dedol-hf/india-case-legal-rag huggingface dataset:
3,  had  been  brought for use and  consumption  within  the
limits  of the Municipality.  He however put on  record  his
protest against the recovery of the duty which was fixed  at
Rs.  1,128-2-0.  Against the order claiming the amount,  the
appellant filed an appeal to the Extra Assistant Commission-
er with revenue appellate powers, Nagput. He contended  that
the  municipality claimed to levy the duty under Section  66
(1) (e) of the Municipal Act, but they had
17
no right to do so as under Section 3 of the Central  Excises
and  Salt Act, 1944, that excise duty was levied on  tobacco
by the Central Government and the levy of the octroi duty on
the  tobacco in question was covered by the excise duty  and
therefore  not permissible. The Appellate Assistant  Commis-
sioner  in  making the reference to the  Nagpur  High  Court
expressed  his opinion that the appellant's contention  that
as the bidis were not sold within the municipal limits, duty
was  not  leviable, was unsound.  He  however  thought  that
because  under Section a of the Excise Act, excise duty  was
levied by the Central Government the levy of the octroi duty
was 'not in consonance with Section 100 of the Government of
India Act, 1935, and was ultra vires the Provincial  Govern-
ment. The High Court rejected the appellant's contention and
disagreed  with the view of the Appellate Commissioner.  The
High  Court however granted a certificate under Section  205
(1)  of the Constitution Act and the appellant has  come  in
appeal to this Court.
    The  Central Provinces Municipalities Act was passed  in
1922  and  the relevant notifications fixing  the  rates  of
octroi  duty  were issued in 1928.  No  question  about  the
validity  of  the Act when passed, or of  the  notifications
issued in pursuance thereof has been raised before us.   The
argument  on  behalf of the appellant is that as  under  the
Central  Excises  and Salt Act, I of  1944,  tobacco  became
excisable  goods under Item 9 in Schedule I to that Act  and
continued  to  be so till it got converted into  bidis,  the
Central Government alone was entitled to levy excise duty on
it till then.  According to the definition of  'manufacture'
in the Excise Act that duty could be levied at any stage  in
the  manufacture  of bidis and therefore  any  tax  imposed,
while  tobacco  was being converted into bidis,  was  excise
duty.  Legislation in connection with excise duty is  within
the  exclusive province of the Central Legislature as  shown
by  Entry 45 of List I in Schedule VII of  the  Constitution
Act. The impost of octroi duty in pursuance of the Municipal
Act, before tobacco was made into bidis, is it was argued in
conflict with the legislative powers of the Centre. In this
18
connection  our attention was drawn to Administrator  Lahore
Municipality  v. Daulat Ram Kapur(1), in which it  was  held
that  the  levy of octroi duty on salt was  not  within  the
powers  of the Provincial legislature. It was argued  there-
fore that under Section 100 of the Government of  India Act,
octroi  duty levied on tobacco under the legislative  powers
of  the Provincial Government was invalid.  The only way  to
reconcile  the two Entries, namely, Entry 45 in List  I  and
Entry 49 in List II of the Seventh Schedule, was to read the
words  "for consumption or use" in Entry 49 as  meaning  for
consumption  or  use  except for  manufacture  of  excisable
articles". So read, the levy of octroi duty on the facts  of
this  case was invalid.  In reply to the argument that  Sec-
tion  292 of the Government of India Act kept alive the  old
Provincial legislation, namely, the Central Provinces Munic-
ipalities  Act, and the right to levy octroi duty was  saved
under  Section 143 of the Constitution Act, it was urged  on
behalf  of the appellant that the. provisions of the  Excise
Act  were contrary to the right to levy octroi duty  and  as
that  Act was passed in 1944 the right to levy  octroi  duty
saved by Section 148 of the Constitution Act had lapsed.  It
was  argued that although there was no express provision  in
the Excise Act to that effect, the definition of  "excisable
goods" and "manufacture" read with Entry 9 in Schedule I and
the  charging Section 3 in the Act led to  that  conclusion.
It is clear that both parts of this argument are thus  based
on the plea that the impost of any duty at any stage  before
bidis are manufactured is excise duty and therefore the levy
of octroi duty is illegal.
    Section 66 (1) (e) of the Central Provinces  Municipali-
ties Act, 1922, runs as follows :--
    "an  octroi  on  animals, or goods  brought  within  the
limits  of  the municipality for sale,  consumption  or  use
within those limits;"
The  words "excisable goods" and. " manufacture  ''  are
defined  in Section 2 of the Central Excises and Salt  Act,,
1944,. as follows .--.'
(1) [1942] F.C.R. 91 .
19
    2.  (d) "excisable goods" means goods specified  in  the
First  Schedule  as being subject to a duty  of  excise  and
includes salt;"
 2.  (f)  "manufacture" includes any process  incidental  or
ancillary to the completion of a manufactured product; and
     (i)  in relation to tobacco includes the preparation of
cigarettes,   cigars,  cherots, bidis, cigarette or pipe  or
hokkah tobacco, chewingtobacco or snuff; and
(ii)  ......
Section 3 of the Excise Act runs as follows :--
"There  shall be levied and collected in such manner  as
may  be prescribed duties of excise on all  excisable  goods
other than salt which are produced or manufactured in  Brit-
ish  India, and a duty on salt manufactured in, or  imported
by land into any part of British India as, and at the rates,
set forth in the First Schedule  ......  "
    Entry  9 to the First Schedule of the Excise Act  is  in
these terms :--
   "9.  TOBACCO, CURED-
   "  Tobacco' means any form of tobacco, whether  cured  or
uncured,  and whether manufactured or not,and  includes  the
leaf,  stalks  and stem of the tobacco plant  but  does  not
include any part of a tobacco plant while still attached  to
the earth;"
(Then follows a list of various articles into which  tobacco
can  be converted, like bidis, cigarettes,  snuff,etc.  with
different rates of duty mentioned against each article.)
Sections 143 and 292 of the Government of India
Act, 1935, run as follows :--
"143.   (1) Nothing in the foregoing provisions.  of  this
Chapter affects any duties or taxes levied in any  Federated
State  otherwise  than by virtue of an Act  of  the  Federal
Legislature applying in the State.
      (2)  Any taxes, duties, cesses or fees which,  immedi-
ately before the commencement of Part III,of this Act
20
were  being  lawfully levied by any  Provincial  Government,
municipality  or other local authority or body for the  pur-
poses of the Province, municipality, district or other local
area  under  a  law in force on the first  day  of  January,
nineteen hundred and thirty-five, may, notwithstanding  that
those  taxes,  duties, cesses or lees are mentioned  in  the
Federal  Legislative List, continue to be levied and  to  be
applied to the same purposes until provision to the contrary
is made by the Federal Legislature".
  "292.   Notwithstanding  the  repeal by this  Act  of  the
Government of India Act, but subject to the other provisions
of  this Act, all the law in force in British India  immedi-
ately before the commencement of Part III of this Act  shall
continue in force in British India until altered or repealed
or  amended  by a competent legislature or  other  competent
authority."
     Section  143  can be considered in two  ways.   If  the
Government of India Act did not bring the particular  impost
of  tax by the Provincial Government within the  legislative
powers of the Centre, by reason of the inclusion of such tax
in List I of the Seventh Schedule, the pre-existing right of
the  Provincial Government to levy such tax  remained  unaf-
fected.  If so, Section 143  of the Government of India  Act
did not affect such legislation and the same continued to be
valid  and operative under Section 202 of  the  Constitution
Act.  If  however the levy of .such tax  by  the  Provincial
Government  was  a subject which  was within  the  exclusive
legislative power of the Centre by reason of such tax  being
included in List I of the Seventh Schedule, the levy of such
tax  under the Provincial legislation continued to be  valid
until  the Central Legislature passed an Act the  provisions
whereof  were contrary to the provisions of  the  Provincial
legislature  or  to the levy of a tax under  the  Provincial
Act.  Examining  next the contentions of  the  appellant  it
seems  clear  that octroi duty as levied by  the  respondent
comes within the exact wording of Entry 49 of List 11 of the
Seventh.  Schedule  to the Constitution Act.   Prima  facie,
therefore, there is no reason, to
21
consider  the levy of the octroi duty under  the  Provincial
legislation  invalid.   Such  levy  remained  unaffected  by
reason of Section 292 of the Constitution Act. The  argument
of  the appellant is that the levy of the octroi duty  being
at a stage after the excisable article, viz., tobacco,  came
into  existence and became liable to excise duty  under  the
Excise  Act, the levy of octroi duty before bidis were  made
from  tobacco, is invalid. In support of this  argument  the
definition of 'excisable goods', 'manufacture' and the Entry
9  in the Schedule to that Act were relied upon.  The  error
underlying  the argument of the appellant is the  assumption
that  any  impost  of tax from the time  tobacco  came  into
existence  till the same was converted into bidis is  neces-
sarily excise duty.
    The  Federal Court had to consider the  distinction  be-
tween  the duty of excise and a tax on sale in The  Province
of  Madras  v. Boddu Paidanna and Sons(1). It is  there  ob-
served as follows:--"Plainly, a tax levied on the first sale
must,  in the nature of things, be a tax on the sale by  the
manufacturer  or  producer; but it is levied  upon  him  qua
seller and not qua manufacturer or producer.  It may well be
that  'a  manufacturer  or  producer  is  sometimes   doubly
hit  ......  If the tax-payer who pays a sales tax is also a
manufacturer or producer of commodities subject to a central
duty  of  excise, there may no doubt be overlapping  in  one
sense,  but there is no overlapping in law.  The  two  taxes
which  he is called on to pay are economically two  separate
and  distinct  imposts.   There is, in  theory,  nothing  to
prevent  the  Central Legislature from imposing  a  duty  of
excise on a commodity as soon as it comes into existence, no
matter  what happens to it afterwards, whether it  be  sold,
consumed,  destroyed, or given away  ......  It is the  fact
of  manufacture which attracts the duty even though 'it  may
be collected later.  In the case of a sales tax, the liabil-
ity  to tax arises on the occasion of a sale and a sale  has
no  necessary  connection with manufacture  or  production."
The Court further observed that in the Constitution Act  the
whole
(1) [1942] F.C.R. 90.
22
of  the  taxing power in this particular  sphere  (power  to
impose  duties of excise) is  expressly apportioned  between
the Centre and the Provinces, to the one being assigned  the
power to impose duties of excise, to the other taxes on  the
sale  of goods.  It is natural enough, when considering  the
ambit  of  an express power in relation  to  an  unspecified
residuary  power,  to  give a broad  interpretation  to  the
former  at the expense of the latter.  The case  however  is
different  where  as in the Constitution Act there  are  two
complementary powers,each expressed in precise and  definite
terms.   There can be no reason in such a case for giving  a
broader  interpretation  to  one power rather  than  to  the
other;  and there is certainly no reason for  extending  the
meaning of the expression "duties of excise" at the  expense
of the Provincial power to levy taxes on the sale of goods.
  In  The  Governor-General in Council v.  The  Province  of
Madras (1), the Judicial Committee approved of the  distinc-
tion drawn in this case between the excise duty and a tax on
sale.   There  the question arose in respect of tax  on  the
sale  of excisable goods.  Their Lordships observed as  fol-
lows :--" An exhaustive discussion of this subject  (namely,
the  meaning  of the term duty of excise )from  which  their
Lordships  have obtained valuable assistance is to be  found
in  the  judgment  of the Federal Court in  Re  The  Central
Provinces  and Berar Act No. XIV of  1938(2).   Consistently
with  this  decision their Lordships are of opinion  that  a
duty of excise is primarily a duty levied on a  manufacturer
or  producer  in respect of the  commodity  manufactured  or
produced.  It is a tax on goods not on sales or the proceeds
of  sale of goods.  Here, again,their Lordships  find  them-
selves in complete accord with the reasoning and conclusions
of  the  Federal Court in Boddu Paidann case  (3).  The  two
taxes,  the one levied on a manufacturer in respect  of  his
goods, the other on a vendor in respect of his sales, may,as
is  there  pointed out, in one sense overlap.   But  in  law
there is no overlapping. The taxes are separate and
   (1) [1942] F.C.R. 129.          (3) [1942] F.C.R. 90
   (2) [1939] F.C.R. 80.
23
distinct  imposts.  If  in fact they overlap,  that  may  be
because  the  taxing authority, imposing a duty  of  excise,
finds  it convenient to impose that duty at the moment  when
the excisable article leaves the factory or workshop for the
first time on the occasion of its sale.  But that method  of
collecting  the tax is an accident of administration; it  is
not of the essence of the duty of excise, which is attracted
by  the  manufacture  itself.  That this is  so  is  clearly
exemplified in those excepted cases in which the Provincial,
not  the Federal, legislature has power to impose    a  duty
of excise.  In such cases there appears to be  no reason why
the  Provincial  legislature  should not impose  a  duty  of
excise  in respect of the commodity manufactured and then  a
tax on first or other sales of the same commodity.   Whether
or  not  such a course is followed appears to  be  merely  a
matter  of  administrative  convenience. So,  by  parity  of
reasoning,  may  the Federal Legislature impose  a  duty  of
excise on the manufacture of excisable goods and the Provin-
cial legislature impose a tax on the sale of the same  goods
when manufactured."
    This discussion clearly shows that the relevant question
is  what is the nature of the tax. Excise duty is a  tax  on
manufactured  goods.   Octroi duty is a tax  levied  on  the
entry  of goods within a particular area. Under  the  Excise
Act,  tobacco becomes excisable goods within the meaning  of
Item 9 in the Schedule.  The subsequent use of such manufac-
tured.  goods in making different articles only affects  the
rate  of tax.  Therefore, tobacco becomes subject to  excise
duty  when it reaches the stage of manufacture mentioned  in
Item 9 of the Schedule to the Excise Act.  Even before it is
converted  into bidis or any other article mentioned in  the
entry it has become excisable goods and liable to pay excise
duty.  The  levy of such duty is therefore not  in  conflict
with the levy of an impost on the entry of the goods within
a certain area.
    It was argued that under the rules framed by the Govern-
ment  under the Central Excises and Salt Act, 1944,  Govern-
ment retained control over the movement of the
24
goods from the beginning till the end.  This argument is not
of  assistance in determining the nature of the octroi  tax.
As  Government  has to collect excise duty and the  rate  of
duty  varies  in respect of different shapes  in  which  the
excisable  goods are ultimately converteD, there is  nothing
unnatural  in the Government keeping a control and  note  of
the articles till the manufactured article becomes a commod-
ity, and is mixed up with the commodities used by the people
at  large.  The argument that Entry 49 in List 11  being  in
conflict  with Entry 45 in List I of Schedule Seven  to  the
Constitution  Act, Entry 49 should be read as "for  consump-
tion or use, except for manufacture of goods", in our  opin-
ion,  is  unsound. In the first place, the approach  to  the
question  itself  is wrong. When  a  particular  legislation
falls  within the exact words of an Entry in the  Provincial
List,  under  section 100 it is valid and   no  question  of
reconciliation  arises.   A  similar  argument  advanced  in
regard to a supposed conflict between Entry 19 of List I and
Entry  31  of List II was rejected by us in Case No.  27  of
1949:  Miss Kishori Shetty v. The King (1).  In the  present
case  if  the  question of the validity  of  the  Provincial
legislation  arises,  on the interpretation of Entry  49  in
List II, it appears that the answer must be in favour of the
validity of the legislation.  The decision in Administrator,
Lahore Municipality v. Daulat Ram Kapur(2) does not help the
appellant  because in that case Entry 47 in List I  is  only
"salt".   A  comparison with Entry 45 in List I  shows  dis-
tinctly  that Entry 45 is limited to excise duty and is  not
wide  enough to cover tobacco or other goods  generally  for
all  purposes of legislation. The observations in that  case
therefore are not helpful to the appellant.
     On the second part of the contention the appellant  can
succeed  only if he establishes that the provisions  of  the
Excise  Act  are contrary to the levy and recovery  of  duty
under the Provincial Act of 1922. There is no express provi-
sion  in  the Excise Act contrary to the provisions  of  the
Municipal Act.  Unless, therefore, it is necessarily implied
under the Excise Act, the levy of
(1) [1949] F.C.R. 650            (1) [1942] F.C.R. 31
25
the  octroi  duty under the Municipal Act  continues  to  be
valid.  On this point again the appellant's argument is that
the levy of a duty at any stage of the manufacture of  bidis
out  01  tobacco would be the levy of the  excise  duty  and
therefore  those provisions were contrary to the  provisions
permitting  the  levy of the octroi duty.  We  have  already
discussed  and  rejected in the first part of  the  judgment
this contention.  It is wrong to think that two  independent
imposts  arising  from two different sets  of  circumstances
were not permitted in law. In our opinion, therefore,  there
is nothing in the Excise Act to make its provisions contrary
to  the  provisions  of Section 66 (1) (e)  of  the  Central
Provinces  Municipalities Act or to the levy of octroi  duty
under the same. The appeal therefore fails and is  dismissed
with costs.
    Appeal dismissed.
Agent for the appellants: Rajinder Narain.
Agent for the respondent: S.P. Varma.
Agent for the Union of India: P.A. Mehta.
PETITIONER:
PANNALAL JANKIDAS
        Vs.
RESPONDENT:
MOHANLAL AND ANOTHER.
DATE OF JUDGMENT:
21/12/1950
BENCH:
KANIA, HIRALAL J. (CJ)
BENCH:
KANIA, HIRALAL J. (CJ)
SASTRI, M. PATANJALI
DAS, SUDHI RANJAN
CITATION:
 1951 AIR  144            1950 SCR  979
ACT:
    Contract--Damages--Remoteness of damage--Agent  neglect-
ing to insure goods against fire--Goods destroyed by exploi-
sion--Liability  of agent--Bombay  Explosion  (Compensation)
Ordinance, 1944,    ss. 14,18--Ordinance grantinq  compensa-
tion  for damage by explosion-Loss by explosion not  covered
by  policy--Loss of compensation under Ordinance by  failure
to insure---Whether direct or remote damaqe--Claim by  prin-
cipal  against  agent, whether barred  by  Ordinance--Indian
Contract Act, 1872, s. 212.
HEADNOTE:
    The  plaintiffs  who were  commission  agents  purchased
piecegoods according to defendant's instructions and  stored
a portion of the goods in a godown in Bombay pending receipt
of  a permit from the Government authorities for  consigning
the  same  to  the defendants.  Before the  goods  could  be
despatched,  a big explosion occurred in the Bombay  Harbour
and  the goods stored were destroyed either by the  fire  or
the  explosion.   A few months  later  the  Governor-General
promulgated the Bombay Explosion (Compensat,ion)  Ordinance,
1944,  which provided, inter alia, (i) that  the  Government
shall  pay  a  compensation of 50 per cent.  of  the  damage
caused in respect of uninsured goods, and the entire  damage
in respect of insured goods; and (ii) that no person   shall
have or be deemed ever to have had, otherwise than under the
Ordinannce  any  rights whether in contract or in  tort   or
otherwise  to  any  compensation for damage to  or  loss  of
property  arising out of the explosion and no suit or  other
legal  proceeding for any such compensation or damage  shall
be  maintainable  in any civil courts.  The  plaintiffs  re-
ceived  50 per cent of the value of the destroyed  goods  as
they
980
were not insured, and, alleging that as agents they had  the
right  to be indemnified by the defendants, sued the  latter
for  recovery of the remaining 50 per cent of the  value  of
the  goods.  The defendants pleaded, and it was found  as  a
fact,  that  they  had instructed the  plaintiffs,  and  the
latter had agreed, to insure the goods but had omitted to do
so,  and they claimed that inasmuch as they would have  been
entitled to receive the full value of the goods as compensa-
tion under the Ordinance if the plaintiffs had insured, they
were  entitled to set off or counter claim the value of  the
goods as damages caused to them by the neglect or breach  of
duty of the plaintiffs.
    Held  per  KANIA C.J. and  DAS J.  (PATANJALI  SASRI  J.
dissenting).--(i)  As full compensation under the  Ordinance
was  payable on proof of the existence of a  fire  insurance
policy  irrespective  of the terms of the  policy,  and  the
non-recovery of half the value of the goods from the Govern-
ment  under the Ordinance was due to the obsence of  a  fire
insurance policy, the loss to the defendants arose  directly
from  the  neglect or breach of duty of  the  plaintiffs  to
insure  the goods as they had been instructed and agreed  to
do; intervention of the Ordinance did not break the chain of
causation or make the loss remote or indirect; the Ordinance
did  not  create any new liability but only  quantified  the
damages;  and the fact that it did not exist at the time  of
the  explosion and could not have been in the  contemplation
of  the parties was irrelevant for deciding the question  of
liability;
    (ii)  the plea of the defendants was not barred  by  the
Ordinnance  inasmuch  as their cause of action  against  the
plaintiffs  was misconduct of the latter in the business  of
their agency, and this cause of action was completed by  the
averment that there was a dnty or agreement to insure,  that
there was failure to per. form that duty and that the  fail-
ure had caused damage to the defendants, and the quantum  of
the damages was not a part of the cause of action.
    Per PATANJALI SASRI J.--(i) The defendants' inability to
recover  the  full value of the goods  from  the  Government
under the Ordinance did not arise directly and naturally  in
the  usual course of things from the plaintiffs' failure  to
insure, but from independent and disconnected events,  name-
ly,  the Government's scheme for compensation,  embodied  in
the  Ordinance, the agreement with the  insurance  companies
regarding  contribution  and the  consequent  discrimination
made by the Government between insured and uninsured  goods.
The Ordinance did not, displace the ordinary rules of law as
to  remoteness of damage or amend or abrogate any  terms  in
the fire insurance policies and it was further difficult  to
see  how by virtue of an Ordinance passed some months  after
the  explosion, the right to damages could become  enlarged.
The broad principle of restitutio in integrum upon which the
assessment  of  the quantum of damages is  based  cannot  be
carried  to its utmost logical results but must be  qalified
by the rule of remoteness-
  981
    (ii) The bar under the Ordinance was not based upon  the
nature  of the cause of action but upon the damage  or  loss