1. Challenge to the enhancement of countervailing duty on imported foreign liquor under the Bihar and Orissa Excise Act, 1915, where no similar goods were locally manufactured. (Para 1 , 12 )
Back
Next 
1965 Supreme(SC) 218
SUPREME COURT OF INDIA
P.B.Gajendragadkar, C.J.I., J.C.Shah, K.N.Wanchoo, M.Hidayatullah, S.M.Sikri, JJ.
Kalyani Stores: Advocate General For The State Of U.P.
Versus
State Of Orissa
Case No. : 20 of 1964
Date of Decision : 9/21/65
Advocates Appeared: Agarwala C.B. : Bindra N.S. : Chatterjee Santosh : Mishra V.D. : Rana O.P. : Sachthey R.N.
Countervailing duties are intended to equalize tax burdens between imported and locally produced goods. While existing laws are protected under Article 305, subsequent enhancements of such duties must comply with Article 301 and 304; they are invalid if no similar goods are produced within the State.
Headnote:(A) Constitution of India - Articles 301, 304(a), 305, 372 and Seventh Schedule, List II, Entry 51 - Excise Act - Section 27 - Countervailing duty on imported liquor - Meaning and validity of countervailing duty when no similar goods are produced within the State - Protection of existing laws under Article 305 - Validity of enhancement of duty via notification. (Paras 4, 5, 7, 10)
(B) Countervailing duty is intended to counterbalance excise duties on goods produced within the State to equalize the tax burden. If no similar goods are produced in the State, the right to impose such duties does not arise under the constitutional entry. (Para 4)
(C) Existing laws are preserved under Article 305 and 372. However, a subsequent notification enhancing the rate of duty constitutes an alteration of the law and must comply with constitutional restrictions. If the enhancement violates the freedom of trade under Article 301 and cannot be saved by Article 304(a) due to the absence of similar locally produced goods, such enhancement is invalid. (Paras 6, 7, 10)
Facts of the case:
A retail vendor of foreign liquor challenged the enhancement of countervailing duty from a rate fixed in 1937 to a higher rate fixed in 1961. It was admitted that no foreign liquor was manufactured within the State. The vendor contended that countervailing duty cannot be levied in the absence of similar locally produced goods and that the imposition offends the freedom of trade and commerce.
Findings of Court:
The original duty rate fixed before the Constitution is protected as an existing law under Article 305. However, the subsequent enhancement of the duty is an alteration that must satisfy constitutional requirements. Since no similar goods were produced in the State, the enhancement violates the freedom of trade and commerce and cannot be justified under Article 304(a).
Issues: Whether a countervailing duty can be levied on imported goods when no similar goods are produced in the State, and whether the enhancement of such duty via notification is protected as an existing law or must comply with Article 301 and 304.
Ratio Decidendi: Countervailing duties are meant to equalize the burden between imported and locally produced goods. While existing laws are saved by Article 305, any new modification or enhancement of tax rates must not infringe upon the freedom of trade under Article 301 unless it falls within the exceptions of Article 304. In the absence of similar locally produced goods, the enhancement cannot be justified under Article 304(a).
Result: Appeal partially allowed; notification enhancing duty by Rs. 30.00 per L.P. Gallon is invalid and unenforceable.
Legal Category Hierarchy
- constitutional law
- taxation law
Table of Contents
2. Whether countervailing duty requires local manufacture of similar goods and if duty enhancement violates constitutional guarantees of free trade and commerce. (Para 1 , 2 , 14 )
3. Countervailing duties aim to equalize tax burdens; enhancements to existing laws must comply with constitutional restrictions on trade if no similar goods are produced locally. (Para 4 , 5 , 6 , 7 , 8 , 10 )
4. A countervailing duty enhancement is invalid if it restricts trade under Article 301 and cannot be justified under Article 304 due to lack of local production. (Para 7 , 10 )
5. Appeal partially allowed; enhancement of duty declared invalid, while the original duty rate remains enforceable. (Para 11 , 27 )
6. What is the nature and purpose of a countervailing duty under Entry 51, List II of the Constitution?
A countervailing duty is intended to counterbalance or equalize the tax burden on alcoholic liquors imported from outside a State with the excise duties imposed on similar liquors manufactured or produced within that State. (Para 4 )
7. Can a State levy a countervailing duty if no similar goods are manufactured within the State?
Generally, the right to impose countervailing duties arises only if similar goods are actually produced or manufactured in the State on which excise duties are being levied. (Para 4 )
8. How does Article 305 affect the validity of pre-constitutional tax levies?
Article 305 protects existing laws from being affected by the freedom of trade and commerce guarantees in Articles 301 and 303, unless the President directs otherwise. (Para 5 , 10 , 25 )
9. When does an enhancement of a pre-constitutional duty become subject to constitutional scrutiny?
While the original levy may be protected as an existing law, any subsequent enhancement that alters the law must comply with constitutional requirements, including restrictions on trade and commerce. (Para 6 , 8 , 10 )
SHAH J.C., J. [On behalf of himself and P.B.GAJENDRAGADKAR, C.J.I., K.N.WANCHOO, and S. M Sikri, JJ.]
(1) THE appellants-Kalyani Stores-deal in liquor at Rourkela, District of Sundergarh in the State of orissa. The appellants held a licence as retail vendors for `all types of foreign liquor` under the Bihar and orissa Excise Act, 191 The expression `foreign liquor, apparently includes Ale, Beer, Port. Cider and other fermented liquors, cordials, mixtures and other preparations containing spirit, perfumed spirit and ill sorts of wines whether manufactured in India or abroad. Under the Bihar & orissa Excise Act, 1915 by a notification issued in 1937 under s. 27 a duty of Rs. 401.00 - 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 1/04/1960 to 31/03/1961 duty was levied on `foreign liquor` imported by the appellants at the rate fixed in the notification issued in 1937. On 31/03/1961 In exercisc of the powers conferred by s. 90 of the Bihar & orissa. Excise Act 2 of 1915 the Board of Revenue enhanced the duty with effect from 1/04/1961 in respect of `foreign liquors from Rs. 40.00 to Rs. 70.00 per L.P. Gallon, and also raised duty in respect of other excisable articles. The licence held by the was :In due course renewed from April 1, 196 1/03/1962. On 14/11/1961 the Sub-Inspector of Excise, Panposh called upon the appellants to pay the difference at the rate of Rs. 30.00 per L.P. Gallon in respect of the stocks of liquor found in the shop of the appellants on 1/04/1961 and to pay duty at the rate of Rs. 70.00 per L.P. Gallon in respect of fresh stocks received after 1/04/1961. 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 contented 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 articles imported into the State, imposed with a view to equalize 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 11, in Sch. VII of the Constitution, the State Legislature bad 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 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 & 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. 70.00 per L.P. Gallon under the notification dated 31/03/1961, is without authority of law, in that it contravenes Entry 51 List II, Sch. VII of t
