Case: M/s. Chhotabhai Jethabhai Patel & Co Vs. Union of India & Another


Decision reasoning: 0[ds]14. 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 decisions construing the relative taxing powers of the Dominion and the Provinces under the British North America Act, 186719. 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 Provisional Collection of Taxes Act, 1931. It would seem to be rather a strange result to achieve, that the tax imposed satisfies every requirement of a "duty of excise" insofar 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 date20. Learned Counsel conceded, as he had to, that even on the decisions relied upon by him, the fact that owing to the operation 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 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 forces21. 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 tax would be one further instance of such inability to pass on, which does not alter the real nature or true character of the dutyIn 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 rejected25. 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 the 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 tax27. 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 retrospectively and fictionally deemed to be in force on an earlier date28. 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 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 reason 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 the judgment of Lord Davey in 1906 AC 360 already extracted, is sufficient precedent, if authority were needed to reject this argumentIn 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 thereof35. 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 etc., such a law is immune from the limitations imposed by Part III of the Constitution36. 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 31(1)(2) and that the saving in Article 31(5)(b)(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 expected to receive (Willoughby; Law of the U.S. (2nd Students Edn. p. 282)"It would therefore, be obvious that a tax law need not satisfy the tests of Article 31(2)38. It might very well be that a distinction might have to be drawn between the legality of the quantum of a tax levied which might not be open to challenge under Article 19(1)(f) 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 19(1)(f). In fact in AIR 1961 SC 552   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 19(1)(f). 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 Constitution41. 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 the grounds on which infraction of the rights to property is to be tested not to the flexible rule of "due process" but on the more precise criteria set out in Article 19(5), 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 19(1)(f) or depriving the person of property under Article 31(1). If on the one hand, the tax enactment in question were beyond the legislative competence of the Union or a State necessarily different considerations arise. Such unauthorised imposition would undoubtedly not be a reasonable restriction of the right to hold property besides 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"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 Rule 10A is not wide enough to cover the recovery of the duty from the appellantsIn all these cases relied upon by Counsel for the appellants the basis of attack was (1) that the 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 i.e. illegal discrimination between persons similarly situated e.g. under Taxation on Income (Investigation Commission) Act. The imposition of an illegal tax not with in the legislative competence of the legislature, a colourable piece of legislation 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 unimposable tax have all been held to be violative of the right to carry on trade under Article 19(1)(g). 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.