Chhotabhai Jethabhai Patel and Co. v. the Union of India and Another

C.R. PaUabhi Raman and R. Ganapathy Iyer, for the interveners (in C. A. No. 141 of 1954). 1961, December II. The judgment of S. J. Imam, K. C. Das Gupta, Raghubar Dayal and N. Rajagopala AJyangar. JJ., was delivered by Rajagopala Ayyangar, J., J. L. Kapur, J., delivered a separate judgment. AYYANGAR, J.-ThA appellants in Civil Appeal 140 of 1954 are tobacco merchants and manufac­ turers of hiris. They own private warehouses licensed under r. 140 of the Excise Rules, 1!!44 at Gondia and other places in Madhya Pradesh. On tlw 28th of February, 1951 a Bill was introduced in the House of, the People, bein.g Bill 13 of 1951 containing the fimtncial proposals of the . Government of In<lia for the fiscal year be.ginning the I st of April, Hl51. Clause 7 of the bill ma<le provision for the nm<'n<lment of the 1961 Ohhotabhai Jethabhai Patel and Co, v. The Unio11 of India Ayyangar J Ch 1.~tabhai J ethail:a.i P«tel an.d c •. •• The Uni4n •f lntii11 S1JPREME COURT REPORTS 0962] SUPP. Central Excise Act (Act 1 6f 194-i) by· w-iy of alteration of cfuties on "tobacco manufactured and unmanufactured." In particular;· it pi:ovided that "unrrran'ufactured.tobacco other.thap fhie.-cured and ordinarily used other\vis\l .. tl:pn .fdr. ~hJ:lptanu­ facture of cigarettes"(which in9iude<;l•toJ)ac<;fo':jqJ;e11d'­ ed for manufactur13 into biris) shorila "'l;ie:· t;l\:arged to an excise duty of .8 amias per -lb .. apcl'it' al:;,q imposed a new duty of excise <?n. ·biris. 'v;arying from 6 to 9 annaS: per lb. depepdiijg 'ti p9n .the weight of tobaQCO ,contained in the b'iris." Section 3 of . the Provisional Collection of' Ta:ree Act,.1931 (Act X'\'.I of 1931) enacted."" Where a. bill introduced into the Indian Parliament provid­ ed for the imposition .or increase of ,a duty of excise the Ci,ntral Government might ca,.use to· be insert!Jdin ,the bill a declaration thatj,t w:a,s e.xpedient in t1J,1i public interest. that any pr.ovision of the bill relating to such imposition or ir,cr~ase shall hav.e immediate effept under this Act". _A, declaration under thi~ S\)Ction was ri1ade in i-especj.. pf the pro· vision for \mpqsing the qutles 9n toq~cco Uil~er.'ci. 7 of the bill 11lteady .adverted to.. ']'.!he .effect o( ~uch a deolarat'ion wall -stated iii s. f 'ofAct XVI.of l!l3l in the following terms.·,_ · "4;. fl) A declare.cj, '.·J'.iro'v,ision . .,h~lJ;.> 4ave , the for.ce of law ilJlrilcqfately 'On ·the· 6.f'~i r}r.o.f the day on which the' Bi\L cb,n);aini()g')tiJ"i~_ introduced. · .. J (2) A declared provis'~or; ~haD ~.il.E~. to .have· ili,e' force of law under the prov1s10mv.of ~his Act-+ ,, (a) Wh~n 'it c"orp:es fl)t?-·'o'p~~ifiori:. as an enactment, with or' ":withi:ii1£ amendment~ or ·,' . .,, ~, -~ '""i.b.~~ /~ (b) whei1 the C<(n'tra'l 'Goy;erniiiJ~J! in pursuance of a ·mo\;ion passcd'9'y ·Pl:t'(li;>- , ,. ..... •"1' ~!. r! \'.:" , . . ' ( ' . i 2 S.C.R. SUPREME COURT REPORTS 5 ment, directs, by notification in the Official Gazette, that it shall cease to have the force of law, or (c) if it has not already ceased to have the force of law under clause (a) or clause (b), then on the expiry of the sixtieth day after the day on which the Bill containing it was introduced." ·In compliance with this law the appellants paid the excise duty at the rates imposed under cl. 7 of the bill and obtained clearance certificates in regard to the tobacco moved out from their ware­ houses from and after March 1, · 1951. Bill 13 of 1951 was passed into law as the Indiai1 Finance Act 1951 (Act XXIII of 1951 on April 28, 1951 but · as passed, changes were effected in the duty pro­ posed in the bill, as a result of certain alterations suggested by the Select Committee. lTnder s. 7 ( l) of the Finance Act 1951 while the excise duty on biris was a,bandoned, the duty on unmanufactured tobacco (other than flue, cured and used in the manufacture of cigarettes) was increased to 14 annas per lb. from the rate of 8 annas per lb. in the bill. Consequential provisions were enacted in w. 7 (2) of the Finance Act which read : "The amendments made in the Central Excise and Salt .'\ct 1944, sub-cl. 1 shall be deemed to have effect on and from the 1st March, 1951 and accordingly:- (a) refund shall be made of all dutie8 collected which would not have been collected, if the amendment had come into force on that day, and (b) recoveries shMl be made of all duties which have not been collected but which would have been collected if the amend­ ment had so come into force." 1961 Chhotabhai J dhabh• Pate/ nnd C•. •• The Cnion. of btii• .Ayyan,:•r J. 1961 Chlrotabhai J11habhai Patti and Oo. v "f k Union of lnd:·a A.y;·angar J. (j SUPREME OOURT REPORTS [1962] SUPP. In pursuance of s. 7 (2)a demand was made upon the appellants on June 2~.1951 for the payment of the duty f>•>yable by them, after givi11g credit for the refund of the duty paid on Liris which had been deleted by the Act. The nppellnnts contested the legality of this demand by a petition Hnder Art. 22H which they filed in the High Court nt Xagpur urging that the retrospective operation given to 8.7( J) by suo-s.(2) thereof was illegal, ultra m'res and uncon­ stitutional, and besides that the provision in r. IO of the Excise Hules which contained the machinery for enforcing the demand was not adequate to meet the situation arising out of the chango in the law from the previsions of the bill to those of the Act. The learned J udgcs of the High Court repelled all the contentions disputing the legislative competence and the constitutionality of the legislation con­ tained in s.7(2) of the Finance Act of 1951, but they upheld the objection to the adequacy of the procedure for recovery based on the limi.tcd scope of r. 10 of the Excise Rules. Thereafter the Central Gov.ernment, by a notification dated December 8, 1951, amended the Central Excise Rules, 1944 by the addition of a new r. IOA providing machinery Hpeci.1lly deBigned for the enforcement of a demand like the one arising in the circumstances of the present case. On December 12, 1951 a further and a fresh demand was made for the payment of the duty in terms of s.7(2J(b) of the .Finance Act quoted earlier, and the appellants thereupon once again moved the High Court of Nagpur under Art. 226 challenging the validity of the demand on the very same grounds as before. This petition was heard by a .Full Bench of the Court and every contention raised by the appellants including that based on the adequacy of the new r. JOA to cover the present case was rejected. The learned Judges granted a certificate under Art. 132 of the Constitution which has enabled the appellants to file this appeal. Before proceed­ ing further it is only nece8sary tu state that there is no material difference between the facts of the 2 S.C.R. SUPREME COURT REPORTS 7 cases covered by Civil Appeals 141, 142 as well as the points raised in the Writ Petitions and that th\s judgment will cover and dispose of the other appeals aud the petitions. We might also, at this stage. mention that other parties who were similarly situated as the appellants in Civil Appeals 140 to 142 of 1954 and who had filed p8titio11s under Art. 226 of the Constitution in the High Court of :\Iadras which are pending there, raising the same points as tho appellant's before us, have intervened in these appeals and they have also been heard. Learned Counsel appearing for the interveners adopted the arguments urged in support of the appeal. Mr. Pathak, learned Counsel who appeared for the appellants urged three point in support of the appeals( 1) Secti0n 7 ( 2) of the Finance Act, 1951 in so far as it imposed an excise duty retrospectively before the date of its enactment (April 28, 1951) was beyond the legislative competence of Parlia­ ment. The contention on thi~ head was briefly this : The impugned tax was imposed by Parliament in purported exercise of the power to levy "a duty of excise on tobacco" within Legislative Entry 84 of Union List which reads : "Duties of excise on tobacco and other goods manufactured or produced in India t " excep ................. . An "exc'ise" was basically an indirect tax, i. e., a tax or duty not intended by the taxing authority to be borne by the person on whom it is hnposcd and from whom it iB collected but is intended to be passed on to those who purchased the goods on which the duty was collected ; but when .such a tax was imposed with retrospeetive effect it could not be passed on, so such a levy depriv­ ed the tax of its ess'enti&l nharacteristic of being in­ direct. It there£ore ceased to be a "duty of excise" and 1961 Ohholalihai Je1hr L Patei and lo. v. The Union of India .A.yyanza,.. J. 11111 :Mot'lhhai Jtthahhni Patti and c •. •• '71# Union of India .d.Y.l""I"' J. 8 SUPRE::lfE COCRT REPORTS [l!l62] SUPP. became a pmsonal tax of a category quite di1ltinc•t from "excise" am! so wiis beyond the lc·gislati,·e power uf Parliament under that Entry.(:!) That the impugned Jeyy was unconstitutional in that it ccmtravcncd the fundamental right guaranteed to the citizens of India to hold property under Art. Ill( I )(fJ, the point urged being that a rctrOSJll'Ctive levy of an ""xcise duty" deprived thP, tax-payer vf the right of passing it on and r<'covering it from his buyer, that this wnstitutcd a restraint· 011 "the right to hold pro­ perty" (the amount of tlw tax-levy) conferred Ly Art. 19( I )(f) and was not HR\'('() by cl. 5 of that Article as being a reaso11able restraint and should, thernfore, Le struck down under Art. 13('.2 ). (:l) That. the terms 1,f r. IOA of the Excise Rules l !J44· \\·ere insufficient to cover the ca8CS of the appellants and that in consequence the demand made on them and the attempt to n'cover tl"' sums by resort to the coercive proces' provided for by s. I I of the Central Exciso Ac:t waH illc·gal am! without statutory authority. We shall now proceed to c11n>ider these pointo in that order. (I) Wmd of lcui ,/utice c-nnpetci-u: To appreciate the submi8nion of learned Cu1,11scl it is necessary to eet out the steps in the reasoning hy whiC"h he sought to establish that a "duty of cxdse"' when imposed with retrospective effect cea~cl to be a "duty of excise'" as used iu Entry t;.J of the Vnion List. Th .. submiRsio11 of learned Comisel was this : The term "duty ,,f excise" on goods was universally reeognizecl as a. tax on home· produced goods and as a typical instirncc of an indirect ti..x. [t was a tax on the 11cti\'it v uf productiull or manufacture of goods within the coun· try and that it was levied on or C'ollccte<I from tho producer or manufacturer or froru those who held .uch goods. H was, further, not a pernonal tax but its essential and characteristie nature, which distingui· shed it frow other typ<'S of taxes was that it was levi· ed on goods. It had, thcn·fore, in order that it might ' ' ... , 2 S.C.R.. SUPREME COURT REPORTS truly be a "duty of excise", to satisfy two t'ests : (a} It had to be an indirect tax, i. e., levied in such a manner that the person from wbom the tax was collected was in a position to pass it OII •.o those who acquired the goods from him or at least the taxing authority expected him to pass it on, and laid no impediment on his ability to do it. (b} Being a tax on goods, it was levied on the producer or manufacturer or person in possession of the goods at the time when the person taxed was the owner or had possession and control over the goods. Where neither of these essential ele­ ments or attributes was present, and in" the present case, according to learned Counsel neitr,er condi­ tion was satisfied, the tax-levy would not fall under the category of "duty of excise." The same argument was Presented in a slight­ ly different from by saying that thougb Parliament, generally speaking, had the power to legislate in res­ pect of everyone of the subjects included in the relevant legislative entries whether prospectively, or retrospectively including legislation with regard to taxation, still if the retrospective levy of a tax, altered its essential nature and identity, then the power to legislate retrospectively would he open to Parliament only if the tax in its altered frorn-i.e., a tax direct and personal-would be open to Parlia­ ment to impose. Jn the case of a "duty of excise" as the tax in the present case was, if imposed retros­ pectively, deprived it of its essential characteris­ tic of being an indirect tax .and a tax on goods, and so the power of Parliament to enact such retrospeeti ve legislation would depend upon whether Parliament could impose a tax on a person merely because he happened to produce goods at an antecedent date, or, happened to have had in his control goods of indigenous production at a prior date and if this could not be done, it would follow that Parliament could not impose a "duty of excise" with retrospective effect. 1:16) Chhotabhai Jethahba~ Patel and Co, v. The Union of India Ayyangar J, 1961 l.-~;1,,, i1.:'1•J1 .!tthabhi.i /'111,/ r·nd (."(J ,. Ti;e Cn1011 of lwlrn .·!y_;nn::or .I. 1 t1 SUPREME COURT l~EPORT8 [l!J6~J 8Ul'l'. In support of his submission r"garding the na· tun· of an <>xciRc rluty and that 1m·aning that ought to b" ;ittributcd to that expression M it occurn in Entry S~ of the union List, !\Ir. P.-thak placed before us jurlgments of the Privy Council in appeals from Ca na<la and Ao me decisions of the American Supreme Conrt and of the Austral inn High Court. Fir,;t as to the decisi:i:,., relating lo tho Cana­ dian ConHtilution though karned Counsel referred us to several decioiom; on the interpretation of tho word "excise·· in connection with the distinction between direct and indirect taxes in most of tho BritiHh Xorth America Act, 18<ii, we <lo not think it 11cccssary to n•frr to all of thPm. The ~"ncrnl line of approM:h of the Privy Council decision,; referred by learned Counsel could be g11thererl from tbe observat.ions of Lord Cave in Cd•/ of lfolifux v. F·1irbm1l:s' Est11IE"('). The impugn­ ed t.nx legislation was a b11Hi1u·ss tax imposed by the Province of N ovn Scotia to be paid by (n·ery occupier of rP.al property for the purposes of any trade, profession, or other calling carried on for the purpose of gain, the assassrnent being according to the capital value of the premises. This was challenged infer (l/i•t on the ground that it was an indirP.ct t.a.x and therefore not within the legislative competence of the Provincial Legislature. Lord Cave said : "Tlnrn, taxes on propnty or income were everywheri' treated as direct taxes ; anrl John Stuart :\lill himself, following Adam 8mitb, Ricarclo and .James Mill, said that a tax on rents fallH wholly on the landlord uncl cannot be transforre<I to any one else ............... On the f'1ther han•l. duties of customs and excise w~re regarded by every one as typical i1rnt1mces of indirect taxation. When there­ fore th" Act of Vnion allocated the power of direct t;ixa.tion for Provincial pnrposes to 111 ll'U8J c .. ~. 111. .. .. 2 S.C.R. SUPREME COURT REPORTS 11 the Province, it must surely have intended that the taxation, for those purposes, of pro­ perty and income should belong exclusively to the Provincial legislatures, and that with­ out regard to any theory as to the ultim~te incidence of such taxation. To hold otherwise would be' to suppose that the framers of the Act intended to impose on a Provincial legisla­ ture the task of speculating as to the probable ultimate incidence of each particular tax which it might dljsire to impose, at the risk of having such tax held invalid if the conclusion reached should afterwards be held to be wrong ......... .. The imposition of taxes on property and income, of death duties and of municipal and local rates is, according to the common understanding of the term, direct taxation, just as the exaction of a customs or excise duty on commodities ............ would ordinarily be regarded as indirect taxation ; and although new forms of taxation may from time to time be added to one category or the other in accor­ dance with Mill's formula as a ground for transferring a tax universally recognized as belonging to one class to a different class of taxation." Similar passages in relation to a "duty of excise" being an indirect tax occur in other judgments of the Judicial Committee to which learned Counsel drew our attention. Of these, it is sufficient to refer to one more-Attorney-General for British Columbia v. Kingcome Navigatwn Company, Limit· ed (1 ) which raised the question as to whether a .tax which was imposed upon every consumer of fuel-oil according to the quantity which he had consumed imposed by the Fuel-Oil Tax Act of 1930 Of British Columbia was a direct tax under s. 92, head 2, of the British North America Act, 1867. After ex­ tracting the following passage from Bank of Torrm;to v. Lambe('} : (2) 12 A. C. 575. 1901 Chhotahhfli Jethabhai Pa:el and Co. •. The Union of India Ay.vongor J. J9f.J ·1.·o/,Jt/,1.; .frthnb.~-n /'1111: 11<1d C:o. v. l1r l,"r,.'.11 of frldi~ 12 Sl.IPRE:IIE COCRT REPORTS [1962) SUPP. "A direct tax is one whi~h is demanded from the v"ry persons who it is intended or desired should pay it. Indirect taxes are those which are demanded from one pPrson in the expectation and int<11lio11 that he shall indemnify himself at the expense of another; sm:h are the excise or customs. Lord .Moulton who delive1cd the judgment of the Board r!'ferred to tho p'issa;;e from the judgment of Lord Cave in City of f/u/ifax v. Fairbanks' Estate(') just now quoted 1md went on to add : "The ultimate incidence of the tax in the sense of the political economist, is to be disregarded, but where the tax is imposed in respect of a transaction, the taxing authority is imlifferen t as to which of the parties to the transaction ultimately bears the burden .......... $imilarly, whe1e the t.ax is imposed in n"1-.ect of some dealing with commodities, such as their import or sale, or produe:tion for sal!', the tax is not a peculiar contribution upon the one of the parties to the trading in the particular commodity who is selected as the tax payer. This is brought out in the second paragraph of l\Iill's definition, and is true of the typical custom and exci8e duties referred to by Lord Cave." Tho tax was therefore held to be valid. We consider that not much assistance could lie derived from these decisions for the interpretation of the scope or content of the term "duties of excise" in Entry 84 of the Union List. The line of division in Canada between those tuxes which a Province could impose and those which it could not wns, whether it was direct or indirect. In Canada, taxing powers are divided between the Dominion and the Provinces on tho basis of the incidence of the tax, the Dominion power extending to "any mode or system of taxation" (vide s. 91 (3) British North America Act, 1867) while that of the (I) [1928) A. C. 117. •. , 2 S.C.R. SUPREME COURT REPORTS 13 Provinces is restricted to "direct taxation within the Province in order to the raising of revenue for provincial purposes" (Section 92(2) ibid). When therefore the validity of any Provincial tax legisla­ tion is challenged in Canada the enquiry is as regards the normal incidence of the ta:x: whether it is "direct" or "indirect." As these expressions had a settled meaning in economic theory, the Courts had necessarily to find out whether the particular tax imposed by the Province fell within the olass of "indirect" taxes or not. In such a situation naturally the classification by economists of taxes as those which are "direct" as distinct from those which are "indirect" assumed a vital role in deciding whether the tax impugned is or is not within Provincial power. As pointed out by Gwyer, C. J. in the Province of Madras v. Boddu Paidanna (') : "The Can'l.dian cases which were cited do not seem to afford any assistance, since analogous problems in Canada are always concerned with questions of direct and indirect taxation ; and if a Provincial tax is held to be an indirect t'l.x, it is unnecessary for the Court to consider whether it may not also be a duty of excise: see, for example Att.-Gen. for British Columbia v. The Canadian Pacific Railway Co. (1927 A.C. 934), where a tax ou every person purchasing within the Province fuel oil for the first time after its manufacture in, or importation in·to, the Province was held to be invalid as an indirect tax, and the question whether it might not also be bad as an excise duty was left unanswered. In contrast to the case just cited we may refer to Att. Gen. for British Columliia v. Kingcome NavigatWn, Co. (1934 A. C. 45) in which a fuel oil tax imposed by a Provinoe upon every consumer of fuel oil according to (I) [1942] F.C.R. 90, 103. 1961 Chhotahfiai Jethab~ Patel and Co. v. The Union of Ind Ayyangar J, 1961 Clih1ttJ~hai J 1thalhai Pt1trl and Co. v. 7 hr CJni,m of India A yyan,;ar J. 14 SUPREME COURT REPORTS (1962] SUPP· the quantity which he had consumed was held to he rnlid aa a direct tax, because it was <lemande<l from t.he very persons who it was intended or desired ~hould pay it." Similarly, J,ord 8imonds observl'd in Governor &'cneral in Council v. Prm:inr,e of Madras{'): "little aAaistance is to be derived from the consideratinn of other fpdcral constitutions and of their judicial interprct11tion. Hore there is no question of direct and indirect taxation, nor of the definition of specific and residuary powers." rnder the Indian Comtitution the scheme or division of the taxing powers between the Union and the 8tates is not based on any criterion dopen­ dfmt on tho incidence or the tax. 8ir Maurice Gwver in In re the Central Province-~ and Berar Act X IT' of 1938 (') speaking of the word "excise" as oc­ curring in the le~islativc lists in the Government of Jnida Act (and for this purpose there is no variation in the lists in .Schedule VII of the Constitution) said: "Its primary and fundamental meaning in English is that of a tax on articles pro<luced or manufactured in the taxing country and intended for home consumption. I am ~atisfied that this is also its primary and fundamental meaning in India ; and no one has suggested that it has any other meaning in Entry No. 45 (corresponding to Entry 84 in the Union List). It was then contended on behalf of the Government of India that an excise duty is a duty which may be imposed upon home pro­ duced goods at any st.age from production to consumption; and that therefor~ the ~ederal leg­ islative power ext{'nded to 1mpoemg exc,1se (I) 721. A. 91, IO'l. (21 [1939] I F.C.R. 18, 40. - ..... 'f - 2 S.C.R. SUPREME COURT REPORTS 15 duties at any stage.This is to confuse two things, the nature of excise duties and the extent of the federal legislative power to impose them .... , .... There can be no reason in theory why an excise duty should not be imposed even on the retail sale of an article, if the taxing Act so provides. Subject always to the legislative competence of the taxing authority, a duty on home-produced goods will obviously be imposed at the stage which the authority find to be the most convenient and the most lucrative, wherever it may be; but that is a matter of the machinery of collection, and does not affect the essential nature of the tax. The ultimate incidence of ar. excise duty, a typical indirect tax, must always be on the consumer, who pays as he consumes or expends ; and it continues to be an excise duty, that is, a duty on home­ produced or home-manui:'actured goods, no matter at what stage it is collected." As Lord Simonds said in the decision, to which reference has already been made after referring to the decision of the Federal Court in the C.P. Petrol case(1):- "Consistently with this decision their Lordships are of opinion that a duty of excise primarily a duty levied on a manufacturer or producer in respect of the commodity manu­ factured or produced. It is a tax on goods not on sales or the proceeds of sale of goods," and then speaking about taxes on sale of goods the · learned Lord continued : "The two· taxes, the one levied on a manu­ facturer in respect of his goods, the other on a _vender in respect of his sales, may, as is there pointed out, in one sense overlap. But in law there is no overlapping. The taxes (1) (1939) I. F. C.R. I~ Chhotabhai J1thabhai Patel and Ca. V, The Union of lnd(o Ayyangar J. 1901 Chhotabhni .T1t1Mbhai /'atrl a11d C:'J, v. Th~ l:rdr.n ".f India lti SUPREME COURT REPORTS (1962) SUPP. are separate antl distinct imposts. If in fact they overlap, that may be bt,causo the taxing authol'ity, imposing a duty of t>XCise, fintls it convenient to u11posc that duty at the moment when the exciseable article leiwes the factory or work~hop fur the first time on the occasion of its sale. But that methotl of collecting the tax is an accident of administration; it is not oft he es;ence of the duty 0f excise, which is attracted by the manufacture it!lelf." In view of this clear exposition of the content of the term "duty of exciAe" in the Indian setting we think, no assistance can be derived for the meaning a!lcribecl and the characteristics attributed to it in the dt•cision cunstruing the relative taxing powers 0ft.he Dominion anrl the Provinces under the BritiHh North America Act I 8l\'i. Before dealing with the Australian decision to which !\Ir. Pathak drew our attt>ntion, we could con· veni<'ntly dispose of the American Mses which were referred to b~· the learner! counsel hearing on the mPaning of the word "excise". We might point out that the American decisions do not assist the appP II ant in the ]pa,t ~ince under the Constitution of the Unitl'tl States practically every tax other than a capitation, a poll tax or a tax on land is termed an "exise dnt y"' 11.nd even income.tax was held t.o be an 'exclsP' until the det·ision of tho Supreme Court of the 1"nited States in l'ollock v. Farmers Loan & Trust Co ( 1) • It. has to be borne in mintl that the American Co1rntit ntion provides that tlirect taxeH have to be apportioned amonir the StatPs according to their r·cspective pop11l11tions {Art. I, s. 2, and Art. I, s. 9, el. .t), Hence the at· tempt in the l 'nited States has been to bring taxes which according to the classification of economista woul<l be direct taxt-s within tile category of excise or indirect taxf's which need not follow the rule as to apportionment among the States. It follows, (Ii 1"8 U.S. GO!. - • ' 2 S.C.R. SUPREME COURT REPORTS 17 therefore, that neither the American decisions, nor the understanding by the Courts of t,hat country as to what a duty of excise connotes can be of any utility for deciding the content of that entry in the Indian Constitution. The relevance of the American decisions is, therefore, even remoter than the decisions from Canada which were relied on by the learned Counsel. Mr. Pathak referred us to some of the deci­ sions in Australia and in particular to Parton v. Milk Board (Victoria)(') in support of his submission that the characteristic of being an indirect tax and therefore the capability of being passed on wa~ an essential ingredient anrl pre-requisite of an excise duty. In this connection it is necessary to point out that the decisions in Canada which were relied on by Mr. Pathak as aids for understanding the import of the expression "duty of excise" in Entry 84, have been treated by the A11stralian Courts as not helpful to determine the meaning of "excise" in s. 90 of the comm<:mwealth of Austrnlia Act. As explained by Wync-s * : "In Canada, the distribution of taxation is based upon the direct and indirect charac­ ter thereof, the Provincial power being limit­ ed to direct taxation within the Pr.ovince. Hence Canadian cases such as the Bank of Toronto v. Lambe are of verv little use in settling the qu~stion whether or. not a tax is a duty of customs or excise within the meaning of the Australian Constitution. It may be pointed out that under the Australian ~onstitution taxes levied on commercial dealings m goods prodnced, such as taxes on sales, have been held to fall within the category of excises. Several of the decisions of the Australian High Court rendered before Parton v. Milk Boar<l (Victoria (1) dealing with what constituted an excise (I) 80C.L.R. 229. "' \Vynes' Legislative, ExecutiYe and Judicial Powers in Austr1lia (Second Edition). at page 504. 1961 Chiolabhai J ethabhai Patd and Co. v. The Union of India Ay)'angar J. 1961 Chhotabhai J eth•bhai ' Po.tel and Co v. Tiu Unioii of India AY..10.ngar J. 18 SUPREME COURT REPOR'fS [19621 SUPP. under s. 90 of the Commonwealth of Austtalian Act wero cited to the Federal Court in the Province of Madras v. Bod.du Paidanoo (1) and the lear.ned. Chief Justic"e, after referring to them in detail, observed: "Yf e find it impossible to say t)lat the expressii:Jn 'duties of•«i<xcise' even jn Austra­ lia is limited to duties imposed ii) c~mnection with tlie producti9n of a commodity alone. We s~ould be d!spose<'l to say ,on the con!!'?-P' that m Australia all taxes on the sale «~f com­ modities are, or may be regarded, as, duties of excise.:-:-:.._. .............. Under t"qe Australian Constitution 'power to impose duties .of excise is,· as we have said, ,the exclusive right of the Qommonwealtb.-Parliamerit; th.e residuary taxing power remains in the .States. In the Indian Constitution Act the·whole o"f-the taxing power ':in .this particular sphere is ex­ pressly apportioned between the Centre and the Provinces, to .the one being -assigged the power" to impose duties ·of excise, to the other taxes on the sale of gocids." The decision in the Milk, Board case follows iii" gener'al the same·lines as did the earlier decisiqns which have been detailed and discussed by Sir Maurice Gwyer C. J. in P1t·idannn's case('). fn these circum­ stances we do not consider it useful or necessary to discuss these decision~. Undoubtedly, there .are passages in those judgments in the Australian Courts which refer to the fact that an excise duty is an instance of ;m indirect tax. As regards the general proposition, however, thcre:is little contro­ vercy, but these decisions di<l not Jay down that .if by reason 'of the tax being levied retrospectively the duty cannot be passed on it. coase<l to be a du~y of excise. On the other hand, there is express and high a.uthority for t!ie posjtion that a duty of ex­ cise could be validly levied ;With retrospective effect nnder the Australian.Constitutjon. The question for dl [19{2] F.C.R 90. !03. ·~ 2 S.C.R. SVPREME COURT REPORTS 19 consideration before the privy Council in Colonial Sugar Refining Company Ltd. v. Irving(') related to the constitutional validity of the Excise Tariff Art,1902, passed by the Commonwealth Parliament. One of the objections raised to the levy was that on the terms of the enactment which was passed on the 26th of July, 1902, the imposition of the duty could be as and from October 8, 1901, the day on which the Minister had moved a resolution to that effect in the committee of Ways & Means of the House of Representatives. The respondent before the Board who were manufacturers of rofinod sug'u in Bris­ bane in the State of Queensland questioned the legality of the tax which had been demanded and paid by them in respect of the sug1'r produced by them between October 8, HJOI, and July 26, HJ02. Lord Davey delivering the jndgmf'nt of tho Board observed: "It is a little difficult to understand the first point taken by the appellants. The Parliament !rad undoubted power to impose taxation under the express words of s. 51 of the Constitution, and it is not now disputed that the Parliament could, if it thought fit, make the Act retrospective and impose the duties from the date of the resolution. That practice is (it is believed) universally followed in the imperial Parliament, and (their Lord­ ships were told) is common in the Colonial Legislotures in Acts of this description, and for obvious reasons it is convenient and almost necessary. There was nothing, therefore, in either the subject matter of the Act, or in the mode of dealing with it, \vhich was beyond the power of the Parliament." In our opinion, the above aptly describes and covers the point raised by .the appellants in the appeals now before us. · (I) [1906] A.C. JGO Chhotabhai Jethabhai Patel and Co. v. The Un ion of Iniia A vyangar J. Ch~11l•ihai .1,11ul.bh11i l'•ltl ani r: o. v. T"6 l'nioli of lr.J1c 20 SUPRElltE COURT REPORTS. [196~] SUPP. There is no doubt th<it excise duties have been referred to hy the economists and in the judgments of the Privy Counci I RS well as in the Australian c!Pcisions a' an instance of an "indirect tax", hut in construing the l·xpression " duty of excifie " as it o~c·urn in , Entry 84 we are not. cc;n­ ccrned so much "·ith whethC'r the tt•x is " direct'' or " imlirect ., aK upon the transH.ction or actiYity on whir:h it i;; impnscrl. In this context one has to bear in mind the fad thnt the challenge to the legislative competence of th" tax-levy is not directerl to the imposition as a whole hut to a very limited and restriderl part of it. This r·ballenge i;i C••nfined (a) t.o t.he operation of t.h<' tax between tho period March I, I 951.. and April :.'8, 19;)], and ( b) e\·en in regard to this limited period, it is restrietecl to the impo>ition uf the additional duty of six .'\nnas per lb. which was h•vied, bPyond the "ight annas per lb. eollect<•d ·from the appell­ nnts liy virtiw of th" Financ<' Bill urulcr the pro­ visions of the Provisio11al r,i;illection of Taxes Art, l!lill. ft wuulrl F<'l'm to be rather a Htrangc result to ad1ievc that tht' tax impos('(l Hatistics PVC!'.)" requin·ment "f a " duty of <>Xcise " in so far aR the tax 01wratc;; from a11d after i\pril 28, 19.'il, hut is not a "dutv of excise" for the dura­ t.inn nf two months l1efor~• that. d<tf<'. Le<L11wd Coun>cl conccd .. d, as h<· had. to, that e\'l'll on the rkcisirm 1·clied npon hy him, the fact tlrnt owing to the operation of l'<"o11omic forer·,; it W<L> not pos;;ihle for the taxp<tycr to pass on the burden uf the tax, <lid not alter th<" nature of thf' imposition 11.nd detract frorn its !wing a " dnty of exci.se ''. l·.,or inst><\I11·e, the Sl<Lt<~ of the 1nar­ ket might be such that th" duty imposer! npon 11.nd 1·01ll'd<·<I from the producer or manufacturer rn i !!ht not lH' ca pa hit' of being pass rd on to buy­ <'rs from him. Lr•amed Counsel urged that this would not rnatkr, ;is 0111> had to have r~·gard to "the "'Ciieral tendency of the t.ax ·· and "the ex1lectatio11 "' . •• - ·• 2S.C.R. SUPREME COURT REPORT5 21 of the taxing authority" and to the possi­ bility of its being passed on and not to the fact:i of any particular case whieh impeded th(l opera­ tion of natural economic forces. The impediment to the duty being passed on might be due not merely to private bari:;aini between the parties or abnormal econo1mc s1tu1t­ tions such as tho market for a cammodity being a buyers' market .. · Such impediments may be brought about by the operation of other laws which Parliament mi£d1t enact, such for imtance, . as control over prices. If in such a situatiop were the price which the producer might charge his buyer is fixed by the statute, say under the Essential Supplies Act, and a " duty of excise " is later imposed on the manufacturer, it could not be said that the duty imposed would not answer the description of an "excise duty". Learned Counsel had really no answer to the situabion created by such a oontrol of economy except to say that it would be an abnormal economic situa­ tion. It could hardly be open to argument that a tax levied on a manufacturer could be stated not to be a "duty of excise", merely because by reason of the operation of other laws the tax payer was not permitted to pass on the tax· levy. The retrospective levy of a tax would be one further instance of such inability to pass on, which does rut alter the real nature or true character of the duty. --' It might further be pointed out that the submis- sion of the learned Counsel that a tax which accor. ding to economic theory is an indirect tax or :. tax on goods becomes a direct and a personal tax and a tax of a different nature or category if imposed retrospectively because it was then incapable of being passed on, does not correctly represent the law as laid down by this Court. In common with dutie3 of customs and excise, a tax on the salQ of goods is another instance of a typical indirect tax. l~il C/Jh•:••hai J eth•ih•i P•tel 4ni C,, v. 1} · f.'ni111 •f lnii• 1961 Chhotahlai Jethabhoi Patti and Cn. v. TIN UnWn of India A»ant•' J. 22 SUPRE.ME COURT REPORTS [196~] SUPP. Indeed Lord Thankerton pointed out in Attorney­ Geneml for British Columbfo v. /\iru;cnme Nri~igation Compauy Ltd. (') : "The ultirnak incidence of the tax in t.hr 8PnHc of politic•il economist is to be disre­ garded and referred to a tax imposed in respect of some dcali11gs in commodities such as their import. or sale or production for sale as instan­ ces of indirect taxes, the tax not being a pecu­ liar contribution upon oue of the parties to the tra<ling in the particular commodity selected as the tax-payer." The question of the validity of the imposition of a sak·8 tax with retrospective effl'ct came up for considcr·ttion before this Court in the Tata Iron & Steel Co. Ltd. v. 1'/u, Slnlt of Bil1ar ('). An arg11men t simil:tr to th., one uow present ~d Lefore us was ~ubmitted to this Court in chall.-nge of that le,-y which was summarized by Das, C.J., in these terms : "]he retrospective levy by reason of the amendment of s. 4( I) (of tlw Ribar Sales­ tax Act which was impugned) destroys its character as a sales tax aud makes it a direct tax on the dealer inskad of an indirect tax to be pa88ed on to tho consumer.'' ])ealinf! with this point the learned Chief Justice saicl "Th<' argument is that ~a !es-tax is an indirect tax on tho consumer. Tho idea is that the seller will pass it on to hia puroha~er am! eollect it from them. If that is tho na­ ture "f the sales-tax then, urges the learned Attorney-General, it canuot be imposed retrospectively a.fwr the sale transaction has been concluded by the passing of title from the seller to the buyer, for it cannot, at that ill [1934, A.G. 4S. (2: [1958] S.C.R. 135S. .. •• •• 2 S.C.R. SUPREME COURT REPORTS ~tage, be passed on to the purchaser ........ . ... . .. Once that ti mu . goes past, the seller loBes tha chance of realising it from the purchaser and if it c<>nnot be realised from the purchaser, it cannot be called sales-tax. In our judgment this arg•1mcnt is not sound . :From the point of view of the economist and as an economic theory, sales-tax may be an indirect tax on the consumers, but lcgall3 it need not be so ............... This also makes it clear that the .;:;ales-tax ueAd not be passed on to the purchiteers and this fact": does not alter the real nature of the tax whieh, by the express provisions of the, law, is cast upon the se!lel' ............... If that be the true view of sales-tax then the Bihar Legishtture acting within its oiin legislative field had the powers of a sovereign legislature and could make the law prospectively as well as retros· pectively. We do not think that there is any substance in this contention." In our judgment this passage covers the al'gument ·regarding a duty of excise getting its essential na­ ture altered and ceasing to be a duty of excise if imposed retrospectively. The submission, there­ fore, lacks any force and is rejected. It is also necessary to refer to one further matter : Even assuming that . the learned Counsel is right in his submission that to be a duty of excise within Entry 84 of the Union List the tax­ ing authority should have expected the tax to be passed on, we consider that learned Counsel is not right in submitting that that condition is not satis­ fied in the case of the levy now impugned. '"he provisions of the impunged enactment have to be read in the light of s. 64A of the Sale of Goods Act which enacts : " In the event of any duty of customs or excise on any goods being imposed, increased decreased or remitted after tl;i.e making of any 1961 Chhitabhai .!dh•Oh•i Pr1fel o.11d Co. Y. Th~ Union of !11tl.i11 Ay;·•n:•r J. 1961 Chhotabhai J 1Urabhai Patti and Co. .v. Tht Uninn of India SUPRE:IIE COURT REPORTS [l!J62] SUPP. contract for the sale of such goods without stipulation as to the payment of duty where duty was nut chargeable at the time of the, making of the contract, or for the sule of such goods duty·puid where duty was churge· able at that time :- (a) if such imposition or incn·ase so takes effo<•t tluit the duty ur im-reased duty, as the case.may be or any part thereof, is paid,. the seller may add so much to the contract price as~ will be equi\·ai<'nt to the amount paid in respect of such duty or increase of duty, and he shall Le <'ntitled t<r be paid and to sue for and recover such addition, and (b) if such dPcn·ase or rem1ss1011 so takes effect that the decreased dutv only or no duty, as the case may be, f;; paid, the buyer may deduct su much from the contract. price as will be equiva­ lent to the decrease of duty or remitted duty and he Bhall nut be liahlo to pay, or be sued for or in respe<>t of, such de1luction." This provi8ion originally formed s. Ill of tbt• Tariff Act VJ[ [ of 18!!4 <incl wag su Lsequ!'ntly enact.Pd as o.10 in the Indian Tariff Act of 193~ (cl Act XXXfI of l!l:l1). The <Jhject of the statutory provision is that whern contracts for the sale of goods are entered into and the price payable ther;;for deter­ mined on the hasis of !'xisting rates of duty-either of excise or of customs-neither party shall be prejudiced or <>drnntaged by reason of the increase or decrrasc of tho duty. The question as to the scopt' of s. IO of the Tariff Act of 1894 came up for consideration before a Bench of the Madras High Court whoso decision is reported in Nani,yaiian v, Ka,dir Scihib (1). The Huit out of which tho second appeal before the High (I) A.1.R. 1930 Mad. 6()(,. •• .. ,_ ;- 2 S.C.R. SUPREME COURT REPORTS 25 Court arose was by a buyer of salt for the refund of salt-excise dut.y which had been reduced after the date of the . contract. The transaction of sale between the plaintiff and the defendant took place on March 5, 1922, and the price payable by the plaintiff was based on the rate of duty prevailing on that date. Subsequent thereto the Government of India reduced the duty on salt from Rs. 5/- to Rs. 2/8/- per bag and this was to have effect from a date prior to March 5, 1922. The defendant-firm (the sellers) had obtained from the Government refund of the duty on the salt sold by them to the plaintiff. It was to recover this amount of duty that the suit was filed by the buyer. The learned Judges held that on the terms of s. 10 of the Tariff Act of 1894 (indentical with s. 64A of the Sale of Goods Act) the fact that the contract was no longer executary but that delivery had been made and the price paid, was no bar to the plaintiff succeed­ ing in his suit. It will be seen that s. 64A is in two parts : the first cl. (a) dealing with the case of an increase in duty and conferring on the seller the right to recover the amount of the increased duty from the buyer, and the second limb (cl. b) making provi­ sion regarding the correlated case of a reduction in the duty with corresponding rights to the buyer to obtain the benefit of a reduction. Whatever argu­ ment might be raised based upon the language of the second limb of the section, it is not open to doubt that in th·e case of an increase in duty, the s.eller would be entitled to recover the duty from the buyer provided : (a) there was no contra.ct to the contrary by which he had precluded himself from claiming Enlch enhanced duty, i. e., tlfe con­ tract having negatived or limited the seller's right to prefer such a claim, or was at least silent as regards what waa to happen in the event of the duty being increased, (b) the change in the rate of duty was effected after the date of the contract. In 1961 Chholabhai J ethabhai Patel and OiJ. v. The Union of [ndi Ayyangar J. /9-jJ Chf.'J:aif•,1i J1'h'1bhai I'a:,./ a1,d Co. •. 11.r l,"1,i?n of fn:fi:J 26 SL'Pl{E:\IE COURT REPORTS (196:!] SUPP. thcHe eircumstauceH, it appearn to us that ther~ might not lw e\'t•n a factual basis for the complaint of learned Counsel for tht· appellants that in the eaHe of a rntroHp.,ctive increa.~e in duty, the duty cea>«S tu be a duty of excise by becoming a "dirnct" tax bucause it w<>.~ inc1q>able of being passed on. The antiwer of learned Counsel to thiR point. regard ing the operation of s. ti4A uf the Sale of Goods A<:t was merclv that the Court eould not take account of the 'pro·l"isions of another statute for dealing with the validity of a provision of the Finance Act l!Jll. The submission has no force at all because H. fi4A of the Sale of Goods Act. referH in express terills to "duties of l'XCiHe ·· and has, therefore, to Le read as part and parcel of every legislation imposing a duty of excise. In view of our conclusion, howcnr, that the duty in the pre­ sent ease, notwithstanding its imposition with retrospective effect, and even if it he that it was incapable of being passed on to a buyer from the tax-payer, was a duty of excise within Entry 84 as properly understood it is not nrC<'8sary to rest it upon this narrower gruond. In our view, a duty of excise is a tax-levy on home· produced goods of a specified class or des­ cription, the duty being calculated according to quantity or value of tho goods and which is levied because of the mere fact of the goods having been produced or manufactured and unrelated to and not dependent on any commercial transaction in them. The duty in the present case satisfies this test and therefore it is unnecessary to seek other grounds for sustaining the validity of tho tax. One further aspect, of the. matter on which some emphasis wa.s laid by Mr. Pathak was that a duty of excise was in itsielll!once a tax on goods and not a personal tax levied on the tax payer such a.s a.n income-tax. He urged that being a ta.x levied on goods notwithstanding that it wu i . ·t 2 S.C.R. SUPREME COURT REPORTS 27 collected from the producer or manufacturer, it followed that the essential attribute or characteris­ tic of that duty was that the producer or manufac­ turer must own or have possession and control over the goods at the moment of the levy. If this element of ownership, possession or control over the goods by the tax-payer was lacking, learned Counsel urged the duty would not be a duty on the goods but a personal tax levied on the tax-payer. This is really another aspect of the same argu­ ment that a duty of excise is in its nature an in­ direct ta.x but learned Counsel submitted that viewed from this angle it would be seen that the duty imposed by the impugned enactment was shown to be not a duty of excise. The grounds upon which the submission of learned Counsel that a duty of excise levied retrospectively was conver­ ted into a direct tax and therefore not a duty of excise have been repelled by us which ought to suffice to repel the contention in this form also. Besides, it may also be pointed out that even in strict theory there is no basis for the submission now under consideration. The duty imposed by the impugned Act being riitrospeotive, it operates as from a previous date and admittedly on the date when by force of the enactment the duty was levied the tax-payer was the qwner or was in posses­ sion and control of the goods. To deny this, would in effect deny the legal effect of the tax being imposed retrospectively and fictionally deemed to be in force on an earlier date. In dealing with the arguments of learned Counsel on the scope and content of Entry 84 of the Constitution and of the meaning of the expres­ sion "duty of excise" in that entry we have also covered the special argument questioning the right of Parliament to impose retrospectively a duty of excise. It was conceded, that Parlia­ ment has power to enact laws with retrospective effect and as it was not suggested that laws IY6J Chhotabhai Jethabha Patel and Co. v. The Union of India A.yyangar J. 19GI Chhot..l-ha: J,r;,o(,h.•ii Paid ar:d Ca. v. '1'1.t l 0 n1m of /r.d;a :!S SUPHEME COCRT REPORTS [l 962) St'PP. dealing with taxation are any exception to that rule t.he only ground upon which t.he lt:arnc<l Courrnel could rest this submisHion waH that being an in­ direct tax, capability of being passed on was an essrntial characteriHtic or requirement of a duty of l'XCisc, and so it;; imposition with retrospective effect <lepriV('d it of that. C"•'ntial character and therefore rendered it a duly. r a diffent nature and for t-hat rt•ason ;i rctros)>c•·' ive imposition of an excise duty was not permissible. It would b~ soen that this is really the same argument which we hav(' dealt with earlier presented in another form. For the reasons already stated, we find no substance in this form of argument either and we have no hesitation in rejeeting it. It need only he men­ tioned that the pa..-sage in judgment of Lord J);wuy in thB Cofon-iril Sugar Refining Company Lf,f. v. lri-in9 (1), already <'Xtracte<l, is sufficient precedent., if authority were needed, to reject thiH argument. The second point raised by learned Counsel was that the impugned s. i(2) of the Act Wa8 un­ constitutiona,l in that it contravened the funda­ mental rights guaranteed under ArtH. l!J(l )(f) and 31 (1) and (2) of the Constitution. It was urged that even if the impu6'lled provision was within the legislative competence of Parliament as being covered by Entry 84 of the Vnion List, the retros­ pective levy of an excise duty violated the free­ dom guaranteed by Art. l!J (l)(f)-· the right to hold property--and was not saved by Art. l!l(5) since the same was not "u reasa1wble res/mint'' on the rights of tho appellant. If Counsel was right so fat, his next submission was that the threat to deprive the appellant of the amount of the tax­ levy was a deprivation without authority of Jaw­ Art. 31(1) and was further a compulsory acquisition of that property without compensation (Art. 31(2) ) which was not saved by Art. 31(5)(b)(i) because the (I) (1906] A.C. 360. •· 2 s.c.R. SUPREME COURT REPORTS 29 law contemplated by that sub.article was a valid law for the imposition of a tax which satisfied the require'llents both of legislative competence and of the rights guaranteed by Part III of the Constitution. The submission of Mr. Pathak on this part of the case was briefly as follows. A law which imposes a tax and provides fo~ its levy and collec­ tion is as much a law, as a law under other non­ taxation entries of the legislative list. All laws in­ cluding laws imposing taxes are within Part III of the Constitution being laws under Art. 13(2) thereof and unless any particular Article was inapplicable to such laws by reason of obvious irrelevance every Article in the Part would apply to thAm and without such a law satisfyin!! the test of reasonableness or constitutionality laid down in the various Articles guaranteeing the several. Fundamental rights the statute in question could not be pronounced valid and enforceable. We shall be referring to the manner in which Mr. Pathak sought to urge that the impugned pro­ vision offended Art. 19(1) (f), but before doing so, it is necessary to notice the submission which Mr. San ya! invited us to accept. He raieed a broad contention that no law imposing a tax could be impugned on the ground of violation of Part II£ of the Constitution in gene­ ral and in particular of Art. 19(1) (f) or Art. 31. His submission was that the validity of tax laws were governed solely by Art. 265 and that such laws were not governed by Part III of the Consti­ tution and specially because the money sought to be taken by the State as tax by virtue of lli: fiscal enactment was not "propert:v" within Art. 19(1) (fl and that the 6%pression "laws for the purpose of imposing a tax'' used in Art. 31(5) (b) (i) saved all laws from the operation of Art. 31 whether such law11 be withfo legislative competence or not, as 19~1 ChhotaM.ai .,' ethabh~i Patel and Co. •• Tie Union of India 1961 '::Moiabhai J 11habh.1i Patil and Co. v. Thr [ir.io11 cif ln4ia also whether or not such laws were repugnant to Part III of the Constitution. Re fore ad vcrting to the decisions on wb ich reliance was pl1iced for this position two things might be pointed out: (I) that Art. 265 merely en­ act" that all taxation-the imposition, levy and eollcction shall be hy law ; and (2) that the Article beyond excluding purely executive action does not by itself lay down any criterion for determining the validity of such a law to justify any contention that the criteria laid down exclude others to be found elsewhere in the Constitution for laws in general. If by reason of Art. 265 ewry tax has to be impos­ ed by "law" it would appear to follow that it could only be imposed by a law which is valid by con­ formity to the criteria laid down in the relevant Articles of the Conotitution. These are that tho law should be ( 1) within the legislative competence of the legislature being covered by the legislative entries in Schedule VII of the Constitution; (2) the law should not be prohibited by any partieul11-r provision of the Constitution such as for example, Arts. 276(2), 286 eto., and (3) the law or the rele­ vant portion thereof should not be invalid under Art. I 3 for rnpugnancy to those freedoms which are guaranteed by Part III of the Constitu­ tion which are relevant to the subject matter of the law. The reference therefore to Art. 265 does not lead necessarily to the result envisaged by Mr. Sanyal. The entire argument of Mr. Sanyal on this part of the case was rested on the observations con­ tained in two decisions of this Court, Ramjilal v. Income-tax Officer, M ohirulargarh ( ') and /.,axmnnappa lfanumanlappa .!amkhandi v. The Union oj India('). We do not understand these deciRions as laying down any ~uch broad proposition. Wf' arc further (I) ~1951~ S.C.R. 127. (2) [195~1IS.C.R.769. I• 2 S.C.R. SUPREME COURT REPORTS 31 satisfied that the learned Judges could not have meant that if a law imposing a tax was outside the legislative compentence of the legislature enacting it, as the argument before us appeared to suggest ii could be a htw nuder which a person could be depri­ ved of his property under Art. 31(1) or regarding which a person could not move this Court for relief under Art. 32. Such a proposition would be contrary to a long catena of cases of this Court of which it is sufficient to refer to _,Jfohammad Yasin v. The Town Area. Committee, Jalalabad (1), State of Bombay v. The United Motors (Indin) Ltd. ('), The Bengal Immunity Company Limited v. The State of Bihar (') and Oh. Tika Ramji v. The State of Uttar Pradesh ('). In all these cases the legislation imposing the tax or the fee which had been held not to have been within the legislative compe­ tence of the authority imposing the tax or the fee was struck down on the ground that those laws violated the freedom guaranteed by Part III of the Constitution. Learned Counsel laid some stress on the fact that in these cases the tax or fee was held to be unconstitutional as imposing an unreasonable restraint on the right to carry on a trade or busines8 guaranteed by Art.19(1 )(g) and not as an infringement of the right to hold "property" under Art. l9(l)(f). In our opinion nothing turns on this, for it is the deprivation of the freedom "to hold property" that is the direct result of the tax and the restraint on the business by reason of the collection of the illegal tax or the procedures pres­ cribed for such collection is only an indirect and incidental effect thereof. Nor do we find it possible to accept even the more limited proposition that whatever be the posi­ tion in regard to tax law• which lack legislative competence, once a tax law is covered by an entry in the Legislative Lht and does not contravene direct prohibitions like those in Arts. :!i() (2) or :!86 (I) [19521S.C.R.5i8. (3J 1195512S.C.lt.1;03. (21 [!9531 S.C.R. !069. ({) j 10561 S.C.R. 393. Chhotabhai Jetftabha fate! and Cu. v. The U!iion of Indio ;· .B2 S~R,EME COlJRT REPORTS [1962) SUP)?. .. . ..;· .. :..~ .:· :' . · · ·:uoi ·· ·· ;. ··. ·.efo.; :such a law is ·immune froin the limitations ... _____, .. ChhotabhaiJethabh,i im,posed by Part III of the Constitution. Pafel and Co. · .•· .. . • v. · • Mr. S-anyal is right in his snbmission that the · :Th, L~ ma.iii: levyip.g of. ta:tes· though ·it might involve taking Ayyang_ar·J·:• · ·-, ·p,r:i:v.atjp pro'J:)e·rty· for a public use. is entirely distinct fi:.Qm·tJie i:J.ower of eminent domain which is covered b:V Art. 31 (1)(2) and that the saving in Art. 31(5)(b) ~(i) of such ln.ws is really by way of abundant . caution, It has been stated that where "property is taken· upder a taxing po'wer, the per.~ons so taxed may be said to be compenSa.ted for their contribu­ tion by'the general benefits which they receive from the existence and operation ~of Government. But this is not to Sll.y that the burden of a tax that may be constitutionally laid uvon an individual need.a to be justified by a showing that he, individually will reeeive benefit from the expenditure of the proceeds of the tax, and much less that the degree of ths.t burden may be measured by the amount of benefit that the tax payer is excepted to receive ('}". It would. therefore, be obvious that a tax law need not satisfy the tests of Art. 31(2). But it does not follow that eyery other Article of Part III is inapplicable to tax laws. Leaving aside Art. 31(2) that1 the provisions of a tax law within legislative compentence could be impugned as offending Art. 14 is E1xemplified by such decisions of this Court as Suraj Mal Motha v. Sri A. V. Visva­ natha Sastri (') and Shree Meena.kshi Mitls Ltd., Madurai v. Sri A. V. Visvanatha Sastri (') In Moopil Nair v. State of Kerala (') the Kerela Land Ta.x Act was struck down as unconstitutional as violating the freedom guaranteed by Art. 14. It also goes without saying that if the imposition of the tax was discriminatory as contrary to Art. 15, the levy would be invalid. It might very well be that· a distinction might have to be drawn between the legalit~ of the (!) Willoughly Law of the U.S. (2nd Students Edn. p. 282). (2) [1951]1 S.C.R. 441!. (3) I S.C.R. 787. (4) [1961] 3 S.C.R. 77. l ' l , .I I r 2 S.C.R. SUPREME COURT REPORTS. · 33 qnantum o! a tax levied which might not be open to challenge umler Art. Hl(l)(f) fond tho incidence of t.he tax or the proc6dure prescribed therein either for the assessment or the colleclirin which might be open for being tested with reference to all the free­ doms including that contained in Art. 19( l)(f}: In fact in 11foopil Nair v. State of K eral,a (') already· referred to, certain provisions of the Act therein challenged which proscribed· the procedure for the levv of the tax were struck down on tlie ground of ·being obnoxious to Art. 19(1 l(f). Having regard to the very limited controversy before us. we do not consider it necessary to embark on any further or more detailed oxaminat.ion of t.his ques­ tion, except to say that we cannot accept. tho argu­ ment of the learned Additional Solicitor Uene:r:al that by reason of Art. :2G5 tax 111ws are outside Part III of the Constitution. In support of the submission that a tax levied with retrospective. effect was unconstitutional as being an unreasonable restriction on the right to hold property (-4.rt. 19( l)(f)). Mr. Pathak relied on the decisions in Nichol-1 v. Coolidge ('). The tax in question was an estate duty on property passing on death and in the items to be included for computtng the value of the estatP was included not merely all property of which the deceased: died possc<iscd, on the daie of hi" death but also that "·hil'h he h~vl transferred by gifts within a period of t\\"o yfurs lwfore his death. This inclu~ion of pro­ pcl'fy trausforred to third persons not in POntempla­ tirm of death bnt by the grnntor in the ordinary and natural course of tho transac­ tion of his affairs so that tho donees might enjoy the properties absolutely, was held to be unconstitutional as offend in<! the rule as to "due process" contained in fifth amcndmC'1.t (o the consti­ tution. Justice McHr>ynnlds rll'livr'ring the. opinion ofthe Court said: (1) 11%1] S. C.R. 77. 1981 . ~.; Chhol•bhai J dhabhai Patel and Co . .. ' The Union of India·. Ayyongar J, 196..., Chhotabhai Jethabhci Patel and Co. v.· The Unior' of India Ayyangar J. "Under the theory advanced for the United States, the arbitrary, whimsical and burdensome ch<1-racter of the challenged tax is plain enough ......... Real estate transferred years ago, when of small value, may be worth an enormous sum at the death. If the deceas­ ed leaves no estate there. can be no tax; if, on the other hand, he leaves ten dollars both that and the real estate become liable. Different ~-- estates must bear d.isprbportionate burdens determined by what the deceased did ene or twenty years b.efore he died. This Court has !.il.cognised that a statute purporting to tax mp,y be so arbitrary and capricious as to amnunt to confiscation and offend the fifth i\meh_dment. We mus} conclude thats. 402(c) of the statute here under consideration, in· so _ __ fl!! as it req}lircs that ther~ shall be included - in. the gross estate the value of property trans­ ferred by a qecease_d prior to its passage merel? because the conveyance was intended to ta:ke effect in "possession or enjoyment at or after his death, is arbitrary, C'l.pricrolI!Rtnd­ amounts to confiscation." Learned Counsel also referr.e<l_ us to a few later decisions of the American Supreme Court in whieh­ retrospective taxation has been held arbitrary and capricious and to amoµnt to· a violatjon of the due process chi.us~ cont.ained in the 5th Amendment. In regard to t~ese decisions, two points have to be noted : ( 1) that ·the decisions of Supreme Court of th" United States are not llniform and there are undoubtedly decisions of the Court. of a later date which sp"ak the other way. Jn Third National Bank v. White (1) the Supre111e Coui:t upheld an estate tax which operated ret.rospectively. It is in view of these decisions that Mr. Ballard states in an article iu the Harvard Law Review (*), referring t .1 White's case (1) I I) (1~32) 2::7 U.S. 5V7 (*)~fl Har\·ord Law ReYic,v. P. 592. ' r , i r 2 S.C.R. SUPREME COURT REPORTS" 35 "It seems accurate· to say that the deci­ sion marks for practical purposes the passing of 'atbitrary retroaotivity' in the field of the estate tax ............ And the present status of Nichols v. Coolidge is not entirely clear ............ Since the .Nichols case can be distinguished on its facts, it may well give way ............ Ip any event ........ c ... it would seem that after the White case no application of the estate tar can be successfully resisted on the score .of retroactivity." For instance in Welch v. Henry (') whinh relakd to an enactment imposing income tax which had retrospective operation, Justice Stone delivering the .Tudgment of the Court referring to Nic(tols v. Coolidge (2 ) and other cases in which observations broadly stating that any retrospective tax legisla­ tion iyas obnoxious .to the requirement of due pro- cess, stated : · "Even a retroactive gift tax has been held valid where the .donor was forewarned by the statute bqoks of tlw possibility of snch a levy. In each case it is necessary to consider the nature of the tax and the circumstances in which it is laid before it can be said that its retroactive application is so harsh and oppres­ sive as to transgress .the constitutional limi­ tation.,, "Any cl~ssificatioq for taxation is permis­ sible which l;tasreasonable.relatioll to a legi­ .timate end of governmental ac~ion. Taxation is but the means .by which goverilmPnt distri-. butes the, buruens of its cost among those who. enjoy its benefits. And the ilistribution of a tax burden ,by placing it in.part on a:spe-cial class which by reason of t]le :taxing policy of the State has ~scaped all·ta:ic auring:the taxa):>le pe~iod is not a· .,denial of equal prqtectfon. (0 305 u.s, >.C.R. 135, 146; 83 Law Ed. 37, (2) 71 Law Erl. llB4. l ' ' 1961 Ghhotabhai Jethabha· -Patel and <:o. V; .T/.e Union of India Ayyangar J. 1981 1..:hhotabhai J ethabhai Pate/ and Co. Y. The Union of India 4J.yangar J. 36 SUPREME COURT REPORTS [1962) SUPP. Nor is the tax any more a deni~l of equal protection because retroactive ........... A tax is nQt necessarily unconstitutional bPcause retroactive. Milliken .\". United States and cases there cited. Taxtaf ion is nei.ther a penalty imposed on the taxpay•·•· not a liahility he assumes by contract. It is but a way of ap· portioning the caRt of government among those who in snme measure are privilcg<'d to enjoy its benefits and must bear its burrlcns. Since no citiz<'n enjoys immnnity from that burdPD, its ret.roactive imposition .does not necessarily infringe due process, and to challenge the present tax is not enoniz.h to pc.int out that the taxable evont, the receipt of income, antt­ dateil the statute." In Unte1•myer v. Anderson(') which was concerned with the validity of a tax on gifts which was maria to operate from a date before it· was enacted, J us· tice Holmes stated : " ............ I find it hard to state to my- self articulately the ground for denying the power of CongrPRS to lay tho tax. We all know that we shall e-et a tax hill every year. I suppos.e that the taxing a<'t may be passed in th" middle as lawfully as at the begining of the year. A tax may be l<·\' ied for past privileges and protection as \l"Pll as for those to come," and Justie<> Brandeis made the added ob~Nvations which h:l\'e been repeatedly guotpr] in hter deci­ sions as wPJl as in text boolrn : "For more than half a century, it has bee11 settled that a lli.w of Congress imposing a tax may Le retroactive in its operation ...... Each of the fifteen income tax acts adopted from time to tii:ne during the la~t sixty-seven yea1S' has been retro;1ctivt'", in that it applied (!) 72 I.aw Ed. 645, f.47. - ... l ' 2 S.C.R. SUPREME COURT REPORTS 37 to income earned, prior to the passage of the act durin" the c;;lendat· "ear ........... The need ' 0 ·' of the governm<·nt for revenue has hitherto been deemed a sufficient justification for making a tax measure retroactive whenever the imposition seemecl consonant with justice and the conditions were not such as would ordinarily involve hardship. On this broad gro­ und rest the cases in which a special assessment has been upheld ......... Liability for taxes under retroactive legislation has been 'one of the notorious incidents of social life' ...... Recently this Court recognized broadly that 'a tax may be imposed in respect of past benefit'." lt would thus be seen that even under the con­ stitution of the United States of America the un­ constitutionality of a retrospectiYe tax is rested on what has been termed "the vague contours of the 5th Amendment.". Whereas under the Indian Constitutiol! that grounds on which infraction of the rights a property is to be tested not by the flexiule . rule of "due process" but on the more precise criteria set out in Art. 19(5), mere ~etros­ pectivity in the imposition of the tax cannot per se render the Law unconstitutional on the ground of its infringing the right to hold property under Art. 19( I )(f) or depriving the person of property under Art. 31( l ). If on the one hand, the tax enactment in question were beyond legislative competence of the UJJion or a :iltate necessarliy different considerations arise. 1'.iuch unauthorised imposition would undoubtedly not be a reason­ able re,;triut ion on the right to hold property bcoicl<·s being an unreasonable restraint on the carry­ ing on of lmsiness, if the tax in question is one which is laid 011 a person in respecL of his business activity. l\Tr. Pathak also presented his argument on this head in a slightly different furrn. He submitted that the Co1rntitution-makers had contemplated that a duty of excise would be imposed only when the lllfJI ChhotG.bhai J tfhabhai PattJ and Co. V, Tlie Union of India Ayyan,ear J. 38 SUPREllIE COURT REPORTS [1962] SUPP. !~:_ manufacturer or the producer was in possession and Chho••bl.,,; J,1habhai c.ontrol of the.goods at the moment of tho imposi- Pa1"v'."d r,. ~10n, and therefore would be in a position to pass The u,;,,, of fodia it on and obta.m payment from the purchaser of the duty paid by him to State. The imposition of the levy retrospectively however deprive him of this benefit of passing on the burden which he would normally ha vc. This restriction or impairment of his ri~ht to pass on the duty, be urged rendered the res· trietion imposed on him in the shape of the obliga­ tion to pay the duty unreasonable. Learned Counsel admitted that as the imposition would yield lo the Exchequer more money, the restriction 011 appellants' right to hold property could uot be denied to bo in the "interest of the general public .. within Art. 19 (ii) hut hi8 submission was that it lacked the charactl'r of "reasonableness'" because it deprived him of the right to pass on the tax to others. It was farther :1druitted that it was only if learned Counsel was right in hie sub· mission regarding the infraction of Art. 19 ( 1) (f) that any questiun of the violation of Art. JI ( l) could arise. [t would be seen thn,t it is the same argument as waA presented to challe11g .. the legis­ lative competence of Parliament to enact the legiH­ lation. Only the nomenclature employed is differ­ e11t and adapted to suit the need of bringing it into the fold of an impairment of fundamental rights under Part III of the Constitution. As Evatt, J. ohsct"\'ecl in Bro4;en llill South Limitd(Puhlic Office,-) v. Tlw Co mm·issicm a o J 1'a:mlion (New S omit_ Wales) (') "It is not proper to deny to the lagisla­ ture the right of solving tax3'tion problems unfet­ tered hy legal categories.'' If notwithstanding that according to economie theory or doctrmes pro­ pounded by economists a dnty of excise does not cease to be such, merelv becauso it is imposed at a time or in circumstances (as pointed out earlier in conjunction with a system of price control) in :,J) 5G C.L.R. 337, 370. ·. ' ' I 2 S.C.R. SUPREME COURT REPORTS 39 which it cannot be passed on one fails to see any substance in the argument that the imposition of such a tax is an unreasonable restriction on the exercise of the fundamental rights to hold pro­ perty guaranteed by Art. 19 (I) \f). The last of the points urged was that r. lOA was not apt to cover the recovery of the duty which was a subject of demand dated December 12, 1931. The learned Judges of the High Court rejected this submission and, in our opinion, correctly. Rule 10 under which the first demand of June 22, 1951, was made ran: "10. Recovery of duties or charges short levied or erroneously refunded.-When duties or charges have been short-levied through inadvertance, error, collusion or mis­ construction on the part of an offic .r, or through mis-statement as to the quantity, description or value of such goods on the part of the owner, or when any such duty or charge, after having been levied, has been owing to any such cause, erroneously refunded the per­ son chargeable with the duty or charge, so short-levied, or to whome such refund has been erroneously made shall pay the defi­ ciency or repay the amount paid to him in ex­ cess, as the case may be, on written demand by the proper officer being m~de within three months from the date on which the duty or charge was paid or adjusted in the owners account-current, if any, or from the date of m<lking the refuud." The contention which was then urged was that the sbort,!evy which led to the demand was not caused through inad vertance, error etc., which are set out in this rule and that consequently there was a defect in the operative machinery for collec­ tion of the refund. This objection of the present appellants was upheld by the Full Bench of the 1961 Chlwtahhai Jethabhai Patel and Co, v. The Union of India Ayvangar J. 1961 Chhotobhai J tthobhrii Paki and Co. v. 1'/u Union of India Kapv J. 40 SUPREME COUHT REPORTS [I!J62] SUPP. Nagpur High Court and it was as a result of this decision tliat rule IO A was fralllcd. This rule reads : . "] OA. Heaidua.ry µom·rs for reco\•ery of sums due to Govcrnment.-Whern t h<·He rul"s do not make any spe<'ific• provision for the collec·tion of any duty, or of auy defi­ ciency in duty if the duty has for :i.ny reason been slwrt-levicd, or of any other sum of any kind payable to th<' C<'nlral Gornrnment undPr tho Act or these Hules, such duty deficiency in dufy or sum ~hall, on a written demand mack by th<· proper officer, be pa.id to such person and at su"h time and place, as the proper officer may spe!!ify.'' The words "deflciencv in duty if the duty has for any reason been ttho 0 rt-levit:ci'' arc in ou~ opinion, wide enough to include eases of dPlic·ien!'y arising liku those in the circumsta11c<·s of the preHent ca8t', viz., wh<'r<: 8 annas out of the 1·1 annas· of tho duty ha.a been collected in the firnt insta11ce b11t 6 annas remains to be collectPd. \\'<.' co11sidPr, therefore, that thero i:; no substance in the objection that r. lOA is not wide enough to cover the recovery of the duty from the appellants. The result is that these appeals fail and arc• dismixsed with costs. There will, however, he only one hearing fee for all the ca.scs. The writ peti­ tions also fail and are dismissed, without any order as to costs. KAPL'"R J.- Tho appellants are manufac­ turers, warehousemen and merchants !Jf tobacco and they have private licensed warehouses which are governed by r. 140 of the Rules made under the Central Excise & Salt Act (Act l of l 944 ), here­ inafter termed the "Act." According to their allegations in the petition under Art. 226 of the Constitution, the appellants had a considerable quantity of tobacco in t-h eir 1 irrN~<l -•, ; ·. I 2 S.C.R. SUPREME COURT REPORTS 41 warehouses on February 28, 195 l. On the same day the Centrnl Bill (Bill Nu. 13 of 1951) was intro­ duced in tho House of the People, one of the clauses of which related to tlw dutv of excise for the finan­ cial yen,r Lcginning April·· l, 1951. According to tbe Bill, on unmanufaeturcd tobacco a duty of 8 As. per lb. and ti to !J As. (per 1000) Biris was to be imposed. This Bill was amended and by this amendment the dutv on tobacco other than Biri toLacco was fixed ~t G As. per IL. on Biri tobacco l+ 1\s. per lb. and no duty was imposell on manu­ factured Biris. As a result of the operation of ss. 3 & 4 of the provisional Collection of Taxes act (Act XVI of l!J.~ l) the duty became leviable as from the date of the introduction of the Bill. The petitioners have stated that in accordance with the provisions of the Bill that was introduced, they paid excise duty on tobacco in their posses­ sion at th,, rates mentio1wd in the Bill and ob­ tained c]cn,ranc<' cerlificates in accordance with the Rules under the Act. On April 28, 1951, the Fin­ ance Bill wa,; passed and became Finance Act, 1951 (Act XXIf[ of 1951 ). By s. 7 of that Act the first schedule to· the Central Excise and Salt Act was amended in accordance with what has been stated above. Bys. 7. (:Z) of the .Finance Act. 1951, it was provided that the amendment made in the first schedule to the Act shall be deemed to have effect on and from the first day of March 1951. A demand was subsequently made from the appellants in respect of excess duty payable on tobacco cleared out of the store houses from March I, ]951, to April 28, 1951. Thereupon the appellants filed a petition under Art. 226 of the Constitution in the High Court at Nagpur. The grounds of the attack as to the constitutionality of the tax were decided against the appellants but the petition succeeded on the ground that there was no mac·hinery 1961 Oh!wtabhai Jethabhai Pa tel and Co. <. Tf.e Unton of India Kapur J. 1961 Chlroluh~aj Je.thab.~ai }'a'd a11d Co. v. 1 '1! L.:niMi of !wlia Kap111J. 42 SUPREME COUHT kEPORTS [1962] SUPP. provided under the Act for rel:on,rv of the tax. Thi~ ju<lgrnent is H'JiOrtecl as C'l1holcti"w·i .letlwbluii Patel & Co. v. 1'hi: U11i1m o.f h1rba ('). On December S, Jll;jJ, the C··ntr<d GoY .. rnmcnt bv a n:>' fication amen<lPd the Centrr.l Excise Hules hv adcling r. JOA \vhich prnviJccl machinery for the collection of tax. Th« 1 u le was :..c.... "l •k\. Re,-idua1 y powers for rncoYery uf st1ms Jue to GoYcrnmcnt.-Whcre thPsc rules do not nmke any specific provision for the collection of any duty or of any df'fieic11cy in duty if the duty has fur any n·asm1 been short levied, or of any other sum of any kind payable t.o the Central GoYcmment uncter the Act or these ltulcs, such duty, d"ficicncv in duty or sum sh:ill on a written demand n:i'ade b~· the proper officer bo paid to such person and at such time and place as the proper officer may specify." After the introduction of this mle a fresh demand was made on December 12, l!J51, for excess duty on the tobacco cleared. The appellants again filed a petition in the High Court of Nagpur which was decided against them and against that judgment the appellants have come to this court on a certificate under Art. I 32 of the Constitution. The questio11 suhcmittcd to this Court is as to the valid it v of the said tax on the ground of its repugnan''Y to the Constitution of India. Counsel for the appellants has raised tw"~· questions against the lcga lity of th" taxes ; (I) The Parliament had no power to make a retros­ pective legislation while making a Jaw under item 84 of List I so as to affect goods that had been. cleared from the warehouses after payment of proper duties at the rates prevailing on the date that the goods were cleared because (a) Parliament's power to mak" retrospective laws is subject to constitutional limitations, namely, the language (I) l.L.R. (1952] Na11. 156. ,' 2 S.C.R. SUPREME COURT REPORTS 43 of item 84 of List I ; (h) duty of excise as defined in the ConstitutioJl and its nature and character is ~uch that it is not capable of being exercised after the gr,ods on which it is imposed are no longer in possession of the warehousemen and after they have passrd into the common stock of the country ; (~) legislation of this character imposes an unrea· sonable restriction under Art. 19 (I) (f); and (3) r. 10.A does not apply to the facts of the case and tloes not authorise the collection ·of the duty imposed. The first point relates to the legislative. com­ petency of Parliament. Item 84 of List I provides : Item 84 "Duties of excise on tobacco and other goods manufactured or produced in India ............ " In the.· correspontling item under the GoYernment of India Act, I 935, the same lanugage was used so that the nature of the duties remains the same both under the Constitution and under the Government of India Act, l!l35 Section 3 of the Act em­ powers the levying of duties specified in the First Scheduld. The relevant portion of that section is as follows : - Sectiop 3( I) "There shall be levied and collected in such manner as may be prescri­ bed duties of excise on all excisable goods other than salt which are produced or manu­ factured in India and a duty on salt manu­ factured in, or imported by land into, any part of India as, and at the rates set forth in the First Schedule." Bys. 7 (2) of the Act retrospective effect was given to t.he duties imposed by the Finance Act taking effect as and from the First day of March, 195 l. S. 7(2) "The amendment made in the Central E:irnises and Sa.It Act, 1944, by sub­ section (I) shall be deemed to have had effect on and from the first da.y of March 1951. ........... " 1961 Chhotabhai J e thabhai Patti and Co. v. The [J'nion of India Kapur J. 1961 Chho(obhai Jetha!1.'1ai Pt.tti a111i Co. v. T!tt L'1,fo1t of /t1d1r1 ·H SUPRE.\fE COUHT REPOHTS [1962] SL'PP. The effect of this df.'f!min.!! f'rrffifiion is that the uew rntc>s of duties must UP taken to h;irn heen imposed anrl bPcome operati'"~ a~ if thev were in the hill as and when the !Jill was introducP~l in Parliament: Vcn(·1t,11;/uda111 \'. 13,,.,,/,,111 lh11·.i11~1 .t· .IJ,"'ufr"·.f11ri1111 Co. Ltd.('). The content.ion ra,iscd '·" as to the 11atun· of the duty of Excise. It '' "" ;irgucd that Excise Duty i8 a tax on g .• ocls which must exist at the time when the ta.x is levied a.nd it must have been int.en· <led and expected by the legislature that it will be passed 011 to the eonsumpr and os retrospecti\'e operation of such duties has not got thesP qualities when the goods are no longer in possession of the person sought to be taxed they do not fall within the term "duty of excise" and therefore they are beyond the legislative eompetcnce of Parliament.. To support his contcntio11, counsel for the appellants relied 011 Ba11k uf Turonfo v. Lmnbe (') where the question for decision was as to whether certain taxes imposed on commercial corporations carrying on business were direct taxes or indirect taxes of the Provinces or the Dominion. Lord Hobhouse at p. 582 relying upon the definitions given by John Stuart Mill said :- "Ta:xes are either direct or indirect. A direct tax is one which is demanded from the very persons who it is intended or desired should pay it. Indirect taxes arc those which are dt'manded from one person in the expec­ tation and intention that he •hall in<lcmnifv himself at the cxpen~e of another; such a;e h . t " t t; CXCISC or CilS oms. The same distinction was brought out in some other Canadian cases decided by ttc Privy Council ; City of Halifax v. /IJ•fute, of J. P. F?irlanks <'./ which related to the nature of '"Busmcss Tax which was held to be a direct tax ; Attorney·General {I) [1959: S,C,R. 703, 707. 12: [IBB;i 12 A.C. !i75, (31 [1926; A.C. 117. J I I ' I * I S F:.C.R. F:UPRE~fE COURT HEPORTS 45 for Bri:i1h Colwnlia v. Mc Donald Jlhuphy Lumber Company Ltd. (1) ; & Attorney-General for Brit·ish Columbfrt v. Kin,qcome Navigation Company Limitrd(2) Attorney-General for Manitoba v. Attorney-General for Canada (3) and Brewers & JJial8ter's Assoc-irition of Ontario Y. The A!torney-General for Ontnrio \4 ) Reference was next. made to an Australian case Parton v. :11ilk Board (Victoria)(') whare two necessary qualities of the duty of Excise were stated t'o be that it must be levied on goods which are in existenee and the taxpayer should be able to pass it on to the consumer. But as was pointed ont by Gwyer, C.J., in the Prorinc.e of llfadras v. Boddu Paida11n11 (') : "The Canadian cases which were cited do not seem to Afford any assistance since analo­ gous problems in Can~da are always concerned with direct and indirect taxation ......... " DAaling with the same distinction the Privy Council said in Governor-Ge11eral in Council v. Province of Mndrns (') :- "Little assistance is to be derived from the consideration of other federal constitu­ tions and of their judicial interpretations. Hence there is no question of direct and indirect taxation ......... " The Indian Con- stitution is unlike any that have been called to their Lordships' noti~e in that it contains what purports to be an exhaustive enunciation and division of legislative powers between the Federal and Provincial Legislatures." The .Excise duty in England came to be imposed as a scheme of revenue and taxing divice by Pym and approved by the Long Parliament. It consisted of charges on wine and tobac00 and some (1) \1930] A.C, 357, 12) [1934] A.C. 45. (31 (1925] A.C. 561, 566. (4) [1897] A.C.231. (5) 80 C.L.R. 22?. (61 / 1942] F.C.R. 90, 103. (7) 72 I. A. 91, 102. 1961 Chhotabiai Jet\abhai Ptjtel and Co. v. The Union of I ndi'l Kupw J. 1961 Chho/{Jbhai Jelhabhai Patr{ and Co. v. Tht Union of India Kapur J. 4-fi SUPREME f'.DURT REPOR.Ti- [!062] SUPP. other articles were added later. The l:)asic prin­ .ciple of rluties of Excise was that thEly were taxes on the· production and manufacture of articles which could not be taxed through the customs house. The revenue derived from that source is called excise revenue proper. In England it :was later on extended to comprise other taxes but the fuTJdamental conception of the term is that it is a tax on articles produced or manufactured in the country. It was in this sense that the word "duty of excise" was understood in Australia (Peterswald v. Bartley)('). The importance of legislative practice of a country was pointed out by thc- Privy Council in a Canadian case Croft v. Dunphy (') where it was held that when a power is conferred to legislate on a particular topic it is important in detrrmining the scope of the 'power to have regard·to what is ordinarily treated as embraced within that topic in the legislative practice in England, U.S.A. and the Dominions and of India, the Federal Court considored the nature of duty of Excise in Re The Central I'rovinces & Berar Sales of Motor Spii'it & Lubrica,,.ts Taxntion Act (ln re A Special Jieference under s. 213 of Government of India Act, 1935) ('), generally known .as the "Central Provinces" case. In that case the Act of the Provincial legislature levying a tax on retail sale of moto.r spirit was held- to fall within item ±8 in List II of the 7th Schedule of the Constitution Act and not a duty of Excise within the meaning of entry 45 of List I of that Schedule. The nature of the duty was considereu by thA Court. Gwyer, C. J., after referring to the distionary meaning of the word "excise" said at p. 41 :- "l3ut its primary and fundamental mean­ ing in English is still that of a tax on articles produced or manufactured in the taxing country and intended for home consumption. I am satisfied that that is also its primary and fundamental meaning in India; and no (IJ I C.l .R. 49i. (2) [1933] A. C.156. (3) [1939] F.C.R. 18. j 2 S.C.R.. SUPREME COURT REPORTS 47 one lrns sugg0stecl that it has any-other mean­ ing in entry No. 45." At p. 47 the learned Chief Justice said :- Th I . f .. " " e express1011 · 'f ul1es o excise , taken by itself. conveys no suggestion with regard to the time or place of their collection­ Only the context in which the expression is used can tell us whether any reference to the time or manner of cnllection is to be implied. It 1s not denied that laws are to be found which impose duties of 0xcisc at "ta_ges sub­ sequent to manufacture or production; but so far as I am aware, in none of the cases m which any question with regard to such a law has arisen was it nPcessary to consider the existence of a competi!1g legislative power sueh as appears in entry No. 48." But Mr. Pathak relied on the observations of the learned Chief Justice at p. 50 where he said:- "Thus the Central Legislature will have the power to impose duties on excisable articles before they become part of the general stock of the Pruvince, that is to say at the stage of manufacture or production, and the Provincial Legislature an exclusive power to impose a tax on sales thereafter." But these observations·only mean this that when there is a competition between the duty, imposed at the stage of manufacture of production and a tax imposed on sales thereafter, the sphere of the Central and the Provincial Legislatures comes into operation but, as the prev10us passages, show, it does not in any manner vary the meaning of the word "excise" nor does it accept a further qualifi­ cation which is sought to be included in that phrase as a necessary quality of that tax that unless it is capable of being passed on to the consumer_ or the person taxed Gan indemnify, himself, it is not a duty of excise. At p. 47, the learned Chief Justice 1961 Chlwlabhai Jetlw.bhai Patel and Co. ' The Uni"n of India Kapur J, 1&61 / hhotabhai Jethabhai Patel and Co. v. The Union of India Kapur J. 48 SUPREME COURT R;EPORTS [1962] SUPP. obsen·ed that in 'the exp_resslon "duties of excfse" no suggestion as to t.ime or place of collection was implie(\., Sulaim'1P, J., pointed out at p. 73 that in th!l Indian Constitution it was nnt necessary to to go into the fine nic'3ties of distinction between direct and indirect taxation because in the Indian Act no such division. existed '1nd that ultimate incidence of tax wad not a crucial test under the Indi11.n Constitution. Aga,in at p. 77, Sulaiman, J., said:- {'/ "The essence ·of a tax on goods manu­ factured or produced is that the right to levy it accrues by virtue of their manufac · ture or production. It is immaterial whether the goods are actually sold or consumed by the owner or even rlcstroyed before they can be used. If a duty is imposed on the goods manufaotur<'d or produced whim they issue from the mn,nufactory then the dut.y becomes levin,hle indepenclontly of the purpose for which they leave it :md irrespective of what happens to them later." -~ In a subsequent case The Province of Madras v. Messrs. Bodd1t Puidnna & Sons(') Gwyer, C. J., again went into the question of t.hc naturo of tile duty of excise under tho expression "duties of excise" and saicl at p. 101 :- "Thero is in theory nothing to prevent the Central Lt0 gislalure from imposing a duty of excise on a comm<>ditv as soon as it comes into existence, no mattP~ '\·hat happens to it aftNwards, whoth!'r it be sold, consume<!, des· troycd or given awtiy. A t>ixing authority will not ordinarily impose such a duty, because it is much more com·enient administratively .t,o collect the duty (as in the case of most of the Ii1dian Excise Acts ) when the commodity leaves the factory for the first time, and also I. (I) [19+21 F. C.R. '10, 103. 2 S.C.iC SUPREME COURT REPORTS 49 beca.!lse the duty is intended to be an iil.direct duty which the manufacturer or producer is to pass on to the ultimJ.te consumer, which he could not do if the commodity had, for example been destroyed in the fo,ctory itself. It is the fact of manufacture whiob attracts the duty, even though it may be .collected later; and we may draw attention to the Sugar Excise Act in which it is specially prnvidcd th»t the duty is payable not only in respect of sugar which is issued from the factory but also in respect of sugar which is consumed within tho factory." The Privy Council described the nature of the duty of Excise in Governor-Gr.nem.l in Oonnr,il v. Province of Madras (1) as a duty which is primarily levied on a manufacturer or producer in respect oft-he commodity manufactured or pre<luced. At p. -103 Lord Simonds referred· to In re Oentml l'rovince,~ & Berar aase (•) and to B{/,drl·u. P1i·irhtnm1. caRe ( 3 ·j and said:- "The -two taxes, the one levied on a manufact)Jrer ih respect of his goods, the other on a vendor in respect of his sales, m»y as is there Rointed out in one sense overfap. But in law there is no· overl»]'ping. The taxes are separate and distinct imposts. If in fact they' overlap, that may be because the ta.xing authority, imposing a duty of cx:cL-;~ finds it conveniopt to impqse _that dtity at the momen-t wheq t.he (}XCisable.articl!l leaves the factory or workshop tor the first· time on the occasion of its ·sale. But that metbod of collecting tho tax is an ,accident of administration ;'it is not' of the essense"of the duty of-excise, \vhich is attracted· by' the manufacture itself. Tb:a_t this is so is ckarly exemplified in tlwse exceptt\d cases in which ·the Prov:inc,ial, not the Fecleml legisln.tt\t'c has p:iwer to impose a duty df excise." (I) 721.,.\ .. 91, 1n2. (2) [ln~9IF.f'.R.l~- (:3}; jl.H42\ J~.C.H~ Df~ \,JJ! ,\ ', Chhotabhai J ethabha i P,;t1l and Co. v. The Union of India KapurJ, Thus according to the Tnrlian cases deciderl 'Chh•t•ihai-.Teth•lh•i on. the nature of duti~s of excise ultimate incidence · f• 1t1:~d<;o. is not of any importance or relevance. In dealing Th; Union of In<t• ~itb excise duty (l) tbne is no mention of a direct Kapur J, or indirect taxes ; the Indian Legislature has avoicf- ... ed this incidence to be charactAristic of the tax ; (2) taxable event is the manufacture or production of goods ; it is immaterial· what happens to them afterwards w!'iether they are sold, consumPd, des­ troyed or give_n away; (3) it is not a necessary in­ cidence that the manufacturer must be able to pass it on to the consumer or _indemni~y himself; (4} the general tendency of its being passed on may be there but it may be prohibited by the circumstances, economic or otherwise. 'Phe fact that the rnanu­ faotnrer has no chance to get the tax from the buyer does not affect the legality of the tax ; it was so held in the case of sales tax in The Ta1a Iron & Steel Co. Ltd. v. The ·State of Bihar (1) where the nature of the excise duty was discussed. At page 1369 the observations of GwyPr C. J. in Boddu Pai.danna wse (2 ) and of the Privy Council in Gover­ nor-General in Coµncil v. Province of ~Madras(•} were quoted with approval. It may be noted that in the Tata Iron & Steel Co. case (1) the tax was a retros­ pective tax and wn.s imposed at a time when in the Sales Tax Act no provision was made for passing on the Sales Tax to the purchaser. In the Unf-On of hulia v. Madan Gopal Kabrn ('} it was pointed out that Pa:rliamPnt was not pre'cluded .from· exei·cising the power of imposing a retrospec­ tive tax and therefore it was competent to make a law imposing a tax on the income of any year prior to the commence!11Pl'lt of the Constitution. As was pointed out in that case under Arts. 245 anrl 346 of the Constitution rt.'ad with the Felevant entry in List I of Schedule VII Parliament is '~mpowerecl to make Jaws with regard to taxes and n11 limitation or restrictio 0 is imposed in regard to .; I) [1958] S.C.R. !355. (2) fl9421 F.C.R. 90, 103. ,3) i'l I.A. ~11. 102. (41 /1~5+1S.C.R.541, at p-; 555.- 28.C.R. SUPREME COURT· REPORTS 51 1961 re trospectivo · legislation. See 8nrgood Bros. v. The'Commonweal(h (') where retrospective laws aLout th A levying of Customs wore held valid. See also Welch v. Henry(') On the ground of retrospeo· ti'vity alone therefore tho tax is not unoostitutional. Chhotflbhai J ethabhai Patel and Co. In view of what has been said a.hove the oases decided in Canada or l}ustralia cannot have any application. It was next contended that a retrospective tax purporting to be a duty on goods when the goods had been disposed of would be a tax not under item 84, List I of the Seventh Schedule but one under item 60 of List II, i.e., tax on profession, trade, calling and employment-tho submission being that the word "trade" would include manu­ facture. This oontentiou was sought to be support­ ed by the observations of Lords D1woy in Commi.~­ sioner of Taxation v. Kirk \'):- "The word 'trnde>' no boubt primarily means traffic by way of sale or exchange or commercial dealing, but inay have a larger meaning so ·as to include manufa~tures." In National Association of Local Government Officers v. Bolton Corporation (')Lord Wrights in interpreting the word "trade" in s. 11 of the Industrial Courts Act, l "19, said:- "Sect. 11 of the Act of 1919 sh0ws that 'c rade' is used as including 'industry' b.ecause it r< fors to a trade <l,ispnte in the industry of agriculture." But this latter case has n 0 application beer.use there the word "trade" was interpreted in relation to a section of a particular Act and trnde.in t.hat crintoxt has quite a different meaning. In 8kinner v. .! ack Breach Limited ('}, Lord Hewart, C. J., in inter­ preting the word "trade" .in Trnde Boards Act hold that the word "traqo" indicates a process of buying (I) 11C.L.R258. SOS. (2)" 83 L. W. 87, ~3. (3) [1900] A. C. 588. 592. . 14) 1943 A. C. (1;r., IB4. (5) [191712 K. H. 720,.22'-. v. The Union of India Kapur J, 19~1 c.vi,,tab_;~; J1t~ah'a-ii P.at1l a ,.a Co. V, The U11iori of fndia Kap:4r ./. 52 SUPREME COURT REPORTS 1196 ) SUPP. and selling but it was by no m11ans an exhaustive definition. It. might als<> mean a calling or indus:ry or r.hss of skilled labour. The duty of Excise in item 84 should be given the wi<leRt construction unless for some reason it is cut down either by the term~ ,,f that it"m itself or by other Parts of the Co1Htitution. Tho kgislativo history of the duty of Excise Hhows the rnturn of th9 tax. The word "trdde" in item 60 of List II ha .. ~ reference to the carryin: on of an activity iu the nature of buying and selling and ma.v in a different context mean a. calling or an inrlustry. Therefore reading th11 two items together it is obvious th!\t item 84 dee.ls with taxes on goorla manufactured or produr-e<l a.nd item 60 dee.ls with the carrying on of trade i.o., an activity in the naturo of buying and selling and the Act in its pith Rnd substance relates to duty on g<>ods ma.nu­ factured or produced and has no relationship with itPm 60 of List II. Even assuming that tho nature and tendency of the duty of Excise is, as contended by Mr. Pathak that it can be paaaed on to the consumer, even than the complaint of the stppellanta that they have been deprived of that opportunity is not well founded, liecauRe of s. 6!-A of the Indian Sale of Gooc!s Act ( 3 of 1930), which was s. 10 in the Indian Tariff Act, HJ34. It we.a originally taken from the British Tariff Art, I 9fl I, I Edw. VII <'h. 7. Section 6t-A of the Indian Sale of Goode Act iK as followH : -- S. 64-A. "In the event of any duty of customs or excise on any gnocls being imposed, incr0ased, decr<·asfd or remitted after the making of any contract for the sale of such goods ·withuut stipulation as to the payment of duty where duty was not chargeab!A at the time of tho making of the contract, or for the s'\lc of· such goods duty. paid where duty was chnriwable at that t.ime, - . ' \ \ ' SlJPR1%1E COUR'f HEPORTS 53 J9til (a) if such imposition or increase so takes effeet that the duty or increased duty, as the case may be, or any part thereof, is paid, the seller may add so much to t,Jie contract price as will be equivalent to the amount paid in respect of such duty or increase of duty, and he shall be entitled to be paid and to sue for and recover such addition; and Chhotabhai J ethabliai J>atel and Co. v. The Union of India (b) if such decrease or remission so takes effect that the decreased duty only or no duty, as the case may be, is paid, the buyer may deduct. so much from the contract price as will be equivalent to the decrease of duty or remitted duty, and he shall not be liable to pay, or be sued for or in respect of, such deduction." This· section provides for the recovery by the seller of the amount of increase in duty from the pur­ chaser where the . increase takes effect subsequent to the contract and for t4e right of the purchaser to r-ecover from the seller the duty in cases w'iere there is a similar decrease and this right exists both before the delivery is given, taken and price received or paid as the case may be: Narayanan Ohettiar v. Kidar Sahib( 1 ). Coun~el for the appellants attempt­ ed to couuler this submission by relying upon a judgment of the Privy Council in Prabhudas v. Ganidada ('). In that case the Government duty had not been reduced but tho Buyer claimed that it had constructively been decreased because the tariff valuation had been reduced and so constructively it must he reckoned that there was a decrease in the duty on the goods sold. This contention was negatived by the Privy Council and it was held that a change of duty means a change in the rate of dl.lty, and not a change of' tariff value. Thus assuming that the con ten ti on of the appellants is correct as to the nature of the e:iroise duty it cannot be said that in the present case the appellants werE! (I) J.L.R. 53 Mad. 680. (2) 52 I.A. 196. Kapur .I. •• i M SUPl<EME COURT REPORTS (1962] SUPP. , ~ !.~- deprived of the opportunity of reoovering the ·: CMoi.bltaiJiJhob!toi a.·lditional· duty from the purchaser and therefore p.,,i .. , Co. th11 duty lost its character of being excise duty and ' ~' 1 v ...... " .. I\,, ,• .. ' ' {~~ _.,,. .. TAI u,;:,; of IMia was transformed into a different tax. This argu­ K.p"' J. ment of the appellants is therefore without subs­ ta.uec and must be overruled. Thl• cDnstitutionality of the tax a.nd retrospec­ tive imposition of enhanced duty on tobacco was further cha.llenged on the ground of violation of the fundamental rights of tho appella.nts under Art. 19( I Xfl of tho Constitution which it was submitted is not saved by cl. (5) of that article because it is not a rea.sonable restriction in the interest of tho general public. The grounds of attack may be stated in this. way : ( l) that tho nature of an excise duty is such that normally it is passed on to the pur­ chaser by the manufacturer 01· the producer and it has that tendency and quality ; (2) as the impugned duty was enhanced at a time when the appellantll had cleared their goods after paying the then prcvail­ ing duty, it was not poBSible for them to realize the eicoise duty from any purcba.ser and ( 3) at the time of the clearance of the goods tho appellants had paid all the taxes under the then existing law and the 1ww liability rendered them liable to pay an illegal exaction or in the alternative to suffer the conse· qucnces of non-payment which are of a drastic nature. On this b!lllis it was submitted that the impositjon was an UD!'ea.sonable restriction on the fundamental rights of tb_e appellant.a guaranteed under Art. 19(1) (f). At this stage an examination of the extent of the State's power of taxation will be helpful. .This power bi one of the three governmental powers of the Sta.l.e; the other two being police power and power of eminent domain. The power of taxation is the legal capacity of govermnent to impoee charges upon peniOllll or their ptopert;y to raiae revenue for govtll'JIDJept.e.l I 2 S.C.R. SUPREME COURT REPORTS 55 purposes. A tax is neither a penalty imposed on t.he taxpayer nor a liability which he assumes by contract. It is but a way of apportioning the cost of government among those who in some measure are privileii-ed to enjoy its benefits and must bear its burdens. Welch v. Henry('), but the constitu­ tionality of a tax does not depend upon a showing of benefits ; protection and taxation are not correlative terms. Willis Constitutional, Law, p. 224 : Tax is levied against the person and not against property. Property only serves as a basis for computing the measure of each person's liability. Weaver on Constitutional Law, p. 513 : "The power of taxation is one so unlimited in force and so searching in extent, that the courts scarcely venture to declare that it is subject to any restric­ tions whatever, except such as rest in the discretion of the authority which exercises it. It reaches to eveiy trade or occupa:tion to every object of industry, use, or enjoyment; to every species of possession; and it imposes a burden which, in the case of failure to discharge it, mar be followed by seizure and sale or confiscation of property. No attribute of sovereignty is more pervading and at no point does the power of the govern­ ment affect more constantly and intima­ tely all .t~e relations of life_ than through the exact10ns n1ade under it." (Cooley's Constitutional Limitations, Vol. 2, 8th EL p. 9S7.) Chief .Justice ·Marshall said in M'Culloch v. Marylan1 (') :- "The power of taxing the peo pie and their property is essential to the very (JI 83 L. Ed. 87. (2) f L. Ed. 579, 607. 1961 Chhotabhai Jethabh•i Pafel and Co. v. Thr Union •f lnii• K•pur J. l!Ml cu.1.u.t J ,,llo6Aal P,,,I nd Co. v. TIM Union oj 11.dia KOJ>Ur J. 56 SUPREME COURT REPORTS [1962) SUPP. existence of government, and may be legitmately exercised on the objects to• which it is applicable to the utmost extent to which the government may choose to carry it. The only security against the abuse of this power is found In the structure of the government itself." (See Willoughb) on the Constitution of the United States, Vol. 2 at p. 666). As tho exigencies of the government cannot be limited, no limits can be prescribed to the exercise of the right of taxation. Every individual must bear a portion of public burden and that portion is determined by the legislature. According to the American Supreme Court the power of ta.xation is very wide and uncontrolled. In M'Culloch v .. .M aryland(I) Chief J usticc Marshall Ha.id:- " ............... it 18 unfit for the judicial department to inquir~ what ,degree of tax· ation is the legitimate use, and what dc>gree may amount t-0 the abuse of the power." &e also GmveA v. Schmidlapp(') (per Chief Justice Stone). In Pacific lusuruMe Co. v. Soukf,') the Court said:- "Congre88 may prescribe the basis fix the rate, and require payment as it may deem proper within the limits of the constitution it is supreme in its action. No power of superviaion or control is lodged in either of the other departments of She government." Again in Veazie Bank v. FenM ('), it wa1 said :- "li is insisted ......... that the tax in tbia ca&e is exceBllive and 10 exeeseive &8 to mdioa~ a purpos1i on the part of the congress to destroy the franchise of the bank, and ia, therefore beyond the constitutional power of (I) 4LEd.°579,607. (2) 86L.Ed.1097. <'l ' wan. m. (4) e wa11, m . . . , ... - (2) s.c.R. SUPREME COURT REPORTS 57 congress ......... The first answer to this is that the judicial cannot prescribe to the legislative department of the Government limitations upon the exncise of its acknowledged powers. The power to tax may be exercised oppres­ sively upon persons, but the responsibility of the legislatme is ntt 10 the Corn ts but to ,the people by whom its members are elected.' In Patton v. Brarly:,1), the Court observed :- "It is no part of the function of a Court to enquire into the reasonableness of the exercise of the power of taxation either as respects tho amount or the property on which it is rn1posed." In Welch v. Henry('), at p. 94 it was observed:- "The equititble distribution of the costs of government through the medium of an income tax is ~,delicate and difficult task. In its perfor­ mance experience has shown the importance of reasonable opportunity for the legislative body, in the revision of tax laws, to distribute increased costs of government among its tax pay!JrS in the light of present need for revenue and with knowledge of the sources and amounts of the various classes of taxable income rluring the taxable period preceding revision. Without that opportunity accommo­ dation of the legislative purposes to the need may be seriously obstructed if not defeated." Thus according to American view (I) the power to tax is an attribute of sovereignty; (2) tax i& a rateable contribution of each individual in a State towards the amount of revenue which is essential .for the existence and operation of a public g<Jlfern· ing body; (3) it being essential for th~ very existence of an organised State, it may be exercised on objects to the utmost extent to whioh the legisla· ture may choose to carry it an<l (4) the needs of (IJ 46 L, Ed. 713. (2 J 83 L. Ed. 87. 1961 Chhotabhai Jethabhai Patel and Co. v, The Union of India Kapur J. . . ' : ''" . ~•i J1.Utal.Jhai ~cffl and Co. •• T~ U•111tt of Ir.Gia . Iropwr J. 58 • • SUPREME COURT REPORTS [1962] SUPP. the revenue 11re only known to the legialaturo and the court· cmnot enquire intG the ncoe.eity of imposing a tax or the objects on which the impoei· tion should be made or the extent of the imposition . In the very nature of things the courts a.re unable to go into tile propriety, extcllt or economics or & particular tti.lC or the poli"y underlying it, which must depond upon a multitude of oircumsta.noes, which can only L>e known to the government or the legislatu.:.. A8 the appellants have relied on liert&in American decidions where certain taxing laws operating retrospectivcly were tested on the touch­ Rtone of "due process of law'' clause it becomes necessary to examine the extent of that doctrine. "The taxing .power of .l!'ederal Government," eaya Prof. Willis {Constitutional L&w, p. 378), "ill limit­ ed by the procedural requirements of the due process clause. Notice a.nd hearing, though not a judicial tribunal, a.re required where the tax ill baaed on the value of the property. Jurisdiction, a.lso, is a. requirement for a.ii forms of taxation, though the rules a.a to jurisdiction vary with the kind of tax levied.'' According to Willoughby, Constitution of the United States, Vol. III, p. 1875, the due process of la.w obliges the exercille of the taxing power to conform to the following rules :- 1. That tho tax shall be for a public purpose. :!. That it shall opera.to uniformly upon those suuject to it. 3. That either the perdon or tho property taxed shall Le within the jurisdiction of the governmtJnt levying tho tax. 4. That in the a.ssesssmPnt a.nd collection of the ta.x crrt&in guarantees a.gs.inst injustice to individua.~, !'8P~ia.lly in the ca.so of specific &S d11tmgu1shed from ad valorem taxes, by way or notice and - (2) S.C.R. SUPREME COURT REPORTS 59 opportunity for a hearing shall be provided'. These principles of taxation are not peculiar to America but are accepted in all countries which have parliamentary democracies and govern the Indian taxation system also. In some American decisions retroactive tax laws were held to be inuonsistent with due process : Nichols v. Coolidge( .1) ; H elvering v. H elwholz(') Blodgett v. Holden (3 ). But the decisicni in those cases rested on the ground that the tax could not reasonably be anticipated by the taxpayer at the time of the voluntary act which the statute later made the taxable event e.g., the gift by the descendent of the whole or a part of his interest in property. As was explained in Welch v. Henry(') at p. \J3 : ".Since, in each of these cases, the donor might freely have chosen to give or not to give ·the taxation, after the choice was made of a gift which he might will have refrained from making had he anticipated the tax, wa~ thought to be so arbitrary and oppressive as to be a denial of due process. But there are other forms of taxation whose retroactive, imposition cannot be said to be similarly offensive, because their incidence is not on the volunfary act of the taxpayer. And even a retroactive gift tax has been held valid where the donor was forewarned by the statute books of the possibility of such a levy, 1lfillilcen v. ·United States, 75 L. Ed. 809 ............ " In that case the retroactive operation of a tax on dividends was upheld and the objection on the ground of inconvenience in being called upon, after the customary time for le.vy and payment of the (1l 71L.Ed.1184. I l) 7 L.Ed. 20•;. (2) "OL.Ed 7G. (+J B!LEd.B7. 1961 Chhotabhai J ethablw Pu.tel tmd Co. v. The Union of India Kapur .I, llfl CMolobliai J 1tl111tAai Pat.l and Co. v. Th# Ur.ion of /rt/t'J Kapur J. 60 SUPH.ElllE COURT REPORTS [1962] SUPP. tax had passed, t> b!'ar a gov~rnmc·ntnl burden of which he had no·: warning and which he did not anticipate was held to be unsustainable. The conten­ tion that the retroacti\'e application oft he H.evcnue Acts is a denial of the due process guaranteed by the Constitution has not beun accepted in A,merica. a11 an in\'ariable rule. lrtl h v. Henry(1 J and the other cases thcro citeri. 'l'he cloctrinc of due proceBS of law has received various interpretations in America which have not always bocn consistent. Sometimes it has favoured persona.I liberty and someticnes social control sometime3 personal liberty as a matter of substance. Sometimes it has protected personal liberty by extending due pro0ess to matters of sub­ stance and sometimes it has protect(•d social control by broadening the scope of police power or the power of taxati"n or the power of emi1wnt domain. Willis' Constitutional Law, p. 659. Brandeis J., in L'ntennyu v. Anda son(') dealing with the presump­ tion of validity of a taxing statute observed : "The prcs:imption should be particularly strung whore as here the objection to an 'ict ari8es not from a specific limitation or prohibi­ tion on congressional fower but <inly out of the 'vague contours o the iith Amendment prohibiting the depriving any perso11 of liberty or property without due !Jroccss of law'. Holmes J., in Adkins v. Children's Hospital, ill L. Ed. i85, 800." It wa.s lwc<WHC of the varying mcani~gs am.I concepts which have from time to time bct·n a.ttad1cd to· "due process of law'' that the f~amers of the _Iud.i .. n Constitution did not adopt 1t 1n the Constitutwn; on the other hand they tikd tu give mure dtfined boundaries to the area of fuudament~l 1 ights in Aita. l!J and 31 which d~al with rights of property :1; 83 L Ed. 87. \l; it. L. Ed. &JS. - 2 SC.R. SUPl~EME COU!tT REPORTS . 61 and in. Arts. l 9, 20, 21 and 22 which relrrt, to pro­ tectio:i uf 1ier~un~l liberty and this Court rejected it in A. K. Gopri!r1n's case (') and in the Str·te of West Bengal. v. Subodh Gopol Bo'e ( ,). The constitutionality of the duty of excise was oballenged in the present c:i,se on the grnund of violation of Art. 19 (I) (f) of th1 Constitution. The argument is that a taxing law under Art. 265 is as much a Jaw as any other and therefore falls with­ in the definition of law l!nder Art.l3(~)(a), and if it contravenes any of the fundamental rights under Part III, thPn to the extent of the. contraven­ tion it is void. Counsel rel'ed on the sc,cond Kochun-i cnse ('). Article 19·guarantees personal freedoms sub­ ject. to certain restrictions. Its. relevant portion is as follows : Art. 19 ( l)(f). "AH citizens. shall have the right ..................................................... . . . . -................................................. , .. . to acquire, hold and dispose of property; Art. 19( 5). " ]\,>~hing in ·sub-clauses (J), (e) and (f) of the said clause shall affect the operation of any existing law in so far as it imposes or prevent.th~ State from making any law imposing reat,on­ able restrictions on the exercise. of any of the rights conferred by the .said suJ,­ clauses either in the interl)~ts of the gen­ eral pt1blic or fo1· the prot.ecticm of the interrnts of any Scheduled Tribe." As has already been said the power. to tax is the legal capacity of the State to raise from aU those subject to its authority a certain amount of revenue essential so the existence and ()peration of government. A tax is not a penalty. but a contri­ bution of moniee for governmentr.lpurposes by (1) [19501S.C.R.33, JOO. (2) [1954] S.C.R. 587, 60.5. (3) [l£60] 3 S.C.R. 887, 889, 915. 191J l Chhotabha.: Jdhabh;i P.i,•el and c,,, v. 'The (}ni'ln of !ndi 1 J(apur J. 196J CAJiot.bhai J1tlta~Jaai Pakl O· d Co. v. TL U11i311 of India Kap11r J. fi2 SUPREME COURT REPOlffS (1%2] SUPP. persons who ma.v ho rt•aidents or non-residcnta citi­ zrns or non eit izens, living persona or legal perso1Ule who aro privileged to enjoy its benefits, but thoae am not co-relative. It implios an equality of burden and rngul:u dist.rib11tion of oxpensea of government among the p<'rsons taxed. It is levied by au. thorit_v of law equitably, uniformly or in echelons on all persons subject to it. The appellantll alleged that the.v had sold their ).(C'Ods during tho period when tho Finance Bill Wil.S before Parliament. Variations in tho rat-OS of duties are not unexpect(•d, it being with­ in the power of P;irliament to do so b•Jth prospec­ t i\·cl.v and retrospectivoly. It is not suggested that such variation~ are unknown in fogisJativo practice or that the h'gislators were r .. Jt entitled to nmend a money bill as introduced. If the appel­ lant8' contention is sustained then ·it will mean the dPprivation of Parliament of its right to choose the objects of taxation a.nrl therefore Parliament will only vary the ratrs c,f duties prcposed by the Executive or the time of their efFectiv<meSR at the peril (If their being declared irwalicl although they may he within ita lcgislativn competence and may in its opinion be necessary for th<' carrying out of it$ policice or subserve the proper govern­ ance of the country. In the Indian Cunstitution there is an cx­ hau8tirn enunciation &!HI rlistribution of legislative power~. including powers as t" taxation, between the St<ttc Lcgi~laturc8 and Par liam(·nt. Sul.ijects oftax!ltion arc <ltstributed in tho three Legisla­ tive Li-;ts anrl areas of the respective ficlus of P11rliurnent and Stato LcgisJatun·s as tu taxes arc d11fi11ecl. In P<>rt8 XIr and XfII limitations on lt•gislativ" cl>mpctenec of the various legislatures as tu taxation arc i1;clicated and emphasis is plaoed on th•: prescr\'ation of the economic unity of ) (2) S.C.R. SUPREME COURT REPORT~ 63 India. Article 205 is in Chapter XII and pro­ vides :- '.' No tax shall be levied or collected except by' authority of law," which m~ans that all taxation has to be under a law enacted by a legislature of competent jurisrliction and subject 1 o constitutional limitations. This · Court in 1950 rejected the applicability of the doctrine of "dne process of law" to Indian constitutional problems : A; K. Gopaln's case (1); The state of West Bengal v. Subodh Gopal Bose ('). In the latter case it wis also held that. the Indian Constitution recognises no fundamental right to immunity from taxation and that is why presumR.bly no constitutional pro­ tection is provided against the exercise of that power. Per Patanjali Sastri, C.J., p. 614. Das, J. (as he then was), held the power of taxation to be , distinct from police power (i.e. regulatory power ·of th~S.tite) ahd the power of Eminent Domain (i.e. the power of the State of compulsory acquisi­ tion of property)., Dealing with protection against taxation he said in . Subodh Gopal's cas~ (') at p. 652 :- "Our Constitution makers evidently considered the protection agaim.t depriva­ tion of property in exercise of police power or of the power of eminent domain by the executive to be of greater importance than the protection against deprivation of pro­ perty brought a bout by the · t>xercise of the power of ~axation by the executive, for they found a place for . the first · mentioned pro­ tection in Art. 31 (1) and (2) set out in Pa'rt III dealing with fundame:t1tal rights while they placed .the last mentioned protection in article 265 to be found in Part XII dealing with finance etc. So with regard to all the three sovereign powers we have complete protection again~t the executive organ of the State." (I) [1950] S.C.R, 88,100. (2) [!9Sfj S.C.R. 5i7,605, 1961 Ohhotab.11ai .le1h-..l.~ai Patti and Go. •• The Union of India Kapur J. 1961 ~- Chhotabhai Jeiha;hai Patel and~Co. v. Th6 C1nif'n of India K~Pur J. 64 SUPREME COU&T REPJRll'S:{l962] SUPP.. Again at p. 653 ·he observed :.-·- ' · " Apart from this, wha,t I ask ,is, ou{.pr9~ tection against tlle legisla'ture in the mi;tter.of depriyation of propetty by the .exercise'·of the p0wer -Of taxatio'n ? None wllatev:e.r. By exercising its jYc;l\vcrjif taxation by law tire State may dep1·i,\re us, citiieri .or non-citizen .of I ' .almost· ,sixteen anna,s in the rnpee of our insqme." (See also p. 6()4-) .• In Rfi:liJ.i}ll{t' v. lncorne Tax Officer (') Das, J. fas­ he t1i"e'tr \fas)~ .ob~ervecl: .at pp .. l~\J-137 ·:- "Reference· has next ·to be machl .to.. artio le 265 wllich is in P~rt.. XII, Ch~pt'~t J, de,aling with 'Fina.nee'. That article pro­ vides that no tax· slrall'be ·levied or collected except. by authority of law. There was-no Rithilar prov'isjon· in. the' corresponding chapte.r oft!J.o (.'i'overnnient· of IndiE> Act;. f936. If c.b1Iemion -~f taxes amounts to dl'p~ivatioli o,i prop.r.rty within· the m"iming of artide 31,tl); .tiheri .there wu.s no point in making ·a sep\lrs.te provision again as has been made 1~1artioJe 2(J5. It, therefore, .~0llows that claus&. (1.) .. of ri.rticle 31 must· be regd.rcled as concer4¢d· witl;J. deprivation pf , property o'th!.\r~isG ·t1:~an by the ;i:i,position or' collection of t1tx,• for· nthern:is;i. artioltr 26'5 becomes wli.9H~. p~d_up~11,rit.> Jn :t~~ .Ur:ited S,tates o.f A:rne.~10a tpc· power of ta.xat10n JS -Fegarded as cl'i~~inctJr'om the.exorcise of pg:t).ce power. br etniner\t domain.. .@ur ·00_nstitutjo11 evidll1:itly ha~ (l.ls,o. ti'entod ta·~r,tioil, a.s distinct 'fobm cornp11lsory q,cqui~it.jon .of proport&· nnd. hM mndc ind<'.]l}ll)d"nt .Picodsip'n giving :Jlr.bte:<l­ tion ;i.g{l:iJi'st t.~'ia\\oi:i sa,vo by .authi:!rity, tif law. W'hon Dr. Tik Ghaµrl o/.:}~ asked if tlii\.t <was. noh ,the cormct position, he did not ncl'vnnce 'nny cog.mt or convincing ans­ W!'r t.o refute tho conch\sion put to41im. Iri ou,r .. opl11io:n, '!h!.l:ptetection agaiil!lt ifllpcrsition (·!) [19511 S':C.R. I!-7. ~ I ·I (2) S.C.R. SUPREME COURT REPORTS 66 and collection of taxes save by authority of law directly comes from article 265, and is not secured by clause (1) of article 31. Arti­ cle 265 not being in Chapter III of the Constitution, its protection is not a funda­ mental right whioh can be enforced by an application to this court under article 32. It is not our purpose to say that the right secured by article 265 may not be enforced. It may certainly be enforced- by adopting proper proceedings. All that we wish to state is that this application in so far as it purports to be· founded on article 32 read with article 31(1) to this court is mi'sconceived n,nd must fail." A similar decision was given and similar language used by Mahajan, C.J., in Laxmannppn Hanuman­ tappa v. Union.of India (1 ) :- "It wae held by this Court in Ramjifal v. Income Tax Officer, llfohindergarh ('). that as there is a special provision in article 265 of the constitution that no tax shall be levied or collected except by authority of law, clause (1) of article 31 must. therefore be regarded as concerned with deprivation of property otherwise than by the imposition or collection of tax, and inasmuch as right con· ferred by Article 265 is not a right conferred by Part III of the constitution, it could not be enforced under article 32." Ramjilal's case(') was quoted with approvai in Bengal Immunity Co. Ltd. v. State of Bihar ('). Thus early after the establishment of this Court opinion was expresrnd excluding the applicability of funda· mental rights in Part III to taxing Statutes. But it is important to notice that the Article which was sought to be applied in those cases was Art. 31 (1) which deals with deprivation of property (!) [1955] I S.C.R. 769atp, 772. (2) [1951JS.C.R.127. _ (J) [1955] 2 S .. C.R. 603, 619. 1961 Ohhola6hai J ethabha Patel and Co. v. The Union of India Kapur J lldl ~l/,t.\ali6oi . '*I .nd Oo. v. ·1"' u.;.. of 1n1u. Iryu,J. 66 SUPREME OOURT REPORTS [1962) SUPP. and not Art.19 which is re~latory of the rights of a citiU>n of personal liberty, property and avocation. It was contended that the impugned tax ille­ !!&lly deprives the appellanta of their property and was therefore unconstitutional. In support refe­ rence was made to Suraj Mal 11/ohta & Co. v. A. V. Vi.9wanalha Sast,i (1) (under ,\rt. 14); Shree Meenakshi Mills Ltd. v. Sri A. V. Viswanatha Sa8tri ('} (under Art. 14) ; Purnhottam Govindji Halai v. Shree B. M. De.mi, Ad<litional Collector of Bombay(•) (under Arta. 14 and 21); M. Ct. Muthwh v. The Commissioner of lnrome.tax, Madras(•) (under Art. 14); A. 'l'hangal l\unju Muda­ liarv. M.VenkatachalamPotti(') (under Art. 14); Bidi Supply Co. v. The Union of India (') (under Art. 14); Panna Lal Binjraj v. Union of India(') (under Arts. 14 and 19(l)(g);) and Collector of Malabar v. Eritruil Ebrahim H11jee ('). Theae are the oases in \\hich the validity of taxation laws was attacked under the Articles above mentioned. In Panna Lal Binjraj v. The Union of Jndia ('), tho assault was not a.gaillllt the imposition or the vires of the tax but against the vires of s. 6(7A) of the Indian Income-tax Act which empowers the Commissioner of Income-tax to transfer any caao from one Inoome-tax Officer subordinate to him to another and empowere the Ccntr'l.l Board of Revcn1w to trausfor any <'ll.81l from orH· Income-tax Officer to another. This attack was based 011 the contravention of Arts. 14 and I!) (I )(g). ft was held that. the cliBcretion vested in the authorities em pow"red to mak" tho transfer is not discriminatory and th<•n· wa• no interferen"o with the right of th" citizen to carry on hie trade or calling. In Collector of Jfalabar \. Nrinuil R/Jrahim Ilaje~ 1') the attack again~t the recovery of incorne·t.aX under 8 • -!li (2) of the Income-tax Act wa• hased on A rt8. 14, I() aud :12. There again the question for ,J<,,.ision w1ts not the imposition of th" tax but ;_I; ['.~l'.-1511.S C.R. 4'~ .~J 19551 ~ s_.C.R. i~_7. 13~[19''l]2:-;.C.R.H81, ~·:1[1955,2S.C..H.1147. ;:, 1 [ l9':i5] l. ~.C.R. I 19<i. ·o, [ 1956] ~.C.'R, 2ti7. _. (7;11957.iS.<:R ~~i'l. (6)ll9,7]S.C,R.970,91G. (2) $.C.R. SUPREME COURT REPORTS 67 the mode of recovery and at Page 976 this ground of attack was rejected iind reference was there made to tho State of Punjab v. Ajaib Singh (1}; P.urshottain Govindji Hal,a,1; v. Shree B. M. Desai, Add£tfonal Collector of Bombay ('}. Another case relied upon by the appellant's counsel was Western India Theatres v. The Cantonment Board, Poona, (3 ) in which the tax was imposed on cinema houses with larger seating capacity and the attack was on the ground of Art. 14 but that was repelled. T)le appellant's counsel also referred to the Bengal Immunity Co. Ltd. v. State of Bihar ('}where the vires of the sale8 tax imposed on inter-State tran­ sactions was attacked. The High Court in the case had held that the petition under Art. 226 was mis­ ~onoeived overlooking the fact that the contention raised wqs that in so far as the tax purported to act on non-residents in respect of inter-State sales it was ultra vires of the Constitution. At. p. 619, Das, C. J., observed :- "It is also true that article 31 which protects citizens and non-citizens alike cannot be availed of as it deals with deprivation of property otherwise than by way of levying or collecting taxes as held by this Court in Ramjil,a,l v. Inwme-tax Officer, Mohindergarh [1951] S. C. R. 127, and that, therefore the Act does not constitute an infringement of the fundamental right to property under that article. It is, however, clear from article 265 that no tax can be levied or collected except by authority of law which must mean a r,ood and valid law. The contention of the a..ipe­ llant company is that the Act which authmises the assessment, levying and collection of sales ta.x on inter-State trade contravene~. and constitutes an infringement of Art. 286 and is. therefore, ultra vires, void and unenforc•~able. If, therefore, this contention be well f01inded, (1) [1953] S. C.R. 254, (2) [1955] 2 S.C.R. 887./ (3) [1959] Supp., 2 S.C.R. 63. (4) [1955] 2 S,C.R 6-0'i 619. ·r J961 Chhotabh:: Jtthabha i Patti and Co. v. The Union of India Kapur J. IHI CIWitabhai -lt/habhoi Po Ill and Co. •• 7A. Union of India Kopur J. 68 SUPREME COURT REPORTS [1962) SUPP. thl' remedy by wa.y of a. writ must, on prmc1- ple and autho•ity, b~ available to the party aggrieved . The next case reliPd upon by counsel for tho npp<'llants was Kailash Nath v. State of U. P. (') which was a oaso unnn the U. P. Sales Tax Act, the plea of the p<'titirmers wa.s that the goods souizht to ho taxed ha.d been exported overseas and therefore not liable to ea.lea tax. It was held that if a tax is levied without rlue legal authority on any trade or business then it is open to the citizen to approach this Court under Art. 32, since his riizht to carry on trade is violated or infrin· god by the imposition of the t&x and Art. 19 (I )(gl "comes into pla.y". Thero aizain the taxation law itself was not challenged on the !(round of violation of a.ny fundamental right, which hu reference to property, but the imposition of the tax was as­ sailed on tho ground that it wa.s not imposeable on the transactions which had been entered into. In support of the proposition that the taxa­ tion laws are assailable under the provisions of Art. 19(1) State of Travancore·Cochin v. Shanmuga Vil.as Cashew Nut Factory (') was relied upon. That wa.R not a petition under" Art. 32 or a matter under Art. 19(l)(fl but one under Art. 286(1) and the question in dispute was whether the transaction was in the course of inter-State trade. llimntlal llaril.al llf elita v. The State of M adhytJ Pr00£.,h (') wa.s also a similar Q&lle. Article 19(l)(g) was applied because of the unconstitutiona.lity of the tax nnder Art. 286(1)(11.). M/.•. Ram Narain Sans Ltd. v. As.<t. Comnlis"ioner of Sales Tax. (') was also a. case 11nrle1 Art. 286 of th<' Constitution and was not a matt~.r falling under Art. 19(1i ofiothe Constitution. ' {n all these cases relied upon by couneel for tho appellants the basis of attack Wat' (I) that tho iii A.1.R 1957, Sc. 790. (21 [19541 S.C.R. '3. (3) [IS'54] S.C.R. 1122. (4) [1955] 2 S.C.R. -483. (2) S.C.R. SUPREME COURT REPORTS 69 tax was not within the legislative competence of the legislature imposing the .tax and therefore the tax was being illegally recovered from the assesseB 0r ( 2) an objection was taken to the differential mode of imposition and collection and use of a more stringent procedure i.e., illegal discrimination be­ tween persons similarly situated e.g., under Taxation on Income (Investigation Commission) Act. The imposion of an illegal tax not within the legislative competence of the legislature, a colourable piece. of legislature imposing a tax which is not a tax but is an imposition of a confiscatory nature, a breach of principles of natural justice or imposing an un­ imposeable tax have all been held to be violative of the right to carry on trade under Art. 19( l)(g). But they do not support the proposition that the tax if otherwise valid can be declared unconstitu­ tional and can be subject to judicial review on the ground of being excessive or being retrospective in operation or being impoeed on one artiCle rather than another. These cases do not support the pro­ position which has been contended for by the appel­ lants that the very imposition of the tax is a contra­ vention of the right of the assessee to acquire, hold (or own) or dispose of property or on the ground of contravention of Art. 31. In the SUite of Bomhay v. Bhanji Munji (1), it was also held that Art. 19(l)(f) read with cl. (5) postulates the existence of the property which can be enjoyed and over which rights can be exercised because otherwise the reasonable restriction contemplated by cl.(5) cannot be brought into play. That was the uniform view held in this Court till the majority judgment inMoopilNair's case(') which relied on the second Koohuni case i.e., Kaval,appara KoUarathil Kochuni de. etc. v. The State of Madras('). But th~ latter was not a taxation case. It was held in that case (Kochuni case) that all laws within (1) [1955] 1 S.C.R. 777. (2) [1961] 3 S C.R. 77. , · (3) [1963] 3 S.C.R. 887, 889. 915. . 1961 Chhotabhai Je· 11h'1, Patel and ( v. The Union of /n ... 10 KapurJ. 1!!61 Cltl.J4ablrai J 11hablrai PaJll and Cc, •• n, Urci.ors of I Mia Irapu. J, 70 SUPREMI<~ C'OURT REPORTS (1962) SUPJ>. Art. 13 are subject to Part [f[ and that for a )11w to be \·a lid it must s>1tisfy two tests ( 1) of being enac­ ted by a legislature having legislative competence and (2) it should not contravene any of the funda­ mental rightR. The above opinion is not in accord with the opinion of this court in A. K. Uopal.an'8 f,{JSe ('); Ram Singh v. Suir,, of Delhi ('); Sf,Q,~ of Bombay v. Bha11ji Jluriji ('); The Daily Expre.88 ca.se (') and The llamd<ird Dawakhmui case('). The question of the applicability of Art.19( I )(f) of the Constitution to taxing matters was consider­ ed in 1(. T. Moopil Nair v. The State of Keral.a ('). That was a case in which a tax at a flat rau.1 was levied on forest lands in the State of Kerala and this Court by majority held that the tax so imposed was unconstitutional on the ground of infringement of Arts. 14 and l!l(l)(f), The reasons given by tlw learned Chief Justice were : (a) In the procedure to bo adopted for the lnvying of tho tax, there was no provision for a notice to be given to the asscsstce; (b) Tht,r<' was no procedure for u·ctification of mistakes committed by the assessing authorities; ( o) There is no proceduro for obtaining the opinion of a superior Civil Court on a question of Ia.w as is generally found in all taxing stautes (d) ~o duty was cast upon the aB.Bessing authority to act judicially; and (e} Tlwre waa no right of appeal provided to the a8Be88CC • The provisions of the Act were held in the majority judgment to be confiscatory. It was observed by the learned Chief Justice at p. 559 :- "That the provisions aforesaid of the impugned Act are in their effect confiscatory is clee r on their face. Taking the extreme (ll {i950~S.C.R. SU, IO (3) [1955] I S.C.R. 7;·;, (5) [1960] IS.CR. 314. (2) (1951] S.C,R. 451' 455. (4) (1959] S.C,R.129. 132. (61 [ 1961] S li.C.ll. 7. -' (2) S.C.R. SUPREME COURT REPORTS 71 case, the facts of wl~ich we have stated in1 the early part of this judgment; it can be illustra­ ted tbat the provisions of the Act, without pro­ posing to acquire the privately owned forests in the State of Kerala after satisrying the con­ ditions laid down in Art. 31 of the Constitu­ tion, have the effect of eliminating_ the private owners through the machinery of the Act." Thus the impugned statute in that case was held to.be violative of Art. 19(l){f) because its pro­ cedural part made no provision for giving a hearing to the assessees or for appeal nor was the Assessing Authority required to act judicially and the imposi­ tion though called a tax was in effect confiscatory and therefore a colourable piece of legislation. Sarkar, J:., in his minority judgment remarked that reasonableness of the rate was not assailed but what was assailed was the imposition of a flat rate 1 per acre without any reference to productivity. Undoubtedly 1rloopil Nair's case (') did · hold that a law under Art. 265 was also a law within Art. 13 and if it contravened Art. 14, it was liable to be struck down and that such law must also pass the test of the limitations prescribed in Part III of the .Constitution but it did not -lay down that all Articles in Part III would be applicable to taxation · laws nor did it decide contrary to Ramjilal' s c,ase (2) that Art. 31(1) would apply to taxation law which is otherwise invalid. But it is difficult to hold that a regulatory Article like Art. 19(1) was intended to limit the powers of the Legislature to impose taxes and thus to discharge its duty in regard to country's financial needs and policies. The contention of infringement of the appellants' right under Art. 19(1)(£) is unsound and must' be rejected and the reasons are those:- Firstly : Clause ( 5) of Art .. 19 allows the enac­ ting of laws which impose "reasonable restrictions" (1) [1961] 3 s.c.R. 77: (21 [.1951) S,C.R. 127. 1961 Chhotahlrai Jethailuii Pale/ and Co. v. The Union of Indio Kop·tr J. 11111 OllMuiaMi J dl'UJbhai Pal41 ottd Co. v. TA. Union of lntfia $.p,,, J. 72 SUPREME COURT l{J<.:l'ORTS [l!l62] SUPP. in the interests of the general public. The use of the term "reasonable l'f'Strietions'' i' i11<licatiye of r~gulation of the right to the personal rights men­ t10ned Ill sub-cl. (f) of the first clau;e. It must ha.ve relation to tho exiMence of the thing to he regulat«d. Tborc can be no regulation of things not in cxisten.oe. 'fherefore wherl' an Act is depri­ vatory a.s the imposition of a. tax is it cannot fall within Art. ( 19)( I' but under the specific Art. 31, which relates to rleprivation of property. Imam, J., in The Cul.lector vf Jfa/abar v. E. Ebrahim Hajee ( 1) said at p. !!76 :- "If the property itself is ta.ken lawfully un<ler Art. 31, the right to hold or dispose of it perishes with it and Art. 19(1Xf) cannot be invoked." That waa " case where the Income-tax Officer issued· a certificate under s. 46 (2) of the Incmn1>·tax Act and the Collector proceeded to recover under s. 48 of Madras Hevenue Recovery Act. Secondly: All taxation, as shown by its very nature and object, is in the interest of the genera.I public because it is a. contribution for governmental expenditurP from all persons who in some measure are entitled to i~s benefit. Thirdly: There is no means or mea.suro for determining the rcaaona.bleness of the restrictions which is an objective determination. The needs of the revenue cannot be known to the courtii and can­ not be determined by them, and the sources of revenue are <>ntirely within the knowledge of the legislature and it is for that depar~ment of .the. State to determine how the burden Will be d1Str1bu~ and why, becauStl that department# is the policy ma.king body and is familiar with the economics and the resources of the country and its needs. It is for that department in its discretion to select (ll ll957] 5.C.R, 970, 976. "' (2) S.C.R. SUPREME COURT REPORTS anything for taxation or to exclude it. Cooley's Constitutional Limitations, Vol. II, p. 986 (note). Fourthly: The power to tax is an attribute of sovereignty and it is an accepted principle that the exercise of that power is not subject to judicial control because no Constitutional Government can exist without the power to raise money for its needs and . the only security against abuse is in the structure of the Government. That power carries with it the power to determine when and how the · ··'. ~hall be levied. S. Ananthakrishnan Y. The "'1te nf Madras (1 ), 1lf'Ci1lloch v. The State of Jlaryland ('). There is no indication that the Indian Constitution has rejeoted or modified the American concept of the sovereignty of the State in rega1·d to the power of taxation. Fifthly: Article 19 ( 1) decl'1res the right of a citizen and cl. (5) prescribes its limits. If a taxation statute is within Art. 19( l)(f) it must be capable of being upheld as a reasonable restriction on the hol­ ding of property etc. On the submission of the appellants all taxes will be restrictions. If they are restrictions then their reasonableness will be justiciable depending upon the appreciation of established facts. How are the courts to judge ? All the necessary data for determining reasonable­ ness can never be before a court which in the very nature of things is available only to the legislature. Can the court say that a particular tax is excessive or unreasonable or can the court sa.y which parti- 0iJar source should be taxed and which particular inc·ome group should bear the burden of taxation or what the policy of the State as to.taxation should be. It would seem therefore that the reason­ ableness of tax laws is not justiciable and therefore they cannot fall within clause (5) of Art. 19. Article (1) A.LR. 1952, Mad. 395. (2) 305 U.S. S.C.R. 135, 146, 83, Ed. 87. 1961 Chlu1tahhai Jethabha1 Patel and Co. v. The Union of lndiri Kapur J. J9Cl Cloloo1"1!11oi J1,lcablloi Patel and Co • •• Tl~ Unkln of India A""pur J. i4 SUPREME COURT REPORTS [l!le2) StJPl' 19( I )( f) and cl. 5 arc part of one scheme imd the former is incapable of operating whPre the latter is inoperative. If considerations of Art. 19(5) are foreign to taxing laws Art. 19(1)(f) can have no application to them. Sixthly: Applicability of Art. 19( lXfJ to taxa­ tion laws will mean.that laws which are otherwise valid will be inapplicable to citizens but will be applicable to non-citizens. At any rate such law will operate differentially between one set of tax­ payers and another i.e., between citizens and non­ citizens. This will violate the very principle of due process relied upon by the appellants. Seventhly: In American due proceSB which has a variable concept.has not been applied to retros­ pective operation,_ of tax laws except to $&x on voluntary gifts of property and that also was doub· tod in Welch v. Henry ('). Eighthly: Retroactive du~y of exciae will be a valid imposition in the case of persoUB who have not sold their tobacco between the period of the introduction of the bill and the enactment of the Finance Act but will be invalid in the case of per· sons placed as the appellants. Ninthly: The acceptance of the appellants' argument would mean that they can recover any excess duty paid, excess because of subsequent decrease, but would not be liable to pay any similar increase in duty in spite of a. 64-A of tho Indian Sale of Goods Act under which variations in the rates of dutic~ become operative on contracts of sale and purchase. - Tenthly: It has been held that Art. 31 is inapplicable to deprivation by taxation. .Ramjilal'a case('); Lakshmanppa Hanumamappa v. TM Uni<m of India ('); and taxation laws are expr-ly excluded from the operation of Art. 31(2) by ,- (I) 83, L. Ed. 87. (2) [1951] S.C.R. 127. \3) [1953] I S. C.R. 769, at p. 772. r (2) S.C.R. SUPREME COURT REPOl~T.S 75 cl. 5(b)(i) of that Article. If the appellants' con­ tention is correct then depri\'ation although not protected under Art. 31 will be subject to regula­ tory control under Art. 19(l)(f). Eleventhly: To put 1t in the words of the American Supreme Court in Ogden v. Sau.nders(1) "It is but a decent respect due to the wisdom the integrity and the patriotism of the legislat,ive body, by which law is passed to presume in favour of its validity, until its violation of the , Constitu­ tion is proved beyond all reasonable doubo". T.welfthly: The challenge to the legality of the tax in dispute is not based and is unsustainable on the ground of specific limitation or prohibition on Parliam~ntary power but has been raised on the ground of the infringement of an article con­ taining the principles of the State's po\~er of con­ trol. The cases dealing with legislative incapacity are inapplicable to th~ latter ground of assault. Cases such as Mohammad Yasin v. The 1'own Area Committee, Jalalabad(') (a case of a licence fee which is not a tax), The State of Bombay v. United Motors India Ltd. (') (a case of inter-State trade) and Be:ngal Immunity Co. case(') (which was also a case of inter-State trade and some of the provision of the impugned Act there were held to be unreason­ able restriction on the right to carry on trade) and Ch. Tika Ramji's case ('J (a case dealing with the imposition of the restriction on the right to purchase except through a particular society) were not cases in which the impo~ition oi a tax was challenged on the ground of infrigement of Art. 19(l)(f). I, therefore, agree that appeals be dismissed with costs. One hearini fee. · Appeal dismissed. (1) 6 L. Ed. 606. 62S. (2) (1952] S.C.R, 572, 578. (3) [1953] S. C.R. 1069. (4) [1955] 2 S. C.R. 603, 619. . (SJ (19561s.c.R.393. 1961 Chhotabliai J elhabhai Patel and Co. v. The Union of lridia Kapw J.