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1945 Supreme(SC) 3
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
LORD RUSSELL OF KILLOWEN, LORD PORTER, LORD SIMONDS, LORD GODDARD AND SIR MADHAVAN NAIR.
GOVERNOR-GENERAL IN COUNCIL - Appellant
Versus
PROVINCE OF MADRAS - Respondents
On appeal from the Federal Court of India.
Decided On : Jan. 22. 1945.
Solicitor for appellant:Solicitor, India Office. Solicitors for respondent: E. F. Turner & Sons.
A duty of excise is a tax on the commodity produced, whereas a sales tax is a tax on the transaction of sale. A tax on the first sale of goods by a producer is a tax on sale, not an excise duty, based on its pith and substance.
Headnote:(A) Constitution Act - Section 100 - Federal Legislative List - Entry 45 - Provincial Legislative List - Entry 48 - Tax on first sale of goods - Duty of excise vs. Tax on sale of goods - Pith and substance - The real nature of a tax determines its legislative competence - A duty of excise is primarily a duty levied on a manufacturer or producer in respect of the commodity manufactured or produced and is a tax on goods, not on sales or the proceeds of sale of goods - A tax on the sale of goods, even if it is the first sale by the producer, falls within the provincial legislative competence and is distinct from a duty of excise.
(B) Legislative Competence - Reconciliation of entries - Where legislative powers are enumerated, the language of one list may be qualified by another - If entries cannot be reconciled, the federal power prevails, but reconciliation should be sought first without doing violence to the plain language of the provincial list.
Facts of the case:
An action was brought seeking a declaration that a provincial act imposing a tax on the manufacturer or producer of goods on the first sale thereof was ultra vires the provincial legislature. The appellant contended that such a tax constitutes a duty of excise, which is within the exclusive legislative competence of the federal legislature, whereas the respondent maintained it was a tax on the sale of goods.
Findings of Court:
The provincial act is in pith and substance a tax on the sale of goods and not a duty of excise. The tax is levied on the vendor in respect of sales, whereas an excise duty is levied on the manufacturer in respect of the commodity produced. The two taxes are separate and distinct imposts, even if they overlap in the timing of collection.
Issues: Whether a tax imposed on the manufacturer or producer of goods on the first sale thereof is a duty of excise within the exclusive legislative competence of the federal legislature or a tax on the sale of goods within the competence of the provincial legislature.
Ratio Decidendi: The court held that the "pith and substance" of the tax determines its category. A duty of excise is a tax on the commodity itself, attracted by the manufacture, whereas a sales tax is a tax on the transaction of sale. Although the collection of an excise duty may occur at the time of the first sale for administrative convenience, the legal essence remains distinct. Therefore, a tax on the first sale of goods does not necessarily constitute a duty of excise, and the provincial power to tax the sale of goods cannot be read as excluding the first sale.
Result: Appeal dismissed.
Legal Category Hierarchy
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constitutional law
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federalism
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legislative competence
- pith and substance doctrine
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legislative competence
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federalism
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tax law
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indirect taxation
- excise duty
- sales tax
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indirect taxation
Judgement
Appeal (No. 14 of 1944) from a decree of the Federal Court of India exercising original jurisdiction (March 17, 1943) which dismissed an action brought by the appellant, the Governor-General in Council, as plaintiff, against the respondent, the Province of Madras, as defendant, claiming a declaration that the provisions of the Madras General Sales Tax Act, 1939, were ultra vires the legislature of the Province of Madras in so far as that Act imposed a tax on the manufacturer or producer of goods on the first sale thereof.
The main question raised by this appeal was whether a tax imposed on the manufacturer or producer of goods on the first sale thereof was, as the appellant contended and the respondent denied, a duty of excise within the meaning of entry 45 of the Federal Legislative List contained in the seventh schedule to the Government of India Act, 1935, and therefore within the exclusive legislative competence of the appellant. By s. 100 of the Government of India Act, 1935 "(1.) Notwithstanding anything in the two next succeeding subsections, the Federal Legislature has, and a Provincial Legislature has not, power to make laws with respect to any of the matters enumerated in List I. in the Seventh Schedule to this Act (hereinafter called the ‘Federal Legislative List’).
"(2.) Notwithstanding anything in the next succeeding subsection, the Federal Legislature, and, subject to the preceding sub-section, a Provincial Legislature also, have power to make laws with respect to any of the matters enumerated in List III in the said Schedule (hereinafter called the Concurrent Legislative List).
"(3.) Subject to the two preceding subsections, the Provincial Legislature has, and the Federal Legislature has not, power to make laws for a Province or any part thereof with respect to any of the matters enumerated in List II in the said Schedule (hereinafter called the Provincial Legislative List).
"(4.) The Federal Legislature has power to make laws with respect to matters enumerated in the Provincial Legislative List except or a Province or any part thereof.” Entry No. 45 of the Federal Legislative List is as follows
"45. Duties of excise on tobacco and other goods manufactured or produced in India except.... [there follow certain exceptions]."
Entry No. 48 of the Provincial Legislative List is as follows
"48. Taxes on the sale of goods and on advertisements.”
The relevant provisions of the Madras General Sales Tax Act, 1939, appear from the judgment of the Judicial Committee.
The Federal Court of India (Gwyer C.J., S. Varadachariar and T. Ameer Ali JJ.) held that the plaintiff was not entitled to the declaration prayed for, saying "We agree that substantially the same issue is raised in the present suit as in the appeal last year [Province of Madras v. Boddu Paidanna & Sons ([ 1942] F. C. R. 90.)] and we see no reason to modify the decision which we then gave."
1944. Nov. 6, 7, 8; Dec. 18, 19. Sir Walter Monckton K.C. and B. MacKenna for the appellant. This appeal will in fact determine the Boddu Paidanna & Sons case (1) in which an appeal to, the Board is pending. The Madras General Sales Tax Act, 1939 (hereinafter called "the Madras Act ") imposes a tax on all sales, including the first sale, and a tax on the first sale is an excise duty and is not open to the respondent. In short, (a) any tax on commodities produced within a country levied on the producer is a duty of excise; and (b) any tax levied on commodities before they become part of the general stock is a duty of excise. The first point is who is to pay? The second, at what stage? In 1935, when the Constitution Act was passed, the great bulk of excise duties in India were levied on producers, and levied before the goods had become part of the common stock, i.e., before they reached the stage of retail sales. There is no doubt that in its ordinary meaning "excise duty" has a wider connotation than the appellant here now seeks to give it, but the wider meaning is n
