1. Retrospective increase in excise duty on unmanufactured tobacco — Challenge to legislative competence and constitutionality under the Finance Act 1951. (Para 1 , 2 , 4 , 5 , 45 , 46 , 47 )
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1961 Supreme(SC) 395
SUPREME COURT OF INDIA
11th December, 1961
S.J. IMAM, J.L. KAPUR, K.C. DAS GUPTA, RAGHUBAR DAYAL AND N. RAJAGOPALA AYYANGAR, JJ.
M/s. Chhotabhai Jethabhai Patel and Co., (In C. A. No. 140 of 54); M/s. Mooljee Sicka and Co. (In C. A. No. 141 of 54) and M/s. Patel Tobacco Bidi Works (In C. A. No. 142 of 54), Appellants
Versus
Union of India and another (In all Appeals), Respondents.
Umedbhai C. Patel and others (In C. A. No. 141 of 54), Interveners with
(1) M/s. Mooljee Sicka and Co., (In Petn. No. 24 of 52) and (2) M/s. Chhotabhai Jethabhai Patel and Co., (In Petns. Nos. 25 and 93 of 52), Petitioners
Versus
Union of India and others (In all the Petitions), Respondents.
Civil Appeals Nos. 140 to 142 of 1954 with Petitions Nos. 24, 25 and 93 of 1952.
Advocates appeared
Mr. G.S. Pathak, Senior Advocate (M/s. S.N. Adley, J.B. Dadachanji and Rameshwar Nath, Advocate of M/s. Rajinder Narain and Co., with him), for Appellants and Petitioners (In all Appeals and Petitions); Mr. H.N. Sanyal, Addl. Solicitor- General of India and Mr. N.S. Bindra, Senior Advocate (M/s. R.H. Dhebar and T.M. Sen, Advocates, with them), for Respondents (In all Appeals and Petitions); Mr. C.R. Pattabhi Raman, Senior Advocate (Mr. R. Ganapathy lyer, Advocate, with him), for Interveners (In C.A. No. 141 of 54).
Advocates:
C.R.Pattabhi raman, G.S.PATHAK, H.N.SANYAL, J.B.DADACHAN, N.S.BINDRA, R.Ganapathy Iyer, R.H.Dhebar, RAJINDAR NARAIN, RAMESHWAR NATH ROY, S.N.ANDLEY, T.M.SEN
C.R.Pattabhi raman, G.S.PATHAK, H.N.SANYAL, J.B.DADACHAN, N.S.BINDRA, R.Ganapathy Iyer, R.H.Dhebar, RAJINDAR NARAIN, RAMESHWAR NATH ROY, S.N.ANDLEY, T.M.SEN
Retrospective excise duty remains a duty of excise as it is attracted by manufacture, not by its economic incidence or the ability to pass the burden to consumers. Such retrospective taxation is within legislative competence and does not per se violate fundamental rights to property.
Headnote:(A) Constitution of India - Entry 84, Union List - Article 19(1)(f) and 19(5) - Article 31 - Article 265 - Central Excise Act, 1944 - Finance Act, 1951 - Provisional Collection of Taxes Act, 1931 - Sale of Goods Act - Section 64A - Central Excise Rules, 1944 - Rule 10A - Retrospective imposition of excise duty - Nature of excise duty - Legislative competence of Parliament - Whether a retrospective levy of excise duty alters its character from an indirect tax to a direct tax - Held: An excise duty is a tax on home-produced goods attracted by the fact of manufacture, unrelated to any commercial transaction. Its nature is not determined by whether it is passed on to the consumer or its economic incidence as a direct or indirect tax. (Paras 25, 54)
(B) Retrospective Taxation - Power of Parliament to enact retrospective tax laws - Retrospectivity does not deprive a tax of its essential characteristic as a duty of excise. (Paras 19, 22)
(C) Fundamental Rights - Right to hold property - Retrospective taxation does not per se violate Article 19(1)(f) or Article 31, provided the law is within legislative competence and not confiscatory. The power of taxation is an attribute of sovereignty, and the reasonableness of the rate or the timing of the levy is generally not justiciable. (Paras 41, 81)
(D) Recovery of Duty - Rule 10A of the Excise Rules - Scope of "deficiency in duty" - Held: The rule is wide enough to cover deficiencies arising from retrospective increases in duty. (Para 43)
Facts of the case:
Tobacco manufacturers paid excise duty based on a Bill. The subsequent Act increased the duty retrospectively from a date prior to the Act's enactment. A demand was made for the difference in duty. The manufacturers challenged the legislative competence of the retrospective levy, alleging it violated fundamental rights and that the recovery procedure was inadequate.
Findings of Court:
The retrospective levy is within the legislative competence of Parliament. It does not violate the right to hold property. The recovery rule is sufficient to cover the demand.
Issues: Whether a retrospective excise duty ceases to be an "excise duty" due to the inability to pass the burden to the consumer; whether such a levy violates the fundamental right to hold property; and whether the residuary recovery rule is applicable.
Ratio Decidendi: Excise duty is attracted by manufacture and is not defined by its economic incidence. Retrospectivity does not change this legal character. Furthermore, statutory provisions in the Sale of Goods Act allow for the recovery of increased duties from buyers, ensuring the tax remains indirect in nature. Taxation is a sovereign function, and mere retrospectivity does not render a tax unreasonable or confiscatory.
Result: Appeals dismissed with costs.
Legal Category Hierarchy
- constitutional law
- taxation law
- commercial law
Table of Contents
2. Retrospective excise duty ceases to be an indirect tax — Violation of fundamental right to hold property — Inadequacy of recovery machinery under Excise Rules. (Para 6 , 7 , 8 , 9 , 29 , 30 , 48 )
3. Excise duty is attracted by manufacture — Retrospectivity does not alter its nature — Tax laws are generally immune from reasonableness tests under Article 19(1)(f). (Para 10 , 11 , 12 , 13 , 14 , 15 , 16 , 17 , 18 , 19 , 20 , 21 , 22 , 25 , 26 , 27 , 28 , 31 , 32 , 33 , 34 , 35 , 36 , 37 , 38 , 39 , 40 , 41 , 42 , 43 , 49 , 50 , 51 , 52 , 53 , 54 , 55 , 56 , 57 , 58 , 61 , 62 , 63 , 64 , 65 , 66 , 67 , 68 , 69 , 70 , 71 , 73 , 74 , 75 , 76 , 77 , 78 , 79 , 80 , 81 )
4. Excise duty is a tax on home-produced goods based on manufacture; its nature remains unchanged regardless of retrospectivity or the ability to pass on the burden. (Para 25 , 55 )
5. Appeals and writ petitions dismissed with costs. (Para 44 , 82 )
6. Does retrospective imposition change the nature of an excise duty?
No. An excise duty is a tax on the manufacture or production of goods. Its essential character is not altered by retrospective operation, nor does it become a direct personal tax if the taxpayer cannot pass the burden to the consumer. (Para 19 , 21 , 22 , 25 , 55 )
7. Is a retrospective tax law subject to the reasonableness test under Article 19(1)(f)?
Generally, no. The power to tax is an attribute of sovereignty. Unless a tax is beyond legislative competence or is confiscatory in nature, its mere retrospectivity or quantum does not render it an unreasonable restriction on the right to hold property. (Para 41 , 42 , 70 , 81 )
8. Can a taxpayer recover retrospectively increased excise duty from a buyer?
Yes, under Section 64A of the Sale of Goods Act, if a duty is increased after the contract of sale, the seller may add the increase to the contract price and recover it from the buyer. (Para 23 , 24 , 59 )
9. Does Article 31(1) protect against the deprivation of property via lawful taxation?
No. Article 265 specifically provides that no tax shall be levied except by authority of law. Therefore, Article 31(1) is concerned with deprivation of property other than by the imposition or collection of tax. (Para 32 , 72 )
Judgment
AYYANGAR,J.: (With him, S. J. Imam, K.C. Das Gupta and Raghubar Dayal JJ.) The appellants in Civil Appeal 140 of 1954 are tobaacco merchants and manufacturers of biris. They own private ware-houses licensed under r. 140 of the Excise Rules, 1944 at Gondia and other places in Madhya Pradesh.
2. On the 28th of February, 1951 a Bill was introduced in the House of the People, being Bill 13 of 1951 containing the finacial proposals of the Government of India for the fiscal year beginning the 1st of April 1951. Clause 7 of the bill made provision for the amendment of the Central Excise Act (Act 1 of 1944) by way of alteration of duties on "tobacco manufactured and unmanufactured". In particular, it provided that "unmanufactured tobacco other than flue-cured and ordinarily used otherwise than for the manufacture of cigarettes" (which included tobacco intended for manufacture into biris) should be changed to an excise duty of 8 annas per lb, and it also imposed a new duty of excise on biris varying from 6 to 9 annas per lb depending upon the weight of tobacco contained in the biris.
3. Section 3 of the Provisional Collection of Taxes Act, 1931 (Act XVI of 1931) enacted
Where a bill introduced into the Indian Parliament provided for the imposition or increase of a duty of excise the Central Government might cause to be inserted in the bill a declaration that it was expedient in the public interest that any provision of the bill relating to such imposition or increase shall have immediate effect under this Act".
A declaration under this section was made in respect of the provision for imposing the duties on tobacco under cl. 7 of the bill already adverted to. The effect of such a declaration was stated in S. 4 of Act XVI of 1931 in the following terms:-
"4. (I) A declared provision shall have the force of law immidiately on the expiry of the day on which the Bill containing it is introduced.
(2) A declared provision shall cease to hale the force of law under the provisions of this Act-
(a) when it comes into operation as an enactment, with or without amendment, or
(b) when the Central Government, in pursuance of a motion passed by Parliament, 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."
4. 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 warehouses from and after March 1, 1951. Bill 13 of 1951 was passed into law as the Indian Finance Act 1951 (Act XXIII of 1951) on April 28,1951 but as passed, changes were effected in the duty proposed in the bill, as a result of certain alterations suggested by the Select Committee. Under S. 7(1) of the Finance Act 1951 while the excise duly on biris was abandoned, the duly on unmanufactured tobacco (other than flue-cured and used in the manufacture of cigarettes) was increased to 14 annas per 16, from the rate of 3 annas per lb. in the bill, Consequential provisions were enacted in S. 7(2) of the Finance Act which lead :
"The amendments made in the Central Excise and Salt Act 1944, sub-cl. 1 shall be deemed to have effect on & from the 1st March, 1951 and accordingly:-
(a) refund shall be made of all duties collected which would not have been col1ected, if the amendment had come into force in that day, and
(b) recoveries shall be made of all duties which have not been collected but which would have been collected, if the amendment had so come into force."
5. In pursuance of S. 7(2) a demand was made upon the appellants on June 22, 1951 for the payment of the duty payable by them, after giving credit for the refund of the duty paid on biris which had been deleted by the Act. The appellants contested the legality of this deman
