Dar, J.:— This case and the connected cases Nos. 2, 3 and 4 of 1941 are four original trials of a sugar manufacturer at Bijnor for infringement of a regulation made under the U.P Sugar Factories Control Act (I of 1938) in not depositing the cess due from him on the due date. The accused in all these cases is Seth Munfta Lal, the managing proprietor of Seth Shiva Prasad Banarsi Das Sugar Mills, Bijnor, and the four cases relate to four successive defaults which were made in payment of the cess due for the months of December, 1940, and of January, February and March, 1941; this case relates to default for the month of December, 1940, and the connected cases Nos. 2, 3 and 4 of 1941 relate to defaults for the successive three months of January, February and March, 1941. On informations laid by the Collector of Bijnor, these cases were originally initiated in the court of the Sub-Divisional Magistrate, Bijnor, but on a petition of the accused that the cases “involved the determination of many important questions of constitutional law of unusual difficulty” they were transferred to this Court and have resulted in the present trials.
Clause (2) of section 29 of the U.P Sugar Factories Control Act (I of 1938), hereafter called the impugned Act, empowered the Governor to impose a cess not exceeding six pies a maund on the entry of sugarcane into a local area for consumption, use or sale therein. Rule 25A of the U.P Sugar Factories Control Rules 1938, hereafter called the impugned rules, lays down the procedure for the collection of this cess; it directs the occupier of every sugar factory to maintain a correct daily account of the sugarcane entering, die local area comprised in his factory, and within a fortnight of the close of each month to pay into the treasury the amount due as cess on the quantity of sugarcane which has thus entered each month and to submit to the Collector within the said time a statement showing the quantity of sugarcane which has entered and the amount of cess thus credited together with treasury receipt; and in the event of his failure in any of these matters it makes the occupier punishable with a fine which may extend to two thousand rupees. In exercise of the power conferred upon him by the impugned Act the Governor imposed a cess of six pies per maund on Sugar Factories which remained in force till 4th December, 1940.
In November, 1940, the U.P Sugar Factories Control (Amendment) Act (XI of 1940) was passed which raised the amount of cess fixed by section 29(2) of the impugned Act from six pies to twelve pies per maund on the entry of sugarcane for consumption in sugar factories. In exercise of the power thus conferred and with effect from 5th December, 1940, the Governor imposed a cess at the rate of three pies per maund together with an additional cess of six pies per maund on the entry of all sugarcane into the local area comprised in seventy-four sugar factories in these provinces and one of the factories thus notified and made liable to pay the cess was the Seth Shiva Prasad Benarsi Das Sugar Mills, Bijnor, of which Seth Munna Lal, the accused, was the “occupier” in the month of December, 1940, and in January, February and March, 1941. The cess of six pies per maund originally imposed, which was subsequently reduced to three pies, on the entry of sugarcane in factories was levied mainly to defray the cost of the scheme which was embodied in the impugned Act to develop the cultivation of sugarcane and the sugar industry in these provinces. The additional cess of six pies per maund was levied, in the words of the statement of objects and reasons of U.P Sugar Factories Control (Amendment) Act (XI of 1940), “to provide for the realisation of the subsidy given to the industry by means of an advance from the Government of India through the imposition of a special cess of six pies per maund of cane for a period of three years.”
During the year 1939-1940 the sugar industry in these provinces passed through an exceptional crisis. On account of the price control exercised by the sugar, syndicate large stocks of sugar accumulated in factories, with the result that the demand of banks which had advanced loans to factories threatened the ruin of the sugar industry and the inability of the factories to purchase sugarcane on account of accumulated stocks in the next crushing season threatened the ruin of the cane agriculture. In order to tide over this crisis the Government of the United Provinces entered into an arrangement with the Government of India by which the Government of India agreed to remit their excise duty to the extent of one rupee per maund on sugar which having been produced before 25th August, 1940, was issued on and after that date from any factory in the United Provinces, on condition that the loss thus suffered by the Government of India in their excise duty was treated as a loan by the Government of the United Provinces and was returned with interest in such monthly instalments as might be convenient to the Provincial Government. A detailed scheme, on compliance of which factory owners could receive remission of the excise duty, was laid down and the benefit of the remission only accrued to those factory owners who had unsold stock in their hands or to those who could and did comply with the conditions on which duty was remitted. This concession has been described as a subsidy to the industry, and in a sense it was, as it enabled the industry as a whole temporarily to escape the payment to the Government of India of the excise duty which should have fallen upon it on sales after 21st August, 1940, but the relief was only a temporary one because the Government of India had remitted the duty as a loan and the Government of the United Provinces also treated it as a loan and they proceeded to take steps to recover it from the industry by levying a cess upon it.
For some reason which has not appeared at the trial, the accused did not receive the benefit of this remission of excise duty and he did pay in fact a sum of Rs. 1,44,909 in January and February, 1941, in payment of excise duty into the central treasury at Delhi. At the same time, in the month of December, 1940, and in January, February and March, 1941, month after month several lakhs of maunds of sugarcane entered his factory and several thousands of rupees became due for the provincial cess. Within the time allowed by law the accused paid the cess at the rate of three pies per maund but he demurred to the payment of the additional cess of six pies per maund till these informations were laid by the Collector against him. After the complaints were filed the accused paid on 30th April, 1941, the amount due for the said additional cess also, but under protest, excepting a portion falling due for March, 1941, for which a sum of Rs. 16,000 odd still remains due from him to the Government.
The charge against the accused is that he knowingly and intentionally did not deposit the cess which fell due from him in December, 1940, and in January, February and March, 1941, on the due dates, nor did he file the statement of consumption of sugarcane and of payment of cess and the treasury receipt on the due dates, and in not doing so he has incurred the penalty provided for by rule 25A of the impugned rules. The accused admits that he is the occupier of the factory, he does not dispute that the cess in fact was levied on his factory, nor does he dispute the amount of cess which became due from him; his main defence is that the impugned Act and the cess which it levies and the rules which are framed thereunder are all invalid and ultra vires and he not having received any benefit from the cess is not bound to pay it. The authority of the Act is challenged on the ground that it legislates about subjects which are beyond the provincial field of legislation; it is also challenged on the ground that the Act is unconstitutional inasmuch as it combines taxing measures along with non-taxing measures in one and the same legislation; and it is further challenged on the ground that the Act restricts exports and imports of sugar and sugarcane from and into these provinces and as such contravenes section 297(1) of the Government of India Act, 1935. The contention with regard to the cess is that it is a tax in the nature of an excise duty masquerading as a cess and the rules are attacked on the ground that they were made in 1938 before the Sugar Factories Act was amended in 1940 and with the amendment of the Act they lost all their binding force.
By the Government of India Act, 1935, hereafter called the Constitution Act, the provinces and the centre are given a divided and exclusive field of legislation and also a joint field. The subject-matter of the impugned Act are sugar factories, sugarcane agriculture, sugar industry and regulation of production and supply of sugarcane and sugar and a qualified scheme of price control and marketing of these commodities. Factories are a subject in respect of which the centre and the provinces exercise a concurrent jurisdiction; the other subjects are exclusively provincial excepting development of industries, which also is a provincial subject excepting with regard to industries which by federal law have been declared to be under federal control in the public interest.
On a representation made by the Imperial Council of Agricultural Research to the Government of India and on a recommendation made by the Tariff Board on that representation the Government of India published a Resolution in the Gazette of India, dated 13th January, 1932, in which they stated “that the case for protection to the sugar industry rests on the importance of cane cultivation in the agricultural economy of India and that in order to maintain, and if possible, increase the area under cane, stimulus must be provided for the manufacture of fine sugar.” Soon after the Central Indian legislature passed an Act called the Sugar Industry (Protection) Act (XIII of 1932), which mainly provided for the protection of the sugar industry up to 31st March, 1938, with a further provision for a statutory inquiry with regard to the protection which might be afforded to the industry between 1938 and 1946. The actual language used in the preamble of the Sugar Industry (Protection) Act (XIII of 1932) has given rise to a contention on behalf of the accused, and it is as follows: “Whereas it is expedient, in pursuance of the policy of discriminating protection of industries in British India with due regard to the well-being of the community, to provide for the fostering and development of the sugar industry for a period ending with the 31st day of March, 1946, by determining the extent of the protection to be conferred up to the 31st day of March, 1938, and by making provision for the determination of the extent of the protection to be conferred for the remainder of the period: It is hereby enacted as follows:” For certain reasons the statutory inquiry contemplated by the Sugar Industry (Protection) Act (XIII of 1932) has not yet taken place and by successive Acts called the Sugar Industry Protection (Temporary Extension) Act (XIV of 1938), Sugar Industry (Protection) Act (XX of 1939) and Protective Duties Continuation Act (VIII of 1941) the period of statutory inquiry has been extended. But the preambles of these extending Acts are differently worded and they only set out the expediency of the protection of the sugar industry and they do not set out its development as the aim and object of the enactment.
The Central Indian legislature further passed two Acts, called the Sugar (Excise Duty) Act (XIV of 1934) and the Sugarcane Act (XV of 1934). By the former enactment a duty at a specified rate was imposed on sugar produced in any factory in British India and either issued out of such factory or used within such factory in the manufacture of any commodity other than the sugar, payable by the owner of the factory. The latter Act was enacted, in the words of its preamble, “for the purpose of assuring the sugarcane growers a fair price for their produce, to regulate the price at which sugarcane intended to be used in the manufacture of sugar may be purchased by or for factories” and it provided for certain controlled areas within which sugarcane was cultivated and grown and factories worked, to enable the Local Government to exercise price control in the said controlled areas.
By the Constitution Act the legislative authority of the centre and of the provinces was materially altered and in the exercise of these new powers the United Provinces and the Province of Bihar, which between them approximately account for 85 per cent, of sugar produced in this country, passed two similar Acts called Bihar Sugar Factories, Control Act (No. VII of 1937) and the U.P Sugar Factories Control Act (I of 1938), that is the impugned Act. These Acts repeal the Sugarcane Act (XV of 1934) of the Central Indian legislature and in its place put forward a more comprehensive scheme for dealing with the problems of sugarcane cultivation and sugar industry in these two provinces. The contention of the accused is that in 1932 and in 1934 the Central Indian legislature passed a series of measures, the object of which was to develop the sugar industry of India as a whole, these measures being the Sugar Industry (Protection) Act, 1932, the Sugar (Excise Duty.) Act (XIV of 1934) and the Sugarcane Act (XV of 1934). In the preamble of the Sugar Industry (Protection) Act, 1932, it is expressly stated that the object of that enactment was to foster and develop the sugar industry. After the Constitution Act came into force the Central Indian legislature again passed three fresh measures by which they extended the life of the Sugar Industry (Protection) Act of 1932, viz. Temporary Extension Acts, XIV of 1938, XX of 1939 and VIII of 1941. These Temporary Extension Acts imply that the original aims and objects of Act XIII of 1932, viz., the fostering and development of sugar industry, still continue, to be the aims and objects of the Central Indian legislature. And therefore the development of sugar industry is a central subject adopted by the centre both prior to and subsequent to the enactment of the. Constitution Act, and the provincial legislature consequently had no power to repeal the Indian Sugarcane Act (XV of 1934) or to make any law dealing with the sugar industry, and as the other provisions of the impugned Act are inextricably mixed up with provisions dealing with the sugar industry so that they are not severable, the entire Act becomes vitiated and falls to the ground.
The relative powers of the provinces and of the centre under the Constitution Act in respect of development of industries are set out in two entries, No. 34 in List I which is the central list and No. 29 of List II which is the provincial list, of the seventh schedule of the Constitution Act and it is necessary to examine these entries at this stage. The entry in the central list is as follows: “No. 34. Development of industries, where development under federal control is declared by federal law to be expedient in the public interest.” The entry in the provincial list reads as follows: “No. 29. Production, supply and distribution of goods; development of industries, subject to the provisions in List I with respect to the development of certain industries under federal control.”
It will be noticed that only those industries are excluded from the provincial field whose development by federal law is declared to be under federal control, and the first question which arises for consideration is, what is the meaning of the words “federal law” as used in entry No. 34? In the Constitution Act the expressions “federal law”, “existing Indian law” and “Act of Indian legislature” are used in separate and distinct senses and are not convertible terms. The “existing Indian law” has been interpreted in section 311 of the Constitution Act as a law passed or made by any legislature before the commencement of part III of the Constitution Act. As part III came into force on 1st April, 1937, the expression “existing Indian law” means a law passed or made before 1st April, 1937, by any Indian legislature. Part II of the Constitution Act, which relates to federal legislature, has not yet come into force and in that sense federal legislature and federal law do not exist, but there is a transitional provision in the Constitution Act, section 316—which provides that for the time being the Indian legislature shall exercise the powers given to the federal legislature by the Constitution Act and the laws made by the Indian legislature shall be treated as federal laws. But this provision could only apply to the laws made by the Indian legislature after the enactment of the Constitution Act, and this section 316 does not lay down that the existing Indian law, which existed before the Constitution Act was enacted, shall be deemed to be federal law. No doubt by section 292 of the Constitution Act the laws prevalent in India both federal and central and which existed before the commencement of part III of the Act were continued in force but they were not given the force or the meaning of “federal law” as has been done with regard to laws made by the Indian legislature after part III came into force under section 316 of the Act. The plain meaning of the statute therefore is that federal law is either a law made by the federal legislature after the federal legislature has come into existence, or a law made by the Indian legislature during the transitional period, that is, between the enactment of the Constitution Act and till the federal legislature comes into existence, but other existing Indian laws which were enacted before the Constitution Act could not fall within the meaning of federal law as used in the Constitution Act. This was the meaning given to the expression “federal law” by Sir Shah Sulaiman in interpreting the same expression in section 107 of the Constitution Act in Subramanyan Chettiar v. Muttuswami Goundan(1) and in my opinion that interpretation equally applies to the expression “federal law” as used in entry No. 34 of List I of schedule 7 of the Constitution Act.
It is not necessary to decide whether the preamble of the Sugar Industry (Protection) Act (XIII of 1932) can be read as containing a declaration that development of sugar industry was under central control in the public interest. It may be that in 1932 and prior to the enactment of the Constitution Act sugar and sugarcane were regarded as central subjects and the Indian legislature had made laws about sugar and sugarcane. But the position entirely changed with the passing of the Constitution Act; sugarcane agriculture and sugar industry then both became provincial subjects and an express declaration became necessary to bring the sugar industry under federal control by an Act of Indian legislature passed after the Constitution Act came into force. No such declaration has been made and the Sugar Industry (Protection) Act of 1932 cannot be regarded as a federal law, and the three Extension Acts of 1938, 1939 and 1941 cannot be regarded as containing any such declaration either expressly or by necessary implication. The protection of industry and not protection and development of industry was the stated object of the latter three Acts and the two functions of protection and development are not so indissolubly connected that they cannot be separately performed. The protection of industry contemplates protection against foreign competition and necessitates raising of tariff walls, a task which can only be accomplished by the centre. Whereas the development of industry requires the regulation and internal management of industry in a province, which responsibility can be properly discharged by the province. Sugarcane as an agriculture and sugar manufacture as an industry are thus entirely provincial subjects and the provincial legislature was competent to repeal the Sugarcane Act (XV of 1934) add to make laws about sugarcane and sugar as also about sugar factories.
It is now contended that the impugned Act being essentially a Factory Act dealing with licensing of sugar factories and with regulation of prices of sugar and sugarcane, the provincial legislature acted unconstitutionally in introducing taxing clauses in that enactment. It is submitted that in England all taxes are imposed by a separate enactment and such has been the practice in India, and in the constitution of Australia there is a provision in section 55 of the Commonwealth Act which forbids mixing up of laws imposing taxation with laws dealing with other matters. Whatever may be said about the propriety of such a practice, I cannot say that in the Constitution Act of India there is any statutory bar by which taxing clauses cannot be introduced into measures dealing with other subjects. In List II of the seventh schedule of the Constitution Act, from items Nos. 39 to 54, various taxes are specified which it is open to a provincial legislature to impose and some of these taxes have natural connection with some of the subjects which in earlier items of List II have been placed under provincial charge and in respect of which a provincial legislature is entitled to make laws. For instance, items Nos. 20 and 21 of List II deal with the subject of agriculture and land and items Nos. 39, 41, and 42 provide for land revenue and for, taxes on agricultural income and on land and buildings. Again, items Nos. 27 and 29 relate to trade and commerce, production, supply and distribution of goods and development of industries and items Nos. 48 and 49 provide for taxes on the sale of goods and on advertisements and cesses on the entry of goods into a local area for consumption, use or sale therein. Is there any reason to suppose that the Constitution Act intended that in carrying out legislation with regard to any of the matters placed in their charge by the lists, if the legislatures required Special revenue for the purpose of carrying out the scheme embodied in a particular legislation, they are precluded from introducing a taxing clause in the legislation itself for which a special revenue is required and they must resort to an independent taxing enactment? It may be that under some constitutions such a procedure might be open to objection, but in the absence of any clear authority I cannot hold on the strength of the practice prevailing in other constitutions that the impugned Act in introducing taxing clauses was in any manner unconstitutional.
The impugned Act sets up a Governmental and administrative machinery for carrying out the scheme of the Act; it provides for an, Advisory Committee, a Sugar Control Board, a Sugar Commissioner, a Cane Commissioner, a sugar commission and an inspectorate. It puts the factories under a license both to construct the factory and to work it in a season and through the license it exercises control over the grading of sugar, its sale price and the quantity of sugarcane crushed, in a factory in a season. It further empowers the Government to fix the price of sugar and demarcate an area from which factories must purchase all their sugarcane and not below a certain price, and in order to meet the cost of the scheme embodied in this Act it authorises the levy of a small licensing fee and a small tax on the sale of sugarcane or in the alternative a cess on the entry of sugarcane in factories for consumption. One essential feature of the Act is that to each factory is reserved an area where sugarcane is grown and in which area the cultivator must sell all his sugarcane to the factory and the factory must purchase it at a price not below a minimum fixed by the Government and the factory under the terms of its license must join a central organization called a sugar syndicate in which organisation by its rules and regulations sugar of the members is pooled and is sold at a price reserved by the syndicate. And to this extent the impugned Act does interfere with the liberty of the sugarcane grower to sell his sugarcane to whomsoever he likes and at the price which he likes and it interferes with the freedom of the sugar manufacturer to sell his sugar at his own price.
The policy behind the Act is apparent. The sugarcane cultivators are an illiterate and ignorant class leading a life of poverty and destitution at the mercy of moneylenders and traders for their daily subsistence. In order to protect them and save them from utter ruin a price control was necessary. The sugar industry itself, worked by power and modern machinery, was a growing and young industry in these provinces and it was being run on borrowed capital and was surrounded by malpractices and cut throat competition. To preserve and develop it some kind of marketing scheme was necessary, and this necessarily involved, some sort of pooling arrangement or expropriation of goods, but the direct object of the legislation was, to preserve and develop sugarcane cultivation and sugar industry and not to prohibit exportation from or importation into the province of sugarcane or sugar. And the question which arises for my consideration is whether economic planning is prohibited to the provinces by the constitution of India.
The contention of the accused is that all measures of price control, collective marketing and expropriation in relation to goods, with whatever object undertaken, operate as a restriction on free circulation of goods and on free trade and are unconstitutional. It is contended that a free trade clause is implicit in section 297 of the Constitution Act, and in any case when a sugarcane grower is compelled to sell his sugarcane to one factory alone in these provinces at a price fixed by the Government and a sugar manufacturer is compelled to sell his sugar at a reserved price and on the basis of a pooling arrangement, both are prevented from exporting their goods out of the province and this operates not only as a restriction on free trade and on inter-provincial trade, but it offends against the plain language of section 297, clause (1) of the Constitution Act, the material portion of which is as follows:
“Section 297(1). No provincial legislature shall (a) by virtue of the entry in the provincial legislative list relating to trade and commerce within the province, or the entry in that list relating to the production, supply and distribution of commodities, have power to pass any law prohibiting or restricting the entry into or export from the province of goods of any class or description… (2) Any law passed in contravention of this section shall, to the extent of the contravention, be invalid.”
This Court can have no opinion on the controversy between protection and free trade. But trade must exist before it can be free, and goods must be manufactured or produced before they can be put in circulation, and agriculture and allied industries must thrive and prosper and be developed before they can become the subject-matter of any effective inter-province or foreign trade. By the Constitution Act the responsibility of preserving and developing agriculture and industries is laid on the provinces and they are empowered to make laws “with respect to” these subjects, and the phrase “with respect to” means “on the subject of”, and the subject designates, according to Higgins, J., in Attorney-General for New South Wales v. Brewery Employees Union “the centre and not the circumference of power and the legislature can by definition increase the area of its legislative field.” Without going as far as Higgins, J., has done, the power to make laws on the subject of agriculture and development of industries necessarily implies a power to regulate, and power to regulate necessarily carries with it a power to impose restrictions which indirectly may interfere with export or import of goods. Economic planning of agriculture and industry nowadays is a part of regulation of agriculture and industry and very often, in circumstances prevailing in a province, requires price control or collective marketing or expropriation of goods, and the necessity to adopt these schemes may arise to preserve agriculture or industry from extinction or to aid the growth of industry or agriculture. These measures invariably in some way; interfere with the liberty of subjects to deal with their goods according to their wish and they may indirectly and as a remote consequence affect export from or import into a province. But if these powers are denied to a province the power given to them to regulate industry becomes wholly illusory and the provinces remain saddled with the responsibility of preserving and developing agriculture and industry while retaining no powers to achieve the object placed under their charge.
In my opinion the law which is open to objection under section 297(1) of the Constitution Act is a law made by a provincial legislature substantially by virtue of the entry relating to trade and commerce or by virtue of the entry relating to production, supply and distribution of commodities. And if a law is made substantially by virtue of the entry relating to agriculture or of the entry relating to development of industry as is the case before me, it is not open to objection under this section. Further, the law contemplated by this section is a law which prohibits or restricts entry into or export from the province of goods directly; and a law which does not deal directly and in substance with prohibition or restriction of export or import of goods but which deals with other needs of the province and provides for them,—though incidentally the effect of the provision is that in some measure export or import is restricted—is not within the meaning of this section. It follows from this that the prohibition or restriction contemplated by the section is a prohibition or restriction on the act of export or import, and so long as the goods remain the property of the province and are a stock of the province and before they have become the subject of inter-province or foreign trade the province has every right to expropriate goods or to put any restriction upon them which it considers necessary for the needs of the province.
Now the Sugar Factories Control Act does not expressly or directly prohibit or restrict export or import of sugar or sugarcane from or into the province. It is not a law on the subject of export or import but it is a law on the subject of agriculture, industries and factories. And in so far as it directs the sugarcane in a reserved area to be sold by some sort of statutory compulsion at a price not below a minimum it has adopted a necessary measure in the interest of and in order to preserve and develop sugarcane cultivation, at a stage when sugarcane was not, and was not likely to be in future,—with the doubtful exception in some border districts,—a subject of inter-province trade. And in so far as the Act regulates the quantity of sugar and its pride it also takes a necessary measure in the interest of sugar industry at a stage before sugar had become the subject of inter-province trade. And any remote or indirect interference which may result to export or import from these measures is not open to objection under section 297(1) of the Constitution Act.
The cases on the subject of “restrictions on free trade” are legion; but in my opinion they do not lay down anything really contrary to what I have said above. It is now generally agreed that all measures of price control, collective marketing and expropriation of goods do not per se and as a matter of course interfere with free trade clauses in a constitution, and the interference contemplated by the constitution is a direct interference and not an indirect interference. And in each case which arose on these free trade clauses the main question was whether the impugned provision resulted in a direct interference or in an indirect interference. The famous Australian cases of James v. Cowan and James v. Commonwealth of Australia(2), decided by the Privy Council, were cases of expropriation of goods under the Dried Fruits Act of Australia. That Act was passed by the Australian Commonwealth to protect the dry fruit industry of certain States and there exists a legitimate difference of opinion as to what was the real, and direct object of that Australian Act. The Privy Council, holding the view that the real and direct object of that Act was to drive the dry fruits off the Australian market and to interfere directly with inter-State trade and export, declared the Act to be ultra vires, but their. Lordships' judgments read as a whole do not support the view that all indirect interference with trade was regarded by them as objectionable even in a simple case of expropriation when it was not accompanied by any marketing scheme. The observations of Letham, C.J, in a recent Australian case, Milk Board (New, South Wales) v. Metropolitan Cream Pty.(3), may usefully be referred to at this stage:
“In James v. Commonwealth of Australia the decision in James v. Cowan is explained and the result is that section 92 invalidates only such expropriations as are shown to be directed against inter-State trade and commerce in the sense that the real object in creating the power of acquisition was to make it possible to place restrictions upon such trade and commerce. It is important to observe that in James v. Commonwealth of Australia the case of James v. Cowan is regarded as a case ‘simply’ of a restriction or prohibition of export from State to State. Such a description of the Dry Fruit's Control Scheme may be novel to some but it is clearly upon this basis that James v. Cowan is fitted into the intellectual framework of James v. Commonwealth of Australia. But such a description does not apply to a collective marketing which endeavours to provide means for obtaining what is thought to be a proper price for producers and for preventing consumers from being charged what are thought to be excessive a prices. Such a statute is not simply an Act which restricts or prohibits export from State to State.”
Indirect and remote interference which may result from collective marketing schemes or price control measures has not been considered by the Judicial Committee or in Canada or in Australia as restrictions on export or import or on free trade. In Shannon v. Lower Mainland Dairy Products Board a Provincial Natural Products Marketing Act was held valid by the Privy Council and in Reference re Natural Products Marketing Act, 1934 a Dominion Natural Products Marketing Act was held to be invalid by the Supreme Court of Canada, and that decision was affirmed by the Privy Council in Attorney-General for British Columbia v. Attorney-General for Canada. But in both cases it was assumed and accepted that marketing legislation itself was not open to any valid objection and the main controversy in these cases was whether the Province or the Dominion was competent to pass the legislation. The latest Australian view is expressed in the Milk Board case(4) in which the Act impugned embodied a collective marketing scheme, a scheme of expropriation of property and a price fixing scheme and all this with reference to a commodity which as a matter of fact was a subject of inter-State trade. Starke, J., expressed his dissentient view in the following forcible language:
“The constitution, we have been told, must not be mocked, James v. Cowan(5), but judicial decisions are rapidly destroying the effectiveness of the guarantee contained in section 92 of the Constitution Act that trade and commerce among the States shall be absolutely free. Transport may be licensed, prices may be controlled, trade in goods among the States may be regulated, by laws directed towards procuring standards of quality, condition or grade of articles of commerce, and now we are called upon to declare that the States may compulsorily acquire commodities for like purposes and thus prevent or hinder all trade in such commodities among the States.”
Nevertheless the remaining members of the Bench (Letham, C.J, Rich, Evatt and Mo Tiernan, JJ.) held that the Act was valid. I have already quoted above an observation of Letham, C.J, in connection with the expropriating feature of the Act. His other observation with regard to the collective marketing feature of the Act is as follows:
“The reconciliation of the apparent difference between the statements to which I have referred is, in my opinion, to be found in the proposition that a State Parliament is not necessary and is of course prohibited from controlling the sale of any commodity within its borders by the imposition of a collective marketing scheme, but that such a scheme would be invalid if it is shown that it is directed wholly or partially against inter-state trade—see James v. Commonwealth of Australia—in the sense that the real object of the Act is to make it possible to place restrictions on inter-states commerce. In my opinion, in spite of what might appear to be a Contrary view expressed in the comment upon the Peanut Board v. Rockhampton Harbour Board which I have quoted, the view of their Lordships of the Privy Council was that a State Parliament could enact and provide for the administration of a compulsory marketing scheme so long as it was not directed against inter-state trade and was not merely a prohibition as distinct from regulation of such trade.”
And Letham, C.J, has stated the law with regard to price fixing powers of the Australian Stated even with regard to commodities which are subject of inter-state trade, in the same case in these words:
“In my opinion it must now be held that so far as section 92 is concerned, a State Price Fixing Act applying (as a matter of construction) to trade and commerce in general may validly apply to inter-state trade and commerce if it is not shown to be directed against such trade and commerce.”
By the Constitution Act a provincial legislature is given power to impose certain taxes and fees, which are specified in List II and List III of the seventh schedule of the Constitution Act. Entry No. 48 of List II authorises imposition of taxes on the sale of goods; entry No. 49 of List II authorises imposition of cesses on the entry of goods into a local area for consumption, use or sale therein; entry No. 54 of List II authorises charging of fees in respect of any of the matters in that list; and entry No. 36 in part II of List III authorises levy of fees in respect of any of the matters in that part of that list: one of the matters specified therein is “Factories”, being entry No. 26 in part II of that list. In pursuance of powers thus conferred the provincial legislature has provided by section 12 of the impugned Act a license fee not exceeding one hundred rupees to be levied by the Government for granting a license to construct a factory and a separate fee of the same amount for granting a license to crush cane in a factory, and by section 29, clauses (1) and (2) of the impugned Act the Governor is authorised, after consulting the Sugar Control Board, to impose by notification a tax on the sale of sugarcane not exceeding six pies per maund or alternatively to impose a “cess not exceeding twelve pies a maund on the entry of sugarcane into a local area, specified in such notification, for consumption, use or sale therein”. No tax on the sale of sugarcane has yet been imposed but in exercise of the powers thus conferred the Government has imposed a license fee on factories for granting licenses and the Governor by notification has treated the area comprised in seventy-four factories in these provinces as a local area in which he has imposed a cess on the entry of all sugarcane for consumption, use or sale therein. At first the maximum cess permitted by the impugned Act was six pies per maund and the Governor had imposed the maximum cess of six pies per maund. But in 1940 the impugned Act was amended and the maximum was raised to twelve pies per maund and with effect from 5th December, 1940, the Governor has imposed a cess of three pies together with an additional cess of six pies per maund; the former cess is to provide for administrative expenses of the scheme embodied in the impugned Act and the latter cess is levied to meet the liability of a subsidy granted to the sugar industry in these provinces.
By section 29, clause (3) the Provincial Government is required to make rules specifying the authority empowered to collect the tax or cess and the person from whom and the manner in which the tax or cess shall be collected. Under rule 25A of the impugned Rules the liability of payment of cess is laid on the occupier of the factory, and section 29(4) of the impugned Act also povides that if any agreement for the sale of cane is entered into before the imposing of the cess the seller will be entitled to recover from the buyer in addition to, and as a part of, the contracted price, the amount of cess to which the seller may be liable.
By sections 15 and 18 of the impugned Act to each factory is assigned a reserved area in which sugarcane growers must sell all their sugarcane to the factory and the factory must purchase all their produce. Some factories may grow their own sugarcane in small quantity, but this would be somewhat exceptional. The evidence before me is, and this seems to be the rule, that all the sugarcane or most of the sugarcane which enters the factory comes from the reserved area and it comes by way of statutory compulsion, because after being produced in the field in the reserved area it is sold to the factory and after the factory has purchased it enters the factory for being manufactured into sugar. The cess is levied at the stage when after its sale by the grower to the factory it enters the factory for consumption or being turned into sugar.
The contention of the accused is that the cess in dispute is a tax on the sugar manufacturer and on the raw produce required for the manufacture of sugar; the provincial legislature not having any power to impose a tax on the sugar manufacturer or on his raw produce have dressed up the tax in the form of a cess. The underlying idea of cess according to the accused is that it is a tax payable in some administrative area or in some Governmental sub-division, on entry of goods generally, payable by citizens generally, and when a tax is imposed upon one class of persons, e.g, sugar manufacturer and no others and when it is imposed upon one class of goods, e.g, sugarcane and no others, these goods being the raw produce of the manufacturer, such an impost is a tax on manufacture masquerading as a cess and not a genuine cess. The accused further contends that the tax in question is really an excise duty collected at an early stage from the manufacturer on his raw produce and this could only be levied by the Central Indian legislature under entry No. 45 of List I and it was beyond the competence of the provincial legislature to impose such a tax.
These contentions raise some questions of fundamental importance. Has the provincial legislature power to create new local areas or not and must these local areas be only Governmental sub-divisions and can they not be industrial sub-divisions or for the matter of that any other kind of administrative or taxing units? Has not the provincial legislature power to levy a special tax on a class for special benefit which it confers on that class and must the manufacturing class be exempted from special taxes even when they receive special benefits and cannot the tax upon them be measured by consumption of their raw produce, so long, of course, as the tax is not laid upon the manufacture or production of goods? What is the true nature and basic idea of a cess? If it is to be laid on goods, need it apply to more than one kind of goods and if it is recoverable from persons, need it apply generally or universally and can it not be confined to those alone who have received special benefit and from whom a return for benefit conferred can be properly demanded?
The words “local area” have nowhere been interpreted in the Constitution Act. But they occur at one or two places, particularly in section 143(2) of the Constitution Act which is as follows:
“Any taxes, duties, cesses or fees which, immediately a before the commencement of part II of this Act, were being lawfully levied by any provincial Government, municipality or other local authority or body for the purposes of the province, municipality, district or other local area under a law in force on the 1st day of January, 1935, may, notwithstanding that those taxes, duties, cesses or fees are mentioned in the federal legislative list, continue to be levied and to be applied to the same purposes until provision to the contrary is made by the federal legislature.”
It is submitted that the use of the words “local area” in section 143 suggests that it is used in the sense of a Governmental sub-division or an administrative unit. But the administration need not be political, it may be industrial, educational or it may take any other form of Governmental activity. Indeed I cannot see why it is not open to the provincial Government or the provincial legislature to make an industrial survey of the province and to divide, up the entire province into industrial areas or factory areas or mill areas or in any other kind of areas, and each one of these areas may be notified and be treated as a local area. And once such areas come into existence and remain in operation they can be regarded as local areas within the meaning of entry No. 49 of List II in which a cess may be levied. We know that under the Sugarcane Act (XV of 1934) passed by the Central Indian legislature sugarcane cultivation was divided into controlled areas, and under the impugned Act it has been divided into reserved and assigned areas. By clause (2) of section 29 of the impugned Act the Governor is authorised by the provincial legislature to notify local areas and to impose a cess in such notified areas. In exercise of this power the Governor has notified the area comprised in seventy-four factories in these provinces as a local area, and the area thus notified may now be regarded as statutory local area. It is true that this local area did not exist from before and the area was notified and the cess was imposed by a simultaneous notification; it is also true that the area was created only for taxing purposes and it may be that it is a mere taxing unit and not a general administrative unit. But these facts do not make the factories area any the less a local area, though the question whether the legislature has any power to tax the factories raises other considerations which will have to be separately considered. I feel that the words “local area” as used in entry No. 49 of List II have no technical meaning and they are merely used in the dictionary sense of the words. In Murray's Oxford Dictionary “local” means inter alia “limited or peculiar to a particular place or places”, and “local area”, therefore, should mean any limited area or any area peculiar to a place, and, as such, factory area might well be regarded as a local area.
In its extreme form the contention that no provincial legislature can tax either the manufacturers or their goods has only to be stated for it to be rejected. A manufacturer is a citizen of the province and, like all other citizens, in his capacity as a citizen he must share the burthen of taxation with others. It is not disputed that an octroi or a cess on goods can be levied on entry of goods in cities and towns. Most cities and towns have some industries working in their midst, many cities and towns are wholly or substantially industrial. If a cess or octroi is levied on the entry of goods in such cities and towns it may fall on goods also connected with industries. Can it be reasonably contended that while other citizens when dealing with these goods must pay the octroi or cess, the manufacturer when dealing with these goods should not be held liable? But the question remains whether the manufacturer as a manufacturer and not as a citizen in common with other citizens can be taxed and, if so, can the tax be measured by the quantity of raw produce which he consumes in connection with his manufacture. The sugar manufacturers in these provinces are a small class of subjects of the province. In order to protect them and to make them prosperous the Government had to enact a scheme and to grant a subsidy. In order to meet the cost of the scheme and the subsidy, taxation became necessary and the province decided to raise this special revenue not by general taxation but by a special tax payable by sugar manufacturer who had received a special benefit by the scheme and by the subsidy.
It is not an absolute right of manufacturers to carry on any manufacture or industry in any country on their own terms. All Governments, possess a right to regulate industry and to put it under license and to charge a fee which may be necessary for regulation and for Governmental expenses. All Governments also possess power to incur special expenditure for the benefit of a particular class of persons and to recover the expenditure thus incurred by a special tax from that class alone which has received the benefit.
A question has been raised that a fee can never be large enough to be a tax. The distinction between a fee and a tax is somewhat shadowy and it is not necessary that the fee need not be large enough to be a tax and to serve the purpose of general revenue. In Findlay Shirras' “Science of Public Finance”, volume I, 1936 edition, the distinction between fees and taxes is stated in the following words at pp. 202-3:
“Taxes are compulsory contribution to public authorities to meet the general expenses of Government which have been incurred, for the public good and without reference to special benefits. Fees are payments primarily in the public interest for special services which people must accept whether willingly or not … Fees are for Governmental services, while prices are for services of a business character. They differ also from taxes in that they are payments for special benefits enjoyed by the payer, while taxes are for general benefits, expenses which are laid, as Adam Smith says, ‘for the benefit of the whole society’. The essence of a tax is the absence” of quid pro quo between the tax payer and the public authority. Fees, in Adam Smith's words, are ‘particular contributions’ (as opposed to general contributions) by persons who give occasion to this expense… Fees are undoubtedly co-ordinate with taxes, and, are sometimes grouped under the main head tax revenue, just as fees are grouped under non-tax revenue. It is indeed sometimes difficult to draw a clear line of distinction between taxes and fees.”
In Shannon v. Lower Mainland Dairy Products Board, in order to carry out a marketing scheme a licensing fee was levied on goods which was too large for regulation purposes and which left a surplus for general revenue. In deciding in favour of its validity Lord Atkin at page 721 observed as follows:
“A licence itself merely involves a permission to trade subject to compliance with specified conditions. A licence fee, though usual, does not appear to be essential. But, if licences are granted, it appears to be no objection that fees should be charged in order either to defray the cost of administering the local regulation or to increase the general funds of the province, or for both purposes. The object would appear to be in such a case to raise a revenue for either local or provincial purposes…. It cannot, as their Lordships think, be an Objection to a licence plus a fee that it is directed both to the regulation of trade and to the provision of revenue.”
A further question has been raised that a cess is not a special tax, the basic idea of a cess being that it is either a local rate or an octroi but in each case it is a fixed payment which the occupiers or residents generally of a locality are called upon to make in case they make use of the locality or of the goods which come in that locality, but tax payable by seventy-four owners of sugar factories scattered throughout the province, a tax to be measured by the quantity of sugarcane consumed in each factory, may be a special tax but it is not a cess. The question whether seventy-four factories can be regarded as a local area, I have already discussed elsewhere and may be left out of consideration here, but I do not see why a special tax or in other words a tax levied against a class for a special benefit conferred on that class can not be regarded as a cess even if that class is scattered all over the province and the tax is measured on the quantity of consumption. “Cess” has been explained in Murray's Oxford Dictionary as “In India a tax levied for a specific purpose; often with a prefixed word defining the object.” And in Encyclopaedia Brittanica it has been explained as “a term formerly more particularly applied to local taxation, in which sense it is still used in Ireland, otherwise it has been superseded by ‘rate’. In India it is applied with the qualifying word prefixed to any taxation, such as irrigation cess and the like, and in Scotland to the land tax. The word is a shortened form of ‘assess’ and the spelling is due to mistaken connection with census.”
In my opinion fees and cesses are two forms of special taxation which a provincial legislature, provided it is given authority to do so, is entitled to resort to in order to recoup itself for any special expenditure which it has incurred for the benefit of a special class of persons, against that special class. And the provincial legislature may recover the whole of this expenditure either by levying a fee which may be partly recurring and partly non-recurring, and the recurring portion may be based on monthly payment measured on the consumption of goods by the payer of the fee, or by levying a cess, or partly by levying a fee and partly by levying a cess, at its option. By entry No. 54 of List II and entry No. 36 of List III power is given to the provincial legislature to levy fees in most general terms in all matters which are within their legislative fields, and by entry No. 29 of List II and entry No. 26 of List III development of industries and control of factories respectively are matters placed within their legislative charge. By entry No. 49 of List II power is given to provincial legislatures to levy cesses on entry of goods into any local area for consumption, use or sale therein and no exception is made in favour of manufactured goods or of raw produce or of goods or raw produce connected with a manufacture or industry in that local area. It was, therefore, open to the legislature of these provinces to recover their special expenditure in connection with the sugar industry either by levying a fee or by levying a cess; it preferred to recoup itself by levying a nominal fee and a cess and it cannot be seriously disputed that on the plain reading of the entries the action was justified.
But it is submitted that these entries, Nos. 49 and 54 of List II and entry No. 36 of List III, which give power to levy fees and cesses to provinces should not be read in the ordinary way and in their plain meaning, but they should be so restricted and read in such a way as not to bring them in conflict with the power given to the centre to levy excise duty by entry No. 45 of List I. The contention is that excise duty is a tax on goods collected at any stage from raw produce to finished product and a tax on a manufacturer levied against a basic article connected with his manufacture is in substance a tax on manufactured goods and is really an excise duty, though it may be dressed up in any form and be called by any name.
This necessitates the examination of three entries in the Constitution Act which permit taxes to be imposed on goods and a fourth entry which allows fees to be levied against all classes of persons. By entry No. 45 of List I the centre is allowed to levy duties of excise on tobacco and other goods manufactured or; produced in India; by entry No. 48 of List II the provinces are allowed to levy taxes on the sale of goods and by entry No. 49 of the same List provinces are allowed to levy cesses on the entry of goods into a local area for consumption, use or sale therein. It will thus be seen that all three taxes are on goods and therefore the fact that the tax may be on goods is not decisive of its character. The further fact that the tax is, payable by the manufacturer or producer of goods is in my opinion equally inconclusive. The provinces may provide special facilities in a particular area for the use, sale or consumption of goods manufactured or produced in the province and put a tax in that area on the entry of goods; if a producer or manufacturer finds it to his advantage to bring his goods in that area and is called upon to pay a tax this would be a tax payable by the producer or manufacturer but not on the production or 1 manufacture of goods but because he wants to bring them in a particular area. Similarly the provinces may find special purchasers for certain goods manufactured or produced who might pay a special price for the goods, and tax the sales; here again the tax is payable by the manufacturer or producer but here again the tax is not on the producer or manufacturer but on sales to those special purchasers. In my opinion the true distinction between an excise duty, a sale tax and a cess on the entry of goods as used in the Constitution Act does not consist in the fact that the tax is on goods or that the tax is payable by the manufacturer or producer, but it consists in the fact whether the tax is on the act of production or on the act of sale or on the act of introducing goods in a particular area. Two conclusions follow from this, that a tax on the consumption of goods or a tax on the purchase of goods, whatever else it may be, cannot be an excise duty; and a tax on raw produce required by the manufacturer for his manufacture may be an excise duty or may be a general tax or may be a special tax, and the fact whether it is one or the other will depend upon the true nature of the tax. If the tax is on the act of production or manufacture of goods it will be an excise duty; if the tax is on citizens generally and a manufacturer happens to be one of them, it will be a general tax; if the tax is for a special benefit conferred upon the manufacturer it will be a special tax and in that case it may take the form of a fee or a cess. In such a case and in each case the class of tax falls to be determined upon the true nature of the tax in the light of surrounding circumstances.
The impugned Act authorises the imposition of a license fee, a sales tax on sugarcane or in the alternative, a cess on the entry of sugarcane in a local area. The license fee is for a nominal amount not even sufficient to cover the Governmental expenses of the Act. The sales tax has not yet been imposed but it is a tax which if levied shall operate upon first sales, because under the impugned Act the sugarcane produced in a reserved area cannot remain with the producer and has to be sold and there can only be one sale first and last to the factory, then the sugarcane is consumed and turned into sugar and by statute the liability of payment of the tax falls upon the purchaser. It is contended that a tax on first sale of goods operated as an excise duty as a matter of law and it has been so held in Province of Madras v. Boddu Paidanna. That was a case under the Madras General Sales Tax Act of 1939 in which a tax was levied on a manufacturer of groundnut oil and cake on the sales which he made of oil and cake and on the purchases which he made of groundnut for manufacturing oil. The tax on purchases of groundnut was not in controversy as will appear from the statement of counsel on page 336, but the tax on sales of oil and cake by the manufacturer was held to be an excise duty. That imposition on its own facts may well be regarded as an excise duty, but if it was intended by the Madras High Court to lay down as a matter of law that all and every tax on first sales, whether payable by the manufacturers or by the purchasers, are to be regarded as excise duty, then the case may require reconsideration. For it is possible to levy a tax against a manufacturer or purchaser even on first sales which may in reality be a tax on the act of sale and not a tax on manufacture or production and which being in the nature of fee may be imposed in the form of fee or in the form of a sales tax for special benefit conferred upon or services rendered to a manufacturer. But as the tax on sales, though authorised by the impugned Act, has not yet been levied, it is not necessary to pursue this matter any further and to express any final opinion on the point and I must heed the warning given by the Judicial Committee not to enter more largely into the statute than what is required for the purposes of the case.
It remains now to consider the nature of the cess which has been levied under the impugned Act. The cess is payable by the consumer of sugarcane on sugarcane when it has entered the factory to be consumed and to lose its identity as sugarcane; its final sale has taken place and it will no longer remain in circulation and be the subject of further sales. A tax like this is a tax on consumption, it may possibly be regarded as a tax on purchase, but it cannot be regarded as a tax on production of sugarcane or a tax on the producer of sugarcane. And a tax on consumption being a direct tax payable by the consumer cannot be regarded as an excise duty: See Attorney-General for British Columbia v. Kingcome Navigation Co.. Nor can the cess in dispute be regarded as a tax on production or manufacture of sugar because the tax is levied at a stage when the production or manufacture of sugar has not yet begun.
It is now contended that the cess is a tax on the manufacturer on a basic article required for his manufacture, in other words a tax on his raw produce and entry No. 45 of List I does not only give a right to the centre to levy duties on goods produced or manufactured in India, but it gives a right to levy dudes of excise, and “duties of excise” is a term of definite import in England which covers practically all indirect taxes on home made goods and a great many taxes which are not on goods at all, and the excise duty is collected from the stage of raw produce up to consumption, and the Constitution Act being an Act of British Parliament, the expression excise duty in entry No. 45 of List I is used in the British sense of the word. The first observation which falls to be made on this topic is that in England there is a unitary Government and one source of taxation while in India we have a federation with competing powers given to the provinces and to the centre with regard to taxation of goods. This fact alone makes the problem under the Indian Constitution entirely separate from other constitutions when a controversy arises whether a particular tax is an excise duty. Again, very few articles produced or manufactured in India have yet been subjected to excise duty by the centre and great many goods manufactured or produced in provinces are likely to remain permanently free from excise duty in future also. Could it be the intention of Parliament that the centre should have a power which it would never require to use in practice and the provinces should not have a power which would be of great use to them? It seems to me that the intention of Parliament can be best gathered from the language of the entries, and the three entries, one central and two provincial, read together clearly indicate that ‘excise duty’ is used in a restricted sense so as to allow the provinces to exercise powers under sales tax and cesses on goods without making those taxes ‘excise duties’ in the British sense of the word. I am not also certain that in England excise duties are collected at the stage of raw produce. But even assuming that in England a tax on a manufacturer measured by the quantity of raw produce which he consumes in his manufacture is to be regarded as an excise duty, I see no reason why it should be so regarded in this country and why it should not be regarded as—what in fact it is—a direct tax on consumption of raw produce. And indeed, so far as I am concerned, one part of the above contention is not open to any debate. In In re C.P Motor Spirit Act the Federal Court has unanimously held that the expression “duties of excise” in item No. 45 of List I is not used in the British sense of the word but it is used in a restricted sense and the three entries in Lists I and II which deal with taxes on goods should be so interpreted as to allow both the centre and the provinces to exercise their powers and they should not be interpreted in such a way as to make the powers of the provinces merely illusory. Not only do I respectfully agree with this view but it is my duty be follow it. It is true that in the same case Sulaiman, J., had expressed the view that possibly a tax on first sale of goods might be regarded as an excise duty and Jayakar, J., had observed that excise duty might be collected at any stage from raw produce up to consumption, but these remarks are merely obiter dicta because the question did not arise before them whether a tax on a manufacturer measured by the consumption of raw produce is a tax on consumption or on production, nor did the other question arise before them whether a manufacturer can be taxed for special benefit conferred upon him. Such observations as they have made in explaining the nature of excise duty must be taken in connection with the facts of that case, and I do not think anything which I have said above is really inconsistent with their judgments read as a whole.
A number of American and Australian cases were cited before me in which the nature of excise duty has been explained with reference to American, Australian or British constitution. In some cases it was laid down that a tax on a manufacturer may be a tax on his goods and the court is to be guided not by the form of the tax but it has to consider its real nature however disguised it may be. In some of the Australian cases which I am presently going to notice certain taxes on goods or on the manufacturer were held to be excise duties and in some others they were held not to be excise duties. I have only one general comment to make with reference to all these cases. They were all cases, whenever a tax was held to be excise duty, in which power to levy a tax on goods was wholly wanting in the States or the power to levy that particular form of tax was wanting in the States. In such a case the form of the tax or its disguise became a matter of real importance. But the problem before me is an entirely different one. Here admittedly both the provinces and the centre have got the power to tax the goods and the question is how these powers are to be interpreted, reconciled and mutually exercised and whether by reason of these competing entries, which do not arise in other constitutions, the provinces have got a power to levy a fee or tax on the manufacturer to recoup themselves for special expenditure incurred for the manufacturer and for special benefit conferred on him.
In the Australian constitution the power to levy excise duties or to tax home made goods is exclusively in the Commonwealth and that constitution also contains an inter-State free trade clause and a clause which requires taxation by separate legislation. The Australian States, unlike our provinces, do not possess any enumerated powers; their power of taxation rests on their residuary powers and any indirect tax or burthen placed by the States on goods which are the subject of inter-State trade and which affects the freedom of trade or free circulation of goods raises very, different considerations in that constitution.
The question of taxing a manufacturer or his goods cropped up in Australia in connection with manufacturing licenses, sale of goods and marketing schemes. Levying a fee on a manufacturer and on his goods in the form of a license fee for Governmental expenses of regulation of manufacture is regarded in Australia to be within the powers of the States and not an excise duty. See Peterswald v. Bartley. Two attempts were made in Australia to tax motor spirits. In the earlier case—Commonwealth Oil Refineries v. State of South Australia—under the Motor Spirit Vendors Act of South Australia the tax was laid on first sale of motor spirit; this was held to be a tax on production and an excise duty. In the latter case, Vacuum Oil Co. v. State of Queensland, under Motor Spirit Vendors Act of Queensland, the sellers of motor spirit were put under license to purchase on their sales of motor spirit an equal amount of power alcohol manufactured in Queensland; the scheme was obviously devised to encourage local power alcohol against foreign motor spirit, yet having regard to its form the imposition was held not to be an excise. Taxes in connection with marketing schemes have both failed and succeeded in Australia. As under the Australian constitution taxation could only be by a separate enactment, these impositions were introduced in the marketing legislature in the form of levies or deductions. In Attorney-General for New South Wales v. Homebrush Flour Mills, under the Flour Acquisition Act 1931 (New South Wales) flour manufactured by the millers was expropriated and they were required to take it back on payment of a standard price and the profit thus made by the State out of the flour expropriated, after deduction of expenses, was to be paid into a special fund for the relief of necessitous farmers. This was regarded as a tax on the millers taken from them under the device of expropriation of flour and forced payment of standard price and was held to be an excise duty. In Mathews v. The Chicory Marketing Board (Victoria), under the Marketing of Primary Products Act, 1935 (Victoria) a levy was made on producers of £1 for every half acre of land planted with chicory and this was held to be a tax on production and an excise duty.
On the other hand in Crothers v. Sheil, an Act dealing with the marketing of milk provided that the price of milk should be paid to the suppliers with a deduction for charges incurred in the treatment, carriage and distribution and sale of milk and for the costs, charges and expenses of the administration of the Act by the Milk Board. It was held that this provision for deductions did not “convert the scheme into one for taxation” and the deductions were not excise duty. In Hartley v. Walsh, under section 18 of the Dry Fruits Act, 1928 (Victoria), an imposition which was laid upon fruit sellers to meet the cost of the Victoria Dry Fruit Board in carrying out a scheme of packing and grading of fruits was held to be a payment for services rendered and not an excise duty. In Hopper v. The Egg and Puff Marketing Board the Marketing Board which was set up under the Marketing of Primary Products Act, 1938 (Vic), was given power to make certain pool deductions to meet the cost of the scheme and the deductions thus made were not regarded as excise duties.
In Canada the provinces and the Dominion both have enumerated powers, with residuary powers in the Dominion, and the provinces are given power to raise provincial revenue by direct taxation. A tax on goods, so long as it is not placed on the production or manufacture of goods and is not indirect, is therefore within the competence of the provinces in Canada. Accordingly in Attorney-General for British Columbia v. Kingcome Navigation Co., a tax on consumption under the Fuel Tax Act, 1930, of British Columbia, imposed upon every consumer of fuel oil according to the quantity which he consumed was held to be a direct tax and not an excise duty. And in Shannon v. Lower Mainland Dairy Products Board, the power of the provinces to levy a fee in connection with the production of the provinces was recognized by the Privy Council on the ground that the provinces had a right to license local manufacture and charge a fee for it which may be large enough to cover regulation expenses and to add to the revenue of the province and also on the ground that it was a remuneration for services rendered.
I should have gratefully received any guidance from the American, Canadian and Australian cases. But I feel that they really do not apply, and, in any case, they do not lay down anything which compels me to hold that under the Indian Constitution the provinces have no power to tax a manufacturer for special services rendered to him and for special benefit conferred upon him and that a fee or cess levied for such services or benefit is really an excise duty. And the conclusion which I have reached is that the impugned cess is not open to the attacks made against it, and the impugned imposition is in the first instance a cess within the meaning of entry No. 49 of List II and not a duty of excise within the meaning of entry No. 45 of List I, and if there be any difficulty in regarding it as a cess it can also be treated as a fee under entry No. 54 of List II and entry No. 36 of List III.
There remain now to notice briefly two more pleas in defence, one relating to the binding force of the impugned rules by reason of the amendment of the impugned Act and the other relating to the legal consequences which arise by reason of the fact that the accused personally did not receive any subsidy for whose payment the cess in dispute was levied. The impugned Act was passed in 1938 and the impugned rules were made soon after in 1938. In 1940 the impugned Act was amended in several particulars and the maximum amount of cess which was originally fixed at six pies per maund was raised to twelve pies per maund. But as the amendment of the Act did not require any change in the rules, the old rules were not changed. The contention of the accused is that with the amendment of the Act in 1940 the rules of 1938 ceased to have any binding force and it was necessary to enact rules afresh and for this contention reliance is placed on Watson v. Winch, decided by Lord Reading. That was a case in which a person was prosecuted for a breach of bye-laws framed under an Act which was wholly repealed. Bye-laws framed under an Act can only subsist so long as the Act subsists. Here the impugned Act has only been amended and the amendments in the Act which were made did not require any amendment in the rules. In such a case it is not necessary to re-enact the rules and the rules previously made continue in force.
The additional cess of six pies was levied to meet the cost of subsidy granted to the sugar industry in these provinces as a whole. If individual manufacturers did not, for reasons arising out of their own fault or for other reasons for which they were not to blame, receive their share of the subsidy, that fact cannot render the imposition of the cess invalid nor can it excuse the nonpayment of the cess under regulation on the due date nor can it furnish any defence to this trial. But the facts that the accused received no benefit of remission of excise duty and without receiving any benefit of excise duty he has also paid the cess and such delay as arose in payment of the cess was due to a bona fide dispute about its validity are matters which may legitimately affect the question of sentence.
Taking all facts into consideration I find that the impugned Act, the impugned cess and the impugned rule are all intra vires the provincial legislature and the accused Seth Munna Lal is guilty of an offence under rule 25A of the U.P Sugar Factories Control Rules, 1938, for which I sentence him to pay a fine of Rupees Twenty-five only.
And in accordance with section 205 of the Government of India Act, 1935, I further certify that this case involves a substantial question of law as to the interpretation of the said Act.