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

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 7.502. Coconut..Rs. 8.50 (per each half-year ending December and June)."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 CommissionerFor 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."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 notification4. 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 1964-655. 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 toddy6. 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 Explanation34. The Mysore Legislature passed the Mysore Health Cess Act, 1962 (Act 28 of 1962) On September 22, 1962 levying retrospectively a health cess in the State of Mysore from the 1st day of April 1962 This cess is levied at the rate of 9 paise per rupee, on (a) all items of land revenue, (b) the items of State Revenue, specified in the Act, in a Schedule numbered A, and (c) on all items of taxes levied, under any law for the time being in force, by a local authority, and specified in Sch. B. The first of the three items in Sch. A reads:"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 narcoticsExplanation.-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 1aw in force in any area of the State of Mysore."other two items in Sch. A are water rate and tax on cinematograph shows. In Sch. B are mentioned taxes on (a) land and buildings, (b) vehicles, (c) professions, trades, callings and employments, and (d) advertisements. We are concerned with Sch. A (1) quoted above. The cess collected on that item is said by the appellants for various reasons, to be an illegal impost. They challenged it by petitions under Articles 226/227 of the Constitution before the High Court of Mysore, but the High Court after striking out the Explanation upheld the cess and hence these appeals35. The appeals can be divided into two groups. Some are concerned with toddy which is tapped from palm trees and the others with arrack which is prepared from molasses. Both are country liquors and the difference in the kind of liquor makes no difference to the questions of law and we may forget it. These liquors are subject to excise laws in force in the Mysore State but as different parts of the State are governed by different Acts we have for consideration the Mysore Excise Act passed as far back as 1901 by the Ruler of the former Mysore State (Act No. V of 1901) and the Hyderabad Abkari Act (No. 1 of 1316 F). The two Acts are so alike in their provisions that no point depending on any difference was made before us and I shall, therefore, refer to the Mysore Act throughout. What I say about it will apply with suitable adaptation to the Hyderabad Act36. Under the Mysore Excise Act import, export and transport of liquor is banned except under a permit and on payment of duty, if any, to which the liquor may be made liable under the Act. The Act also bans the manufacture of liquor, the tapping of toddy-producing trees, the drawing of toddy from trees, the construction of a brewery or distillery, the bottling of liquor for sale, except under the authority or subject to the terms and conditions of a licence granted by the Deputy Commissioner or by a person to whom the exclusive privilege of manufacturing toddy has been granted. Sale of liquor except under a licence is prohibited. The Act, however, makes it 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 of manufacturing or supplying by wholesale, or selling by retail or of manufacturing or supplying by wholesale and selling by retail, any country liquor within a local area. But such grantee must obtain a licence from the Deputy Commissioner (S. 16). A duty, if Government so directs, is leviable on all liquor imported or exported or manufactured under licence or manufactured at a distillery or permitted to be transported or issued from a licensed distillery or a licensed warehouse or sold in any part of Mysore, of such amount as the Government may from time to time, prescribe (S. 17). There are various ways of levying the duty. These are described in S. 1860. The Mysore Excise Act, 1901 (Mysore Act No. 5 of 1901) is in force in the old Mysore area of the Mysore State. Section 16 empowers the State Government to grant exclusive or other privilege of selling retail any country liquor or intoxicating drugs to any person or persons on such conditions and for such period as it thinks fit. The privilege of sale in a specified shop is disposed of periodically as a result of a public auction held by the excise authorities. The amount paid for the grant of this privilege is called the shop rent. Sections 17 and 18 show that this payment is the levy of a duty. It is common case that similar law and practice prevail in the old Hyderabad area of the State, where the Hyderabad Abkari Act (No. 1 of 13l6 Fasli) is in force. Both the Acts continue to be in force by virtue of Art. 372 of the Constitution61. As a result of public auctions held subject to the terms and conditions notified by the State Government, the appellants were granted the exclusive privileges of selling liquor in certain arrack shops, beer taverns and toddy shops in consideration of their agreeing to pay specified shop rents and health cess thereon at the rate of nine naya paise in the rupee.

Reasoning: 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.