265 is as much a law as any other and therefore falls within the definition of law under article 133a and if it contravenes any of the fundamental rights under Part III then to the extent of the contravention it is void
Counsel relied on the second Kochuni case 3
Article 19 guarantees personal freedoms subject to certain restrictions
Its relevant portion is as follows article 191f
All citizens shall have the right to acquire hold and dispose of property article 195
Nothing in sub clauses d e and f of the said clause shall affect the operation of any existing law in so far as it imposes or prevent the State from making any law imposing reasonable restrictions on the exercise of any of the rights conferred by the said sub clauses either in the interests of the general public or for the protection of the interests of any Scheduled Tribe
 As has already been said the power to tax is the legal capacity of the State to raise from all those subject to its authority a certain amount of revenue essential so the existence and operation of government
A tax is not a penalty but a contribution of monies for governmental purposes by 62 persons who may be residents or non residents citizens or non citizens living persons or legal personae who are privileged to enjoy its benefits but those are not co relative
It implies an equality of burden and regular distribution of expenses of government among the persons taxed
It is levied by authority of law equitably uniformly or in echelons on all persons subject to it
The appellants alleged that they had sold their goods during the period when the Finance Bill was before Parliament
Variations in the rates of duties are not unexpected it being within the power of Parliament to do so both prospectively and retrospectively
It is not suggested that such variations are unknown in legislative practice or that the legislators were not entitled to amend a money bill as introduced
If the appellants  contention is sustained then it will mean the deprivation of Parliament of its right to choose the objects of taxation and therefore Parliament will only vary the rates of duties proposed by the Executive or the time of their effectiveness at the peril of their being declared invalid although they may be within its legislative competence and may in its opinion be necessary for the carrying out of its policies or subserve the proper governance of the country
In the Indian Constitution there is an exhaustive enunciation and distribution of legislative powers including powers as to taxation between the State Legislatures and Parliament
Subjects of taxation are distributed in the three Legislative Lists and areas of the respective fields of Parliament and State Legislatures as to taxes are defined
In Parts XII and XIII limitations on legislative competence of the various legislatures as to taxation are indicated and emphasis is placed on the preservation of the economic unity of 63 India
Article 265 is in Chapter XII and provides  No tax shall be levied or collected except by authority of law which means that all taxation has to be under a law enacted by a legislature of competent jurisdiction and subject to constitutional limitations
This Court in 1950 rejected the applicability of the doctrine of due process of law to Indian constitutional problems A K Gopalan s case 1 The state of West Bengal vs Subodh Gopal Bose 2
In the latter case it was also held that the Indian Constitution recognises no fundamental right to immunity from taxation and that is why presumably no constitutional protection is provided against the exercise of that power
Per Patanjali Sastri CJ p 614
Das J as he then was held the power of taxation to be distinct from police power ie regulatory power of the State and the power of Eminent Domain ie the power of the State of compulsory acquisition of property
Dealing with protection against taxation he said in Subodh Gopal s case 2 at p 652  Our Constitution makers evidently considered the protection against deprivation of property in exercise of police power or of the power of eminent domain by the executive to be of greater importance than the protection against deprivation of property brought about by the exercise of the power of taxation by the executive for they found a place for the first mentioned protection in article 31 1 and 2 set out in Part III dealing with fundamental rights while they placed the last mentioned protection in article 265 to be found in Part XII dealing with finance etc
So with regard to all the three sovereign powers we have complete protection against the executive organ of the State
 64 Again at p 653 he observed  Apart from this what I ask is our protection against the legislature in the matter of deprivation of property by the exercise of the power of taxation  None whatever
By exercising its power of taxation by law the State may deprive us citizen or non citizen of almost sixteen annas in the rupee of our income See also p 654
In Ramjilal vs Income Tax Officer 1 Das J as he then was observed at pp
136 137  Reference has next to be made to article 265 which is in Part XII Chapter 1 dealing with Finance 
That article provides that no tax shall be levied or collected except by authority of law
There was no similar provision in the corresponding chapter of the Government of India Act 1935
If collection of taxes amounts to deprivation of property within the meaning of article 311 then there was no point in making a separate provision again as has been made in article 265
It therefore follows that clause 1 of article 31 must be regarded as concerned with deprivation of property otherwise than by the imposition or collection of tax for otherwise article 265 becomes wholly redundant
In the United States of America the power of taxation is regarded as distinct from the exercise of police power or eminent domain
Our Constitution evidently has also treated taxation as distinct from compulsory acquisition of property and has made independent provision giving protection against taxation save by authority of law
When Dr Tek Chand was asked if that was not the correct position he did not advance any cogent or convincing answer to refute the conclusion put to him
In our opinion the protection against imposition 65 and collection of taxes save by authority of law directly comes from article 265 and is not secured by clause 1 of article 31
Article 265 not being in Chapter III of the Constitution its protection is not a fundamental right which can be enforced by an application to this court under article 32
It is not our purpose to say that the right secured by article 265 may not be enforced
It may certainly be enforced by adopting proper proceedings
All that we wish to state is that this application in so far as it purports to be founded on article 32 read with article 311 to this court is misconceived and must fail
 A similar decision was given and similar language used by Mahajan CJ in Laxmanappa Hanumantappa vs Union of India 1  It was held by this Court in Ramjilal vs Income Tax Officer Mohindergarh 2 that as there is a special provision in article 265 of the constitution that no tax shall be levied or collected except by authority of law clause 1 of article 31 must therefore be regarded as concerned with deprivation of property otherwise than by the imposition or collection of tax and inasmuch as right conferred by Article 265 is not a right conferred by Part III of the constitution it could not be enforced under article 32
 Ramjilal s case 2 was quoted with approval in Bengal Immunity Co Ltd vs State of Bihar 3
Thus early after the establishment of this Court opinion was expressed excluding the applicability of fundamental rights in Part III to taxing Statutes
But it is important to notice that the Article which was sought to be applied in those cases was article 31 1 which deals with deprivation of property 66 and not article 19 which is regulatory of the rights of a citizen of personal liberty property and avocation
It was contended that the impugned tax illegally deprives the appellants of their property and was therefore unconstitutional
In support reference was made to Suraj Mal Mohta  Co vs A V Viswanatha Sastri 1 under article 14 Shree Meenakshi Mills Ltd vs Sri A V Viswanatha Sastri 2 under article 14 Purshottam Govindji Halai vs Shree B M Desai Additional Collector of Bombay 3 under articles 14 and 21 M Ct
Muthiah vs The Commissioner of Income tax Madras 4 under article 14 A Thangal Kunju Mudaliar vs M Venkatchalam Potti 5 under article 14 Bidi Supply Co vs The Union of India 6 under article 14 Panna Lal Binjraj vs Union of India 7 under articles 14 and 191g and Collector of Malabar vs Erimal Ebrahim Hajee 8
These are the cases in which the validity of taxation laws was attacked under the Articles above mentioned
In Panna Lal Binjraj vs The Union of India 7 the assault was not against the imposition or the vires of the tax but against the vires of section 57A of the Indian Income tax Act which empowers the Commissioner of Income tax to transfer any case from one Income tax Officer subordinate to him to another and empowers the Central Board of Revenue to transfer any case from one Income tax officer to another
This attack was based on the contravention of articles 14 and 191g
It was held that the discretion vested in the authorities empowered to make the transfer is not discriminatory and there was no interference with the right of the citizen to carry on his trade or calling
In collector of Malabar vs Erimal Ebrahim Hajee 8 the attack against the recovery of income tax under section 46 2 of the Income tax Act was based on articles 14 19 and 22
There again the question for decision was not the imposition of the tax but 67 the mode of recovery and at Page 976 this ground of attack was rejected and reference was there made to the State of Punjab vs Ajaib Singh 1 Purshottam Govindji Halai vs Shree B M Desai Additional Collector of Bombay 2
Another case relied upon by the appellant s counsel was Western India Theatres vs The Cantonment Board Poona 3 in which the tax was imposed on cinema houses with larger seating capacity and the attack was on the ground of article 14 but that was repelled
The appellant s counsel also referred to the Bengal Immunity Co Ltd vs State of Bihar 4 where the vires of the sales tax imposed on inter State transactions was attacked
The High Court in the case had held that the petition under article 226 was misconceived overlooking the fact that the contention raised was that in so far as the tax purported to act on non residents in respect of inter State sales it was ultra vires of the Constitution
p 619 Das C J observed  It is also true that article 31 which protects citizens and non citizens alike cannot be availed of as it deals with deprivation of property otherwise than by way of levying or collecting taxes as held by this Court in Ramjilal vs Income tax Officer Mohindergarh   and that therefore the Act does not constitute an infringement of the fundamental right to property under that article
It is however clear from article 265 that no tax can be levied or collected except by authority of law which must mean a good and valid law
The contention of the appellant company is that the Act which authorises the assessment levying and collection of sales tax on inter State trade contravenes and constitutes an infringement of article 286 and is therefore ultra vires void and unenforceable
If therefore this contention be well founded 68 the remedy by was of a writ must on principle and authority be available to the party aggrieved
The next case relied upon by counsel for the appellants was Kailash Nath vs State of U P 1 which was a case under the U P Sales Tax Act the plea of the petitioners was that the goods sought to be taxed had been exported overseas and therefore not liable to sales tax
It was held that if a tax is levied without due legal authority on any trade or business then it is open to the citizen to approach this Court under article 32 since his right to carry on trade is violated or infringed by the imposition of the tax and article 19 1g comes into play
There again the taxation law itself was not challenged on the ground of violation of any fundamental right which has reference to property but the imposition of the tax was assailed on the ground that it was not imposeable on the transactions which had been entered into
In support of the proposition that the taxation laws are assailable under the provisions of article 191 State of Travancore Cochin vs Shanmuga Vilas Cashew Nut Factory 2 was relied upon
That was not a petition under article 32 or a matter under article 191f but one under article 2861 and the question in dispute was whether the transaction was in the course of inter State trade
Himatlal Harilal Mehta vs The State of Madhya Pradesh 3 was also a similar case
Article 191g was applied because of the unconstitutionality of the tax under article 2861a
Ms Ram Narain Sons Ltd vs Asst
Commissioner of Sales Tax 4 was also a case under article 286 of the Constitution and was not a matter falling under article 191 of the Constitution
In all these cases relied upon by counsel for the appellants the basis of attack was 1 that the 69 tax was not within the legislative competence of the legislature imposing the tax and therefore the tax was being illegally recovered from the assessee or 2 an objection was taken to the differential mode of imposition and collection and use of a more stringent procedure ie illegal discrimination between persons similarly situated eg under Taxation on Income Investigation Commission Act
The imposion of an illegal tax not within the legislative competence of the legislature a colourable piece of legislature imposing a tax which is not a tax but is an imposition of a confiscatory nature a breach of principles of natural justice or imposing an unimposeable tax have all been held to be violative of the right to carry on trade under article 191g
But they do not support the proposition that the tax if otherwise valid can be declared unconstitutional and can be subject to judicial review on the ground of being excessive or being retrospective in operation or being imposed on one article rather than another
These cases do not support the proposition which has been contended for by the appellants that the very imposition of the tax is a contravention of the right of the assessee to acquire hold or own or dispose of property or on the ground of contravention of article 31
In the State of Bombay vs Bhanji Munji 1 it was also held that article 191f read with cl
5 postulates the existence of the property which can be enjoyed and over which rights can be exercised because otherwise the reasonable restriction contemplated by cl5 cannot be brought into play
That was the uniform view held in this Court till the majority judgment in Moopil Nair s case2 which relied on the second Kochuni case ie Kavalappara Kottarathil Kochunni etc
vs The State of Madras 3
But the latter was not a taxation case
It was held in that case Kochuni case that all laws within 70 article 13 are subject to Part III and that for a law to be valid it must satisfy two tests 1 of being enacted by a legislature having legislative competence and 2 it should not contravene any of the fundamental rights
The above opinion is not in accord with the opinion of this court in A K Gopalan s case 1 Ram Singh vs State of Delhi 2 State of Bombay vs Bhanji Munji 3 The Daily Express case 4 and The Hamdard Dawakhana case 5
The question of the applicability of article 191f of the Constitution to taxing matters was considered in K T Moopil Nair vs The State of Kerala 6
That was a case in which a tax at a flat rate was levied on forest lands in the State of Kerala and this Court by majority held that the tax so imposed was unconstitutional on the ground of infringement of articles 14 and 191f
The reasons given by the learned Chief Justice were a In the procedure to be adopted for the levying of the tax there was no provision for a notice to be given to the assessee b There was no procedure for rectification of mistakes committed by the assessing authorities c There is no procedure for obtaining the opinion of a superior Civil Court on a question of law as is generally found in all taxing stautes d No duty was cast upon the assessing authority to act judicially and e There was no right of appeal provided to the assessee
The provisions of the Act were held in the majority judgment to be confiscatory
It was observed by the learned Chief Justice at p 559 That the provisions aforesaid of the impugned Act are in their effect confiscatory is clear on their face
Taking the extreme 71 case the facts of which we have stated in the early part of this judgment it can be illustrated that the provisions of the Act without proposing to acquire the privately owned forests in the State of Kerala after satisfying the conditions laid down in article 31 of the Constitution have the effect of eliminating the private owners through the machinery of the Act Thus the impugned statute in that case was held to be violative of article 191f because its procedural part made no provision for giving a hearing to the assessees or for appeal nor was the Assessing Authority required to act judicially and the imposition though called a tax was in effect confiscatory and therefore a colourable piece of legislation
Sarkar J in his minority judgment remarked that reasonableness of the rate was not assailed but what was assailed was the imposition of a flat rate per acre without any reference to productivity
Undoubtedly Moopil Nair s case 1 did hold that a law under article 265 was also a law within article 13 and if it contravened article 14 it was liable to be struck down and that such law must also pass the test of the limitations prescribed in Part III of the Constitution but it did not lay down that all Articles in Part III would be applicable to taxation laws nor did it decide contrary to Ramjilal s case 2 that article 31 1 would apply to taxation law which is otherwise invalid
But it is difficult to hold that a regulatory Article like article 191 was intended to limit the powers of the Legislature to impose taxes and thus to discharge its duty in regard to country s financial needs and policies
The contention of infringement of the appellants  right under article 191 f is unsound and must be rejected and the reasons are these Firstly Clause 5 of article 19 allows the enacting of laws which impose reasonable restrictions 72 in the interests of the general public
The use of the term reasonable restrictions is indicative of regulation of the right to the personal rights mentioned in sub cl
f of the first clause
It must have relation to the existence of the thing to be regulated
There can be no regulation of things not in existence
Therefore where an Act is deprivatory as the imposition of a tax is it cannot fall within article 191 but under the specific article 31 which relates to deprivation of property
Imam J in The Collector of Malabar vs E Ebrahim Hajee 1 said at p 976 If the property itself is taken lawfully under article 31 the right to hold or dispose of it perishes with it and article 191f cannot be invoked
 That was a case where the Income tax Officer issued a certificate under section 46 2 of the Income tax Act and the Collector proceeded to recover under section 48 of Madras Revenue Recovery Act
Secondly All taxation as shown by its very nature and object is in the interest of the general public because it is a contribution for governmental expenditure from all persons who in some measure are entitled to its benefit
Thirdly There is no means or measure for determining the reasonableness of the restrictions which is an objective determination
The needs of the revenue cannot be known to the courts and cannot be determined by them and the sources of revenue are entirely within the knowledge of the legislature and it is for that department of the State to determine how the burden will be distributed and why because that department is the policy making body and is familiar with the economics and the resources of the country and its needs
It is for that department in its discretion to select 73 anything for taxation or to exclude it
Cooley s Constitutional Limitations Vol
II p 986 note
Fourthly The power to tax is an attribute of sovereignty and it is an accepted principle that the exercise of that power is not subject to judicial control because no Constitutional Government can exist without the power to raise money for its needs and the only security against abuse is in the structure of the Government
That power carries with it the power to determine when and how the tax shall be levied
section Ananthakrishnan vs The State of Madras 1 M Culloch vs The State of Maryland 2
There is no indication that the Indian Constitution has rejected or modified the American concept of the sovereignty of the State in regard to the power of taxation
Fifthly Article 19 1 declares the right of a citizen and cl
5 prescribes its limits
If a taxation statute is within article 191f it must be capable of being upheld as a reasonable restriction on the holding of property etc
On the submission of the appellants all taxes will be restrictions
If they are restrictions then their reasonableness will be justiciable depending upon the appreciation of established facts
How are the courts to judge  All the necessary data for determining reasonableness can never be before a court which in the very nature of things is available only to the legislature
Can the court say that a particular tax is excessive or unreasonable or can the court say which particular source should be taxed and which particular income group should bear the burden of taxation or what the policy of the State as to taxation should be
It would seem therefore that the reasonableness of tax laws is not justiciable and therefore they cannot fall within clause 5 of article 19
Article 74 191f and cl 5 are part of one scheme and the former is incapable of operating where the latter is inoperative
If considerations of article 195 are foreign to taxing laws article 191f can have no application to them
Sixthly Applicability of article 191f to taxation laws will mean that laws which are otherwise valid will be inapplicable to citizens but will be applicable to non citizens
At any rate such law will operate differentially between one set of taxpayers and another ie between citizens and non citizens
This will violate the very principles of due process relied upon by the appellants
Seventhly In American due process which has a variable concept has not been applied to retrospective operation of tax laws except to tax on voluntary gifts of property and that also was doubted in Welch vs Henry 1
Eighthly Retroactive duty of excise will be a valid imposition in the case of persons who have not sold their tobacco between the period of the introduction of the bill and the enactment of the Finance Act but will be invalid in the case of persons placed as the appellants
Ninthly The acceptance of the appellants  argument would mean that they can recover any excess duty paid excess because of subsequent decrease but would not be liable to pay any similar increase in duty in spite of section 64 A of the Indian Sale of Goods Act under which variations in the rates of duties become operative on contracts of sale and purchase
Tenthly It has been held that article 31 is inapplicable to deprivation by taxation
Ramjilal s case 2 Lakshmanppa Hanumantappa vs The Union of India 3 and taxation laws are expressly excluded from the operation of article 312 by 75 cl
5bi of that Article
If the appellants  contention is correct then deprivation although not protected under article 31 will be subject to regulatory control under article 191f
Eleventhly To put it in the words of the American Supreme Court in Odgen vs Saunders1 It is but a decent respect due to the wisdom the integrity and the patriotism of the legislative body by which law is passed to presume in favour of its validity until its violation of the Constitution is proved beyond all reasonable doubt
Twelfthly The challenge to the legality of the tax in dispute is not based and is unsustainable on the ground of specific limitation or prohibition on Parliamentary power but has been raised on the ground of the infringement of an article containing the principles of the State s power of control
The cases dealing with legislative incapacity are inapplicable to the latter ground of assault
Cases such as Mohammad Yasin vs The Town Area Committee Jalalabad2 a case of a licence fee which is not a tax The State of Bombay vs United Motors India Ltd3a case of inter State trade and Bengal Immunity Co case 4 which was also a case of inter State trade and some of the provision of the impugned Act there were held to be unreasonable restriction on the right to carry on trade and Ch
Tika Ramji s case 5 a case dealing with the imposition of the restriction on the right to purchase except through a particular society were not cases in which the imposition of a tax was challenged on the ground of infringement of article 191f
I therefore agree that appeals be dismissed with costs
One hearing fee
Appeal dismissed


Summary:
The appellants who were carrying on business in tobacco had in their licenced warehouse considerable quantity of tobacco 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  by way of alteration of duties inter alia on unmanufactured tobacco by imposing an excise duty of 8 annas per 1b
Under the provisions of the  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 possession 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 section 71 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 the  shall be deemed to have effect on and after March 1 1951 and accordingly  recoveries shall be made of all duties which have not been collected but which would have been collected if the amendment had so come into force
 In pursuance of section 72 a demand was made upon the appellants on June 22 1951 for payment of the excess of the 2 excise duty payable on tobacco cleared out of the warehouse from March 1 1951 to April 28 1951
The appellants challenged the legality of the demand on the grounds inter alia that 1 excise duty was a tax on goods which must exist at the time when the tax was levied and it must have been intended and expected by the legislature that it would be passed on to the consumer and as the retrospective operation of the duties deprived the tax of these qualities they did not fall within the term duties of excise in Entry 84 List I of the Seventh Schedule to the Constitution of India and therefore section 72 of the Finance Act 1951 in so far as it imposed an excise duty retrospective before the date of its enactment was beyond the legislative competence of Parliament and 2 the impugned levy contravened article 191f because a retrospective levy of an excise duty deprived the tax payer of the right of passing it on and recovering it from his buyer and that this constituted a restraint on the right to hold property which was not saved by cl5 of article 19
 HELD 1 Parliament acting within its own legislative field had the powers of a sovereign legislature and could make a law prospectively as well retrospectively and the duties leviable under the  as provided by section 72 of the Finance Act 1951 notwithstanding their imposition with retrospective effect and even if it be that they were incapable of being passed on to a buyer from the taxpayer were duties of excise within the meaning of Entry 84 List I of the Seventh Schedule to the Constitution of India
2 The levy of the tax retrospectively under section 72 of the Finance Act 1951 was valid and did not contravene article 191f of the Constitution
Per Kapur J 1 Entry 84 in List I deals with taxes on goods manufactured or produced while Entry 60 in List II deals with the carrying on of trade ie an activity in the nature of buying and selling and the  in its pith and substance relates to duty on goods manufactured or produced and has no relationship with Entry 60
2 Reasonableness of tax laws is not justiciable and therefore they cannot fall within cl5 of article 19
article 191f and the cl5 are part of one scheme and the former is incapable of operating where the latter is inoperative
If considerations of article 195 are foreign to taxing laws article 191f can have no application to them
Case law reviewed