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Province of Madras Versus Boddu Paidanna

1941 (9) TMI 9 - MADRAS HIGH COURT

Dated:- 5-9-1941 - Alfred Henry Lionel Leach, C.J. JUDGMENT 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 a .....

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e 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 pow .....

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on 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 .....

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nd 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 meani .....

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ea that groundnut oil and groundnut cake were for the purposes of the Act the same goods as the groundnuts out of which they were made and therefore the respondents could not, in any event, be taxed both on their purchases of groundnuts and on their sales of the goods made therefrom. The result was that the claim for a refund of the ₹ 163-11-0 was accepted by the District Munsif. 4. The Provincial Government appealed to the District Court of Vizagapatam, but the Advocate-General of Madras .....

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ope to impose an excise duty before a sale takes place, leaving the Provincial Legislature the power to impose a tax when a sale in fact takes place. (2) The tax imposed by the Madras General Sales Tax Act is a tax on turnover and such a tax cannot be classified as an excise duty. (3) The rules framed under the Act are intra vires and the respondents have not been subjected to double taxation, the two sides of their business being quite distinct. (4) While a suit will lie for a declaration that .....

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then the Act is ultra vires to this extent, and there is a corresponding defect in the rules framed under the Act, which means that the respondents cannot lawfully be taxed on their sales of groundnut oil and groundnut cake, and the third and fourth questions will not arise. The third question is bound up with the first. In the course of the hearing, Mr. Venkatarama Sastriar intimated that his clients were only concerned with the levy of the tax on their sales. 6. The entry in the Federal List .....

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ure by Entry No. 40 of the Provincial List. If such goods are manufactured or produced in the Province the Provincial Legislature may levy 'duties of excise' on them; if manufactured or produced elsewhere in India it may impose "countervailing duties" at the same or lower rates. The Entry in the Provincial List regarding taxes on sales is Entry No. 48 and is in these words: Taxes on the sale of goods and on advertisements. The question of what is meant by a duty of excise was f .....

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fore a tax on the sale of goods manufactured or produced within the United Kingdom would undoubtedly fall within the definition of excise, but it. is to be remembered that in the United Kingdom there is no division of legislative powers. Parliament stands alone. According to Blackstone, [Stephen's Commentaries (1928) edition, Vol. IV, page 420] and economists excise duties may be imposed at any stage from manufacture to consumption, as was pointed out in The Central Provinces Case (1939) 1 M .....

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xcise given by the Constitution Act to the Federal Legislature is to be construed as a power to impose duties of excise upon the manufacturer or producer of the excisable articles, or at least at the stage of, or in connexion with, manufacture or production and extends no further. 8. He did not, however, proceed to discuss the problem whether a tax on the first sale, that is, the sale by the manufacturer or producer, is a duty, imposed in connection with the manufacture or production, because th .....

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e they can be used. If a duty is imposed on the goods manufactured or produced when they issue from the manufactory, then the duty becomes leviable independently of the purpose for which they leave it and irrespective of what happens to them later. On the other hand, a duty on the sale of goods cannot be levied merely because goods have been manufactured or produced. Nor can it be levied merely because the goods have been consumed or used or even destroyed. The right to levy the duty would not a .....

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e decision of the High Court of Australia in The Commonwealth and Commonwealth Oil Refineries Ltd. v. South Australia (1927) 38 Com.L.R. 408, to which we shall refer presently. 11. In the opinion of Jayakar, J., a tax on the sale of goods manufactured or produced in a country is an excise duty, but he considered that by the insertion of Entry No. 48 in the Provincial List Parliament meant to reserve to the Provincial Legislature the power of imposing a tax on sales for the purposes of consumptio .....

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nd sale of alcoholic liquor and intoxicating drugs and the levying of excise duties and licence fees on or in relation to such articles. 12. The learned Judge considered that there was no escape from the conclusion that the definition of "excise" in Entry No. 16 of the Devolution Rules and the expression "duties of excise" in Entry No. 40 of the Provincial List in the present Act bear a wide signification, and include all duties levied on the consumption of the excisable comm .....

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articles of trade and commerce, should be exclusively within the competence of the Provincial Legislature. (2) That, save as aforesaid, all duties of excise on those goods whether levied and collected at the stage of manufacture, production or any subsequent stage upto consumption (exclusive of sale in the Province as stated above), should remain exclusively within the competence of the Centre. A corollary of this rule will be that the residuary powers, if any, of levying and collecting excise .....

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or producer should be classified as an excise duty. Sulaiman, J., was substantially in agreement with the learned Chief Justice in his definition of excise duty, but he thought it probable that a tax on the first sale should be classified as an excise duty. Jayakar, J., was definitely of the opinion that a tax on the first sale was an excise duty and taxes on subsequent sales, excluding the last sale, should be similarly classified. He made an exception in the case of the last sale, because Ent .....

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stage it will be convenient to discuss the judgments delivered by the High Court of Australia in The Commonwealth and Commonwealth Oil Re fineries Ltd. v. South Australia (1927) 38 Com.L.R. 408. The constitution of the Australian Commonwealth has been built on different lines from those of the Indian constitution and in interpreting the Government of India Act, 1935 the Court can only have regard to the provisions contained therein; but this does not mean that the Court is precluded from examin .....

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of motor spirit sold within the State (excluding spirits sold for delivery in or transportation to any place outside the State) and the vendor was authorised to add the amount of the tax to the price agreed to be paid. Six of the seven judges who constituted the Court were of the opinion that the Act was ultra vires, because it violated the power of the Commonwealth Parliament to impose duties of excise. With the one exception the learned Judges were all of the opinion that a tax on the first sa .....

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on of the articles sold or are otherwise so imposed as in effect to be a method of taxing the production of the article. But if in fact unconnected with production and imposed merely with respect to the sale of the goods as existing articles of trade and commerce, independently of the fact of their local production, a licence or tax on the sale appears to me to fall into a classification of Governmental power outside the true content of the words "excise duties" as used in the Constitu .....

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not be open to the challenge here made. That, however, is not the nature of the Legislation. 16. These remarks do not help the learned Advocate-General. The distinction which Isaacs, J., here draws is the distinction between the stage of production and the stage when the goods produced have become part of what has been described as the general stock of the Province. In other words, if the tax is imposed while the goods are in the hands of the producer, it is a tax on the production and therefor .....

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motor spirit is with a view to sale; and the tax, having direct reference to a sale so described as to be intimately related to production, is a matter which affects the producer as such, because it burdens the trade for which his production is the essential preparation. A tax laid expressly on the production alone of goods would affect every one who produced them even for personal use or consumption. But it is all one in reality whether the tax is expressed to be on production followed by sale, .....

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entral Provinces Case (1939) 1 M.L.J. (Supp.) 1 : (1939) F.C.R. 18, that a tax connected with the manufacture or production of goods within the Province constitutes an excise duty, and in our opinion, the correctness of the proposition is not open to doubt. Therefore what the Court has to decide, in the first place, is whether a tax on the sale of goods by the manufacturer or producer is so connected with their manufacture or production as to amount to an excise duty. The High Court of Australia .....

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s that the tax is intimately connected with the , manufacture or production of the goods. We hold that a Provincial Legislature in India has no power to tax a sale by the manufacturer or producer as, for the reasons given, this would mean the imposition of an excise duty and the assumption of power vested only in the Centre. 19. Where an entry in the Provincial List overlaps an entry in the Federal List, the Federal List must prevail. Where the interests can be reconciled this must be done, beca .....

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ture can levy a tax on the sale by the person who obtains the goods from the manufacturer or producer and so on when the goods pass from hand to hand. It has been said that there is nothing to prevent the manufacturer or producer opening a shop to sell his goods retail. This is so, but it is exceptional and as pointed out by Sulaiman, J., on Privy Council authority it is the pith and substance of the Act which is the decisive factor. 20. It is now necessary to decide whether the Madras General S .....

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e Government of India was that the Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act constituted an infringement of the power of the Central Legislature and the argument of the learned Advocate-General of India was advanced in support of this contention. The Federal Court refused to accept the argument, but this does not mean that this decision implied that a tax on turnover does not mean a tax on sales. Under the Madras General Sales Tax Act, the tax is undoubtedly b .....

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an amending Act, which received the assent of the Governor on the 4th March, 1940, the tax is now ₹ 4 per month if a dealer's turnover does not exceed ₹ 20,000 and one-quarter of one per cent. of the turnover if it exceeds ₹ 20,000. Any dealer whose turnover in any year is less than ₹ 10,000 is not liable to pay the tax for that year. 21. A tax on a dealer's turnover is, in effect, a tax on his purchases or sales as the case may be. Whether the Legislature makes h .....

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