The State of Bombay vs M/S. S. S. Miranda Limited

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 21 of 1956

Decision Date: 25 March 1960

Coram: K.N. Wanchoo, P.B. Gajendragadkar

The case titled The State of Bombay versus M/s S. S. Miranda Limited was decided on 25 March 1960 by the Supreme Court of India. The judgment was authored by Justice K. N. Wanchoo, who was joined on the bench by Justice P. B. Gajendragadkar. The petitioner is identified as the State of Bombay and the respondent as M/s S. S. Miranda Limited. The official citation of the decision is 1960 AIR 898 and 1960 SCR (3) 397. The matter concerned the statutory framework governing excise duty, specifically the validity of imposing duty at successive stages of transportation of an excisable article under the Bombay Abkari Act, 1878 (Bombay Act V of 1878), sections 10, 19 and 19A. The headnote summarises that the respondent possessed both a trade and import licence for foreign liquor and a vendor’s licence under the Bombay Abkari Act, and that it stored liquor in a bonded warehouse. On 2 April 1948 the appellant, the State of Bombay, instructed the respondent to remove the liquor from the bonded warehouse after paying the requisite excise duty. The respondent complied by paying the duty, obtaining transport permits and taking possession of the liquor, part of which was subsequently sold. On 16 December 1948 the appellant issued a notification that doubled the duty on foreign liquor and demanded additional duty on the liquor that remained in the respondent’s godown. The respondent argued that the additional duty was illegal because duty had already been paid at the time the liquor left the bonded warehouse. The appellant contended that the respondent was required to pay the duty prevailing at the time of each transport of the liquor within the State of Bombay. The Court held that the additional excise duty was unlawful, stating that once duty has been paid the liquor may be transported without further imposition, except when moved to a region where the duty differs from the region of payment. The Court further observed that the State Government lacked authority to levy duty on every movement of the trade, noting that although the legislature possessed such power, it had neither exercised nor delegated it to the State Government.

The judgment falls within civil appellate jurisdiction and concerns Civil Appeal No. 21 of 1956. The appeal arose from a judgment and decree dated 12 August 1954 of the Bombay High Court in Appeal No. 45 of 1954, which in turn stemmed from the judgment and decree dated 17 February 1954 of the same High Court in Suit No. 246 of 1956. Counsel for the appellant included H. J. Umrigar, N. N. Keswani and R. H. Dhebar, while counsel for the respondents comprised M. C. Setalvad, Attorney‑General of India, together with S. M. Dubash and G. Gopalakrishnan. The judgment was delivered on 25 March 1960 by Justice Wanchoo. The Court noted that this appeal proceeded on a certificate granted by the Bombay High Court. The brief facts necessary for disposal were summarised, indicating that Messrs S. S. Miranda Ltd, hereinafter referred to as the respondent, was a company holding the relevant licences and engaged in the storage and distribution of foreign liquor as described above.

In the present proceedings the respondent company possessed, up to the end of March 1949, both a trade and import licence for foreign liquor and a vendor’s licence granted under the Bombay Abkari Act of 1878. The company stored its liquor in a bonded warehouse that was situated on its own premises. On 2 April 1948 the State of Bombay, referred to in the record as the appellant, issued a notice directing the respondent to remove the liquor from the bonded warehouse after the requisite excise duty had been paid. In compliance with that notice the respondent paid the required duty and applied for, and subsequently received, transport permits from the appellant. After the duty was paid the liquor ceased to be held in bond and passed into the possession of the respondent. The transport permits were issued on 5 April 1948, after which the respondent took physical control of the liquor and sold a portion of it. Later, on 16 December 1948, the appellant issued a notification—hereafter called the Notification—by which the duty payable on foreign liquor was doubled. Following the issuance of the Notification the appellant demanded that the respondent pay the additional duty on the stock of liquor that remained in the respondent’s own godown, and it further informed the respondent that it would not be allowed to deal with that liquor until the additional duty had been paid. The respondent protested the demand but nevertheless paid the additional duty, which amounted to more than two hundred thousand rupees, and did so under protest. After making the payment the respondent served a notice on the appellant under section 80 of the Code of Civil Procedure and thereafter instituted a suit in the original side of the Bombay High Court. The respondent’s principal submission was that the Notification, insofar as it imposed an additional duty on a stock of foreign liquor on which duty had already been paid at the time of its removal from the bonded warehouse, was illegal, invalid and beyond the powers conferred by the Act, specifically exceeding the limits of section 19 of the Act. Accordingly, the respondent claimed a refund of the duty paid under protest together with interest calculated at six per cent per annum from the date of payment until recovery. The appellant opposed the suit, contending that the Notification was valid and that the respondent was obliged to pay the duty that was in force on the transport of excisable articles at the time such articles were moved from the respondent’s premises to any other location within the State of Bombay. Consequently, the sole issue for determination was whether the additional duty imposed by the Notification was lawfully levied. The trial judge who heard the suit held that the legislature possessed the competence to impose a tax on excisable articles whenever they were transported from one place to another, and that such legislative power had been delegated to the State Government, which was therefore competent to enforce the additional duty.

The trial judge found that the legislature possessed authority to levy a duty on excisable articles not merely at the initial movement of the goods but also each time the articles were transported from one place to another within the State before they reached the consumer, and accordingly dismissed the suit. The respondent challenged that dismissal by filing an appeal. The appeal was heard by a Division Bench, which allowed the appeal, set the suit down for decree and ordered that interest be awarded at the rates specified in the decree. In reaching its decision, the Division Bench held that a combined reading of sections ten and nineteen made it clear that once the duty prescribed in section nineteen had been paid, the prohibition contained in section ten ceased to operate, subject to the explanation annexed to section nineteen. The Bench also concluded that the first proviso to section nineteen‑A was, in substance, a proviso to section nineteen that fixed the rate at which the duty was to be paid, and therefore no additional duty could be imposed contrary to that proviso by the Notification.

The principal argument advanced by the appellant before this Court was that the legislature was entitled to impose excise duty at more than one point, and that the statute had indeed been exercised in that manner when the Government issued the Notification of December 1948. The appellant relied upon sections three‑(10), ten and nineteen of the Act, contending that a harmonious reading of these three provisions demonstrated that the Notification was valid and fell within the powers of the State Government. The Notification was quoted in the following terms: “In exercise of the powers conferred by section nineteen of the Bombay Abkari Act, 1878 (Bombay V of 1878), and in partial supersession of all previous orders and notifications issued thereunder, that is to say, in so far as they relate to the imposition of excise and counter‑vailing duties charged on the excisable articles specified in column 1 of Schedules A and B hereto annexed, the Government of Bombay is pleased to direct that— (a) excise or counter‑vailing duty, as the case may be, shall be imposed on the excisable articles specified in column 1 of Schedule A at the rate specified in columns 2 and 3 thereof, when such excisable articles are (i) imported into the Province in accordance with the provision of sub‑section (1) of section 9 of the said Act; or (ii) issued from any brewery, distillery or a warehouse established under the said Act in the Province; or (iii) transported from the premises of persons holding a Trade and Import licence under the said Act to any place within the Province: Provided that no such duty shall be imposed on the excisable articles which have been imported into British India and were liable on such importation to duty under the Indian Tariff Act, 1934, or the Sea Customs Act, 1878: Provided further”.

The notification states that if excise or counter‑vailing duty has already been paid on excisable articles for their import, issue, or transport for consumption into, to, or within any place in the Province, then the duty to be imposed shall be the difference between the duty payable at the rates specified in the Schedule and the duty already paid on those articles; and (b) …. The Schedules, which are incorporated by reference, are not reproduced in full. By virtue of the notification, excise duty at the rates fixed in the Schedules becomes payable on excisable articles when they are moved from the premises of persons holding a trade and import licence under the Act to any place within the State. The second proviso of the notification further provides that where some excise duty has already been paid in connection with such transport, the duty to be imposed under the notification shall be limited to the difference between the duty calculated under the notification and the duty already paid. Consequently, the precise issue for determination is whether the State of Bombay may legally levy this additional duty, a question that depends on three specific provisions of the Act relied upon by the appellant. Section 3(10) defines the expression “to transport” as “to move to one place from another place within the State”. This definition is broad and would encompass any movement of an excisable article at any stage from one location to another within the State. Section 10 contains the relevant provision, which reads: “No intoxicant and no hemp shall be exported or transported unless‑ (a) the duty, if any, payable under Chapter VI has been paid or a bond has been executed for the payment thereof.” This clause therefore prohibits the transport of any excisable article unless the duty foreseen in Chapter VI has been satisfied. Finally, Section 19, which is the charging provision, provides: “An excise duty or countervailing duty, as the case may be, at such rate or rates as the State Government shall direct may be imposed either generally or for any specified local area, on any excisable article‑ (a) imported in accordance with the provision of sub‑section (1) of s. 9; or (b) exported or transported in accordance with the provisions of s. 10; or (c) manufactured under a license granted in accordance with the provisions of section 14 or section 15; Provided that‑ (i) duty shall not be so imposed on any article which has been imported into India and was liable on such importation to duty under the Indian Tariff Act, 1894 or the Sea Customs Act, 1878: Explanation‑Duty may be imposed under this section at different rates according to the places to which any excisable article is to be removed for consumption, or according to the varying strengths and quality of such article.” This section confers on the State Government the authority to fix the rate or rates at which duty may be levied on the transport of excisable articles, and the accompanying Explanation confirms the power to vary rates based on destination or on the strength and quality of the article.

The Explanation to the section authorised the State Government to impose excise duties at different rates according to the places to which any excisable article was to be removed for consumption or according to the varying strengths and quality of such article. The appellant contended that, because the term “transport” was given a very wide definition and because section 10 prohibited transport of an excisable article without payment of duty, every instance of transport automatically made the duty payable at the rate fixed by the State Government under section 19, and that nothing in those provisions limited the power to levy duty at each stage of transport. If that construction were accepted, it would follow logically that duty would have to be paid each time an excisable article was moved until the article was finally consumed. For example, when an excisable article was taken from a bonded warehouse by a wholesaler, the wholesaler would be required to pay duty; when the wholesaler subsequently sold the article to a retailer, the transport from the wholesaler’s premises to the retailer’s premises would again create a duty liability; and when the retailer finally sold the article to a consumer, the transport from the retailer’s place to the consumer’s place would yet again trigger payment of duty. The appellant further argued that, even if the rate of duty remained unchanged, the duty would nevertheless have to be paid repeatedly under the three provisions, because the statute did not expressly limit the imposition of duty to a single occasion. The fact that, in the present case, the State Government had altered the rate and had demanded the additional duty did not, in the appellant’s view, affect the interpretation of the three provisions that were under consideration. The court therefore asked whether the legislature, when enacting those provisions, intended to levy duty irrespective of any change in rate, each time an excisable article passed from the bonded warehouse to the wholesaler, from the wholesaler to the retailer, and from the retailer to the consumer. While it was within the competence of the legislature to make such a provision, the question remained whether the three provisions actually amounted to such a repeated imposition. Counsel for the appellant, Sri Umrigar, conceded that if the rate of duty had not been altered, there would have been no demand for any further duty on any sale by the respondent that might have resulted in transport, and that the usual practice was not to charge the same duty again on the sale by the wholesaler to the retailer or by the retailer to the consumer, even though those sales involved transport, except where the Explanation to section 19 applied.

The Court observed that the practice of charging duty on transport was permissible only in the circumstances contemplated by the Explanation to s. 19. In situations where there was no change in the duty rate, the Court could not conceive how an excisable article that had already been subjected to duty would become liable to an additional duty equal to the difference when the rate increased, except where the Explanation to s. 19 specifically applied. The Court found nothing in s. 10 that imposed a requirement of payment of duty each time an excisable article was transported after the initial duty had been paid. Section 10, the Court noted, merely prohibited the transport of an excisable article unless duty had been paid thereon. Once the duty was paid, the prohibition of s. 10 ceased to operate, unless the case fell within the scope of the Explanation to s. 19. The Court stressed that, however broadly the term “transport” might be defined, the crucial enquiry was whether the prohibition in s. 10 extended to articles on which duty had already been paid. A plain reading of s. 10 led the Court to conclude that the prohibition could not apply to the transport of duty‑paid articles.

The Court further explained that s. 19, the charging provision, authorised the levy of duty on transport in accordance with the provisions of s. 10. Returning to s. 10, the Court asked whether, after the prohibition was removed by the payment of duty, any provision required duty to be paid again for subsequent transport of the same goods. The Court found no such requirement in s. 10, subject always to the Explanation to s. 19. Under that Explanation, if different duties existed in different regions and an excisable article that had paid duty in one region was moved to another region with a different duty, the excess duty would have to be paid in order to remove the prohibition in that region. Apart from the situations covered by the Explanation, the Court saw no justification for interpreting s. 10 as granting power to impose duty repeatedly as the article moved from a bonded warehouse to a wholesaler, from the wholesaler to a retailer, and from the retailer to the consumer. Accordingly, once duty had been paid and the prohibition under s. 10 was lifted, the transport of the duty‑paid excisable article could proceed without any further imposition, except when the article was transported to a region where the duty differed from the region where it had been paid. The Court also found no authority in the State Government to impose duty at every movement during the course of trade.

The Court observed that Section nineteen only authorised the State Government to fix the rate of duty on transport in accordance with Section ten. It held that the Act contained no delegation to the State Government of power to impose duty at every stage of the movement of excisable articles during trade.

The Court noted that the legislature possessed the power, if it chose, to levy duty on each movement, but after examining the three provisions on which reliance had been placed, it found no exercise of that power by the legislature and no delegation of such power to the State Government.

Accordingly, the Court affirmed the view taken by the Division Bench that once the duty required by Section nineteen had been paid, the prohibition contained in Section ten must disappear, subject always to the Explanation to Section nineteen, and that Section nineteen did not confer any authority on the State Government to levy excise duty more than once or at more than one point during the progress of the excisable goods from the time they left the bonded warehouse until they reached the consumer. The Court also observed that the Explanation to Section nineteen was not applicable in the present case.

Turning to the first proviso to Section nineteen‑A, the Court noted that that section dealt with the manner of levying duty. However, the first proviso went further and stipulated that where duty was levied on issue from a bonded warehouse, it would be at the rate in force on the date of issue. The Court agreed with the Division Bench that this proviso had no logical connection with Section nineteen‑A and would be more properly placed as a proviso to Section nineteen. It explained that the proviso concerned the liability to pay at the prevailing rate on the issue date, not the manner of payment.

Consequently, the Court concluded that the quantum of tax was once for all determined by that proviso, subject always to the Explanation to Section nineteen, and could not be increased thereafter. The Court also considered the reference made to Section fifteen‑A, observing that this provision appeared to have been inserted as a measure of abundant caution and did not go further than Section ten. It seemed to determine the time and manner of payment in cases where excisable articles were kept in a distillery, brewery, warehouse or other licensed place of storage where duty might not have been paid before such storage. The Court held that Section fifteen‑A was not a charging provision and could not be read to extend beyond Section nineteen, which was the charging provision. Accordingly, the Court opined that no additional duty could be charged from the respondent, as the Explanation to Section nineteen did not apply.

In the matter before it, the Court observed that the statutory provision which had been relied upon by the appellant was, as acknowledged by the parties, inapplicable to the facts of the present case. Because the provision could not be given effect, the Court concluded that the appellant’s challenge could not succeed. Accordingly, the Court stated that the appeal could not be allowed and, on that basis, ordered the appeal to be dismissed. In addition, the Court directed that the costs of the proceedings be awarded against the appellant. The Court’s order therefore terminated the appeal, dismissed it, and imposed the cost liability on the appellant.