Case Summary
| Citation | In Re CP & Berar Sales of Motor Spirit & Lubricants Taxation Act, 1938 AIR 1939 F.C. 1 |
| Keywords | |
| Facts | The Central Provinces and Berar Government enacted a law imposing a tax on the retail sale of motor spirit and lubricants. The validity of this law was challenged before the Federal Court. |
| Issues | Does the provincial government have the authority under govt of the India, 1935, to enact the central provinces and berar sales of motor spirit and lubricants taxation act, 1938? Is the Provincial Govt. empowered to impose taxes on sales of motor spirits and lubricants, or is this authority exclusively reserved for federal govt.? |
| Contentions | The primary contention of the petitioner was that the tax was essentially an excise duty, which falls within the exclusive legislative competence of the Central Legislature. The petitioner argued that the tax was levied on the production or manufacture of the goods and was not a tax on the sale of goods, which is a subject matter within the legislative competence of the Provincial Legislature. |
| Law Points | The Court observed that there is no clear cut division of powers between the Union and the States. In case of conflict the judiciary has to make reconciliation attempts between the conflicting entries. If indeed such a reconciliation should prove impossible, only then will the operation of non-obstante clause brought into force, for this clause ought to be regarded as a last resort. Entries no doubt should be constructed in widest possible sense but it may be qualified by other express provisions in the same enactment, by the implications of the context and even by considerations arising out of what appears to be the general scheme of the Act. It laid down that the Centre has the power to levy excise duty at any stage before ale to the consumers. The power of the Province extends to levying tax on sale of goods to consumer. This view of Court reconciles the conflict between the two entries without doing violence to the language of either, and it demarcates their respective territories of legislation on a reasonable and logical basis. Hence, the law made by the province is valid and is not ultra vires of the Legislative powers of the province. |
| Judgement | The Federal Court, however, upheld the validity of the law. It held that the tax was a tax on the sale of goods and not an excise duty. The Court distinguished between excise duties and sales taxes, stating that excise duties are levied on the production or manufacture of goods, while sales taxes are levied on the sale of goods. The Court also held that the tax was not discriminatory and did not violate the principle of equality before the law. It was observed that the tax was levied on all sales of motor spirit and lubricants, irrespective of the source of production or manufacture. |
| Ratio Decidendi & Case Authority |
Full Case Details
LB-301-Constitutional Law-I |2022
[Doctrine of Harmonious Construction]
[Sir Maurice Gwyer, C.J., Sir Shah Sulaiman and M.R. JAyakar, JJ.]
This was the opinion rendered by the Federal Court in a Special Reference made by the Governor- General to the Court under S. 213 of the Government of India Act, 1935. The Reference was in the following terms:
“Is the Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938, or any of the provisions thereof, and in what particular or particulars, or to what extent, ultra vires the Legislature of the Central Provinces and Berar”?
GWYER C.J. – Notwithstanding the very wide terms in which the Special Reference is framed, the question to be determined lies essentially in a small compass. It has arisen in the following way. S. 3 (1), Provincial Act, to which it will be convenient to refer hereafter as the impugned Act, is in these terms:
There shall be levied and collected from every retail dealer a tax on the retail sales of motor spirit and lubricants at the rate of five per cent on the value of such sales.
“Retail dealer” is defined by S. 2 as any person who, on commission or otherwise, sells or keeps for sale motor spirit or lubricant for the purpose of consumption by the person by whom or on whose behalf it is or may be purchased, and “retail sale” is given a corresponding meaning.
Both motor spirit and lubricants are manufactured or produced (though not toany great extent) in India. Motor spirit is subject to an excise duty imposed by the Motor Spirit (Duties) Act, 1917, an Act of the Central Legislature; no excise duty at present has beenimposed on lubricants.
By Sec. 100 (1), Constitution Act the Federal Legislature (which up to the date of the Federation contemplated by the Act, means the present Indian Legislature) has, notwithstanding anything in sub-ss. (2) and (3) of the same Section, and a Provincial Legislature has not, power to make laws with respect to any of the matters enumerated in the Federal Legislative List, that of List I in Sch. 7 to the Act. Entry (45) in that List is as follows: “Duties of excise on tobacco and other goods manufactured or produced in India”, with certain exceptions not here material and it is said on behalf of the Government of India that the tax imposed by S. 3 (1) of the impugned Act, in so far as it may fall on motor spirit and lubricants of Indian origin, is a duty of excise within Entry (45) and therefore an intrusionupon the field of taxation reserved by the Act exclusively for the Federal Legislature.
By Sec. 100 (3) of the Act, a Provincial Legislature has, subject to the two Preceding sub- sections of that Section, and the Federal Legislature has not, power to make laws for a Province or any part thereof with respect to any of the matters enumerated in the Provincial
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Legislative List, that is List II of Sch. 7. Entry (48) in this List is as follows: II “Taxes on the sale of goods and on advertisements”; and it is said on behalf of the Provincial Government that the tax imposed by the impugned Act is within the taxing power conferred by that entry, and therefore within the exclusive competence of the Provincial Legislature.
It will be observed that by Sec, 100 (1) the Federal Legislature are given the exclusive powers enumerated in the Federal Legislative List, “notwithstanding” anything in the two next succeeding sub sections” of that Section. Sub-sec. (2) is not relevant to the Present case but sub-s. (3) is as I have stated, the enactment which gives to the Provincial Legislature the exclusive powers enumerated in the Provincial Legislative List. Similarly Provincial Legislature are given by Sec. 100 (3) the exclusive powers in the Provincial Legislative List “subject to the two preceding sub-sections”, that is sub-sections (1) and (2). Accordingly, the Government of India further contend that, even if the impugned Act were otherwise within the competence of the Provincial Legislature, it is nevertheless invalid, because the effect of the non obstante clauses in S. 100 (1), and a fortiori of that clause read with the opening words of Sec. 100 (3), is to make the federal power prevail if federal and provincial legislature powers overlap. The Provincial Government, on the other hand, deny that the two entries overlap and say that they are mutually exclusive. The Government of India raise a further point under S. 297, Constitution Act, but it will be more convenient to deal with this separately and at a later stage. I should add that it is common ground between the parties that if S. 3 (1) of the impugned Act is held to be invalid, the rest of the Act must be invalid also, since it only provides the machinery for giving practical effect to the charging Section.
The first case of importance that has come before the Federal Court; and it is desirable, more particularly in view of some of the arguments addressed to us during the hearing, to refer briefly to certain Principles which the Court will take for its guidance. It will adhere to canons of interpretation and construction which are now well known and established. It will seek to ascertain the meaning and intention of Parliament from the language of the statute itself: but with the motives of Parliament it has no concern. It is not for the Court to express, or indeed to entertain, any opinion on the expediency of a particular piece of legislation, if itis satisfied that it was within the competence of the Legislature which enacted it: nor, will it allow itself to be influenced by any considerations of policy, which lie wholly outside its sphere.
The Judicial Committee have observed that a Constitution is not be construed in any narrow and pendantic sense: per Lord Wright in [James v. Commonwealth of Australia, (1936) A C 578, 614]. The rules which apply to the interpretation of other statutes apply, it is true, equally to the interpretation of a constitutional enactment. But their application is of necessity conditioned by the subject-matter of the enactment itself; and I respectfully adoptthe words of a learned Australian Judge:
Although we are to interpret the words of the Constitution on the same principles of interpretation as we apply to any ordinary law, these very principles of interpretation compel us to take into account the nature and scope of the Act that we are interpreting to remember that it is a Constitution, a mechanism under which laws are to be made and not a mere Act which declares what the law is to be: [Attorney-General for New South Wales v. Brewery Employees Union (1908) 6 Commonwealth LR 469], per Higgins J. at p. 611.
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Especially is this true of a federal constitution, with its nice balance of jurisdictions. I conceive that a broad and liberal spirit should inspire those whose duty it is to interpret; but I do not imply but this that they are free to stretch or pervert the language of the enactment in the interests of any legal or constitutional theory, or even for the purpose of supplying omissions or of correcting supposed errors. A Federal Court will not strengthen, but only derogate from, its position, if it seeks to do anything but declare the law; but it may rightly reflect that a Constitution of Government is a living and organic thing, which of all instruments has the greatest claim to be construed ut res magis-valeat quam pereat.
Dispute with regard to central and provincial legislative spheres are inevitable under every federal Constitution, and have been the subject-matter of a long series of cases in Canada, Australia and the United States, as well as of numerous decisions on appeal by the Judicial Committee. Many of these cases were cited in the course of the argument. The decisions of the Canadian and Australian Courts are not bindings upon us, and still less those of the United States, but, where they are relevant, they will always be listened to in this Court with attention and respect, as the judgments of eminent accustomed to expound and illumine the principles of jurisprudence similar to our own; and if this Court is so fortunate as to find itself in agreement with them, it will deem its own opinion to be strengthened and confirmed. But there are few subjects on which the decisions of other Courts require to be treated with greater caution than that of federal and provincial powers, for in the last analysis the decision must depend on the words of the Constitution which the Court is interpreting; and since no two Constitution are in identical terms, it is extremely unsafe to assume that a decision on oneof them can be applied without qualification to another. This may be so even where the words or expressions used are the same in both cases; for a word or a phrase may take a colour from its context and bear different senses accordingly.
The attempt to avoid a final assignment of residuary powers by an exhaustive enumeration of legislative subjects has made the Indian Constitution Act unique among federal Constitutions in the length and detail of its Legislative Lists. Whether this elaborationwill be productive of more or less litigation than in Canada, where there is also a distribution, by enumeration time alone will show; at least this court will not be confronted with the additional problems created by the interlacing provisions of Ss. 91 and 92. British North America Act and the distribution of powers not only by the enumeration of specified subjects,but also by reference to the general or local nature of the subject matter of legislation. But theinterpretation of the British North America Act has given rise to questions analogous to that which is now before this Court and there are two decisions of the Judicial Committee which lay down most clearly the principles which should be applied by Courts before which questions may come.
The question before the Court admits of three possible solutions: (1) that the provincial entry covers the tax now challenged and that the federal entry does not; (2) that the federal entry covers it, but that the provincial entry does not; and (3) that the tax falls within both entries, so that there is a real overlapping of jurisdiction between the two. In the first case, thevalidity of the tax could not be questioned; in the second, the tax would be invalid as the invasion of an exclusively federal sphere, in the third, it would, because falling within both spheres be invalid by reason of the non obstante clause. It is necessary therefore to scrutinize
274 In Re CP & Berar Sales of Motor Spirit & Lubricants Taxation Act, 1938 more closely the two entries, first separately and then in relation to each other and to the context
and scheme of the Act.
The provincial legislative power extends to making laws with respect to taxes on the sale of goods. The words which this power is given, taken by themselves and in their ordinary and natural sense seem apt to cover such a tax as is imposed by the impugned Act; and it might indeed be difficult to had a more exact or appropriate formula for the purpose.
The federal legislative power extends to making laws with respect to duties of excise on goods manufactured or produced in India. “Excise” is stated in the Oxford Dictionary to have been originally “accise”, a word derived through the Dutch from the late Latin accensare, to tax; the modern form, which ousted “accise” at an early date, being apparently due to a mistaken derivation from the Latin excidere, to cut out. It was at first a general word for a tollor tax, but since the 17th century it has acquired in the United Kingdom particular, though not always precise, signification. The primary meaning of ‘excise duty’ or‘duty of excise’ has come to be that of a tax on certain articles of luxury (such as spirits, beer to tobacco)produced or manufactured in the United Kingdom, and it is used in contradistinction to customs duties on articles imported into the country from elsewhere. At a later date the licence fees payable by persons who produced or sold excisable articles also became knownas duties of excise; and the expression was still later extended to licence fees imposed for revenue, administrative, or regulative purposes on persons engaged in a number of other trades or callings. Even the duty payable on payments for admission to places of entertainment in the United Kingdom is called a duty of excise; and, generally speaking, the expression is used to cover all duties and taxes which together with customs duties are collected and administered by the Commissioners of Customs and Excise. But its primary and fundamental meaning in English is still that of a tax on articles produced or manufacturedin the taxing country and intended for home consumption. I am satisfied that is also its primary and fundamental meaning in India; and no one has suggested that it has any other meaning in Entry (45).
It was then contended on behalf of the Government of India that an excise duty is a duty which may be imposed upon home produced goods at any stage from production to consumption and that therefore the federal legislative power extended to imposing excise duties at any stage. This is to confuse two things, the nature of excise duty and the extent of the federal legislative power to impose them. Authorities were cited to us, from Blackstone onwards, to prove that excise duties may be imposed at any stage; and if this means no more than that, instances are to be found where they have been so imposed, authority seems scarcely needed. It would perhaps not be easy without considerable research to ascertain howfar Blackstone was justified at the time he wrote in saying that excise duties were an inland imposition, paid sometimes on the consumption of the commodity, and frequently on the retail sale. Blackstone’s statement however is repeated, almost verbatim, in the latest edition of Stephen’s commentaries, and as a description of excise duty now in force in the United Kingdom it is demonstrably wrong; for, a brief examination of those duties shows that in practically all cases it is the producer or manufacturer from whom the duty is collected. But there can be no reason in theory why an excise duty should not be imposed even on the retail sale of an article, if the taxing Act so provides. Subject always to the legislative competence
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of the taxing authority; a duty on home-produced goods will obviously be imposed at the stage which the authority find to be the most convenient and the most lucrative, wherever it may be; but that is a matter of the machinery of collection, and does not affect the essential nature of the tax. The ultimate incidence of an excise duty, a typical indirect tax, must always be on the consumer, who pays as he consumes or expends; and it continues to be an excise duty; that is a duty on home-produced or home manufactured goods, no matter at what stage itis collected. The definition of excise duties is therefore of little assistance in determining the extent of the legislative power to impose them: for a duty imposed by a restricted legislative power does not differ in essence from the duty imposed by an extended one.
It was argued on behalf of the Provincial Government that an excise duty was a tax on production or manufacture only and that it could not therefore be levied at any later stage. Whether or not there be any difference between a tax on production and a tax on the thing produced, this contention, no less than that of the Government of India, confuses the nature of the duty with the extent of the legislative power to impose it. Nor for the reasons already given, is it possible to agree that in no circumstances could an excise duty be levied at a stage subsequent to production or manufacture.
If therefore a Legislature is given power to make laws “with respect to” duties of excise it is a matter to be determined in each case whether on the true construction of the enactment conferring the power, the power itself extends to imposing duties on home-produced or home manufactured goods at any stage up to consumption, or whether it is restricted to imposing duties, let us say, at the production or manufacture only. A grant of the power in general terms, standing by itself, would no doubt be construed in the wider sense, but it may be qualified by other express provisions in the same enactment, by the implications of the context, and even by considerations arising out of what appears to be the general scheme of the Act.
The question must next be asked whether such a tax as is imposed by the impugned Act, though described as a tax on the sale of goods could in any circumstances be held to be a duty of excise, for it is common ground that the Courts are entitled to look at the real substance of the Act imposing it, at what it does and not merely at what it says in order to ascertain the true nature of the tax. Since writers on political economy are agreed that taxes on the sale of commodities are simply taxes on the commodities themselves, it is possible to regard a tax on the retail sale of motor spirit and lubricants as a tax on those commodities, and I will assume for the moment in favour of the Government of India that it is on that ground capable of being regarded as a duty of excise.
It appears then that the language in which the particular legislative powers which the Court is now considering have been granted to the Central and Provincial Legislatures respectively may be wide enough, if taken by itself and without reference to anything else in the Act, to cover in each case a tax of the kind which has been imposed, whether it be called an excise duty, if imposed by the Central Legislature, or a tax on the sale of goods, if imposedby a Province.
But the question before the Court is not how the two legislative powers are theoretically capable of being construed, but how they are to be construed here and now in the Constitution
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Act. This is a very different problem and one on which case decided under other Constitutions can never be conclusive. In the United Kingdom there are no competing jurisdictions at all: and though in Canada, Australia and United States there is a division or distribution of powers between the Centre and the Provinces or States, there is nowhere to be found set in opposition to one another the power of levying duties of excise and an express power of levying a tax on the sale of goods. In Canada there is, it is true, a double enumeration of legislative powers; but so far as taxation is concerned, the conflict is between direct and indirect taxation, the firstbeing the prerogative of the Provinces, the second of the Dominion; and though duties of excise (as well as those of customs) are mentioned in the British North America Act, it is nearly always as indirect taxes that constitutional questions arise with regard to them. In Australia all taxing powers belong to the States except those which are specifically reservedto the Commonwealth. Among the latter are duties of customs and excise; and the question inAustralia always is whether a particular tax falls within the field of taxation reserved to the Commonwealth or not; there can be no overlapping of particular legislative spheres. In the United States the Central Legislature has power to levy “taxes, duties, imposts and excises”, provided that they are uniform throughout the States. This is not an exclusive power, and the States can levy what taxes they like (other than imposts or duties on imports or exports), subject to the provisions of the Constitution, though certain of those provisions, such as the commerce clause, operate in practice as a very effective restriction upon State powers. Only in the Indian Constitution Act can the particular problem arise which is now under consideration; and an endeavour must be made to solve it, as the Judicial Committee have said, by having recourse to the context and scheme of the Act, and a reconciliation attempted between two apparently conflicting jurisdictions by reading the two entries together and by interpreting, and where necessary, modifying the language of the one by the that of the other. If indeed such a reconciliation should prove impossible then, and only then, will the non obstante clause operate and the federal power prevail: for the clause ought to be regarded as a last resource, a witness to the imperfections of human expression and the fallibility of legal draftsmanship.
It has been shown that if each legislative power is given its widest meaning, there is a common territory shared between them and an overlapping of jurisdictions is the inevitable result; and this can only be avoided if it is reasonably possible to adopt such an interpretation it would assign what would otherwise be common territory to one or the other. To do this it is necessary to construe this legislative power defined or described by one entry or the other in a more restricted sense than, as already pointed out, it can theoretically possess. I mention, only to dismiss, the argument that the new autonomy of the provinces and the expenditure necessary to administer and maintain the vital services committed to their charge require that every intendment should be made in favour of the provincial taxing power. I should never deny the high importance of the provincial functions; but the Centre has also great responsibilities, though of another kind, and it is not for this Court to weigh one against the other. The issue must be decided on other grounds than these.
The provincial legislative power defined in Entry (48) may be first considered. The Advocate-General of India, when asked what was left to the legislative power of the Provinces under this entry if the view of the Government of India prevailed, said that it was
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clearly within their power to levy the taxes commonly known as turnover taxes, which under that name or under the name of sales taxes have since the War proved so successful a fiscal expedient in many countries. Strictly, a turnover tax appears to be the correct description of a tax usually calculated in the form of a percentage, on the gross receipts of wholesalers or retailers or of both, and in some countries also on receipts in respect of services. It is however sometimes included under the more general name of sales tax, and it is evident from the various modern writers who have dealt with the subject and to whose works we were referred that the latter expression is often used a convenient name for a number of taxes ranging from turnover taxes to taxes on the retail sale of specified classes of goods; the so-called sales taxeswhich have been imposed by a large number of the State Legislatures in the United States seem to be often of the latter variety. Two citations from these writers will be sufficient to show that neither “turnover tax” nor “sales tax” has yet achieved a recognized and certain meaning:
The scope of sales and turnover taxes has varied greatly. Some extended to all transactions, both wholesale and retail, and others to wholesale transactions only. The first of these are usually called turnover taxes. Certain taxes include both goods and services, while others include only goods. The German turnover tax is an example of a tax which includes nearly every type of transaction in the line of goods and services.
And again:
The tax (i.e. the sales or turnover tax) may be general, as in France or Germany, or retail transactions may be excluded, as in Belgium. It may be as is common in the States of the American Union, confined to retail transactions. It may be imposed, as in Canada and Australia, as a producers’ or manufactures’ tax, and it may be on classified industries or tradesonly. It may be levied on nearly all goods and services, as in Germany. It may exempt certain sales, as in France, where the sales of farmers are exempt unless carrying on manufacture as well as agriculture.
Thus the expression “sales tax” may comprehend a good deal more than would be understood by “tax on the sale of goods” in the ordinary and natural meaning of those words, and the expression “turnover tax” seems to be in some directions wider and in others narrower. “Tax on the sale of goods” at any rate seems to include some varieties of turnover tax but it seems also to include more than a turnover tax in the stricter sense could reasonably be held to cover. In these circumstances it may be thought hazardous to impute to Parliament any particular intentions with regard to turnover taxes. Parliament may have had them in mind. The Proposals for Indian Constitutional Reform, commonly known as the White Paper (Cmd. 4268, 1933) and the Report of the Joint Select Committee thereon (H. L. 6 and H. C. 5,1934) are historical facts and their relation to the Constitution Act is matter of common knowledge to which this court is entitled to refer and it may be observed that “taxes on the sale of commodities and on turnover” appeared in the White Paper as a suggestion for possible sources of provincial revenue, and that the suggestion was approved without comment by the Joint Select Committee. I do not know, and it would be idle to speculate why a different formula was ultimately inserted in the Act, the Court is only concerned with what Parliament has in fact said, and if the Government of India are right and “taxes on the sale of goods” was intended to refer to taxes on turnover alone, I find it difficult to understandwhy Parliament used so inappropriate and indeed misleading a formula. “Taxes on turnover”
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may not be yet a term of art, but some of its meanings are tolerably plain. “Taxes on the sale of goods” appears to me to be plainer still, and though there may be general agreement that it includes some forms of turnover the exclusion of everything else. Certainly that would not be its ordinary meaning, and I cannot persuade myself, even for the purpose of avoiding a conflict between the two entries, that Parliament deliberately used words which cloaked its real intention when it would have been so simple a matter to make that intention clear beyond any possibility of doubt. I therefore proceed to inquire if it is reasonably possible to avoid theconflict by construing the power to make laws “with respect to” duties of excise as not extending to the imposition of a tax or duty on the retail sale of goods. This is the crucial issue in the case.
In my opinion the power to make laws with respect to duties of excise given by the Constitution Act to the Federal Legislature is to be construed as a power to impose duties of excise upon the manufacture or producer of the excisable articles, or at least at the stage of or in connection with, manufacture or production, and that it extends no further. I think that this is an interpretation reasonable in itself; more consonant than any other with the context and general scheme of the Act, and supported by other considerations to which I shall refer.
I have said that it seems to me impossible, without straining the language of the Act, to construe a power to impose taxes on the sale of goods as a power to impose only turnover taxes. To construe the power to impose duties of excise, as I think it ought to be construed, involves no straining of language at all. The expression “duties of excise”, taken by itself, conveys no suggestion with regard to the time or place of their collection. Only the context inwhich the expression is used can tell us whether any reference to the time or manner of collection is to be implied. It is not denied that laws are to be found which impose duties of excise at stages subsequent to manufacture or production; but, so far as I am aware, in none ofthe cases in which any question with regard to such a law has arisen was it necessary to consider the existence of a competing legislative power, such as appears in entry (48).
Much stress was laid upon two cases which were cited to us. In [Patoon v. Brady (1901) 184 US 608], a case before the United States Supreme Court, tobacco, which had already paid excise duty had been sold to the plaintiff. While it was still in his hands, an Act was passed doubling the current rate of duty and (no doubt lest persons in possession at the moment of duty paid tobacco should get an unearned increment on its sale) imposing a special duty on all tobacco which had paid the excise duty in force at the date of the Act and was at that date held and intended for sale. The Act was challenged as unconstitutional on the ground (inter alia) that the legislature having once excised an article could not excise it a second time. The Court; upholding the Act on this particular point, referred to the account of excise duties given in Blackstone and Story and to definitions in various standard dictionaries, and then said:
Within the scope of the various definitions we have quoted, there can be no doubt that the power to excise continues while the consumable articles are in the hands of the manufacture or any intermediate dealer, and until they reach the consumer. Our conclusion then is that it is within the power of Congress to increase an excise, as well as a property tax, and that such an increase may be made at least while the property is held for sale and before it has passed into the hands of the consumer.
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The case is thus a decision on the scope and extent of the power to impose excise duties given to the Central Legislature by the Constitution of the United States. No question was involved of a competing legislative power. It is to be observed however that the imposition of an excise duty at a stage later than production or manufacture was obviously regarded as an unusual thing and that the duty about which the litigation arose was not intended as apermanent duty but was imposed once for all. The other case was [Commonwealth Oil Refineries Co. v. South Australia, 38 Commonwealth LR 408]. There a State law had (inter alia) purported to impose an additional income tax (for so the duty was described) at the rate of 3 for every gallon of motor spirit sold by any person who sold and delivered it within the State to persons within the State for the first time after its production or manufacture, but not including any purchaser who subsequently sold it. It was argued that this was in substance a duty of excise which under the Constitution only the Commonwealth had the right to impose, and that contention prevailed. It might at first sight appear that this decision supported the Government of India’s case; for, as already pointed out, the taxing power of the Australian States is unlimited, save in so far as the Constitution reserves the right for imposing certain specified taxes to the Commonwealth and indirectly limits the power of the States by giving the Commonwealth power to regulate inter-State trade and commerce. But closer examinationof the judgment delivered shows that the majority of the Judges took the view that the duty onfirst sale of the commodity in fact is a tax on the producer and for that a reason a duty of excise without doubt. The case is no authority at all for the proposition that a tax on retail sales must necessarily be a duty of excise.
It cannot be strongly emphasized that the question now before the Court is one of possible limitations on a legislative power, and not possible limitations on the meaning of the expression duties of excise”; for, “duties of excise” will bear the same meaning whether the power of the Central Legislature to impose them is restricted or extended. It is a fundamental assumption that the legislative powers of the Centre and Provinces could not have been intended to be in conflict with one another, and therefore we must read them together and interpret or modify the language in which one is expressed by language of the other. Here aretwo separate enactments, each in one aspect conferring the power to impose a tax upon goods;and would accord with sound principles of construction to take the more general power; that which extends to the whole of India, as subject to an exception created by the particular power, that which extends to the Province only. It is not perhaps strictly accurate to speak of the provincial power as being excepted out of the federal power, for, the two are independent of one another and exist side by side. But the underlying principle in the two cases must be the same, that a general power ought not to be so construed as to make a nullity of a particularpower conferred by the same Act and operating in the same field, when by reading the former in a more restricted sense, effect given to the latter in its ordinary and natural meaning. So in Bank of Toronto v. Lambe [(1887) 12 AC 575, 587], where a Provincial Legislature in Canada had imposed a tax upon banks carrying on business in the Province, varying in amount with the paid up capital and with the number of the offices of the bank, whether or notthe bank’s principal place of business was within the Province, it was argued that even if the tax imposed by the Act was direct taxation and therefore within the power of the Provincial Legislature under Sec. 92, British North America Act, it was nevertheless invalid because it was legislation relating to banking and the incorporation of banks, the making of laws on
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which was by S. 91 of the Act vested solely in the Dominion Parliament. The Judicial Committee rejected this argument. They pointed out that in (1882) 7 A C 96, to which reference has already been made, it was found absolutely necessary that the literal meaning ofthe words defining the powers vested in the Dominion Parliament should sometimes be restricted, “in order to afford scope for powers which are given exclusively to the Provincial Legislatures”; and they summed up the matter thus:
The question they (the Committee) have to answer is whether the one body or the other has power to make a given law. If they find that on the due constitution of the Act the legislative power falls within S. 92, it would be quite wrong of them to deny its existence because by some possibility it may be abused, or may limit the range which would otherwise be open to the Dominion Parliament.
This is not to ignore the non obstante clause, still less to bring into existence, as it were a non obstante clause in favour of the Provinces; for if the two legislative powers are read together in the manner suggested above, there will be a separation into two mutually exclusive spheres, and there will be no overlapping between them. Thus, the Central Legislature will have the power to impose duties of excisable articles before they become partof the general stock of the Province that is not say, at the stage of manufacture or the production and the Provincial Legislature an exclusive power to impose a tax on salesthereafter.
In discussing the possible overlapping of the federal and provincial jurisdictions I assumed for the moment that a tax on retail sales might be a duty of excise. Whether it is soor not must depend upon circumstances: certainly I cannot agree that it must always be so regarded, even where the power to impose duties of excise extends to imposing them at stagessubsequent to production or manufacture. There are some significant observations on this point in the judgment of Isaacs J. (afterwards Isaacs C.J.) in the Commonwealth Refineries case to which reference has already been made. After stating his conclusion that the words “excise duties” were not used in the constitution in the extended sense which had been suggested, the learned Judge proceeded as follows:
I arrive at that conclusion notwithstanding the expression was in South Australia before Federation, as in Victoria, sometimes used in a sense large enough to include breweries’ and wine licences. Licences to sell liquor or other articles may well come within an excise duty law, if they are so connected with the production of the article sold or are otherwise so imposed as in effect to be a method of taxing the production of the article. But if in fact unconnected with production and imposed merely with respect to the sale of goods as existing articles of trade and commerce, independently of the fact of their local production, a license or tax on the sale appears to me to fall into a classification of governmental power outside the true content of the words “excise duties as used in the constitution… Therefore, if the taxation by the State Act under S. 4 were simply on motor spirit as an existing substance in South Australia and not subject to any foreign or inter State operation of trade or commerce it would not be open to the challenge here made. [Commonwealth Oil Refineries Co. case]
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There appears to be a sound basis for the above distinction and the case which the Court is now considering is indeed stronger than the Australian one, for in the latter the power of the State to levy taxes on sale other than duties of excise was implied in its general powers of taxation and was not conferred expressly as in Entry (48). No doubt there will be border line cases in which it may be difficult to say on which side a particular tax or duty falls; but that is one of the inevitable consequences of a division of legislative powers. If however the facts in (1901) 184 U S 608 had been such as to make the decision turn upon the distinction between the two kinds of tax mentioned above, it seems probable that the special duty there imposed would still have been held to be a duty of excise, because it was an attempt, as it were, to relate duty back to the stage of production, even though the person may be liable for payment was not (and indeed could seldom have been) the original producer himself. In the present case it could not be suggested that the tax on retail sales has any connection with production;it is also imposed indifferently on all motor spirit and lubricants, whether produced ormanufactured in India or not. I do not say that this is conclusive, but it is to be taken into consideration. And I think that the distinction drawn by the learned Judge corresponds in substance with the distinction which it seems to me ought to be drawn in the case of the federal and provincial spheres in India, that is, between the taxation of goods at the stage of manufacture or production and their taxation by the provincial taxing authority (as in Australia by the State) after they have become part of what I have called the common stock ofthe Province. The learned Judge’s observations, it is true, were obiter, and in any case are notbinding upon us; but I am strengthened in my own view by what he has said.
I am impressed also by another argument. The claim of the Government of India must be that any provincial Act imposing a tax on the sale of any goods (other than a turnover tax) is an invasion of Entry (45) in the Federal Legislative List, whether the goods are at the time the subject of a central excise or not, and no matter how improbable it is that any excise will ever be imposed upon them. Duties of excise in the nature of things will always be confined to a comparatively small number of articles; but it is a necessary corollary of the argument of the Government of India that the power to impose excise duties though only exercised with respect to this small group, is an absolute bar to the exercise by the Provinces of any jurisdiction by way of a tax on sales over every other material, commodity and article manufactured or produced in India and to be found in the Province. Nay, more; for though excise duties can only be imposed in respect of goods manufactured or produced in India, it ispart of the Government of India’s case that to impose a tax on the sale of goods manufactured or produced elsewhere will infringe the provisions of Sec. 297 (1) (b), Constitution Act, against discrimination. It is not necessary for me here to say whether I agree with the latter argument or not; it is sufficient to point out how on one ground or the other this interpretation of the federal entry would exclude the Province from an immense field of taxation in which the Government of India does not now and probably would never in the future seek to compete. I should find it exceedingly difficult to adopt an interpretation of the two entries which would have consequences such as these.
Lastly, I am entitled to look at the manner in which Indian legislation preceding the Constitution Act had been accustomed to provide for the collection of excise duties, for Parliament must surely be presumed to have had Indian legislative practice in mind and unless
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the context otherwise clearly requires, not to have conferred a legislative power intended to be interpreted in a sense not understood by those to whom the Act was to apply. There were several central excise duties in force in India at the date of the passing of the Constitution Act,imposed respectively upon motor spirit, kerosene, silver, sugar, matches, mechanical lighters, and iron and steel. In all the Acts by which these duties were imposed it is provided (and substantially by the same words) that the duty is to be paid by the manufacturer or producer, and on the issue of the excisable article from the place of manufacture or production. TheActs which imposed the cotton excise now repealed, were in the same form.
The only provincial excise duty in force was that on alcoholic liquor and intoxicating drugs. The Devolution Rules, 1920, which were made under S. 45-A of the then Government of India Act, for the purpose of distinguishing the functions of the Local Governments and local Legislatures of Governors’ Provinces.
Classified a variety of subjects, in relation to the functions of Government, as central and provincial subjects, respectively. Among the provincial subjects appears the following:
16. Excise that is to say, the control of production, manufacture, possession, transport, purchase and sale of alcoholic liquor and intoxicating drugs, and the levying of excise duties and licence fees on or in relation to such articles…
The earlier part of this entry obviously describes an administrative and legislative sphere only, the taxing power being given in the last words quoted, which I take to mean excise duties on the articles mentioned and licence fees in relation to them. But here again, after examining various Provincial Acts relating to the control of alcohol, I have been unable tofind any case of excise duties payable otherwise than by the producers or manufacturers or persons corresponding to them; I am speaking, of course, only of alcohol manufactured or produced in the Province itself. The Advocate General of India referred us to an Act of the Central Provinces (Central Provinces Excise Act (No. 2 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.
Thus, at the date of the Constitution Act, though it seems that the word “excise” was not infrequently used as a general label for the system of internal indirect taxation or for the administration of a particular indirect tax (as salt excise or opium excise), the only kind of excise duties which were known in India by that name were duties collected from manufacturers or producers, and usually payable on the issue of the excisable articles from theplace of manufacture or production. This also may not be conclusive in itself, but it seems a not unreasonable inference that Parliament intended the expression “duties of excise” in the Constitution Act to be understood in the sense in which up to that time it had always in fact been used in India, where indeed excise duties of any other kind were unknown. Nor indeed are excise duties properly so called often to be found at the present day which are not
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collected at the stage of production or manufacture, whatever may have been the case in Blackstone’s time, and whatever may have been the reasons for Johnson’s definition of “Excise” in the first edition of his Dictionary (1755) as a hateful tax levied on commodities and adjudged not by the common Judges of property but wretches hired by those whom the excise is paid.
The conclusion at which I have arrived seems to me to be in harmony with what I conceive to be the general scheme of the Act and its method of differentiation between the functions and powers of the Centre and of the Provinces. It introduces no novel principle. It reconciles the conflict between the two entries without doing violence to the language of either, and it maps out their respective territories on a reasonable and logical basis. It would be strange indeed if the Central Government had the exclusive power to tax retail sales, evenif the tax were confined to goods produced or manufactured in India, when the Province hasan exclusive power to make laws with respect to trade and commerce, and with respect to the production, supply and distribution of goods, within the provincial boundaries. In the view which I take none of these inconsistencies will arise. Nor will the effect of this interpretation be to deprive the Centre of any source of revenue which it enjoys at present, nor of any which it is reasonable to anticipate that it might have enjoyed in the future. If I may be permitted to hazard a guess, the anxiety of the Government of India arises from the probability that a general adoption by Provinces of this method of taxation will tend to reduce the consumption of the taxed commodities and thus indirectly diminish the Central excise revenue. Thishowever is a circumstance which this Court cannot allow to weigh with it if, as I believe, the interpretation of the Act is clear though it might be an element to take into consideration if there were real ambiguity or doubt. But I do not think there is either ambiguity or doubt, if the two entries are read together and interpreted in the light of one another. The difficulty with which the Government of India may be faced is of a kind which must inevitably arise from time to time in the working of a Federal Constitution, where a number of taxing authorities compete for the privilege of taxing the same taxpayer. In the present case, the result may well be that the Central Government will find itself unable to make such adistribution of the proceeds of central excise duties under S. 140 of the Act as it might otherwise desire to do; but these are not matters for this Court, and they must be left for adjustment by the interest concerned in a spirit of reasonableness and commonsense, qualities which I do not doubt are to be found in India as in other Federations.
I am of opinion that for the reasons which I have given the answer to the question referred to us is that the Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938, is not ultra vires the Legislature of the Central Provinces and Berar, and since that is also the opinion of the whole Court we shall report to His Excellency accordingly.
