The Federal Court had to consider the distinction between the duty of excise and a tax on sale in Province of Madras vs. B. Paidanna and Sons, 1942 F. C. R. 90. It is there observed as follows:
“Plainly, a tax levied on the first sale must, in the nature of things, be a tax on the sale by the manufacturer or producer; but it is levied upon him qua seller and not qua manufacturer or producer. It may well be that a manufacturer or producer is sometimes doubtly hit……….. If the tax payer who pays a sales tax is also a manufacturer or producer of commodities subject to a central duty of excise, there may no doubt be overlapping in one sense, but them is no overlapping in law. The two taxes which he is called on to pay are economically two separate and distinct imposts. There is, in theory, nothing to prevent the Central Legislature from imposing a duty of excise on a commodity as soon as it comes into existence, no matter what happens to it afterwards, whether it be sold, consumed, destroyed, or given away…………. It is the fact of manufacture which attracts the duty even though it may be collected later. In the case of a sales tax, the liability to tax arises on the occasion of a sale and a sale has no necessary connection with manufacture or production.”
The Court further observed that in the Constitution Act the whole of the taxing power in this particular sphere (power to impose duties of excise) is expressly apportioned between the Centre and the Provinces, to the one being assigned the power to impose duties of excise, to the other taxes on the sale of goods. It is natural enough, when considering the ambit of an express power in relation to an unspecified residuary power, to give a broad interpretation to the former at the expense of the latter. The case however is different where as in the Constitution Act there are two complementary powers, each expressed in precise and definite terms. There can be no reasons in such a case for giving a broader interpretation to one power rather than to the other; and there is certainly no reason for extending the meaning of the expression “duties of excise” at the expense of the Provincial power to levy taxes on the sale of goods.
10. In The Governor-General in Council vs. The Province of Madras, 1915 F. C. R. 179, the Judicial Committee approved of the distinction drawn in this case between the excise duty and a tax on sale. There the question arose in respect of tax on the sale of excisable goods. Their Lordships observed as follows:
“An exhaustive discussion of this subject (namely, the meaning of the term ‘duty of excise’) from which their Lordships have obtained valuable assistance is to he found in the judgment of the Federal Court in Re The Central provinces and Berar Sales of Motor Spirit and Lubricants taxation Act No. XIV of 1938, 1939 F. C. R. 18. Consistently with this decision their Lordships are of opinion that a duty of excise is primarily a duty levied on a manufacturer or producer in respect of the commodity manufactured or produced. It is a tax on goods not on sales or the proceeds of sale of goods. Here, again, their Lordships find themselves in complete accord with the reasoning and conclusions of the Federal Court in B. Paidanna case, (supra). The two taxes, the one levied on a manufacturer in respect of his goods, the other on a vendor in respect of his sales, may, as is there pointed out, in one sense overlap. But in law there is no overlapping. The taxes are separate and distinct imposts. If in fact they overlap, that may be because the taxing authority, imposing a duty of excise, finds it convenient to impose that duty at the moment when the exercisable article leaves the factory or workshop for the first time on the occasion of its sale. But that method of collecting the tax is an accident of administration; it is not of the essence of the duty of excise, which is attracted by the manufacture itself. That this is so is clearly exemplified in those excepted cases in which the Provincial, not the Federal, legislature has power to impose a duty of excise. In such cases, there appears to be no reason why the Provincial legislature should not impose a duty of excise in respect of the commodity manufactured and then a tax on first or other sales of the same commodity. Whether or not such a course is followed appears to be merely a matter of administrative convenience. So, by parity of reasoning, may the Federal Legislature impose a duty of excise on the manufacture of excisable goods and the Provincial legislature impose a tax on the sale of the same goods when manufactured.”
11. This discussion clearly shows that the relevant question is what is the nature of the tax. Excise duty is a tax on manufactured goods. Octrai duty is a tax levied on the entry of goods within a particular area. Under the Excise Act, tobacco becomes excisable goods within the meaning of Item 9 in the Schedule. The subsequent use of such manufactured goods in making different articles only affects the rate of tax. Therefore, tobacco becomes subject to excise duty when it reaches the stage of manufacture mentioned in Item 9 of the Schedule to the Excise Act. Even before it is converted into bidis or any other article mentioned in the entry it has become excisable goods and liable to pay excise duty. The levy of such duty is therefore not in conflict with the levy of an impost on the entry of the goods within a certain area. [ AIR 1950 SC 11 : (1950) SCR 15 : (1950) SCJ 148 (SUPREME COURT OF INDIA) Firm Ram Krishna Ramnath Agarwal, Kamptee
Versus The Secretary, Municipal Committee, Kamptee]