JUDGMENT

Maurice Gwyer, C.J. - In this case the Appellants are the Province of Madras, who appeal against a judgment of the Madras High Court dated September 5, 1941, in which it was held that certain taxes which "had been levied on the Respondents under the Madras General Sales Tax Act, 1939 Madras Act No. IX of 1939., (to which for convenience we refer hereafter as the Madras Act) were in the nature of duties of excise and therefore beyond the competence of the Madras Legislature to impose. In view of the importance of the question to the Provinces generally, in more than one of which legislation similar to the Madras Act has already been enacted, we acceded to the application of the Advocates-General of Bengal and the United Provinces to be allowed to appear at the hearing and to support the arguments of the Advocate-General of Madras. The Advocate-General of India, to whom we had caused notice of the proceedings to be sent, also appeared and addressed arguments to us in support of the judgment of the High Court. We therefore had the advantage of a very full discussion of all points which ariso in the case and we are indebted to counsel for the assistance which they have afforded us.

2. The Respondents carry on business at Vizianagram in the Province of Madras. There business consists of the purchase of groundnuts for the purpose of extracting oil from the kernels of the nuts and the making of groundnut cake out of the residue. They sell this oil and cake, and, since they are themselves the manufacturers, it follows that each sale which they effect is the first sale of the commodity after its manufacture or production.

3. The Madras Act provides that, subject to the provisions of the Act, every dealer, that is to say, every person who carries on the business of buying and selling goods, is to pay in each year a tax on his turnover, if that turnover is not less than Rs. 10,000, the tax being at a flat rate of five rupees (afterwards reduced to four) on a turnover between Rs. 10,000 and Rs. 20,000 and varying with the amount of the turnover on a turnover of more than Rs. 20,000. The expression "turnover" is defined as meaning the aggregate amount for which goods are either bought or sold by a dealer, whether for cash or for deferred payment or other valuable consideration, with certain exceptions not here material. The expression "goods" is defined as meaning all kinds of movable property, other than actionable claims, stocks and shares and securities, and includes all materials, commodities and articles. The Act further provides that the buyer and seller are not both to be taxed in respect of the same transaction of sale, but only one of them, as determined by rules made under the Act; and that, when the amount for which any goods have been bought by a dealer has been included in his turnover, the amount for which the same goods are sold by him is not to be included in his turnover for the purposes of the Act. The turnover for all purposes of the Act is to be determined in accordance with, and the tax is to be assessed, levied and collected in such manner and in such instalments as may be prescribed by, rules made for the purpose by the Provincial Government. There are various other provisions in the Act, mostly dealing with the machinery of assessment and collection, but nothing turns upon them in the present appeal.

4. The assessing authority under the Act assessed the Respondents to tax both in respect of their purchase is(sic) groundnuts and of their sales of oil and cake, holding that the purchase of groundnuts was a business distinct from the business of manufacturing oil and cake. Accordingly the sum of Rs. 160-11-0 was demanded from the Respondents by way of tax, and was paid by them under protest. The Respondents then took proceedings in the Court of the District Munsif at Vizianagram for a declaration that the Madras Act and certain rules made thereunder were ultra vires the Madras Legislature and for an order directin