A.B. Abdulkadir And Others vs The State Of Kerala And Another

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

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 24 January 1962

Coram: K.N. Wanchoo, Bhuvneshwar P. Sinha, P.B. Gajendragadkar, M. Hidayatullah, J.C. Shah

In this matter the Supreme Court of India rendered its judgment on 24 January 1962. The case was styled A B Abdulkadir and Others versus the State of Kerala and Another. The judgment was authored by Justice K N Wanchoo and the bench comprised Justices K N Wanchoo, Bhuvneshwar P Sinha, P B Gajendragadkar, M Hidayatullah and J C Shah. The petitioners were identified as A B Abdulkadir and others, while the respondents were the State of Kerala and an additional party. The citation for the decision is reported in 1962 AIR 922 and in the 1962 Supplement to the Supreme Court Reports (2) 741. Subsequent citator references include D 1967 SC1512, D 1969 SC1306, RF 1970 SC1912, RF 1975 SC 360, RF 1976 SC 182 and RF 1991 SC 735. The substantive issue concerned the operation of the Central Excise‑Control of Tobacco legislation, particularly the system of auctions for licences for storage, and the repeal of earlier state statutes of Cochin and Travancore. The relevant statutes mentioned were the Cochin Tobacco Act of 1084 M.E., the Travancore Tobacco Regulation of 1087 M.E., and the Finance Act of 1950 (25 of 1950) with reference to sections 11(1) and 13(2). The headnote explained that in 1909 the ruler of the former State of Cochin enacted the Cochin Tobacco Act of 1084 M.E. to regulate cultivation, production, manufacture, storage and sale of tobacco. Under that Act rules were framed to control cultivation, possession, transport and sale, and an annual licensing system for storage was introduced, with licences issued upon payment of a fee. The commissioner of excise and his subordinates administered the Act and its rules. Revenue from tobacco was collected by auctioning establishments known as A‑class and class shops. A similar law was promulgated in 1911 by the ruler of Travancore as the Travancore Tobacco Regulation of 1087 M.E. Although the two princely states merged in 1919 to form Travancore‑Cochin, the respective Acts continued to apply in their former territories. On 1 April 1950, after the Constitution of India had come into force and Travancore‑Cochin had become a Part B state, section 11 of the Finance Act 1950 extended the Central Excises and Salt Act of 1944 to that state. Section 13(2) of the Finance Act provided that if, immediately before 1 April 1950, any state other than Jammu and Kashmir had a law corresponding to, but not identical with, an Act referred to in section 11, such law would be deemed repealed from that date. In accordance with this provision, the rules that were operative on 1 April 1950 were altered in the Cochin area by a notification dated 3 August 1950. That notification abolished the auction system for A‑class and class shops and replaced it with a graded fee structure for various categories of licencees.

In this case the appellants, who were engaged in the tobacco trade in the territories of Travancore and Cochin, contested the validity of two notifications—one dated 3 August 1950 for Cochin and another dated 25 January 1951 for Travancore. They argued that the notifications were issued under the Cochin Tobacco Act of 1084 (M.E.) and the Travancore Tobacco Regulation of 1087 (M.E.), which they claimed were statutes corresponding to the Central Excises and Salt Act of 1944. Consequently, they maintained that those Acts were repealed on 1 April 1950 by operation of sections 11 and 13(2) of the Finance Act 1950, and that any subsequent rules issued under those Acts were therefore invalid.

The State of Kerala responded that the essential purpose of the Central Excises and Salt Act, 1944, was to levy an excise duty on goods produced or manufactured in India, and that neither the Cochin Act nor the Travancore Act contained a provision for charging such a duty. The State argued that, although the Rules governing tobacco—from cultivation through to final sale—mirrored the Rules under the Central Act, the absence of a duty‑charging mechanism meant that the Cochin and Travancore Acts could not be considered laws corresponding to the Central Act.

The Court held that the Rules framed under the Cochin Tobacco Act of 1084 (M.E.) and the Travancore Tobacco Regulation of 1087 (M.E.), which required licences for the storage and sale of tobacco and mandated payment of licence fees, were indeed laws corresponding to the provisions of the Central Excises and Salt Act, 1944. Accordingly, those Rules were superseded on 1 April 1950 by virtue of section 13(2) of the Finance Act, 1950. As a result, the new Rules introduced in August 1950 for Cochin and in January 1951 for Travancore, concerning the issuance of licences and the payment of fees for tobacco storage, were declared invalid ab initio.

Per the judgment of the Chief Justice and the learned judges, the Cochin Tobacco Act, 1084 (M.E.), and the Travancore Tobacco Regulation, 1087 (M.E.), were substantively laws corresponding to the Central Excises and Salt Act, 1944, and therefore stood repealed on 1 April 1950. The Court further observed that the auction system previously employed under the Cochin and Travancore Acts functioned merely as a method of collecting excise duty by granting licences to the highest bidders, and that this method did not alter the essential character of the charge, which remained an excise duty. Another learned judge affirmed that an excise duty, as defined by Indian statute, is a duty on the manufacture or production of goods, and that the levy imposed in Travancore and Cochin on the storage of tobacco constituted such a duty.

The Court observed that the keeping of tobacco in storage could not be classified as an excise duty. It referred to the decisions in In re The Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938 ([1939] F.C.R. 18), The Province of Madras v. Messrs Boddu Paidanna and Sons ([1942] F.A.R. 90), Governor‑General‑in‑Council v. Province of Madras (1945) L.R. 72 I.A. 91, and Chaturbhai M. Patel v. Union of India ([1960] 2 S.C.R. 362). These authorities were considered in determining that the levy on storage did not fall within the statutory definition of excise, which is limited to duties on the manufacture or production of goods.

The appeals arose under the civil appellate jurisdiction, identified as Civil Appeals Nos. 89, 90 and 126‑128/61, and challenged the judgment and order dated 8 November 1957 delivered by the Kerala High Court in PS Nos. 70 and 71 of 1956(K) and Nos. 2, 6 and 7 of 1955. The matters were argued before the Court by counsel representing the appellants and the respondent. The Attorney‑General of India, together with counsel for the appellants, appeared for the parties in Appeals 89 and 90. Separate counsel appeared for the respondent in those appeals, and additional counsel represented the appellants and respondents in Appeals 126 to 128. The judgment was pronounced on 24 January 1962. The decision of the Chief Justice, B. P. Sinha, and Justices P. B. Gajendragadkar, K. N. Wanchoo and M. Hidayatullah was delivered by Justice Wanchoo, while Justice J. C. Shah delivered a separate opinion. Justice Wanchoo noted that the five appeals, which were granted certificates by the High Court of Kerala, raised a common question of law and therefore would be disposed of together. Two of the appeals (Nos. 89 and 90) originated from the former Cochin territory, and the remaining three (Nos. 126‑128) from the former Travancore territory; all concerned a levy on tobacco. Because the factual and legal framework in the two regions was substantially alike, the Court elected to elaborate in detail on the appeals from the Cochin area. In 1909 the Maharaja of Cochin enacted Act VII of 1084, known as the Cochin Tobacco Act, which consolidated and amended the law relating to tobacco. Section 4 of that Act prohibited possession for sale, transport, import, export, sale and cultivation of tobacco except as expressly permitted by the Act or by regulations made thereunder. Section 5 empowered the Diwan to formulate rules, from time to time, consistent with the Act, to permit or condition such activities and to regulate the form of duty levied on the retail sale of tobacco. The remaining provisions dealt with offences, prosecutions, punishments, confiscation and ancillary matters such as arrest and seizure, which were not the focus of the present appeals. For reference, Section 18 of the Act provided that no civil action could be brought against the Sirkar or any officer of the Excise Department for any act done or ordered in good faith under the Act or any then‑existing tobacco revenue law.

The Court noted that section eighteen of the Cochin Act stated that no civil action could be brought against the sirkar or any Excise Department officer for damages. This immunity applied to any act performed in good faith under the Act or any law then regulating tobacco revenue. The Tobacco Cultivation Rules, framed under the Cochin Act, began with a provision that cultivation of tobacco was prohibited except under a licence and only in localities fixed by the Diwan. Rule three required that drying, curing, manufacturing and storing of tobacco grown in the State be carried out under the supervision of an Excise Department officer in licensed yards and storehouses. Rule four dealt with the issuance of licences for manufacturing yards and storehouses, while rule five stipulated that each licence would remain valid for one official year upon payment of a fee of fifty rupees. Under rule six, the tobacco crop could be harvested only after obtaining permission from the Inspector of Excise. Rule seven required that harvesting be carried out by the licensed cultivator under the general superintendence of the Sub‑Inspector. The rules further provided that the harvested crop could be transported only under permits issued for movement from the cultivation area to the designated manufacturing yard where processing was to occur. Rule eight obliged each licencee of a storehouse or manufacturing yard to maintain a stock book recording all transactions. According to rule thirteen, a licensed manufacturer or storekeeper could sell or dispose of his stock only to other licensed dealers, and any sale to an unlicensed person was prohibited. Rule fifteen made it an offence for any person to cultivate, dry, cure, manufacture, store, transport, sell or otherwise dispose of tobacco in violation of the Rules. Additional regulations prohibited the import of tobacco into the State except as authorized by a Diwan’s notification concerning tobacco shop sales and licences. Possession of tobacco for sale was similarly restricted to persons who held the required licences. Export of tobacco was also forbidden unless the Commissioner of Excise granted a special sanction. The revenue collection system in place up to August 1950 involved auctioning of A‑class and B‑class shops, with the last such auction occurring on 30 May 1919. A‑class shop licences were granted either on the recommendation of, or in consultation with, existing class licencees, at the discretion of the Excise Commissioner or any other authorized officer, upon payment of the prescribed fee. This system, together with the aforementioned Rules, remained operative on 1 April 1950.

At the date of 1 April 1950 the licensing system that permitted an officer authorised by the Excise Commissioner, or any other officer authorised by him upon payment of the prescribed fee, to issue licences was still operating together with the Rules previously mentioned. On that same day the Constitution had become effective and the former State of Travancore‑Cochin had been designated as a Part State. In consequence, Finance Act No XXV of 1950 extended the Central Excises and Salt Act of 1944 (referred to as the Central Act) to Travancore‑Cochin by virtue of section 11 of that Finance Act. Section 13(2) of the Finance Act further stipulated that if, immediately before 1 April 1950, any State other than Jammu and Kashmir had a law on its books that corresponded to, but was not, an Act mentioned in sub‑section (1) or (2) of section 11, such a law would be repealed with effect from that date. As a result of this repeal provision, the rules that were applicable on 1 April 1950 were altered in the Cochin region by a notification dated 3 August 1950. That notification abolished the earlier system of auctioning A‑class and B‑class shop licences and replaced it with a graded licence‑fee structure for the various categories of licence‑holders, including those previously classified as class licence‑es. An analogous amendment was made for the Travancore area by a notification dated 25 January 1951. The new Rules introduced by these two notifications also eliminated the earlier controls over cultivation, drying, curing, manufacturing and ware‑housing of tobacco, thereby limiting their scope solely to the licensing of A‑class and C‑class shops. Under the revised scheme, A‑class licence‑es were designated as “stockists”, class licence‑es functioned as wholesale sellers, and A‑class licence‑es acted as retailers. The licensing regime for A‑class holders required payment of a minimum annual fee that covered a maximum quantity of tobacco or tobacco products, with an additional charge for any quantity exceeding that limit. For instance, in the case of jaffra tobacco the maximum annual fee was fixed at Rs 1,500 for a minimum holding of 100 candies, and an extra Rs 1,000 was imposed for each additional block of 100 candies or part thereof.

The petitioners from the Cochin area were tobacco dealers and holders who, in 1956, possessed A‑class licences and lodged petitions challenging the validity of the new licensing framework. Their principal argument was that the Cochin Act had been repealed by the Finance Act of 1950 when the Central Act was extended to the Part State of Travancore‑Cochin effective 1 April 1950. Accordingly, they contended that the notifications issued on 3 August 1950 and 25 January 1951, which purported to create new Rules for granting licences and prescribing conditions thereunder under the authority of the Cochin Act or the comparable Travancore Act, were void from the outset because the statutes on which those notifications relied had ceased to exist on the said date. In addition to this principal ground, the petitioners advanced several other arguments questioning the legality and validity of the newly introduced Rules. These contentions formed the basis of the challenges presented to the court in the proceedings that followed.

The petitions were opposed by the State, which argued that the Cochin Act and the analogous Travancore Act had not been repealed as of 1 April 1950. Accordingly, the State maintained that it possessed the authority to formulate new Rules under those Acts. The State further contended that the graded licence fee introduced after 1 April 1950 constituted a tax that fell within the competence of the State under item 60 or item 62 of List II of the Seventh Schedule to the Constitution. The High Court rejected the petitions, holding that the statutes on the basis of which the new Rules were framed remained in force and that they were justifiable under item 62 of List II. Although the High Court’s judgment recorded the appellants’ contention that the Finance Act 1950, by extending the Central Act, had caused the Cochin Act and the similar Travancore Act to cease operative from 1 April 1950, the judgment offered no discussion of that contention and did not examine whether section 13(2) of the Finance Act, 1950, effectively repealed those Acts on that date. The Court noted that if section 13(2) had indeed repealed the Cochin Act and the similar Travancore Act, then no statutory basis would have existed to justify the issuance of the new Rules in August 1950 or January 1951, and it would have been unnecessary to consider whether a law containing provisions analogous to those in the notification fell within the State legislature’s competence under item 62 of List II. Such a question would arise only if the Cochin Act or the similar Travancore Act had survived the purported repeal. Consequently, the Court set out to examine the relevant provisions of the Finance Act. Section 11(1) of the Finance Act extended the Central Act and its accompanying Rules and orders, which were then in force, to all Part States save the State of Jammu and Kashmir. By virtue of this provision, the Central Act and its Rules became applicable to the Part State of Travancore‑Cochin from 1 April 1950. Section 13(2) of the Finance Act expressly provided that, effective from that same date, any law corresponding to the Central Act would be repealed. The appellants therefore asserted that the Cochin Act and the analogous Travancore Act constituted such corresponding statutes and were consequently repealed as of 1 April 1950, a contention that required further examination.

The Court noted that the Cochin Act and the similar Travancore Act had been deemed repealed from 1 April 1950 by virtue of section 13(2) of the Finance Act. The point before the Court was whether the repeal was proper on the ground of correspondence with the Central Excise Act. The Court referred to its earlier decision in The Custodian of Evacuee Property v. Khan Saheb Abdul Shakoor, where it had held that a law is considered repealed when the repealing provision covers substantially all the matters dealt with in the earlier law, even if the two statutes are not identical in every detail. Accordingly, the Court explained that section 13(2) of the Finance Act stipulated that when the Central Excise Act was extended to the Part State of Travancore‑Cochin on 1 April 1950, any law that corresponded to the Central Act would be repealed from that date. The task therefore was to determine whether the Cochin Act and its accompanying rules, although not exact copies, substantially dealt with the same subjects as the Central Excise Act and the rules made thereunder. The Court proceeded to examine the provisions of the Cochin Act and its rules to see if they provided for essentially the same matters addressed by the Central Act and the regulations made under it.

The respondent argued that the Central Excise Act imposed a duty of excise on tobacco under item 45 of List I of the Seventh Schedule of the Government of India Act, 1935, which corresponds to item 84 of List I of the Constitution. The respondent emphasized that an excise duty under the Central Act is a tax on goods that are manufactured or produced within India. Consequently, the respondent contended that unless the Cochin Act or the analogous Travancore Act also levied a tax on goods produced or manufactured in the territories of the former Cochin or Travancore States, there could be no correspondence between those state acts and the Central Act. The Court also considered several authorities on the nature of excise duty, including In Re the Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938; Province of Madras v. Messrs Boddu Paidanna and Son; and Governor‑General in Council v. Provinces of Madras. The first case held that the primary meaning of “excise duty” is a tax on articles produced or manufactured in the taxing country, while also recognizing that statutes could impose excise at stages after manufacture. The second case affirmed that excise duties are levied on the manufacturer or producer of the taxed commodity. These authorities were cited to clarify that an excise duty is essentially a tax on domestically produced goods, a principle that would guide the analysis of whether the state legislation corresponded to the Central Act.

In the third case, the Privy Council affirmed the opinion expressed by the Federal Court concerning the character of an excise duty. Accordingly, it may be accepted that an excise duty functions as a tax imposed on goods that are produced or manufactured within the territory of the imposing country. The tax is generally understood to fall upon the manufacturer or producer of the goods, although it cannot be denied that statutes exist which impose an excise duty at stages that occur after the manufacturing or production process.

The Court noted that the Cochin Act and the comparable Travancore Act were enacted by State legislatures that did not operate under the constitutional framework set out in the Government of India Act, nor did they have the legislative lists provided therein. This circumstance must be kept in mind when assessing whether there is any correspondence between the Central Excise Act and either the Cochin Act or the Travancore Act.

The Central Excise Act, by virtue of section 3, provides for the levy and collection of excise duties on all excisable goods other than salt that are produced or manufactured in India. The same section also imposes a duty on salt that is either manufactured within India or imported by land into any part of the country. Section 6 of the Central Act confers upon the Central Government the authority to issue licences and expressly prohibits any person from engaging in the wholesale purchase, whether on his own account, as a broker, as a commission agent, or in the storage of any excisable goods, unless such activities are undertaken under the authority of a licence issued in accordance with the terms and conditions of the Central Act.

In the decision of Chaturbhai M. Patel v. Union of India, the various provisions of the Central Act—including section 6—and the rules made under it were challenged on the ground that they were unrelated to the levy and collection of excise duties. The Court held that the provisions of the Central Act and the accompanying rules are essentially connected with the levying and collection of excise duty. The Court further observed that, in its true nature and character, the Central Act falls under item 45 of List I, and that any incidental intrusion into the provincial field does not affect its constitutionality.

The nature of the rules made under the Central Act is illustrated by observations on page 371 of the judgment, which state: “The Act is a fiscal measure to levy and realise duty on tobacco. The method of realising duty must be left to the wisdom of the legislature, taking into account each individual trade and its particular difficulties. Various provisions of the Act and the Rules show that the authorities track the movement of tobacco from the time it is grown to the time it is manufactured and sold in the market, and these provisions are considered necessary for effectuating the purpose of the Act.” It is true that the Central…

The Central Act authorised the levy of excise duty pursuant to section 3 and, to implement that purpose, it established a licensing regime under section 6. The Rules issued under the Central Act further detailed the procedures for the levy and refund of duty in Chapter III, addressed manufactured goods other than salt in Chapter V, regulated warehousing in Chapter VII, and prescribed licensing requirements in Chapter VIII. Accordingly, the statutory scheme for levying excise duty on tobacco began with provisions that applied from the cultivation stage and extended continuously until the finished product reached the retailer and entered the common stock for sale to consumers.

The Cochin Act provided a comparable framework for controlling tobacco, covering the period from the crop’s growth through to its delivery to glass‑licensees who sold the product at retail. Although the Cochin Rules were not as exhaustive as those under the Central Act, their chief objective was identical: to monitor tobacco from its cultivation through to its final sale to the consumer. A review of the Rules applicable under the analogous Travancore Act, as set out in volume II of the Travancore Excise Manual that was operative on 1 April 1950, revealed a similarly extensive regulatory structure. Part III of those Rules, spanning pages 257 to 325, addressed every aspect of tobacco control; Chapter IV dealt with bonding and issuance, Chapter V with licences for sales, Chapter VI with transport and possession, while additional provisions on page 296 governed cultivation, curing and warehousing, and page 14 prescribed the manufacture of cigars, cheroots and snuff in bond.

These observations demonstrated that both the Cochin and Travancore Rules furnished control mechanisms for tobacco that paralleled those contained in the Central Act, indicating that the authorities in Travancore and Cochin tracked the movement of tobacco from its cultivation and manufacture right through to market sale. Consequently, it followed that the Cochin Act, together with the analogous Travancore Act and their respective Rules, corresponded substantially to the Central Act and would therefore be repealed under section 13(2) of the Finance Act 1950. Nevertheless, the State argued that because neither the Cochin Act nor the similar Travancore Act contained a specific provision for charging duty, the extensive Rules—though mirroring those of the Central Act—did not render the Cochin Act or the Travancore Act a corresponding statute to the Central Act.

In this case the Court noted that neither the Cochin Act nor the similar Travancore Act contained any provision corresponding to s. 3 of the Central Act. The Court explained that under the Cochin Act the tax was imposed only because the Diwan was empowered by s. 5 to make rules for that purpose. Likewise, under the Travancore Act the power to frame rules was placed in s. 31, which allowed the Diwan, with the ruler’s sanction, to make rules permitting or conditioning the payment of any duty, fee or other conditions and to regulate, throughout Travancore or any specified part thereof, the cultivation, manufacture, possession, transport, import and sale of tobacco. Consequently, in both former States the statutory enactments themselves did not contain a charging clause; the duty was levied through the Rules made by the Diwan pursuant to the powers granted by the Acts. In effect, the provision for imposing the tax was situated in the Rules rather than in the primary legislation. The Court further observed that revenue from tobacco was realised by auctioning the right to possess and sell tobacco. It emphasized that the Cochin Act and the similar Travancore Act were enacted by a ruler who was not bound by a constitutional framework such as the Government of India Act, 1935, and its Legislative Lists. The auction system was the method chosen to realise tobacco revenue, and the sums obtained at the auctions were intended to cover what s. 3 of the Central Act would have treated as duty and what s. 6 would have treated as a licence fee. The State argued that this arrangement did not amount to a duty on goods produced because the duty was not paid by the manufacturer or producer. The Court rejected that argument, recalling the principle laid down by the Federal Court and the Privy Council that an excise duty is a duty on goods manufactured or produced in the taxing jurisdiction. Generally, such a duty is payable by the producer or manufacturer, although, as with all indirect taxes, it is ultimately shifted to the consumer through inclusion in the price. The authorities cited by the State also demonstrated that excise duties are normally imposed at stages after manufacture or production. The Court noted that even before 1935, in British India, public auctions were held for the right to possess and sell excisable goods such as country liquor, ganja and bhang, and the proceeds were recorded as excise revenue. The Court clarified that this auction mechanism was not a sales tax, because a sales tax is levied on each sale, which is not the case here.

The Court observed that a sales tax is characterized by a levy on each sale, and that the auction system previously used in the former States of Travancore and Cochin did not amount to a sales tax because it was not imposed on individual transactions. The auction mechanism, the Court noted, continued up to the moment the Constitution became operative and persisted for a short period thereafter. Under that arrangement, licences were granted to the highest bidders at public auctions, and the revenue generated from those licences represented the collection of duty. Consequently, the Court held that the substitution of this auction‑based method for the statutory charging of duty prescribed in section 3 of the Central Act did not alter the character of the impost that was applicable on the pertinent date of 1 April 1950. The State had contended that the auction system also covered tobacco imported from outside the State, allowing licences to be issued for such imported tobacco. The Court accepted that proposition as a matter of fact. However, it further examined the Rules then in force governing the cultivation, curing and manufacture of tobacco within the State and concluded that it was reasonable to infer that the bulk of the revenue derived from the auctions retained the essential nature of an excise duty. With respect to imported tobacco, the Court noted that only the portion which was sold to the ultimate consumer—being imported without any further processing or treatment in the State—could be said to attract an impost that was not of the excise character. Yet the Court found no practical means of separating that segment of revenue from the remainder of the auction proceeds. Considering the comprehensive provisions that regulated the tobacco trade from the grower’s field through to the final retail sale, the Court expressed that it would not be unreasonable to deem both the Cochin Act and the Travancore Act, in substance, to be statutes corresponding to the Central Act. Accordingly, when the Central Act was extended to the Part State of Travancore‑Cochin by section 11(1) of the Finance Act, and when section 13(2) of the same Finance Act expressly provided for the repeal of corresponding State laws, the Cochin Act and the analogous Travancore Act were deemed repealed. The Court further held that, after that repeal, the State Government possessed no authority to frame new Rules either in August 1950 or in January 1951, because without a valid parent law such Rules could not impose any tax without contravening article 265 of the Constitution. Moreover, the Court concluded that the repeal of the Cochin and Travancore Acts on 1 April 1950, by operation of section 13(2) of the Finance Act, eliminated any basis for sustaining those Acts under item 62 of List II of the Seventh Schedule, a question that would arise only if the Acts had not been repealed.

Turning to the three appeals arising from Travancore, the Court observed that they stand on the same footing as the two appeals from Cochin. The Travancore Act and the Travancore Rules that were in force on 1 April 1950 were in fact more detailed than the Cochin Act and the Cochin Rules. Moreover, the Travancore Act, by virtue of section 31, expressly mentions manufacture, whereas the Cochin Act itself does not contain a reference to manufacture, though the Rules made under the Cochin Act did provide for it. Consequently, the same reasoning that applied to the Cochin Act and its Rules also applied to the Travancore Act and its Rules. There was no doubt that the Travancore Act and the Rules made under it constituted a law corresponding to the Central Excise & Salt Act of 1944, and therefore, under section 13(2) of the Finance Act, the Travancore Act was also repealed as of 1 April 1950. As a result, there was no legislative authority to support the Rules framed by the State Government in January 1951, and those Rules must consequently be held to have fallen. The Court noted that those newer Rules had been abrogated from January 1958.

The State contended that the Court should not issue a declaration of invalidity for Rules that no longer existed. The Court rejected that argument, stating that the relevant consideration was the situation at the time the petitions were filed. The Cochin petitions were presented in 1956 and the Travancore petitions in 1955, and at those times the Rules were still in force, continuing until December 1957. Accordingly, the petitioners were entitled to a declaration that the Rules were invalid, which would provide them relief for the period after the filing of their petitions while the Rules remained operative. The Court therefore allowed the appeals, set aside the order of the High Court, and declared that the new Rules purportedly framed under either the Cochin Act or the Travancore Act in August 1960 and thereafter in January 1951 were invalid ab initio and possessed no legal force or effect. The appellants were awarded their costs from the State, a single set of hearing costs. Finally, Justice Shah noted that the principal issue for determination in the group of five appeals was whether, within the meaning of section 13(2) of the Finance Act 1950 (which, by section 11, extended the Central Excise & Salt Act 1944 to the Part B States), a law corresponding to the Central Excise & Salt Act was in force in the Part State of Travancore‑Cochin immediately before 1 April 1950, and, if so, whether that law stood repealed by section 13(2) of the Finance Act.

In the year 1961, the appellants who were parties to Civil Appeals numbered 126 to 128 were individuals residing in the former State of Travancore and they conducted their tobacco‑related business within that territory. These appellants also had connections with the former State of Cochin, which had been merged with Travancore on 1 July 1949 to form a Union under a common administration. The merger was effected by the Travancore‑Cochin Administration Law, 1125 (M.E.), which provided that all statutes and regulations that had been in force in the two separate States would continue to operate until they were altered or repealed by competent authority.

Within the area that formerly constituted the State of Travancore, the principal legislation governing tobacco was the Travancore Tobacco Regulation of 1911. Section 3 of that Regulation defined “tobacco” to include snuff, cigars, cigarettes, beedies, tobacco powder and any other preparations or admixtures of tobacco. Section 4 imposed a general prohibition on the cultivation, manufacture, possession, transport, importation, exportation or sale of tobacco, except where such activities were expressly permitted by the Regulation itself or by any other enactment then in force, as prescribed by rules issued under the Regulation.

Chapter III of the Regulation conferred on officers of the Excise Department the authority to search any premises suspected of containing tobacco and also dealt with incidental matters necessary for enforcement. Chapter IV set out the offences and the punishments applicable for violations of the Regulation. Under section 31, the Diwan of the State, with the sanction of the Ruler, was empowered to issue Gazette notifications from time to time to make rules that were consistent with the Regulation. Those rules could either allow activities absolutely or subject them to the payment of duties or fees or to any other conditions deemed appropriate. The rules covered the entire State of Travancore or any specified part thereof and regulated every aspect of tobacco activity, including cultivation, manufacture, possession, transportation, import, export and sale. The rules also authorized the establishment of warehouses or “bank‑halls” for storing legally cultivated or imported tobacco, fixed the manner, time and place for levying duties, regulated the special custody of warehoused tobacco, and specified the fees for warehousing and transport, thereby giving effect to the provisions of the Regulation.

In 1913, rules were framed under the powers granted by section 31 of the Tobacco Regulation. Those rules imposed restrictions on the import and export of tobacco, provided for the bonding of tobacco in warehouses, and provided for the issuance of licences for such bonding. The 1913 rules also introduced licences for retail sale, for transport and for possession of tobacco. Additional rules were promulgated in 1937, addressing the cultivation, curing and warehousing of tobacco and providing for the issue of licences for those purposes. Further rules were made to regulate the manufacture of cigars, cigarettes and cheroots under a system of bonded licences. Although it is not necessary to detail every rule, it is sufficient to note that the entire process of cultivation, curing, manufacture, possession, transport, importation, exportation and sale of tobacco was controlled through a comprehensive licensing system. Certain licences were granted free of charge, whereas other licences, particularly those relating to storage and sale, required the payment of fees to the State.

The provisions of the earlier Act required payment of a fee to the State. In a similar manner, the Ruler of Cochin enacted the Cochin Tobacco Act of 1084 (M.E.) on 3 May 1909. Section 3(d) of that Act defined “tobacco” to include snuff, cigars and any preparation of which tobacco forms a part. Section 4 stipulated that, except where expressly permitted by the Act or by rules made under it, the possession of tobacco for the purposes of sale, transport, import, export, cultivation or any related activity was prohibited. Section 5 authorised the Diwan of Cochin, after giving prior public notice, to formulate rules that were consistent with the Act and that could either absolutely allow or impose conditions on the possession, transportation, importation, exportation, sale and cultivation of tobacco. Violations of the Act, the rules or any orders issued under the Act were punishable under section 6.

In 1923 the government framed rules under the Cochin Tobacco Act establishing a licensing system that covered cultivation, manufacture and storage of tobacco as well as incidental matters. These rules gave the authorities control over harvesting, weighing, storage, stock‑taking and transportation of tobacco, and they also regulated the export and import of the commodity. The administration of the Act and its rules was vested in the Commissioner of Excise and the officers subordinate to him within the Excise Department. Licences for storage were required to be issued annually and were granted only upon payment of the prescribed licence fee. Consequently, under both the Cochin Act and the rules made thereunder, control was exercised over tobacco at every stage of its production, manufacture and disposal.

A summary of the provisions of the two tobacco Acts, together with the rules and notifications issued thereunder, makes it clear that the States imposed comprehensive control over the production, manufacture, storage and sale of tobacco, and that the administration of this control was assigned to the Excise Departments of the respective States. By virtue of Act VI of 1125 (M.E.), the two Acts continued to operate within the territories of the former States. Moreover, article 372 of the Constitution ensured that the provisions of these Acts remained in force in the areas of the former States even after the Part B State of Travancore‑Cochin was constituted on 26 January 1950. Section 11 of the Finance Act 25 of 1950 extended certain Acts, including the Central Excises & Salt Act of 1944 and all rules and orders made thereunder that were in force before the Finance Act’s commencement, to the Part B States (excluding Jammu & Kashmir) with effect from 1 April 1950. Section 13(2) further provided that if, immediately before 1 April 1950, any State other than Jammu & Kashmir had a law corresponding to, but distinct from, the Act referred to in subsection (1) of section 11, that law would also be taken into account.

The court noted that the provision in question was to be repealed with effect from the date specified. It appeared that, because the Central Excises & Salt Act, I of 1944 was brought into force in the Part B State of Travancore‑Cochin by section 11 of the Finance Act, 1950, the State issued fresh sets of Tobacco Rules. Those Rules were formally issued on 25 January 1951 and were said to be made under the authority of the Travancore Regulation I of 1087 (M.E.) and the Cochin Tobacco Act of 1084 (M.E.). Rule 14, which is common to both sets of Rules, declares that the vend of tobacco of all kinds is prohibited throughout the State except when a licence has been obtained. Rule 15 describes the three categories of licences that may be issued for the vend of tobacco: (i) a Stockist or ‘A’ Class licence; (ii) a Wholesale or ‘B’ Class licence; and (iii) a Retail or ‘C’ Class licence. Rule 16(i) provides that holders of Stockist or ‘A’ Class licences may purchase tobacco from any dealer, whether within or without the State, without any quantitative restriction, but that such licence‑holders may sell only to other ‘A’ Class licence‑holders or to ‘B’ Class licence‑holders. Rule 16(ii) sets out the annual fees payable for each class of licence and is followed by a table that fixes a minimum fee for each variety of tobacco stocked up to a prescribed maximum quantity and also specifies the additional fee that must be paid for stocking quantities above that maximum.

The appellants who were before the court were all ‘A’ Class stockists and were therefore required to pay the licence fee prescribed by the 1951 Rules. They argued that the fee could not be imposed on them for several reasons. First, they contended that the Rules represented an absolute delegation of legislative power and therefore violated their fundamental rights guaranteed under Articles 14 and 19(1)(g) of the Constitution. Second, they maintained that the charge was, in substance, an excise duty and that, even if it were not characterised as such, the fee amounted to a tax on their trade, calling or employment and consequently fell within the constitutional limitation imposed by Article 276(2). Third, they submitted that the original Tobacco Acts of the former Travancore State and the Cochin State, which had been kept in force by Act 6 of 1125 (M.E.) and by Article 372 of the Constitution, had been superseded by the application of the Central Excises & Salt Act, 1944, through section 11 of the Finance Act, 1950. The High Court of Travancore‑Cochin, hearing petitions for writs of mandamus and other writs, rejected all of the appellants’ contentions. It held that the Acts and the Rules did not amount to an absolute delegation of legislative power, and that the alleged infringements of the fundamental rights under Articles 14 and 19(1)(g) as well as the restriction under Article 276(2) were not established. The High Court further concluded that the charge imposed under the Rules was not an excise duty. Because of that finding, the court apparently declined to examine whether the Tobacco Acts of Travancore and Cochin had been wholly or partially superseded by the operation of the Central Excises & Salt Act.

In the judgment, it was observed that the legislation of Travancore and Cochin did not impose a direct duty on the production or manufacture of tobacco. The statutes did, however, place restrictions on activities such as growing, curing, manufacturing, storing, importing and exporting tobacco by mandating that persons obtain licences for each of those purposes and by prescribing penalties for any breach of the provisions contained in the Acts and the Rules. Historical evidence showed that before the creation of the State of Travancore‑Cochin, the trade in tobacco was already regulated through an auction system. Those auctions were conducted by Excise Commissioners, and the highest bidder earned the exclusive right to deal in tobacco. The two Acts were consequently enacted to regulate and control the sale of tobacco, but the State never levied a duty on the manufacture or production of the commodity. The fee that was payable for a licence allowing a person to grow, cure, manufacture, import, export or store tobacco was held not to be an excise duty on manufacture or production. The Federal Court, in the case concerning the Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938, remarked that at the time of the Constitution Act (Government of India Act, 1935) the term “excise” was used chiefly for indirect taxes such as salt excise or opium excise, and that the only excise duties known in India were those collected from manufacturers or producers, normally payable when the excisable article left the place of manufacture or production. Although that observation was not conclusive, the Court found it a reasonable inference that Parliament intended the phrase “duties of excise” in the Constitution to be understood in the same historical sense that had always been applied in India, where no other form of excise duty existed. The Court also noted that modern usage rarely identifies duties collected after the stage of production or manufacture as excise duties, despite older definitions by Blackstone and Johnson. This reasoning was later affirmed by the Judicial Committee in The Governor‑General in Council v. The Province of Madras, which held that under Indian law an excise duty is a duty on the manufacture or production of goods, and therefore the duty imposed by Travancore and Cochin on the storage of tobacco could not be characterised as an excise duty. Nevertheless, the Court emphasized that this conclusion did not resolve the remaining issue. It remained necessary to examine whether the Travancore and Cochin Acts and the Rules made thereunder were laws “corresponding” to the Central Excises and Salt Act, 1944, as extended by the Finance Act, 1950. The term “corresponding” was explained to mean that identity between the State law and the extended statute is not required; rather, a relationship of correspondence must be established.

Section 11 of the Finance Act was explained to operate in the following manner: if, at the material time, a law was in force in a Part B State that dealt with a particular subject, and the law that was extended by section 11 of the Finance Act, 1950, dealt with the same subject, then, even though the two statutes were not identical, they would be regarded as overlapping if they were read together. In such a situation the law existing in the Part B State would be treated as corresponding to the law extended by the Indian Finance Act and would therefore be repealed by operation of section 13(2) of that Act.

The Court then turned to examine the scheme of the Central Excises and Salt Act of 1944 in order to determine whether the Tobacco Acts and Rules of Travancore and Cochin could be said to correspond, wholly or in part, with that Central legislation. The 1944 Act had been enacted to consolidate and amend the law relating to central duties of excise on goods manufactured or produced in certain parts of India, as well as to the law relating to salt. Section 2(d) defined “excisable goods” as “goods specified in the First Schedule as being subject to a duty of excise and includes salt.” Section 2(f) defined “manufacture” to include “any process incidental or ancillary to the completion of a manufactured product,” and, with respect to tobacco, it specifically included “the preparation of cigarettes, cigars, cheroots, biris, cigarette or pipe or hookah tobacco, chewing tobacco, or snuff ….” Section 3 provided that duties of excise on all excisable goods, other than salt, which were produced or manufactured in India were to be levied and collected in the manner prescribed and at the rates laid down in the First Schedule. Section 6 made certain incidental operations subject to licensing and stated that the Central Government could, by notification in the Official Gazette, declare that from a specified date no person, except under a licence granted under the Act, could engage in (a) the production or manufacture of any goods listed in the First Schedule, or of saltpetre, or of any component parts, ingredients, or specified containers of such goods, or (b) the wholesale purchase or sale, whether on his own account or as a broker or commission agent, or the storage of any excisable goods specified in Part A of the Second Schedule. By virtue of these provisions the Central Government was conferred with the power to impose restrictions on the rights to produce, manufacture, and to engage in any process of production or manufacture of excisable goods, as well as on the wholesale purchase or sale of such goods; this power was regarded as an ancillary authority necessary for the enforcement of the law.

The Court explained that the Central Excise Act was enacted primarily for the levy and collection of excise duty. It noted that section 9 penalised contraventions of the Act and any notifications issued under it, while section 10 conferred the power to forfeit goods. Chapter III, the Court said, vested authority in officers to arrest persons, to summon them to give evidence or to produce documents, and to conduct searches; it also described the procedure to be followed by police‑station officers and the inquiries that Central Excise Officers could make against arrested persons who were forwarded to them. Chapter VI, according to the judgment, dealt with the adjudication of confiscations and penalties, and Chapter VII contained various supplementary provisions. The Schedule to the Act, the Court observed, listed the descriptions of many goods and the rates of duty chargeable on each of them. The primary object of the legislation, the Court reiterated, was to levy and collect excise duty on the goods specified in the First Schedule, and for that purpose a range of provisions had been enacted.

The Court further observed that tobacco was classified as an excisable commodity under the Act and that duty at the rates specified in the Schedule was leviable on the different forms of tobacco. Section 6(b) prohibited the wholesale purchase, sale, or storage of excisable articles. Rule 7 of the Central Excise Rules, 1944, required every person who produced, cured, manufactured, or stored excisable goods in any warehouse to pay duty. Chapter VII, the judgment noted, dealt with licensing, and Rule 174 stated, in substance, that “Every manufacture, trader or person hereinafter mentioned, shall be required to take out a licence and shall not conduct his business in regard to such goods otherwise than by the authority, and subject to the terms and conditions of a licence granted by a duly authorised officer in the proper” and then listed categories such as (1) matches, (2) unmanufactured products – including curers, brokers, commission agents, and wholesale dealers who purchased such products, all brokers, commission agents and wholesale dealers dealing in unmanufactured tobacco, and all holders of private bonded store‑rooms or warehouses, and (3) other excisable goods except salt, namely manufacturers and other persons. Rule 175 prescribed the procedure for obtaining a licence, requiring every person who wished to engage in licence‑required operations to apply in writing each year for a licence or its renewal to the licensing authority designated by the Central Board of Revenue. Rule 176 prescribed the forms for licence applications and, in clause (2), required that each application be accompanied by a Central Excise Revenue Stamp showing payment of the fee indicated in the subjoined Table under item No. 2. The Court noted that a wholesale dealer in unmanufactured tobacco who purchased for trade or manufacture had to pay the graded fee set out in the second and third columns of the Table, and that item 6 dealt with the duty payable by the holder of a private bonded store‑room or warehouse.

Rule 178 sets out the forms that must be used for granting licences. For the storage of tobacco intended for sale the applicable forms are Form L‑2, which is the application for a licence to carry on wholesale trade in unmanufactured products liable to central excise duty; Form L‑3, which is the application for a licence as a broker or commission agent dealing with such unmanufactured products; and Form L‑5, which is the application for a licence to operate a private bonded warehouse‑storeroom for the storage of excisable goods. The statutory scheme makes it clear that a duty is imposed through the payment of a licence fee when a licence is obtained for storing tobacco for sale. The appellants in each of the appeals had, without dispute, obtained licences pursuant to Rules 174 and 178 of the Central Excises and Salt Act and had paid the required licence fee to the Central Government. In addition, the appellants were also required to pay a licence fee for the storage of tobacco for sale under the provisions of the Travancore and the Cochin Tobacco Acts and the rules framed thereunder, as stipulated in the notification issued on 25 January 1951.

The Central Excises and Salt Act of 1944 provides for licences for storage as an ancillary measure to the recovery of excise duty. By contrast, the Travancore and Cochin Acts imposed a licence fee as part of a scheme designed to control the sale of tobacco, without expressly levying any excise duty. Nevertheless, this difference does not mean that the provisions requiring licences and the payment of licence fees for storage of tobacco for sale under the Travancore and Cochin Acts are not correspondingly similar to the provisions of section 6(b) of the Central Excises and Salt Act, 1944, and the rules made thereunder, which also mandate that licences be obtained for storage and that a fee be paid.

In the Court’s view, the rules made under the Travancore and Cochin Tobacco Acts that required licences for storage of tobacco and that were in force on 1 April 1950 constitute law that corresponds to the provisions of the Central Excises and Salt Act, 1944 and its accompanying rules, which likewise require licences and the payment of a licence fee for such storage. Consequently, the obligations imposed by the Travancore and Cochin Acts to obtain licences and to pay the associated fees were superseded. The State of Travancore‑Cochin therefore lacked authority to promulgate Rules 14, 15 and 16 under the notification published in the Travancore‑Cochin Government Gazette on 25 January 1951, and it lacked authority to levy a licence fee for the storage of tobacco. Because the supersession of those provisions is established, it was unnecessary to examine whether the remaining provisions of the Travancore and Cochin Tobacco Acts and the rules made thereunder correspond with the Central Excises and Salt Act, 1944.

In reference to the provisions of the Salt Act, 1944, the Court concluded that the reasons previously articulated justified allowing the appeals and required that the order previously issued by the High Court be set aside. The Court further directed that, in each of the petitions before it, a writ be issued. That writ shall declare that the imposition of a licence fee under the Notification dated January 25, 1951, lacks any legal authority and is therefore unlawful. In addition, the writ shall order the State of Travancore‑Cochin to refrain from levying or collecting such licence fee in the future. By setting aside the High Court’s order, the Court restored the position that the State possessed no power to impose the fee because the Notification conflicted with the statutory framework of the Salt Act, 1944. Consequently, the Court allowed the appeals and directed that the State forbear from any further attempt to levy or collect the contested licence fee.