Case: Kalyani Stores Vs. State of Orissa &amp; Others

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.

Reasoning:
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.