Case: Kalyani Stores Vs. State of Orissa & Others

Shah, J. [On behalf of himself and P. B. Gajendragadkar, C. J., K. N. Wanchoo, and S. M. Sikri, JJ.] 1. The appellants-Kalyani Stores-deal in liquor at Rourkela, District of Sundergarh in the State of Orissa. The appellants held a license as retail vendors for "all types of foreign liquor" under the Bihar and Orissa Excise Act, 1915. The expression "foreign liquor" apparently includes Ale, Beer, Port, Cider and other fermented liquors, cordials, mixtures and other preparations containing spirit, perfumed spirit, perfumed spirit and all sorts of wines whether manufactured in India or abroad Under the Bihar and Orissa Excise Act, 1915 by a notification issued in 1937 under S. 27 a duty of Rs. 40 per L. P. Gallon was imposed and realised by the State of Orissa on foreign liquor of Indian manufacture imported into State of Orissa from other parts of India. For the year April 1, 1960 to March 31, 1961 duty was levied on "foreign liquor" imported by the appellants at the rate fixed in the notification issued in 1937. On March 31, 1961 in exercise of the powers conferred by S. 90 of the Bihar and Orissa Excise Act, 2 of 1915 the Board of Revenue enhanced the duty with effect from April 1, 1961 in respect of "foreign liquors" from Rs. 40 to Rs. 70 per L. P. Gallon, and also raised duty in respect of other excisable articles. The licence held by the appellants was in due course renewed from April 1, 1961 to March 31, 1962. On November 14, 1961 the Sub-Inspector of Excise, Panposh called upon the appellants to pay the difference at the rate of Rs. 30 per L. P Gallon in respect of the stocks of liquor found in the shop of the appellants on April 1, 1961 and to pay duty at the rate of Rs. 70 per L. P. Gallon in respect of fresh stocks received after April 1, 1961. The appellants challenged the legality of this levy by a petition under Art. 226 of the Constitution filed before the High Court of Orissa. The appellants contended, inter alia, that the State could levy under S. 27 of the Bihar and Orissa Act duty on excisable articles produced or manufactured in the State and a countervailing duty on excisable article imported into the State, imposed with a view to equalise the burden on the imported articles with the burden on manufactured articles in the State but no countervailing duty on liquor imported could be levied if there was in the year of licence no liquor similar to the imported liquor manufactured within the State, and as there was no distillery in the State manufacturing "foreign liquor" the levy of countervailing duty was without authority of law. The High Court dismissed the petition holding that under. Entry 51, List II, in Sch. VII of the Constitution, the State Legislature had the power to legislate for levying duties of excise on alcoholic liquors for human consumption manufactured or produced in the State and countervailing duties at the same or lower rates on similar goods manufactured or produced elsewhere in India, and as it was admitted that the rate of duty on liquor produced in Orissa levied by the State of Orissa was identical with the countervailing duty required to be paid on imported liquor, the impugned notification was not invalid. With special leave granted by this Court, the appellants have appealed to this Court. 2. The Bihar and Orissa Excise Act, 2 of 1915 was enacted with the object, amongst others, to control the import, export, transport, manufacture, possession and sale of certain kinds of liquor and intoxicating drugs. Section 27 of the Act as amended by the Adaptation Order, 1950 provides:"An excise duty or a countervailing duty, as the case may be, at such rate or rates as the State Government may direct, may be imposed, either generally or for any specified local area, on- (a) any excisable article imported, or * * * * Explanation.- * * *" The appellants submit that the levy of duty at the rate of Rs. 70 per L. P. Gallon under the notification, dated March 31, 1961 is without authority of law, in that it contravenes Entry 51, List II, Sch. VII of the Constitution. The argument presented in this laconic form is founded on what is contended is the true character of countervailing duties. We may observe that the challenge was restricted to the raising of the duty by the notification, dated March 31, 1961: the appellants did not challenge before the High Court the notification issued in 1937. The validity of the levy at the rate of Rs. 40 per L. P. Gallon before the Constitution is, therefore, not under consideration in this appeal. Power of the Legislature to legislate for imposition of duties on excisable articles manufactured within the State and to impose countervailing duties upon excisable articles imported into the State is not denied. It is said, however, that the expression "countervailing duty" means a duty levied on similar articles imported from outside the State, with a view to equalise the burden of taxation on articles produced or manufactured within the State and articles imported, and a countervailing duty on imported articles cannot be levied by the State unless articles similar to those imported are produced or manufactured in the State and an excise duty is levied thereon. 3. The High Court has observed in its judgment that it was admitted that the rate of duty on liquor produced in Orissa levied by the State Government was identical with the countervailing duty required to be paid on imported foreign liquor. Counsel for the appellants says that it was not admitted by the appellants that at the material time foreign liquor was manufactured or produced within the State of Orissa. The High Court has apparently not stated that "foreign liquor" was manufactured within the State of Orissa at the material time. From the affidavits filed in this Court by the parties it is clear that no "foreign liquor" was being produced in the State at the material time; nor was any such liquor produced at any time after the Constitution was brought into force. Counsel for the State has, therefore, very fairly not supported this part of the reasoning of the High Court. 4. This brings us to the consideration of the meaning of the expression "countervailing duties" used in Entry 51, List II of the Seventh Schedule to the Constitution. The expression "countervailing duties" has not been defined in the Constitution or the Bihar and Orissa Act, 2 of 1915. We have, therefore, to depend upon its etymological sense and the context in which it has been used in Entry 51. In its etymological sense, it means to counter-balance; to avail against with equal force or virtue: to compensate for something or serve as an equivalent of or substitute for: see Blacks Law Dictionary, 4th Edn. 421. This would suggest that a countervailing duty is imposed for the purpose of counterbalancing or to avail against something with equal force or to compensate for something as an equivalent. Entry 51 in List II of the Seventh Schedule to the Constitution gives power to the State Legislature to impose duties of excise on alcoholic liquors for human consumption where the goods are manufactured or produced in the State. It also gives power to levy countervailing duties at the same or lower rates on similar goods manufactured or produced elsewhere in India. The fact that countervailing duties may be imposed at the same or lower rates suggests that they are meant to counterbalance the duties of excise imposed on goods manufactured in the State. They may be imposed at the same rate as excise duties or at a lower rate, presumably to equalise the burden after taking into account the cost of transport from the place of manufacture to the taxing State. It seems, therefore, that countervailing duties are meant to equalise the burden on alcoholic liquors imported from outside the State and the burden placed by excise duties on alcoholic liquors manufactured or produced in the State. If no alcoholic liquors similar to those produced or manufactured imported into the State are produced or manufactured, the right to impose counterbalancing duties of excise levied on the goods manufactured in the State will not arise. It may therefore be accepted that countervailing duties can only be levied if similar goods are actually produced or manufactured in the State on which excise duties are being levied. 5. But the Bihar and Orissa Act, 2 of 1915 was enacted by the appropriate legislature in 1915 and by virtue of Art. 372 of the Constitution it was a law in force and continues to remain in force until altered, repealed or amended by a competent legislature or by a competent authority, and, therefore, countervailing duty on imported foreign liquor could be levied by the State Government as it was levied before the Constitution, unless there is something to the contrary to be found therein. It is admitted that the Government of Orissa continued to levy a duty of Rs. 40 per L. P. Gallon under Act, 2 of 1915 even after Constitution came into force. By the notification of 1961 the duty was enhanced from Rs. 40 per L. P. Gallon to Rs. 70 per L. P. Gallon. Levy at the rate prescribed under the notification of 1937 in operation immediately before the Constitution remained effective until it was lawfully altered. The only contention raised in the High Court in support of the plea of invalidity of the levy in its entirety based on the nature of countervailing duty cannot prevail for a part of the duty was already being levied before the Constitution came into force, and the appellants by their petition did not challenge in the High Court the validity of that levy before the 26th January 1950. The duty of Rs. 70 per L. P. Gallon may be broken up into two parts, Rs. 40 per L. P. Gallon which was in force before the Constitution came into force, and which continued to be levied thereafter, and Rs. 30 which was the added levy in 1961.The contention based on the nature of countervailing duty cannot in the face of Art. 305, to which we shall presently refer prevail, in so far as it is levied under the notification issued in 1937, though the enhancement of Rs. 30 in 1961 after the Constitution came into force may be open to challenge. The argument of counsel for the appellants that the levy of duty at the rate of Rs. 70 per L. P. Gallon in its entirety is invalid must therefore fail. 6. Whether the enhancement of the levy by notification, dated March 31, 1961 insofar as it enhanced the levy from Rs. 40 to Rs. 70 per L. P. Gallon infringes any constitutional prohibitions may be considered. By S. 27 of Act 2 of 1915 the State Government is given the power to impose a countervailing duty at the rate or rates as the State Government may direct. Before the Constitution, duty was imposed at the rate of Rs. 40 per L. P. Gallon on foreign liquors. The imposition remained in operation till the date on which the Constitution was brought into force, and has not been challenged in the petition. The Act merely authorised the levy of duty as may be fixed by the Government. To effectuate the power to levy the duty authorised, the rate of duty must be fixed by notification by the State Government. In 1937 the power was exercised by issuing a notification under S. 27 authorising the levy of duty at the rate of Rs. 40 per L. P. Gallon. Section 27 of the Act authorised the imposition of excise and countervailing duties: the section, however, did not by its own force impose liability to pay any specific duties. To complete the levy the State Government had to issue a notification levying the duty and prescribing the rates thereof. By the notification, dated March 31, 1961 that law was altered and the duty was raised to Rs. 70 per L. P. Gallon. Till the enactment of the Constitution the existing law relating to the levy of countervailing duty on excisable articles was contained in S. 27 supplemented by the notification issues by the Government of Orissa in 1937. By the notification, dated March 31, 1961 the rate of levy was altered, and the validity of the altered rate of duty has to be adjudge in the light of the provisions of the Constitution. 7. The validity of the imposition of the new rate of Rs. 70/- per L. P. Gallon may be examined in the light of the restriction imposed by the Constitution on the legisltive power. By Art. 301 of the Constitution, subject to the other provisions of Part XIII, trade, commerce, and intercourse throughout the territory of India is to be free. By Art. 303 no power is conferred upon the State Legislature to make any law giving, or to authorise the giving of, any preference to one State over another, or to make, or authorise the making of, any discrimination between one State and another, by virtue of any entry relating to trade and commerce in any of the List in the Seventh Schedule. The material part of Art. 304 is as follows:"Notwithstanding anything in article 301 or article 303, the Legislature of a State may by law- (a) impose on goods imported from other States or the Union territories any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced; and (b) impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest: Provided that * * * * " Article 305, insofar as it is material, provides:"Nothing in articles 301 and 303 shall affect the provisions of any existing law except in so far as the President may by order otherwise direct; * * * * " 8. Article 304 is in terms prospective: it authorises the State Government to legislate notwithstanding anything in article 301 or 303 to impose on goods imported from other States any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods imported and goods manufactured or produced or to impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest. The notification levying duty at the enhanced rate is purely a fiscal measure and cannot be said to be a reasonable restriction on the freedom of trade in the public interest. Article 301 has declared freedom of trade, commerce and intercourse throughout the territory of India, and restriction on that freedom may only be justified if it falls within Art. 304. Reasonableness of the restriction would have to be adjudged in the light of the purpose for which the restriction is imposed, that is, "as may be required in the public interest." Without entering upon an exhaustive categorization of what may be deemed "required in the public interest", it may be said that restrictions which may validly be imposed under Art. 304(b) are those which seek to protect public health, safety, morals and property within the territory. Exercise of the power under Art. 304 (a) can only be effective if the tax or duty imposed on goods imported from other States and the Tax or duty imposed on similar goods manufactured or produced in that State are such that there is no discrimination against imported goods. As no foreign liquor is produced or manufactured in the State of Orissa the power to legislate given by Art. 304 is not available and the restriction which is declared on the freedom of trade, commerce or intercourse by Art. 304 of the Constitution remains unfettered. 9. Mr. Bindra appearing on behalf of the State of Orissa contended that the Legislature having empowered the State Government by S. 27 to levy duty at a rate which may be prescribed, the notification dated March 31, 1961 enhancing the tax derived its validity from the Act itself and did not amount to any law modifying the existing law. Therefore, it was said, the levy of duty at the enhanced rate was supported by the power conferred by S. 27 which was "existing law". This argument cannot, in our view, be sustained. By Art. 366(10) unless the context otherwise requires, the expression "existing law" means any law, Ordinance, order, bye-law, rule or regulation passed or made before the commencement of the Constitution by any Legislature, authority or person having power to make such a law, Ordinance, order, bye-law, rule or regulation. Existing law within the meaning of Art. 305 was therefore the provision contained in S. 27 of the Bihar and Orissa Act 2 of 1915 authorising the State Government to issue a notification imposing a duty at the rate fixed thereby and the notification issued pursuant thereto before the constitution. The notification of March 31, 1961 which imposed an additional burden may therefore be valid only if it complies with the constitutional requirements. 10. The decision in The Bangalore Woollen, Cotton and Silk Mills Company Ltd., Bangalore v. Corporation of the City of Bangalore, AIR 1962 SC 562 on which reliance was placed by Mr. Bindra does not assist his contention. In that case by resolution, dated March 31, 1954 the Municipal Corporation of Bangalore purporting to act under the authority conferred by S. 98 of the City of Bangalore Municipal Corporation Act 69 of 1949 resolved to levy octroi duty on cotton and wool. The authority of the Municipal Corporation to levy the tax was challenged. It was held by a Division Bench of this Court in Bangalore Woollen Cotton and Silk Mills v. Bangalore Corporation, AIR 1962 SC 1263 , that the Legislature had laid down the powers of the Municipal Corporation to tax animals and goods, brought within the octroi limits and had enumerated certain articles and animals in Part V of Sch. III and by Class VIII read with S. 97 had authorised the Corporation to impose a tax on other articles or goods. This power in the view of the Court was granted by conditional legislation and was not liable to be struck down on the score of excessive delegation. The question whether the imposition of the octroi duty offended Arts. 276 and 301 was then referred to a larger Bench and the Court held in, AIR 1962 SC 562 , that the combined effect of Ss. 97 and 130 and Part V of Sch. III including class VIII is that the words of a general nature used by the Legislature had the same effect as if all articles were intended to be included, and the impugned octroi duty did not contravene the provisions of Arts. 276 and 301 of the Constitution. It was urged on behalf of the tax-payers that the source of the authority to levy octroi duty on cotton and wool was the resolution of the Municipal Corporation which was in the nature of subordinate legislation, which amended or altered the existing law. This contention was rejected. The Court in that case held that the combined effect of Ss. 97, 130 and Part V of Sch. III including class VIII in the City of Bangalore Municipal Corporation Act was that all articles were intended to be included in the parent statute. It is implicit in the reasoning that there was no alteration or modification of the existing law, by the resolution of the Corporation. The decision of that case turned entirely upon the interpretation of the special provisions the like of which are not found in the Bihar and Orissa Act, 2 of 1915. 11. In the present case, it is clear that under the existing law duty had been imposed in exercise of the power contained in Ss. 27, 28 and 90 of the Act and the notifications issued from time to time before the Constitution was enacted, and that law was altered by the notification, dated March 31, 1961. It is not the case of the State that in exercise of any pre-existing conditional legislation, duty enhanced rate was made leviable on foreign liquor. The sole authority for the levy of the duty at the enhanced rate is the notification of the State Government, dated March 31, 1961. That notification infringes the guarantee of freedom under Art. 301. and may be saved only if it falls within the exceptions contained in Arts. 302, 303 and 304. Articles 302 and 303 are apparently not attracted and have not been relied upon, and the notification does not comply with the requirements of the Constitution contained in Art. 304, Cls. (a) and (b). The notification dated March 31, 1961 enhancing the levy by Rs. 30 per L. P. Gallon must therefore, be regarded as invalid. That, however, does not affect the validity and the enforceability of the earlier notification issued in 1937 which must remain operative in view of Art. 305.That Article specifically protects existing law and as the levy of countervailing duty at Rs. 40 per L. P. Gallon was an existing law it is protected under Art. 305. In fact this position was not challenged by the appellants in their writ petition. 12.

Decision:
1[ds]We have, therefore, to depend upon its etymological sense and the context in which it has been used in Entry 51. In its etymological sense, it means to counter-balance; to avail against with equal force or virtue: to compensate for something or serve as an equivalent of or substitute for: see Blacks Law Dictionary, 4th Edn. 421. This would suggest that a countervailing duty is imposed for the purpose of counterbalancing or to avail against something with equal force or to compensate for something as an equivalent. Entry 51 in List II of the Seventh Schedule to the Constitution gives power to the State Legislature to impose duties of excise on alcoholic liquors for human consumption where the goods are manufactured or produced in the State. It also gives power to levy countervailing duties at the same or lower rates on similar goods manufactured or produced elsewhere in India. The fact that countervailing duties may be imposed at the same or lower rates suggests that they are meant to counterbalance the duties of excise imposed on goods manufactured in the State. They may be imposed at the same rate as excise duties or at a lower rate, presumably to equalise the burden after taking into account the cost of transport from the place of manufacture to the taxing State. It seems, therefore, that countervailing duties are meant to equalise the burden on alcoholic liquors imported from outside the State and the burden placed by excise duties on alcoholic liquors manufactured or produced in the State. If no alcoholic liquors similar to those produced or manufactured imported into the State are produced or manufactured, the right to impose counterbalancing duties of excise levied on the goods manufactured in the State will not arise. It may therefore be accepted that countervailing duties can only be levied if similar goods are actually produced or manufactured in the State on which excise duties are being leviedReasonableness of the restriction would have to be adjudged in the light of the purpose for which the restriction is imposed, that is, "as may be required in the public interest." Without entering upon an exhaustive categorization of what may be deemed "required in the public interest", it may be said that restrictions which may validly be imposed under Art. 304(b) are those which seek to protect public health, safety, morals and property within the territory. Exercise of the power under Art. 304 (a) can only be effective if the tax or duty imposed on goods imported from other States and the Tax or duty imposed on similar goods manufactured or produced in that State are such that there is no discrimination against imported goods. As no foreign liquor is produced or manufactured in the State of Orissa the power to legislate given by Art. 304 is not available and the restriction which is declared on the freedom of trade, commerce or intercourse by Art. 304 of the Constitution remains unfetteredThis argument cannot, in our view, be sustained. By Art. 366(10) unless the context otherwise requires, the expression "existing law" means any law, Ordinance, order, bye-law, rule or regulation passed or made before the commencement of the Constitution by any Legislature, authority or person having power to make such a law, Ordinance, order, bye-law, rule or regulation. Existing law within the meaning of Art. 305 was therefore the provision contained in S. 27 of the Bihar and Orissa Act 2 of 1915 authorising the State Government to issue a notification imposing a duty at the rate fixed thereby and the notification issued pursuant thereto before the constitution. The notification of March 31, 1961 which imposed an additional burden may therefore be valid only if it complies with the constitutional requirementsIn the present case, it is clear that under the existing law duty had been imposed in exercise of the power contained in Ss. 27, 28 and 90 of the Act and the notifications issued from time to time before the Constitution was enacted, and that law was altered by the notification, dated March 31, 1961. It is not the case of the State that in exercise of any pre-existing conditional legislation, duty enhanced rate was made leviable on foreign liquor. The sole authority for the levy of the duty at the enhanced rate is the notification of the State Government, dated March 31, 1961. That notification infringes the guarantee of freedom under Art. 301. and may be saved only if it falls within the exceptions contained in Arts. 302, 303 and 304. Articles 302 and 303 are apparently not attracted and have not been relied upon, and the notification does not comply with the requirements of the Constitution contained in Art. 304, Cls. (a) and (b). The notification dated March 31, 1961 enhancing the levy by Rs. 30 per L. P. Gallon must therefore, be regarded as invalid. That, however, does not affect the validity and the enforceability of the earlier notification issued in 1937 which must remain operative in view of Art. 305.That Article specifically protects existing law and as the levy of countervailing duty at Rs. 40 per L. P. Gallon was an existing law it is protected under Art. 305. In fact this position was not challenged by the appellants in their writ petition.