Case: M/S. Shinde Brothers & Others  Vs. Deputy Commissioner, Raichur & Others

Sikri, J. (For himself, K. Subba Rao, C. J. and Raghubar Dayal, J.) 1. These appeals are directed against the judgment of the High Court of Mysore, dated November 17, 1965, disposing of 49 petitions filed under Art. 226 of the Constitution. The High Court disposed of the petitions by one common judgment as identical questions of law were involved in all of them. We will also dispose of these appeals by this judgment because they raise substantially identical questions of law. These appeals may however, be divided into two groups, one dealing with the licences for the sale of Toddy and the other dealing with the licences for the sale of arrack. 2. We may give the facts in one appeal, Civil Appeal No. 1590 of 1966, arising out of Writ Petition No. 1076 of 1964. The appellant, M/s. Guruswami and Co.-hereinafter referred to as the petitioner-filed writ petition alleging that the firm was a licensed Excise contractor with its principal office at Bangalore, and that it had been the licensee of the Bangalore Urban group of 26 shops for the year July 1, 1963 to June 30, 1964. The petitioner continued to be the licensee for the same group of shops with five more new shops to be opened for two more years, viz., 1964-65 and 1965-66. The petitioner paid shop rent or the kist for this group of toddy shops amounting to Rs. 3,61,116 a month during the year 1963-64 and Rs. 4,41,216 a month for the next two years. This kist amount was determined at the tender-cum-auction sale of the exclusive privilege of vending toddy in the shops of this group during the relevant period. The petitioner paid amount equal to two months kist as initial and security deposit for each of these years. It was further stated that notice was given under the notification, dated April 20, 1963, that the exclusive privilege of selling country liquors during the twelve months, beginning from July 1, 1963, and ending with June 30, 1964, in the shops or groups of shops specified in Schedules I and II of the notifications, situated in the district of Bangalore will be disposed of by tender-cum-auction by the Deputy Commissioners of the respective districts or other officers specially empowered by the Deputy Commissioners for the purpose. The notification, in Para. 16, mentioned rates of duty, price, etc., on the several kinds of excisable articles. For instance, on molasses arrack 350 U.P. the duty was Rs. 2.73 per litre, price Rs. 0.55 per litre and the minimum retail selling price Rs. 0.61 per decilitre. Under the head Toddy is given:Tree tax per tree "1. Date ..Rs 7.50. 2. Coconut..Rs. 8.50 (per each half-year ending December and June)." Then the minimum selling price of toddy is prescribed. It was further stated in Para. 25 of the notification as follows:-"25. For the shops of Bangalore North and South Taluks, City and Civil Area, tapping may be allowed in such areas of Tumkur and Hassan Districts or other Districts as may be notified by the Excise Commissioner and the areas so notified may at any time be altered by notification by the Excise Commissioner. For shops of Taluks of Bangalore, Rural District, similar facilities may be given if found necessary." Paragraph 18 of the notification further provided that "sales tax and octroi at the prescribed rates and other taxes that may be levied under any other law shall also be payable." 3. The petitioner further alleged that he was paying tree rent to the owners of toddy-yielding trees for allowing him to draw toddy from the trees. The petitioner also paid education and health cess at the prescribed rates in pursuance of the condition in Para. No. 17 of the aforesaid notification. 4. A similar notification was issued on April 27, 1964, for the sale of excise privileges for 1964-65, and alternatively for 1964-66. It was mentioned in Para. 18 of this notification that health cess at the rate of nine naye paise per rupee shall also be payable on the shop rent and tree tax on toddy and other duties of excise levied on the following articles in accordance with the Mysore Health Cess Act (Mysore Act No 28 of 1962), hereinafter referred to as the impugned Act, namely, (1) Mandya made Special Liquor; (2) I.M.F.L.; (3) arrack; and (4) beer. The petitioner alleged that as a result of the impugned Act it would have to pay Rs. 86,518 more as health cess for the year 1964-65. 5. The petitioner then challenged the impugned Act as ultra vires on various grounds which need not be mentioned at this stage. The petitioner claimed the following reliefs:- (a) to declare that the State of Mysore has no authority to levy and collect health cess under the Mysore Health Cess Act 1962, and its predecessor Act of 1951 on shop-rent, tree-tax, tree-rent or any other item of revenue payable by the petitioner in respect of its business in toddy (b) to issue a writ, order or direction quashing condition No. 18 in the notification dated April 27, 1964, which relates to the levy of health cess on their business of toddy; (c) to issue a writ of prohibition or order or direction in the nature of a writ restraining all or any of the respondents from enforcing the above impugned condition or by any other similar demand for payment of health cess under the Health Cess Act, and (d) to issue a writ of mandamus directing refund of health cess illegally collected from the position or any other consequential order and direction as may meet the ends of justice. for refund of Health Cess already collected under the provisions of the Health Cess Act of 1962 and 1951 in respect of toddy. 6. We may mention that before the High Court a number of points were raised which have not been debated before us. Before the High Court it was agreed by all the parties that the levy made under the impugned Act was a tax though called a cess. In view of this concession, the High Court considered it unnecessary to examine the nature of the levy made under the Act. The High Court held that the impugned Act, except the Explanation to Cl. 1 of Sch. A, was valid and it accordingly allowed the petition only to the extent of striking down the Explanation. 7. Mr. Nambyar, who appears for the appellants, in the appeals connected with sale of toddy has taken two main points before us: (1) That the Mysore Legislature was not competent to enact the impugned Act because (a) the health cess under the impugned Act was in reality a tax and not a mere cess: (b) the State Legislature had no competence to levy a health tax; and (c) the levy was in substance a tax on tax not permissible under the Constitution. (2) If the impugned Act was valid, the Act did not empower the levy of health cess on shop rent because shop rent did not fall within Sch. A of the impugned Act or Entry 51 of List. II. We may mention that he conceded that the tree tax was an excise duty and he confined his case to shop rent or kist.8. Before we deal with the points raised by the learned counsel, it is necessary to set out the relevant provisions of the Mysore Excise Act (Act V of 1901) and the impugned Act. We may mention that in some appeals the relevant law is the Hyderabad Abkari Act No. 1 of 1316 Fasli, and not the Mysore Excise Act, but it is common ground between the parties that there is no material difference between the provisions contained in the Mysore Excise Act and the Abkari Act. The Mysore Excise Act was enacted in 1901. In S. 3 (1) it defined "excise revenue to mean "revenue derived or derivable from any duty, fee. tax, rent, fine or confiscation imposed or ordered under the provisions of this Act or of any other law for the time being in force relating to liquor or intoxicating drugs". There was no definition of the words "excise duty" in this Act at all. This Act substantially followed the Madras Abkari Act, 1886 (Madras Act I of 1886). It is interesting to note that the Madras Abkari Act was amended by the Adaptation of Indian Laws Order, 1937, and C1. (22) was inserted in the definition section, .S 3 as follows:"(22) "exercise duty" and countervailing duty" mean any such excise duty or countervailing duty, as the case may be, as is mentioned in Item 40 of List II in the Seventh Schedule to the Government of India Act, 1985." We have seen various Acts which were in force in some of the erstwhile provinces of British India and similar definition was inserted in all these Acts; e.g. (1) The Punjab Excise Act (Punjab Act 1 of 1914). (2) The Bombay Abkari Act (Bombay Act V of 1878). (3)The Bengal Excise Act (Bengal Act V of 1909). (4) The United Provinces Excise Act (U. P. Act VI of 1910). 9. But the definition of abkari-revenue" continued to exist in the Madras Abkari Act even after the Adaptation of Indian Laws Order 1937. Clause (14) of S. 3 of the Mysore Excise Act defined "sale" or "selling" as including any transfer other-wise than by way, of gift Clause (18) denied manufacture" as including every process, whether natural or artificial, by which any fermented, spirituous or intoxicating liquor or intoxicating drug is produced or prepared and also re-distillation and every process for the rectification of liquor. Section 12 provides as under:"12. No liquor or intoxicating drug shall be manufactured; no hemp plant (Cannobis Sativa or Indica) or coca plant (Erythroxylum coca) shall be cultivated; no toddy-producing trees shall be tapped; no toddy shall be drawn from any tree, no portion of the hemp or coca plant from which any intoxicating drug can be manufactured shall be collected, no distillery or brewery shall be constructed or worked; No liquor shall be bottled for sale, and no person shall use, keep, or have in his possession any materials, still, utensil, implement or apparatus whatsoever for the purpose of manufacturing any liquor other than toddy or any intoxicating drug except under the authority and subject to the terms and conditions of a license granted by the Deputy Commissioner in that behalf, or under the provisions of S. 21: Provided that the Govermnent may, by notification, direct that in any local area it shall not be necessary to take out a license for the manufacture of liquor for bona fide home consumption. Licenses granted under this section shall extend to and include servants and other persons employed by the licensees and acting on their behalf." In short, the section prohibits the manufacture of liquor or intoxicating drugs except under the provisions of the Act. Section 15 prohibits the sale of liquor and intoxicating drugs without license, and gives power to exempt sale of toddy. Section 16 reads thus:"It shall be lawful for the Government to grant to any person or persons on such conditions and for such period as may seem fit the exclusive or other privilege- (1) of manufacturing or supplying by wholesale: or (2) of selling by retail. or (3) of manufacturing or supplying by wholesale and selling; by retail, any country liquor or intoxicating drugs within any local area. No grantee of any privilege under this section shall exercise the same until he has received a license in that behalf from the Deputy Commissioner. In such cases, if the Government shall, by notification, so direct, the provisions of S. 12 relating to toddy and toddy-producing trees shall not apply.") The notifications set out above may be taken to have been issued under S. 16 for the purpose of giving a privilege of selling by retail [see S 16 (2)]. Sections 17 and 18 may be set out in full :"17 A duty shall, if the Government so direct, be levied on all liquor and intoxicating drugs- (a) permitted to be imported under S. 6: or (b) permitted to be exported under S. 7, or (c) manufactured under any licence granted under S. 12; or (d) manufactured at any distillery established under S. 14 or (e) permitted under S. 11 to be transported: or (ee) issued from a distillery or warehouse licensed or established under S. 12 or S. 14: or (f) sold in any part of Mysore of such amount as the Government may, from time to time, prescribe." "l8. Such duty may be levied in one or more of the following ways :- (a) by duty of excise to be changed in the case of spirits or beer either on the quantity produced in or passed out of a distillery, brewery or warehouse licensed or established under S. 12 or S. 14 as the case may be, or in accordance with such scale of equivalents, calculated on the quantity of materials used or by the degree of attenuation of the wash or wort, as the case may be as the Government may prescribe: (b) in the case of intoxicating drugs, by a duty to be rateably charged on the quantity produced or manufactured or sold by wholesale or issued from a warehouse licensed or established under S. 14; (c) by payment of a sum in consideration of the grant of any exclusive or other privilege- (1) of manufacturing or supplying by wholesale; or (2) of selling by retail; or (3) of manufacturing or supplying by wholesale and selling by retail any country liquor or intoxicating drug in any local area and for any specified period of time; (d) by fees on licenses for manufacture or sale; (e) in the case of toddy, or spirits manufactured from toddy, by a tax on each tree from which toddy is drawn. to be paid in such instalments and for such period as the Government may direct or (f) by import, export or transport-duties assessed in manner as the Government may direct: Provided that when there is a difference of duty as between two license periods such difference may be collected in respect of all stocks of country liquor or intoxicating drugs held by licensees at the close of the former period. It would be noticed that the words "a duty" occur in S. 17 and S. 18 (a) the words "duty of excise" occur. In the Madras Abkari Act, 1886, S.17, before the Adaptation Order, 1937, was also in similar terms, but after the Adaptation Order the opening part of S. 17 read as follows:-"An excise duty or countervailing duty of such amount as the State Government may prescribe shall, if they so direct, be levied on all excisable Articles " 10. We may mention that "excisable article, was defined in S .3 (23)of the Madras Abkari Act to mean (a) any alcoholic liquor for human consumption; or (b) any intoxicating drug. Section 28 of the Mysore Excise Act is also relevant and the relevant part reads as follows:-"All duties, taxes, fines and fees payable to the Government direct under any of the provisions of this Act or of any license or permit issued under it, and all amounts due to the Government by any grantee of a privilege or be any farmer under this Act or by any person on account of any contract relating to the Excise revenue, may be recovered from the person primarily liable to pay the same, or from his surety (if any), as if they were arrears of land revenue......" Section 29 enables rules to be made and the rules throw some light on the conditions of the license and the privilege obtained by the petitioner. Section V of the Mysore Rules regulating sales of Excise Privileges prescribes the conditions applicable to toddy licenses. Condition No. 2 reads as follows :-"For the supply of toddy to his shops, the licensee shall have the privilege of obtaining subject to tree-tax rules, toddy yielding trees in the groves assigned to his shops or groups, of shops and he shall be at liberty to manufacture toddy from the trees in private lands under private arrangements, between himself and the owners of such lands." Condition No. 2 further enables the Deputy Commissioner to refuse to grant license for tapping certain trees. Licensees are entitled to purchase toddy from any licensed toddy shopkeeper on application to the Inspector or Assistant Inspector who will grant the required permits on proof of the necessity for the same in certain cases. Condition No. 4 reads as follows-"The licensee shall be responsible to Government for all payments of instalments of fees due on account of tree-tapping licenses granted on his application in his own name or in the names of his nominees under the conditions set forth therein and in the rules relating thereto." Condition No. 7 provides for tree rent at Re. 0-8-0 per tree on Government trees sought to be tapped. Condition No. 8 prescribes conditions for tapping the trees Condition No. 17 enables tree-tapping licenses to be given to the licensed toddy shopkeepers. 11. Let us first examine the above provisions of the Mysore Excise Act, and the rules and notifications made under it. It appears to us that by Ss. 12 and 15 of the Act manufacture and sale of toddy is prohibited, but S. 16 enables the Government to grant an exclusive or other privilege, inter alia, of manufacturing or selling by retail. It is the latter privilege which was auctioned under the two notifications mentioned above. Section 17 is the charging section and it is quite clear that the word duty in the opening sentence does not mean only excise duty. If an import duty or export duty is levied under S. 17 it would not be an excise duty within Entry 51, List II. Section 18 prescribes the modes of levy of the duties. We are concerned with the mode mentioned in S. 18 (c) (2), i.e., by payment of a sum in consideration of the grant of exclusive or other privileges of selling by retail. It is noteworthy that S. 28 distinguishes amount due to the Government by any grantee of a privilege from duties, taxes and fees. 12. Mr. Setalvad, who appears for the appellants in arrack appeals draws our attention to the existence of the words "duty of excise" in S. 18 (a) and the absence of the word "excise" in S. 18 (b) and contends that apart from the duties collected under Section 18 (a) no other duty was excise duty. We are unable to accept this contention because some at least of the duties collected under S. 18 (b) would be excise duties. However, this much may be conceded that the Mysore Excise Act not only does not expressly call the duty collected under S. 18 (c) (2) all excise duty, but in S. 28 seems to mention it differently. The licences granted to the petitioner were governed by detailed regulatory provisions regarding sale, tent Condition No. 2 makes it clear that the license is in the main for selling. Further if he taps toddy he has to obtain toddy-tapping licences and pay fees. We have already mentioned that the petitioner obtained the privilege of selling toddy at certain shops by bidding at auctions held in pursuance of the two notifications mentioned above. 13. We may now notice the provisions of the Mysore Health Cess Act, 1962. Section 3 is the charging section and reads as follows:-"3. Levy of health cess.-There shall be levied and collected a health cess at the rate of nine naye paise in the rupee on,- (i) all items of land revenue; (ii) the items of State Revenue mentioned in Schedule A: and (iii) the items of taxes mentioned in Schedule B levied under any law for the time being in force by a local authority." Section 4 reads thus:"4. Recovery of health cess.-The health cess payable under S. 3 shall be levied, assessed and recovered along with the items of land revenue, State revenue or tax on which such cess is levied, and the provisions of the law and the rules, orders and notifications made or issued thereunder for the time being in force, shall apply to the levy, assessment and recovery of the health cess as they apply in respect of the levy, assessment and recovery of the said items of land revenue, State revenue or tax." We are concerned with S. 3 (ii), i.e., items of State revenue mentioned in Sch. A, and these items in Sch. A are as follows:-"SCHEDULE A 1. Duties of excise leviable by the State under any law for the time being in force in any area of the State, on the following goods manufactured or produced in the State and countervailing duties levied on similar goods manufactured or produced elsewhere:- (a) Alcoholic liquors for human consumption (b) Opium Indian hemp and other narcotic drugs and narcotics. Explanation.-The duty of excise leviable under this item includes the duties payments, fees and other amounts payable under S. 18 of the Mysore Excise Act, 1901 and similar impost or payment by whatever name called payable under any other law in force in any area of the State of Mysore." We have already mentioned that the Explanation has been held by the High Court: to be ultra vires. It will be noted that the remaining part of Item I in Sch. A is in substance a reproduction of Entry 51 of List II of the Constitution. 14. We may now take up the points raised by Mr. Nambiar. Regarding the first point, he says that it is a tax on a tax and as no entry in List II or List III mentions a tax on a tax, or health tax, the impugned Act is invalid. He further says that if it was the intention to levy a surcharge on existing items of revenue, the legislature could have easily used the words surcharge or additional duty in accordance with the existing legislative practice. He says that it is not open to us to add or omit any words and that the nature or identity of the subject-matter can only be gathered from S. 3 which is the charging section We are, however, not impressed by any of these arguments. It seems to us clear that the legislature was levying a health cess on a number of items of State revenue or tax and it adopted the form of calling it a cess and prescribed the rate of nine naye paise in the rupee on the State revenue or tax. Section 4 of the impugned Act makes it quite clear that the cess is leviable and recoverable in the same manner as items of land revenue, State revenue or tax. In the context, the word on in S. 3 does not indicate that the subject-matter of taxation is land revenue or State revenue, but that 9 per cent of the land revenue or State revenue is to be levied and collected, the subject-matter remaining the same as in the law imposing land revenue or any duty or tax. If we read Ss. 3 and 4 together the fact that the words "surcharge" or additional duty" have not been mentioned does not detract from the real substance of the legislation. Accordingly we hold that the Mysore Legislature was competent to enact the law under the various entries of List II which enable it to levy land revenue or the duties of excise, or the other taxes mentioned in S. 3 (iii) of the impugned Act. 15. This takes us to the second point raised by the learned counsel. He says that the shop rent is not a duty of excise and does not fall within Entry 51 of List II, or Sch. A of the Act. We have already mentioned that he has conceded that the tree-tax is an excise duty and we need not consider the question of tree-tax at all. His argument in brief is as follows: The duty of excise is primarily a duty levied on manufacture or production of goods, the taxable event being the manufacture or production. He says that the taxable event in this case is not manufacture or production. He further says that the shop rent is the price given by the petitioner for the privilege of selling toddy, i.e., for the privilege of carrying on a business. This privilege of selling, he says, had no relation to production or manufacture of toddy because the production or manufacture of toddy was complete before the petitioner started to sell toddy in his shops. He further says that the petitioner pays tree-tax which is an excise duty. He also contrasts the language of Ss. 17 and 18 of the Mysore Excise Act and says that the words -"excise duty" are used in S. 18 (a) and not in S. 18 (c). He has relied on a number of cases which we will presently consider. 16. Mr. Gokhale. the learned counsel for the State, controverts these arguments, but we may mention that he has not sought to sustain the levy on shop rent on any other entry apart from Entry 51 of List II. Therefore, we should not he taken to have expressed any opinion on the point whether levy on shop rent or kist can be justified under any other entry in List II. The point was expressly put to him and he said that he relied only on Entry 51, List II. 17. Mr. Gokhale relied strongly on Abdulkadir v. State of Kerala, (1962) Supp 2 SCR 741: (AIR l962 SC 922), and says that the appeal cannot be decided against him without dissenting from the decision in that case. Mr. Gokhale has put two propositions before us. He says: (1) that every duty on goods produced or manufactured is excise duty unless it is established that it is some other duty; and (2) that, at any rate. if it is a levy made from the stage of production to the stage of consumption it is an excise duty. If in this period no other taxable event has intervened then the levy must be treated to be connected with production or manufacture and the method by which the levy is collected is not decisive. 18. The nature of excise duty has been considered by the Federal Court, the Privy Council and this Court on a number of occasions, and it will serve no useful purpose to reproduce the relevant portions of the judgments in these cases. It will suffice if we mention two decisions of this Court and the language employed by this Court in those cases. 19. In R. C. Jall v. Union of India, (1962) Supp 3 SCR 436: (AIR 1962 SC 1281 ), Subba Rao, J., as he then was, speaking for the Court, after noticing In re, Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938, 1939 FCR 18: (AIR 1939 FC 1), Province of Madras v. B. Paidanna and Sons, 1942 FCR 90 (AIR 1942 FC 33), and Governor-General in Council v. Province of Madras, 72 Ind App 91: (AIR 1945 PC 98 ), observed as follows:-"With great respect, we accept the principles laid down by the said three decisions in the matter of levy of an excise duty and the machinery for collection thereof, Excise duty is primarily a duty on the production or manufacture of goods produced or manufactured within the country. It is an indirect duty which the manufacturer or producer passes on to the ultimate consumer, that is, its ultimate incidence will always be on the consumer. Therefore, subject always to the legislative competence of the taxing authority, the said tax can be levied at a convenient stage so long as the character of the impost, that is, it is a duty on the manufacture or production, is not lost. The method of collection does not affect the essence of the duty, but only relates to the machinery of collection for administrative convenience. Whether in a particular case the tax ceases to be in essence an excise duty, and the rational connection between the duty and the person on whom it is imposed ceased to exist, is to be decided on a fair construction of the provisions of a particular Act." 20. Sinha, C.J., speaking for the Full Court in In re Bill to amend S. 20 of the Sea Customs Act, 1878, etc., 1964-3 SCR 787 : (AIR 1963 SC 1760 ), quoted with approval the passage set out above and added:"This will show that the taxable event in the case of duties of excise is the manufacture of goods and the duty is not directly on the goods but on the manufacture thereof. We may in this connection contrast sales tax which is also imposed with reference to goods sold where, the taxable event is the act of sale. Therefore, though both excise duty and sales-tax are levied with reference to goods, the two are very different imposts; in one case the imposition is on the act of manufacture of production while in the other it is on the act of sale. In neither case, therefore, can it be said that the excise duty or sales tax is a tax directly on the goods for in that event they will really become the same tax. It would thus appear that duties of excise partake of the nature of indirect taxes as known to standard works on economics and are to be distinguished from direct taxes on property and income." These cases establish that in order to be an excise, duty (a) the levy must be upon goods, and (b) the taxable event must be the manufacture of production of goods. Further the levy need not be imposed at the stage of production or manufacture but may be imposed later. 21. But it is not easy to decide in a particular case whether the particular levy is a levy in respect of manufacture or production of goods. It appears to us that this question has to be decided on the facts of each case, but in deciding the question certain principles must be borne in mind. First, one of the essential characteristics of an excise duty is uniformity of incidence. This characteristic was mentioned by the Privy Council in 1945 FCR 179: (AIR 1945 PC 98 ), in these terms:"The tax imposed by the Madras Act is not a duty of excise in the cloak of a tax on sales. Lacking the characteristic features of a duty of excise, such as uniformity of incidence and discrimination in subject-matter it is in the general scope and in its detailed provisions a tax on sales." This also seems to follow from the wording of the entry itself. Entry 51, List II reads thus:"Duties of excise on the following goods manufactured or produced in the State and countervailing duties at the same or lower rates on similar goods manufactured produced elsewhere in India:- (a) alcoholic liquors for human consumption; (b) opium, Indian hemp and other narcotic drugs and narcotics; but not including medicinal and toilet preparations containing alcohol or any substance included in sub-para. (b) of this entry". It is difficult to see how the State can fix countervailing duties at the same or lower rates unless the rate of excise as such is known or can be ascertained. Similarly, S. 64-A of the Indian Sale of Goods Act, 1930, contemplates a uniformity of incidence and reads thus:"64-A. In contracts of sale amount of increased or decreased duty to be added or deducted. 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:- (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." Secondly, the duty must be closely related to production or manufacture of goods. It does not matter if the levy is made not at the moment of production or manufacture but at a later stage. If a duty has been levied on an excisable article but this duty is collected from a retailer it would not necessarily cease to be an excise duty. Thirdly, if a levy is made for the privilege of selling an excisable article and the excisable article has already borne the duty and the duty has been paid, there must be clear terms in the charging section to indicate that what is being levied for the purpose of privilege of sale is in fact a duty of excise. 22. What is the true character or nature of the levy in this case? First, it is a payment for the exclusive privilege of selling toddy from certain shops. The licensee pays what he considers to be equivalent to the value of the right. Secondly, it has no close relation to the production or manufacture of toddy. Thirdly, the only relation it has to the production or manufacture of toddy is that it enables the licensee to sell it. But he may sell little, less or more than he anticipated, depending on various factors. Fourthly, toddy has already paid one excise duty in the form of tree-tax. If the petitioner taps toddy he pays tree tax, but he need not tap himself. Fifthly, the duty is not uniform in incidence because the amount collected has no relation to the quantity or quality of the product but has only relation to what the petitioner thought he could recoup by the sale of the excisable articles. What he recoups would depend upon the amount of sales and the conditions prevailing during the licensing year. Sixthly, there are no express words showing that what is being realised from the petitioner is an excise duty. In fact what S.16 of the Mysore Excise Act says is that a privilege has been granted to him for selling by retail. Section 28 refers specifically to an amount due to the Government by any grantee of the privilege and the legislature apparently did not think that this amount would be covered by the expression all duties, taxes, fines and fees payable to the Government" occurring in S.28. Seventhly, the privilege of selling is auctioned well before the goods come into existence. In this case it would be noticed that the second notification, dated April 27, 1964, was for the sale during the next two years. 23. In view of these characteristics, can it be said to be an excise duty? In our opinion the answer is in the negative. The taxable event is not the manufacture or production of goods but the acceptance of the license to sell. In other words, the levy is in respect of the business of carrying on the sale of toddy. There is no connection of any part of the levy with any manufacture or production of any goods. To accept the contention of the State would mean expanding the definition of "excise duty" to include a levy which has close relation to the sale of excisable goods. It is now too late in the day to do so. 24. Our conclusion is supported by the observations of Gwyer, C.J. in 1939 FCR 18 at p. 54: (AIR 1939 FC 1 at p.12):"But here again after examining various provincial Acts relating to the control of alcohol, I have been unable to find any case of excise duties payable otherwise than by the producers or manufactures or persons corresponding to them. I am speaking of course only of alcohol manufactured of produced in the Province itself. The Advocate General of India referred us to an Act of the Central Provinces [Central Provinces Excise Act (No. II of 1915)] which was said to make provision for the imposition of an excise duty on retail sales. I have been unable to find any such provision in the Act; it provides, it is true , as do other provincial Acts, for lump sum payments in certain cases by manufacturers and retailers, which may be described as payments either for the privilege of selling alcohol, or as consideration for the temporary grant of a monopoly; but these are clearly not excise duties or anything like them. Provision was also made in most provincial Acts for the payment of licence fees in connection with the production or sale of alcohol in the Province; but these fees are mentioned in the Devolution Rules entry in addition to excise duties and are, therefore, something different from them." 25. Mr. Gokhale also relies on the legislative practice existing before the Government of India Act, 1935, came into force and his contention is that all the Acts existing before the Government of India Act, 1935, imposed excise duties and collected them by auctioning the privilege of sale or manufacture. The Legislative practice is not of any assistance because all duties collected under these Acts were not excise duties. We are not concerned here with the case of manufacture or the privilege of manufacture, and it is not necessary for us to decide whether Chief Justice Gwyer was right in so far as the auction of the privilege of manufacturing excisable article is concerned. But fit is interesting to note that even in Australia where a very wide meaning has been given to the word "excise", a fee for a mere licence to engage in business even if it be indirectly connected with production or manufacture has not been held to be an excise duty. The High Court of Australia held in Peterswald v. Bartley, 1 CLR 497 , that the State Act imposing a licence fee upon brewers as a condition precedent to the carrying on of their business and punishing non-compliance with its provisions was not opposed to S. 90 of the Australian Constitution. It may be that Chief Justice Gwyer had this case in mind when he made the observations reproduced above. Recently in Dennis Hotels Pvt. Ltd. v. Victoria, 33 ALJR 470, the High Court of Australia, by majority, held that S. 19 (1) (a) of the Licensing Act, 1958 (Vic.) which imposed fees for a Victuallers licence calculated at "equal to the sum of six per centum of the gross amount (including any duties thereon) paid or payable for all liquors which during the 12 months ended on the last day of June preceding the date of application for the grant or renewal of the licence was purchased for the premises was valid as it did not impose any excise duty within S. 90 of the Australian Constitution. 26. It is now necessary to consider the decision of this Court in 1962 Supp (2) SCR 741 (AIR 1962 SC 922 ), Disting. This decision is of course binding on us, but, in our opinion, this case is distinguishable. The question before the Court was whether Cochin Tobacco, Act, 1084 (Cochin Act VII of 1084 M.E.) and Travancore Tobacco Regulation, 1087 (Travancore 1 of 1087 M.E.) were laws corresponding to the Central Excise Act, and within Ss. 11 (1) and 13 (2) of the Finance Act, 1950. The Court was not concerned with the question whether the levies being made under these Acts were strictly excise duties within Item 51, List II and this is quite apparent from the fact that even though these Acts also imposed import duties, these were held in substance to be Acts corresponding to the Central Excise Act. Further the only system in force for the collection of tobacco revenue was to auction what was called A class and B class shops. There was no other duty levied on tobacco at all. As we have already said, it depends on the facts of each case whether in view of the scheme of the Act and the various provisions and the rules the revenue being obtained in an excise duty or not. It is true that Wanchoo, J.. referred to the practice of public auctions of the right to possess and sell excisable goods, but what he said was that the amount realised from these auctions was excise revenue, he did not say that the amount realized was excise duty as such in the strict sense of the term. 27. We may now deal with the propositions submitted by Mr. Gokhale. The first point taken by Mr. Gokhale is not sound. It is contrary to what has been consistently laid down by this Court: that it must be shown in every case that the duty has been levied on goods which have been produced or manufactured, the taxable event being production or manufacture of goods. 28. We also consider that his second proposition is not sound. There is no presumption that if no other taxable event has intervened, the levy must be treated to be connected with production or manufacture. This, as we have said above, must depend upon the facts of each case. But it must be positively shown that the taxable event for the duty which has been levied is manufacture or production of the article. We agree with his contention that the method of its collection is not decisive but, in our opinion in cases of doubt it may throw some light on this question. 29. Mr. Setalvad who appears in the appeals concerned with licenses for arrack points out that Para. 29 (a) of the General Conditions applicable to all excise and opium licenses specifically provides that the manufacturers of arrack and other country spirits as well as the licensees of arrack Bonded Depots are prohibited from holding any interest in the retail vend of arrack or in the vend of other country spirits and from employing any person who has such interest. He says that this strengthens his case because the money realised by the sale of licenses for vending arrack can have no relation to the manufacture or production of arrack. There is force in his contention.

Decision:
1[ds]t appears to us that by Ss. 12 and 15 of the Act manufacture and sale of toddy is prohibited, but S. 16 enables the Government to grant an exclusive or other privilege, inter alia, of manufacturing or selling by retail. It is the latter privilege which was auctioned under the two notifications mentioned above. Section 17 is the charging section and it is quite clear that the word duty in the opening sentence does not mean only excise duty. If an import duty or export duty is levied under S. 17 it would not be an excise duty within Entry 51, List II. Section 18 prescribes the modes of levy of the duties. We are concerned with the mode mentioned in S. 18 (c) (2), i.e., by payment of a sum in consideration of the grant of exclusive or other privileges of selling by retail. It is noteworthy that S. 28 distinguishes amount due to the Government by any grantee of a privilege from duties, taxes and feesWe are unable to accept this contention because some at least of the duties collected under S. 18 (b) would be excise duties. However, this much may be conceded that the Mysore Excise Act not only does not expressly call the duty collected under S. 18 (c) (2) all excise duty, but in S. 28 seems to mention it differentlyThe licences granted to the petitioner were governed by detailed regulatory provisions regarding sale, tent Condition No. 2 makes it clear that the license is in the main for selling. Further if he taps toddy he has to obtain toddy-tapping licences and pay feesWe have already mentioned that the petitioner obtained the privilege of selling toddy at certain shops by bidding at auctions held in pursuance of the two notifications mentioned aboveWe are, however, not impressed by any of these arguments. It seems to us clear that the legislature was levying a health cess on a number of items of State revenue or tax and it adopted the form of calling it a cess and prescribed the rate of nine naye paise in the rupee on the State revenue or tax. Section 4 of the impugned Act makes it quite clear that the cess is leviable and recoverable in the same manner as items of land revenue, State revenue or tax. In the context, the word on in S. 3 does not indicate that the subject-matter of taxation is land revenue or State revenue, but that 9 per cent of the land revenue or State revenue is to be levied and collected, the subject-matter remaining the same as in the law imposing land revenue or any duty or tax. If we read Ss. 3 and 4 together the fact that the words "surcharge" or additional duty" have not been mentioned does not detract from the real substance of the legislation. Accordingly we hold that the Mysore Legislature was competent to enact the law under the various entries of List II which enable it to levy land revenue or the duties of excise, or the other taxes mentioned in S. 3 (iii) of the impugned Actcases establish that in order to be an excise, duty (a) the levy must be upon goods, and (b) the taxable event must be the manufacture of production of goods. Further the levy need not be imposed at the stage of production or manufacture but may be imposed later21. But it is not easy to decide in a particular case whether the particular levy is a levy in respect of manufacture or production of goods. It appears to us that this question has to be decided on the facts of each case, but in deciding the question certain principles must be borne in mind. First, one of the essential characteristics of an excise duty is uniformity of incidenceis difficult to see how the State can fix countervailing duties at the same or lower rates unless the rate of excise as such is known or can be ascertained. Similarly, S. 64-A of the Indian Sale of Goods Act, 1930, contemplates a uniformity of incidencethe duty must be closely related to production or manufacture of goods. It does not matter if the levy is made not at the moment of production or manufacture but at a later stage. If a duty has been levied on an excisable article but this duty is collected from a retailer it would not necessarily cease to be an excise duty. Thirdly, if a levy is made for the privilege of selling an excisable article and the excisable article has already borne the duty and the duty has been paid, there must be clear terms in the charging section to indicate that what is being levied for the purpose of privilege of sale is in fact a duty of exciseFirst, it is a payment for the exclusive privilege of selling toddy from certain shops. The licensee pays what he considers to be equivalent to the value of the right. Secondly, it has no close relation to the production or manufacture of toddy. Thirdly, the only relation it has to the production or manufacture of toddy is that it enables the licensee to sell it. But he may sell little, less or more than he anticipated, depending on various factors. Fourthly, toddy has already paid one excise duty in the form of tree-tax. If the petitioner taps toddy he pays tree tax, but he need not tap himself. Fifthly, the duty is not uniform in incidence because the amount collected has no relation to the quantity or quality of the product but has only relation to what the petitioner thought he could recoup by the sale of the excisable articles. What he recoups would depend upon the amount of sales and the conditions prevailing during the licensing year. Sixthly, there are no express words showing that what is being realised from the petitioner is an excise duty. In fact what S.16 of the Mysore Excise Act says is that a privilege has been granted to him for selling by retail. Section 28 refers specifically to an amount due to the Government by any grantee of the privilege and the legislature apparently did not think that this amount would be covered by the expression all duties, taxes, fines and fees payable to the Government" occurring in S.28. Seventhly, the privilege of selling is auctioned well before the goods come into existence. In this case it would be noticed that the second notification, dated April 27, 1964, was for the sale during the next two yearsIn our opinion the answer is in the negative. The taxable event is not the manufacture or production of goods but the acceptance of the license to sell. In other words, the levy is in respect of the business of carrying on the sale of toddy. There is no connection of any part of the levy with any manufacture or production of any goods. To accept the contention of the State would mean expanding the definition of "excise duty" to include a levy which has close relation to the sale of excisable goods. It is now too late in the day to do soThe Legislative practice is not of any assistance because all duties collected under these Acts were not excise duties. We are not concerned here with the case of manufacture or the privilege of manufacture, and it is not necessary for us to decide whether Chief Justice Gwyer was right in so far as the auction of the privilege of manufacturing excisable article is concerned. But fit is interesting to note that even in Australia where a very wide meaning has been given to the word "excise", a fee for a mere licence to engage in business even if it be indirectly connected with production or manufacture has not been held to be an excise duty27. We may now deal with the propositions submitted by Mr. Gokhale. The first point taken by Mr. Gokhale is not sound. It is contrary to what has been consistently laid down by this Court: that it must be shown in every case that the duty has been levied on goods which have been produced or manufactured, the taxable event being production or manufacture of goods28. We also consider that his second proposition is not sound. There is no presumption that if no other taxable event has intervened, the levy must be treated to be connected with production or manufacture. This, as we have said above, must depend upon the facts of each case. But it must be positively shown that the taxable event for the duty which has been levied is manufacture or production of the article. We agree with his contention that the method of its collection is not decisive but, in our opinion in cases of doubt it may throw some light on this question29. Mr. Setalvad who appears in the appeals concerned with licenses for arrack points out that Para. 29 (a) of the General Conditions applicable to all excise and opium licenses specifically provides that the manufacturers of arrack and other country spirits as well as the licensees of arrack Bonded Depots are prohibited from holding any interest in the retail vend of arrack or in the vend of other country spirits and from employing any person who has such interest. He says that this strengthens his case because the money realised by the sale of licenses for vending arrack can have no relation to the manufacture or production of arrack. There is force in his contention31. In W. P. No. 1076 of 1964 and in some other petitions in the High Court the petitioners have challenged the validity of the Mysore Health Cess Act. 1951. This Act was not referred to in the course of arguments. Section .3 of the Health Cess Act. 19517 reads thus:"3. (1) There shall be levied and collected a health cess at the rate of six pies in the rupee on all items of land revenue and at such rate not exceeding one anna in the rupee as may be specified by Government by notification on all other items of revenue on which education cess is leviable(2) The Government may by notification levy health cess at such rate not exceeding one anna in the rupee as may be specified in the said notification on such other items of revenue as they deem fit."notification or notifications issued under S.3 were placed before us. We are, therefore, unable to say whether the levy of the Health Cess under the Act of 1951 stands on the same basis. Further no particulars are given in the petitions as to the dates of payments and no reason is given why the levy of Health Cess under the Act of 1951 was not challenged earlier. In the circumstances we decline to adjudge on the validity of the Health Cess Act, 1951, and the notifications issued under it. The petitioners will, however, be at liberty to file suits, if so advised, to recover the amounts alleged to have been paid by them under the Health Cess Act, 1951.