1. Challenge to the validity of an enhanced countervailing duty on imported foreign liquor under the Bihar and Orissa Excise Act, 1915, in the absence of local production. (Para 1 )
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1965 Supreme(SC) 217
SUPREME COURT OF INDIA
P.B. GAJENDRAGADKAR, C.J.I., K.N. WANCHOO, M. HIDAYATULLAH, J.C. SHAH AND S.M. SIKRI, JJ.
Kalyani Stores, Appellant
Versus
State of Orissa and others, Respondents.
Advocate-General for the State of U. P., Intervener. 1687
Civil Appeal No. 20 of 1964.
Advocates appeared
M/s. Santosh Chatterjee and V. D. Misra, Advocates, for Appellant; Mr. N. S. Bindra, Senior Advocate, (Mr. R. N. Sachthey, Advocate, with him), for Respondents.
Mr. C. B. Agarwal, Senior Advocate, (Mr. O. P. Rana, Advocate, with him), for Intervener.
Countervailing duties must equalise tax burdens between local and imported goods. While pre-constitutional levies are protected as existing laws, post-constitutional enhancements on imported goods are invalid if no similar goods are produced locally, as they violate the freedom of trade under Article 301.
Headnote:(A) Constitution of India - Entry 51, List II, Seventh Schedule - Articles 301, 304, 305 and 372 - Excise duties and countervailing duties - Countervailing duties are intended to counterbalance the burden of excise duties imposed on goods manufactured within the State to equalise the burden on similar goods imported from elsewhere in India (Para 4). If no similar goods are produced or manufactured within the State, the right to impose counterbalancing duties of excise levied on goods manufactured in the State will not arise (Para 4).
(B) Existing Law - Article 305 and 372 - Laws in force immediately before the commencement of the Constitution continue to be in force until altered or repealed. A duty imposed by a notification issued before the Constitution is protected as an existing law under Article 305, and its validity is not affected by subsequent constitutional prohibitions unless the law is altered (Paras 5, 10).
(C) Freedom of Trade - Article 301 and 304 - Freedom of trade, commerce, and intercourse throughout the territory of India is guaranteed under Article 301. A tax on imported goods is permissible under Article 304(a) only if similar goods manufactured or produced in the State are subject to the same tax, so as not to discriminate between imported and locally produced goods. In the absence of local manufacture of similar goods, an enhancement of duty on imported goods violates Article 301 and cannot be saved by Article 304 (Paras 7, 10).
Facts of the case:
A retail vendor of foreign liquor challenged the legality of an enhanced countervailing duty. A duty of Rs. 40 per gallon had been imposed by a notification in 1937 under the relevant Excise Act. This duty was enhanced to Rs. 70 per gallon by a notification in 1961. It was admitted that no foreign liquor was manufactured within the State at the material time.
Findings of Court:
The original duty of Rs. 40 per gallon is valid as it was part of an existing law protected by Article 305. However, the enhancement of Rs. 30 per gallon is invalid as it infringes the freedom of trade under Article 301 and does not satisfy the requirements of Article 304(a) because no similar goods were produced locally to justify a countervailing measure.
Issues: Whether a countervailing duty can be levied or enhanced on imported liquor when no similar liquor is manufactured within the State, and whether such enhancement violates the constitutional guarantee of freedom of trade.
Ratio Decidendi: Countervailing duties are meant to equalise the tax burden between local and imported goods. While pre-constitutional levies are protected as existing laws under Article 305, any post-constitutional enhancement must comply with Article 304(a). Since no similar goods were produced locally, the enhancement was discriminatory and violated the freedom of trade guaranteed under Article 301.
Result: Appeal partially allowed.
Legal Category Hierarchy
Table of Contents
2. Whether countervailing duty requires local production of similar goods and if the duty enhancement violates constitutional guarantees of free trade and non-discrimination. (Para 1 , 2 , 14 )
3. Countervailing duties counterbalance local excise duties; hence, they require local production. Existing laws are protected, but subsequent enhancements must comply with constitutional trade restrictions. (Para 4 , 5 , 6 , 7 , 8 , 10 )
4. Countervailing duties can only be levied if similar goods are produced in the state; enhancements to existing laws must satisfy Article 304 requirements. (Para 4 , 7 , 10 )
5. Appeal partially allowed; the notification enhancing the countervailing duty is declared invalid, while the original duty remains enforceable. (Para 11 , 27 )
6. What is the legal nature and purpose of a countervailing duty under Entry 51, List II of the Seventh Schedule?
A countervailing duty is intended to counterbalance excise duties imposed on goods manufactured within a state to equalise the tax burden on imported similar goods. Consequently, it can only be levied if similar goods are actually produced or manufactured in the state. (Para 4 )
7. How does Article 305 of the Constitution affect the validity of taxes imposed by laws in force before the Constitution's commencement?
Article 305 protects existing laws from being affected by the freedom of trade guaranteed under Articles 301 and 303. Therefore, a duty levied under a pre-constitutional notification remains valid even if it would otherwise infringe upon these articles. (Para 5 , 10 )
8. Does the protection of an existing law under Article 305 extend to subsequent enhancements of the tax rate?
No. While the original tax rate established by an existing law is protected, any subsequent enhancement via notification is an alteration of the law that must comply with current constitutional requirements, including Article 304. (Para 5 , 6 , 8 , 10 )
9. Can a state impose a tax on imported goods under Article 304(a) if no similar goods are produced within the state?
No. Article 304(a) allows a state to impose taxes on imported goods only if similar goods manufactured or produced in that state are subject to the same tax, without discrimination. Without local production, this power is unavailable. (Para 7 , 10 )
Judgement
SHAH, J. [On behalf of himself and P. B. Gajendragadkar, C.J.I., K. N. Wanchoo, and S. M. Sikri, JJ.] : The appellants-Kalyani Stores-deal in liquor at Rourkela, District of Sundergarh in the State of Orissa. The appellants held a license as retail vendors for "all types of foreign liquor" under the Bihar and Orissa Excise Act, 1915. The expression "foreign liquor" apparently includes Ale, Beer, Port, Cider and other fermented liquors, cordials, mixtures and other preparations containing spirit, perfumed spirit, perfumed spirit and all sorts of wines whether manufactured in India or abroad Under the Bihar and Orissa Excise Act, 1915 by a notification issued in 1937 under S. 27 a duty of Rs. 40 per L. P. Gallon was imposed and realised by the State of Orissa on foreign liquor of Indian manufacture imported into State of Orissa from other parts of India. For the year April 1, 1960 to March 31, 1961 duty was levied on "foreign liquor" imported by the appellants at the rate fixed in the notification issued in 1937. On March 31, 1961 in exercise of the powers conferred by S. 90 of the Bihar and Orissa Excise Act, 2 of 1915 the Board of Revenue enhanced the duty with effect from April 1, 1961 in respect of "foreign liquors" from Rs. 40 to Rs. 70 per L. P. Gallon, and also raised duty in respect of other excisable articles. The licence held by the appellants was in due course renewed from April 1, 1961 to March 31, 1962. On November 14, 1961 the Sub-Inspector of Excise, Panposh called upon the appellants to pay the difference at the rate of Rs. 30 per L. P Gallon in respect of the stocks of liquor found in the shop of the appellants on April 1, 1961 and to pay duty at the rate of Rs. 70 per L. P. Gallon in respect of fresh stocks received after April 1, 1961. The appellants challenged the legality of this levy by a petition under Art. 226 of the Constitution filed before the High Court of Orissa. The appellants contended, inter alia, that the State could levy under S. 27 of the Bihar and Orissa Act duty on excisable articles produced or manufactured in the State and a countervailing duty on excisable article imported into the State, imposed with a view to equalise the burden on the imported articles with the burden on manufactured articles in the State but no countervailing duty on liquor imported could be levied if there was in the year of licence no liquor similar to the imported liquor manufactured within the State, and as there was no distillery in the State manufacturing "foreign liquor" the levy of countervailing duty was without authority of law. The High Court dismissed the petition holding that under. Entry 51, List II, in Sch. VII of the Constitution, the State Legislature had the power to legislate for levying duties of excise on alcoholic liquors for human consumption manufactured or produced in the State and countervailing duties at the same or lower rates on similar goods manufactured or produced elsewhere in India, and as it was admitted that the rate of duty on liquor produced in Orissa levied by the State of Orissa was identical with the countervailing duty required to be paid on imported liquor, the impugned notification was not invalid. With special leave granted by this Court, the appellants have appealed to this Court.
2. The Bihar and Orissa Excise Act, 2 of 1915 was enacted with the object, amongst others, to control the import, export, transport, manufacture, possession and sale of certain kinds of liquor and intoxicating drugs. Section 27 of the Act as amended by the Adaptation Order, 1950 provides:
"An excise duty or a countervailing duty, as the case may be, at such rate or rates as the State Government may direct, may be imposed, either generally or for any specified local area, on-
(a) any excisable article imported, or
* * * *
Explanation.- * * *"
The appellants submit that the levy of duty at the rate of Rs. 70 per L. P. Gallon under the notification, dated March 31, 1961 is without authority of la
