Ram Krishna Ramnath Agarwal of Kamptee vs Secretary, Municipal Committee, Kamptee

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Case No. III of 1948

Decision Date: 14 March 1950

Coram: Hiralal J. Kania, Saiyid Fazal Ali, Mehr Chand Mahajan, B.K. Mukherjea

In this case the Supreme Court of India delivered its judgment on 14 March 1950. The decision was authored by Justice Hiralal J. Kania, who acted as Chief Justice, and the bench also included Justice Saiyid Fazal Ali, Justice Mehr Chand Mahajan and Justice B.K. Mukherjea.

The petitioner was Ram Krishna Ram Nath Agarwal of Kamptee, and the respondents were the Secretary of the Municipal Committee of Kamptee, the Union of India and the Government of India. The judgment was reported as 1950 AIR 11 and 1950 SCR 15, and it was later cited in RF 1966 SC1089 (55). The statutory provisions considered included sections 100, 143 and 292 of the Government of India Act, 1935, Schedule VII, List I, Entry 45, and List III, Entry 49; section 3 of the Central Excises and Salt Act, 1944; and section 66(1)(e) of the Central Provinces Municipalities Act, 1922.

The headnote explained that section 66(1)(e) of the Central Provinces Municipalities Act, 1922, authorised municipalities in the province to levy an octroi duty on goods brought within their limits for sale, consumption or use. Section 3 of the Central Excises and Salt Act, 1944, created a central duty of excise on all excisable goods other than salt that were produced or manufactured in British India, and it expressly included tobacco among those goods.

The principal issue before the Court was whether a municipality situated in the Central Provinces could impose an octroi duty on tobacco that was brought within its limits for the purpose of manufacturing bidis, given the exclusive power of the Central Government to levy excise duty on such goods under Entry 45 of List I of the Seventh Schedule to the Government of India Act, 1935, and the provisions of the Central Excises and Salt Act.

The Court held that excise duty and octroi are essentially different kinds of taxes. It found that the provincial power to levy octroi did not conflict with the central power to levy excise on the same goods. Consequently, a municipality could validly levy an octroi duty on tobacco under section 66(1)(e) of the Central Provinces Municipalities Act, 1922. The Court further observed that nothing in the Central Excises and Salt Act or its provisions contradicted section 66(1)(e) of the Municipalities Act, nor did section 143 of the Government of India Act prevent the municipality from imposing the octroi duty. Therefore, the right of the municipality to levy the octroi duty was preserved.

The Court referred to several earlier authorities, namely Province of Madras v. Boddu Paidanna and Sons [1942] FCR 90, Governor-General in Council v. Province of Madras [1942] FCR 129, In re the Central Provinces and Berar Act No. XIV of 1938 [1939] FCR 80, and Miss Kishori Sherry v. The King.

The Court noted that the earlier decision reported in the 1949 Federal Court Reports at page 650 was referred to, while the decision in Administrator, Lahore Municipality v. Daulat Ram reported in the 1942 Federal Court Reports at page 31 was distinguished. The judgment delivered by the High Court of Nagpur was affirmed. The appeal arose from the High Court of Judicature at Nagpur, identified as Case III of 1948. The appeal challenged a judgment and order dated 9 April 1948, which had been issued by the High Court of Nagpur in Civil Miscellaneous No 158 of 1946 on a reference made under Section 83 (2) of the Central Provinces Municipalities Act of 1922. The reference had been made by the Extra Assistant Commissioner of Nagpur. The parties were represented by counsel: two advocates assisted the appellant, one advocate represented the respondent, and the Attorney-General of India, assisted by another senior lawyer, appeared for the Union of India. The judgment of the Supreme Court was delivered by Chief Justice Kania on 14 March 1950.

The appellant was a trader in Kamptee engaged in the manufacture of bidis. On 30 November 1945 he imported 254 bags of tobacco from outside the municipality for the purpose of making bidis. A declaration form signed on his behalf stated that the tobacco, which arrived at Octroi Post No 3 on that day, was intended for use and consumption within the municipal limits. The municipal authorities assessed octroi duty on the tobacco in the amount of Rs 1,128-2-0, and the appellant lodged a protest against the recovery of that duty. He appealed the assessment to the Extra Assistant Commissioner possessing revenue appellate powers. In his appeal the appellant argued that the municipality was exercising its power under Section 66 (1) (e) of the Municipal Act, but that this power was invalid because Section 3 of the Central Excises and Salt Act of 1944 imposed excise duty on tobacco, and the octroi duty was therefore covered by that central tax and could not be levied by the municipality. The Appellate Assistant Commissioner, when referring the matter to the Nagpur High Court, expressed the view that the appellant’s contention that duty was not payable because the bidis were not sold within the municipal limits was unsound. However, the Commissioner also opined that, since excise duty was levied by the Central Government under the Excise Act, the municipal octroi duty was inconsistent with Section 100 of the Government of India Act of 1935 and was ultra vires the provincial government. The High Court rejected the appellant’s arguments and disagreed with the Commissioner’s view, but nevertheless granted a certificate under Section 205 (1) of the Constitution Act. Consequently, the appellant sought to challenge the High Court’s decision before this Court. The Central Provinces Municipalities Act, under which the octroi duty was claimed, had been enacted in 1922.

The Court noted that the relevant notifications fixing the rates of octroi duty were issued in 1928. No question as to the validity of the Municipal Act when it was passed, nor of the notifications issued under it, was raised before this Court. The appellant contended that, under the Central Excises and Salt Act of 1944, tobacco became an excisable good under Item 9 of Schedule I to that Act and remained so until it was converted into bidis. Accordingly, the appellant argued, only the Central Government possessed the authority to levy excise duty on the tobacco up to that point. The appellant further relied on the definition of “manufacture” contained in the Excise Act, asserting that duty could be levied at any stage of the manufacture of bidis and that any tax imposed while tobacco was being turned into bidis therefore constituted excise duty. The Court observed that legislation concerning excise duty falls within the exclusive jurisdiction of the Central Legislature, as reflected in Entry 45 of List I in Schedule VII of the Constitution Act. Consequently, the appellant maintained that imposing octroi duty under the Municipal Act before the tobacco was made into bidis conflicted with the Central Legislature’s exclusive power.

In support of this view, the Court was drawn to the earlier decision in Administrator Lahore Municipality v. Daulat Ram Kapur, wherein it was held that the levy of octroi duty on salt was beyond the powers of the Provincial legislature. The appellant argued that, under Section 100 of the Government of India Act, octroi duty imposed on tobacco by the Provincial Government was similarly invalid. To reconcile Entry 45 in List I with Entry 49 in List II of the Seventh Schedule, the appellant suggested reading the words “for consumption or use” in Entry 49 as meaning “for consumption or use except for the manufacture of excisable articles.” By that construction, the levying of octroi duty in the present case would be held invalid. The appellant also responded to the argument that Section 292 of the Government of India Act preserved the old Provincial legislation, namely the Central Provinces Municipalities Act, and that the right to levy octroi duty was saved by Section 143 of the Constitution Act. It was submitted that the provisions of the Excise Act were contrary to the right to levy octroi duty and that, because the Excise Act was enacted in 1944, the right to levy octroi duty saved by Section 148 of the Constitution Act had consequently lapsed. Although the Excise Act contained no express clause to that effect, the appellant argued that the definitions of “excisable goods” and “manufacture,” read together with Entry 9 of Schedule I and the charging provision in Section 3 of the Excise Act, led to the same conclusion. The Court found that both parts of the appellant’s argument rested on the contention that any duty imposed at any stage before bidis are manufactured is excise duty, and therefore the levy of octroi duty was illegal. The appellant further relied on Section 66 of the relevant municipal legislation in support of its position.

The Court reproduced the language of subsection (e) of the Central Provinces Municipalities Act, 1922, which provides that an octroi may be levied on “animals, or goods brought within the limits of the municipality for sale, consumption or use within those limits.” The Court then turned to the Central Excises and Salt Act, 1944, and quoted the definitions contained in Section 2 of that Act. Sub-section (d) defines “excisable goods’’ as “goods specified in the First Schedule as being subject to a duty of excise and includes salt.” Sub-section (f) defines “manufacture’’ to include “any process incidental or ancillary to the completion of a manufactured product; and (i) in relation to tobacco includes the preparation of cigarettes, cigars, cheroots, bidis, cigarette or pipe or hukkah tobacco, chewing-tobacco or snuff; and (ii) ….” By presenting these definitions, the Court set out the statutory language that characterises the goods and processes that fall within the scope of excise liability under the 1944 legislation.

The Court further quoted Section 3 of the Excise Act, which declares that “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 British 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 ….” The Court then reproduced Entry 9 to the First Schedule of the Excise Act, stating that “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;” The entry continued with a detailed list of the various articles into which tobacco may be converted, such as bidis, cigarettes, snuff, and the corresponding rates of duty applicable to each article. Finally, the Court set out the relevant provisions of the Government of India Act, 1935. Section 143 was quoted in full, explaining that nothing in the preceding provisions of the chapter affects duties or taxes levied in any Federated State unless enacted by a Federal Act, and that taxes, duties, cesses or fees lawfully levied by a Provincial Government, municipality or other local authority on the first day of January 1935 may continue to be levied until the Federal Legislature provides otherwise. Section 292 was also reproduced, providing that despite the repeal of the Government of India Act, all law in force in British India immediately before the commencement of Part III of the 1935 Act shall continue in force until altered, repealed or amended by a competent legislature or authority.

Section 143 could be understood in two alternative ways. First, if the Government of India Act did not bring the particular tax imposed by the Provincial Government within the central legislative competence because that tax was enumerated in List I of the Seventh Schedule, then the Provincial Government’s pre-existing authority to levy that tax was not displaced. In that situation Section 143 of the Government of India Act would not have altered the Provincial legislation, and the tax provision would have continued to be valid and operative under Section 202 of the Constitution Act.

Second, if the levy of the same tax by the Provincial Government fell within the exclusive legislative power of the Centre because the tax was listed in List I of the Seventh Schedule, then the Provincial levy would have remained valid only until the Central Legislature enacted a law whose provisions conflicted with the Provincial legislation or with the levy of the tax under the Provincial Act. In other words, the Provincial tax would have persisted until it was expressly overridden by a subsequent Central law.

Turning to the appellant’s submissions, it appears clear that the octroi duty collected by the respondent falls squarely within the wording of Entry 49 of List I of the Seventh Schedule to the Constitution Act. On a preliminary reading there is therefore no basis to hold that the octroi duty imposed under Provincial legislation is invalid. The levy continued to operate without being affected by Section 292 of the Constitution Act.

The appellant’s argument contends that, because the octroi duty was imposed after the excisable article—tobacco—had come into existence and become liable to excise duty under the Excise Act, the levying of octroi duty before the tobacco was fashioned into bidis is improper. To support this claim the appellant relied on the definitions of “excisable goods” and “manufacture” as well as on Entry 9 in the Schedule to the Excise Act.

The flaw in the appellant’s reasoning lies in the assumption that any tax imposed from the moment tobacco first existed until it was transformed into bidis must necessarily be an excise duty. The Federal Court, in the case of The Province of Madras v. Boddu Paidanna and Sons, examined the distinction between an excise duty and a tax on the sale of goods. The Court observed that a tax levied at the first sale is, in substance, a tax on the sale by the manufacturer or producer, but it is imposed on the seller in his capacity as seller, not as manufacturer. Even where a taxpayer who pays a sales tax is also a manufacturer of goods subject to a central excise duty, the two taxes may overlap economically, yet they do not overlap legally; they constitute two separate and distinct imposts.

In its analysis the Court observed that, in theory, nothing prevents the Central Legislature from imposing a duty of excise on a commodity at the moment the commodity comes into existence, irrespective of what later happens to it, whether it is sold, consumed, destroyed or given away. The duty is attracted by the fact of manufacture, even though the duty may be collected at a later time. By contrast, a liability to a sales tax arises only on the occasion of a sale, and a sale has no necessary connection with the act of manufacture or production. The Court further noted that the Constitution Act expressly apportions the taxing power in this particular sphere—the power to impose duties of excise—between the Centre and the Provinces, the former being assigned the authority to impose duties of excise and the latter the authority to levy taxes on the sale of goods. It is natural, when considering the scope 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. However, the Court stated that the case is different because the Constitution contains two complementary powers, each expressed in precise and definite terms. There can be no reason in such a circumstance to give a broader construction to one power rather than to the other, and there is certainly no reason for extending the meaning of the expression “duties of excise” so as to encroach upon 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 the distinction drawn between an excise duty and a tax on sale. The matter involved a tax on the sale of excisable goods. Their Lordships observed that an exhaustive discussion of the term “duty of excise,” from which they derived valuable assistance, is found in the judgment of the Federal Court in Re The Central Provinces and Berar Act No. XIV of 1938 (2). Consistently with that decision, the Lordships held 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 the sale of goods or the proceeds of such sale. The Court again found itself in complete accord with the reasoning and conclusions of the Federal Court in Boddu Paidanna case (3). It observed that the two taxes—the one imposed on a manufacturer for his goods and the other on a vendor for his sales—may, in one sense, overlap, but in law there is no overlapping. The taxes are separate and distinct imposts. If in fact they overlap, that may be because the taxing authority, imposing a duty of excise, chooses a method of collection that coincides with a sale, which is merely an administrative convenience and not an essential feature of the duty of excise.

In this case, the Court observed that the authority imposing an excise duty may find it convenient to levy the duty at the precise moment when the excisable article leaves the factory or workshop for the first time on account of its sale. The Court explained that this method of collecting the tax is merely an accident of administration and does not form the essential character of an excise duty, which is attracted by the act of manufacture itself. The Court illustrated this principle by referring to the exceptional situations in which the Provincial Legislature, rather than the Federal Legislature, possesses the power to impose a duty of excise. In those provincial cases, the Court saw no reason why the Provincial Legislature could not impose a duty of excise on the commodity at the stage of its manufacture and, simultaneously, a separate tax on the first or any subsequent sales of the same commodity. The Court further noted that whether the Provincial Legislature follows such a dual approach is a question of administrative convenience rather than a matter of legal necessity. By the same logic of parity, the Court held that the Federal Legislature may impose a duty of excise on the manufacture of excisable goods while the Provincial Legislature may impose a tax on the sale of those goods after they have been manufactured. This discussion, the Court said, makes clear that the central issue to be examined is the true nature of the tax in question. The Court defined excise duty as a tax that is levied on goods at the stage of manufacture, distinguishing it from octroi duty, which is a tax imposed on the entry of goods into a specified geographic area. Referring to the provisions of the Excise Act, the Court pointed out that tobacco is designated as an excisable good within the meaning of Item 9 in the Schedule to that Act. The Court explained that the subsequent use of such manufactured tobacco in the production of different articles influences only the rate at which the tax is assessed, without altering the character of the tax itself. Consequently, the Court concluded that tobacco becomes subject to excise duty as soon as it reaches the stage of manufacture described in Item 9 of the Schedule to the Excise Act. Even before the tobacco is transformed into bidis or any other article listed in the entry, it has already become an excisable good and is therefore liable to the payment of excise duty. The Court emphasized that the imposition of this duty does not conflict with the imposition of an impost on the entry of the same goods into a particular area. The Court rejected the argument that, under the rules framed by the Government pursuant to the Central Excises and Salt Act, 1944, the Government retained control over the movement of the goods from the beginning to the end, stating that this argument does not assist in determining the nature of the octroi tax. The Court observed that, because the Government must collect excise duty and the rate of duty varies according to the different shapes in which the excisable goods are ultimately converted, it is not unnatural for the Government to maintain control and keep a record of the articles until the manufactured article becomes an ordinary commodity mixed with the commodities used by the public at large. The Court also found the contention that Entry 49 in List II is in conflict with Entry 45 in List I of Schedule Seven to the Constitution Act, and that Entry 49 should be read as “for consumption or use, except for manufacture of goods,” to be unsound. In the first place, the approach

In this case the Court observed that the approach to the question was incorrect because when a particular legislation falls within the precise wording of an entry in the Provincial List, section 100 renders it valid and no issue of reconciliation arises. A similar argument concerning an alleged conflict between entry 19 of List I and entry 31 of List II had previously been rejected by the Court in Case No. 27 of 1949: Miss Kishori Shetty v. The King (1). The Court noted that if the validity of the Provincial legislation were to be examined on the interpretation of entry 49 in List II, the answer would have to be in favour of its validity. The decision in Administrator, Lahore Municipality v. Daulat Ram Kapur (2) was held not to assist the appellant, since that case dealt only with entry 47 in List I, which is limited to “salt”. A comparison with entry 45 in List I showed that entry 45 is confined to excise duty and does not extend widely enough to encompass tobacco or other goods for all legislative purposes, making the observations in that case irrelevant to the present appeal. On the second aspect of the appellant’s contention, success could be achieved only by demonstrating that the provisions of the Excise Act were contrary to the levy and recovery of duty under the Provincial Act of 1922. The Court found that the Excise Act contained no express provision that conflicted with the Municipal Act, and that, unless necessarily implied, the levy of the octroi duty under the Municipal Act remained valid. The appellant further argued that any duty imposed at any stage of the manufacture of bidis or tobacco amounted to excise duty and therefore conflicted with the octroi provisions. The Court had already considered and rejected this contention in the first part of its judgment, stating that it is erroneous to think that two independent imposts arising from different circumstances are not permissible. Accordingly, the Court concluded that nothing in the Excise Act made its provisions inconsistent with section 66 (1)(e) of the Central Provinces Municipalities Act or with the levy of octroi duty under the same. Consequently the appeal failed and was dismissed with costs. The appeal was dismissed. The agents for the parties were Rajinder Narain for the appellant, S.P. Varma for the respondent, and P.A. Mehta for the Union of India.