A tax on the first sale of goods manufactured within the Province constitutes an excise duty, and a tax based on turnover can be considered a tax on sales, both of which were held to be ultra vires the Provincial Legislature.

Alfred Henry Lionel Leach, C.J.

1. This appeal arises out of a suit filed by the respondents in the Court of the District Munsif of Vizianagaram for a declaration that the Madras General Sales Tax Act, 1939, and the Turnover and Assessment rules framed thereunder are ultra vires the Provincial Legislature, a permanent injunction restraining the Provincial Government from collecting any tax from the respondents on the sales by them of groundnut oil and groundnut cake and an order directing the refund of Rs. 163-11-0, the amount which the respondents alleged they had been unlawfully compelled to pay in respect, of sales of groundnut oil and groundnut cake during the month of October, 1939. The respondents are members of a joint Hindu trading family carrying on business at Vizianagaram. They purchase groundnuts in the shell, and having decorticated the nuts they proceed to extract the oil from the kernels for the purpose of sale. Out of the residue they make groundnut cake, which they also sell. The assessing authority constituted by the Madras General Sales Tax Act assessed the respondents to the tax imposed by the Act both in respect of their purchases of groundnuts and their sales of groundnut oil and groundnut cake. The assessing authority regarded the business of manufacturing groundnut oil and groundnut cake as distinct from their business as buyers of groundnuts.

2. The Government of India Act, 1935, vests in the Central Legislature the power of imposing duties of excise on goods manufactured or produced in India, subject to certain exceptions which do not include the goods dealt in by the respondents. The power of imposing taxation on the sale of goods is given to the Provincial Legislatures. When the respondents first came into Court their case was that a tax on the sale of goods is in all cases an excise duty and therefore the Madras Legislature had exceeded its power in enacting the General Sales Tax Act. In view of the decision of the Federal Court In re The Central Provinces and Berar Act XIV of 1938 (1939) 1 M.L.J. (Supp.) 1 : (1939) 1 F.C.R. 18, where it was held that an Act of a Provincial Legislature levying a tax on retail sales of motor spirit and lubricants was not ultra vires the Provincial Legislature, it was impossible for the respondents to maintain that the Madras General Sales Tax Act was invalid in its entirety, but the question whether a tax on the first sale of goods manufactured or produced within the Province constituted an excise duty remained open to them. Consequently at the hearing the respondents confined themselves to this question in their attack on the validity of the Act. The respondents also raised the question whether the assessing authority was entitled to impose i he tax both on their purchases of groundnuts and their sales of groundnut oil and groundnut cake, relying here on a proviso to Section 3 of the Act to the effect that in respect of the same transaction the buyer and the seller shall not both be taxed, but only one of them, and that when the amount for which goods are bought by a dealer has been included in his turnover, the amount of the sale price shall be excluded. They averred that the goods which they bought and the goods which they sold were the same goods and therefore they could not be taxed both as buyers and sellers.

3. The District Munsif held that a tax on the first sale of goods manufactured in the Province was an excise duty within the meaning of the Act and consequently granted a declaration" to the effect that the Act and the rules framed thereunder in so far as they impose a tax on such sales are ultra vires the Provincial Legislature. The District Munsif did not grant an injunction, because he considered that there could be no reasonable doubt that the Provincial Government would honour a decree of a Court of law, and naturally this has been accepted to be the case. The District Munsif also accepted the respondents plea that groundnut oil and groundnut ca