JUDGMENT <NAME>, J.

1. This application arises out of a proceeding under Section 145 of the Code of Criminal Procedure, and the point raised is whether the com-potency of <ORG>, as provided in Section 146 of the Code of Criminal Procedure consists in its territorial jurisdiction alone or also in its pecuniary jurisdiction.

2. The facts, as stated in the order under revision, show that the value of the property in dispute was perhaps more than Rs. 4,000/- and the reference, as provided under Section 146 of the Code of Criminal Procedure, had been made by the Magistrate, before whom the proceeding under Section 145 of the Code of Criminal Procedure was originally pending, to a munsif whose pecuniary jurisdiction., admittedly extended only up to Rs. 1000/- in those circumstances a preliminary objection was raised in <ORG> that as the value of the property involved in the reference was more than Rs. 1,000/- that court had no jurisdiction to hear the reference.

The <ORG>, however, on hearing the parties came to the view that "the word 'competent' means the competent court of territorial jurisdiction and Section 6 of the C. P. C. will apply to suits and not to a proceeding" and accordingly held that the objection was not tenable in law. And it is against this order that the present rule has been issued.

3. Before however, I enter into the discussion of the question raised, I think it is necessary to set out the relevant provisions of the Code of Criminal Procedure bearing on the subject. Clause (6) of Section 145 of the Code of Criminal Procedure provides :.

"145(6) If the Magistrate decides that one of the parties was or should under the second proviso to Sub-section (4) be treated as being in such possession of the said subject, he shall issue an order declaring such party to be entitled to possession thereof until evicted therefrom in due course of law and forbidding all disturbance of such possession until such eviction and when he proceeds under the second proviso to Sub-section (4) may restore to possession the party forcibly and wrongfully dispossessed."

4. Thereafter Section 146 (1), so far as is relevant for the purpose of this case, states :.

"146(1): If the Magistrate is of opinion that none of the parties was then in such possession, or is unable to decide as to which of them was then in such possession of the subject of dispute, he may attach it, and draw up a statement of the facts of the case and forward the record of the proceedings to a Civil Court of competent jurisdiction to decide the question whether any and which of the parties was in possession of the subject of dispute at the date of the order as explained in Sub-section (4) of Section 145 , and he shall direct the parties to appear before <ORG> on a date to be fixed by him."

And finally Sub-clause (IB) of that section directs that on the conclusion of the inquiry <ORG> will "transmit its finding together with the record of the proceeding to the Magistrate by whom the reference was made and the Magistrate shall, on receipt thereof, proceed to dispose of the proceeding under Section 145 in conformity with the decision of <ORG>." These provisions, in my opinion, make it clear that notwithstanding the reference, if any, made to <ORG>, for a finding on the point of possession, the proceeding itself at no stage is ever transferred as a whole to the civil <ORG>, so much so that on receipt of the opinion from <ORG>, it is again the criminal <ORG> which finally disposes of that application.

Further, even while it is pending there it lies within the discretion of the criminal <ORG>, if it so likes as is provided in the proviso to Section 146(1) of the Code of Criminal Procedure, to drop the proceeding finally and to withdraw the attachment. That means, the proceeding even on reference made to the Civil <ORG> on the point of possession retains its old moorings and does not change its character from a criminal proceeding to a civil proceeding and is as such all along kept in the seizin of the criminal <ORG> for its final conclusion.

If that is so then what is referred to <ORG> under Section 146(1) of the Code of Criminal Procedure is neither a suit, as contemplated under the Code of Civil Procedure, nor a proceeding as provided in its Section 141 , for Section 141 , as interpreted by their Lordships of <ORG> in <NAME> v. <NAME>, 22 Ind App 44 (PC) (A), is meant to include original matters in the nature of stilts, namely, matters which originate in themselves and not those which spring up from a suit or from some other proceeding or arise in connection therewith <CITATION> , AIR 1927 Cal 534 (B). Therefore, in coming to a true decision on the point raised here what has to be considered is whether in a proceeding like the one stated above the jurisdiction of <ORG> rests exclusively on territorial consideration or both on territorial and pecuniary.

5. Generally speaking, no doubt, it is true that the competency of <ORG> under the Code of Civil Procedure cannot be determined irrespective of its pecuniary jurisdiction. But the language of Section 6 whereunder the Code of Civil Procedure deals with the pecuniary jurisdiction of <ORG> is rather limited in its scope. It says :

"6. Save in so far as is otherwise expressly provided, nothing herein contained shall operate to give any Court jurisdiction over suits the amount or value of the subject matter of which exceeds the pecuniary limits (if any) of its ordinary jurisdiction."

This shows that the consideration of pecuniary jurisdiction in the case of jurisdiction oi <ORG> arises in the case of suits alone or at best for that reason in the case of tho e proceedings which are in continuation of suits or arise therefrom but in no case in the case of those which are neither suits nor arise therefrom or are connected therewith. Therefore, in my opinion, a reference made under Section 146 (1) of the Code of Criminal Procedure to <ORG> not being either a suit or a proceeding, as held above, cannot be put to any limitation of pecuniary jurisdiction nor there is any indication cither in that section or in Section 6 of the Code of Civil Procedure in support of any construction like that, That being so, the contention, raised in this case 011 behalf of the petitioner that the learned Munsif to whom the reference was made is not competent to hear it fails. As for the decisions relied upon in support of that contention, namely, those in <NAME> under <CITATION> 37 CM 574 (C); <CITATION> , ILR 16 Cal 457 (D); <NAME> v. <NAME>, AIR 1922 Pat 188 (E); <CITATION> , AIR 1940 Cal 161 (F); <CITATION> , AIR 1934 All 86 (G) and <NAME> v. <NAME>, ILR 35 Cal 571 (H), it is enough to say that they do not apply to the facts of this case. The first four cases deal with the pecuniary jurisdiction of a <ORG> to which a decree is transferred for execution either under Section 39 of the Code of Civil Procedure or some such similar provision provided in other Acts and the decision in those cases is broadly speaking based on the principle that the word 'suit' as contemplated in Section 6 of the Code of Civil Procedure is not limited only to the proceedings in cause up to the passing of the decree hut on the other hand covers all its proceedings including those in execution. Therefore, they are not of any assistance in disposing of the present case. In the case reported in AIR 1934 All 86 (G), the reference made to <ORG> was by a revenue <ORG>, and in those circumstances the question raised was whether the provision of the Code of Civil Procedure applied to that proceeding. In answer thereto the learned Judges held that it was a proceeding of a character as contemplated under Section 141 and therefore the procedure laid down in the Code of Civil Procedure did apply to it. So the decision in that case is not based on the consideration of jurisdiction. In the last case, namely, the one reported in ILR 35 Cal 571 (H), the reference was under Section 55 of the Land Registration Act and originally <ORG> had referred it to the District Judge. The District Judge in his own turn, however, transferred it to <ORG> whose pecuniary jurisdiction was less than Rs. 2000/-. But as the value of the property involved in the proceeding was more than Rs. 2,000/- an objection was taken in that <ORG> that it was not competent to hear the reference. The objector having failed there brought that question to <ORG>. But unfortunately by the time the case came up for decision in the <ORG>, <ORG> became functus officio in that matter and so the proceeding in the <ORG> had to be finally disposed of without any relief to the objector. Yet in the course of discussion, their Lordships expressed the view that the objection taken on the ground of pecuniary jurisdiction was a valid one. But the discussion on this point is rather scanty and is based on the general proposition that the competency of a <ORG> consists both in territorial and pecuniary jurisdiction without any detailed discussion on the consideration as to whether the provisions of Section 6 of the Code of Civil Procedure did at all apply to a case like that. Therefore, these cases do not throw any light on the point raised here.

6. Lastly, our attention has also been drawn by the petitioners to the difficulties, which may arise in cases where Civil <ORG> of different grades having the same territorial jurisdiction are found situated in the same area. In that case no doubt a ticklish question may arise as to which of the different <ORG> a reference under Section 146 of the Code of Criminal Procedure will have to be made. The section, as it stands, is silent, on that point and this certainly may give rise to some unnecessary controversy. Therefore, perhaps it is better if the <ORG> removes this lacuna as early as possible. But on the language as it stands at present, it has to be held that in such cases all these <ORG> will have concurrent jurisdiction and in law the reference to any of them shall be a valid reference. So it will be open to the referring Magistrate to choose either of them for the matter of reference. Generally, however, I think it would be better if the Magistrate in making the reference avoid in over-crowding the <ORG> of higher grade with unnecessary burdens. That means, in cases of proceedings under Section 145 of the Code of Criminal Procedure it would be better if the reference to <ORG> be as a rule, made to a Court of the lowest grade unless otherwise the Magistrate is of opinion that the reference to a Court of higher grade is necessary in the circumstances of the case.

7. For the reasons stated above, I think it has to be held that this application is one without substance. It is accordingly dismissed but in the circumstances of the case there will be no order as to costs.

<NAME>, <NAME>

8. I agree. In my opinion, the question of pecuniary jurisdiction of <ORG> in order to make it <ORG> of competent jurisdiction within the meaning of Section 116 (1) of the Code of Criminal Procedure cannot reasonably arise. It is plain that pecuniary jurisdiction is out of place under Section 145 and for that matter under Section 146 of the Code of Criminal Procedure which is exclusively concerned with territorial jurisdiction. The legislature while amending the Code of Criminal Procedure under the 1955 Act and introducing these words hat not defined 'competent jurisdiction'. It has no doubt introduced some ambiguity. But to import the notion of pecuniary jurisdiction along with territorial in construing the scope of this expression is not warranted. The cases relied upon by learned counsel for the petitioner are all of them of a character which could be finally disposed of by <ORG> to which they were referred either for execution or under the Bengal Land Registration Act of 1876 or under the Revenue Law. My learned brother has already pointed out that it is not so in respect of the reference under Section 146 (1) of the Code of Criminal Procedure. A finding by <ORG> on the dispute as to which party is in possession is again sent back to <ORG> which has to pass the final order.

9. The <ORG> appears to have adopted this procedure in view of the fact that <ORG> is in a better position to record a finding in such contentions disputes than <ORG>. <ORG> acts thus for a limited purpose in aid of <ORG> as a friendly <ORG>, as an amicus curiae, of that <ORG>. This conclusion is further fortified by the fact that the legislature has carefully excluded any right of appeal, review or revision to the aggrieved party against the finding of <ORG> on such reference under Sub- section 1 (c) of that section. There is yet another pertinent question of practical value. If this expression 'Civil <ORG> of competent jurisdiction' were to include pecuniary jurisdiction as well, the referring Magistrate in every case will have to determine the value of the subject matter in dispute before him which may necessitate the recording of fresh evidence. It will, in any case, give rise to a new proceeding of an incidental character which may be open to challenge in a superior <ORG>. If the Civil <ORG> to which the reference is made has to determine the issue, the position, is worse still as that <ORG> after recording evidence on the point may have to transmit back the record to me Magistrate making the reference if it finds that it is beyond its pecuniary jurisdiction.

10. In my opinion, therefore, any consideration of pecuniary jurisdiction which is relevant when <ORG> after the case is transferred to it for execution of a decree or for other matters to record a final decision disposing of the rights of the parties in so far as it is concerned does not arise in the reference under Section 146 (1) of the Code of Criminal Procedure.


PETITIONER: UNION OF INDIA & ORS. Vs. RESPONDENT: ClBATUL LIMITED DATE OF JUDGMENT27/09/1985 BENCH: <NAME>, R.S. BENCH: <NAME>, R.S. BHAGWATI, P.N. (CJ) SEN, AMARENDRA NATH (J) CITATION: 1986 AIR 281 1985 SCR Supl. (3) 95 1985 SCC (4) 535 1985 SCALE (2)770 CITATOR INFO : F 1987 SC 61 (1) R 1989 SC 516 (3) APL 1990 SC 202 (7) ACT: Central Excises and Salt Act , 1944 - Sub-s.(2) of s. 36 Manufacture of Goods - Joint programme of seller and buyer Goods manufactured by seller - Supplied to buyer - Who is manufacturer - 'Wholesale` price charged by seller - Whether true basis for determination and levy of Excise Duty. HEADNOTE: The respondent - <ORG> (the "seller") entered into two agreements with <ORG> (the "buyer") for manufacturing Resins by the seller. The joint manufacturing programme indicated that the Resins were to be manufactured in accordance with the restrictions and specifications constituting the buyer's standard and supplied at prices to be agreed upon from time to time. The buyer was entitled to test a sample of each batch of the goods and after its approval the goods were to be released for sale to the buyer. The products would bear certain trade-marks being the property of the foreign company <ORG> of Basle. Tripartite agreements were also executed between the buyer, the seller and the foreign company, recognizing the buyer as the registered or licensed user of the trademarks, authorising the seller to affix the trade- marks on the products manufactured "as an agent for and on behalf of the buyer and not of his own account" and the right of the buyer being reserved to revoke the authority given to the seller to affix the trade-marks. - The respondent filed declaration for the purposes of the levy of excise under the Central Excises and Salt Act , 1944 showing the wholesale prices of different classes of goods sold by it during the period May, 1972 to May, 1975. The declaration included the wholesale prices of the different Resins manufactured under the two aforesaid agreements. The Assistant Collector of <ORG> revised those prices upwards on the basis that the wholesale price should be the price for which the buyer sold the product in the market. According to the Assistant Collector the buyer was the manufacturer of goods and not the seller- 96 The Collector of Central Excise allowed the appeals of the respondent and accepted the plea that the wholesale price disclosed by the seller was the proper basis for determining the excise- duty. The Appellate orders were, however, revised by <ORG> under sub-s.(2) of s.36 of the Act and the orders made by the Assistant Collector were restored. According to <ORG> the buyer is the person engaged in the production of the goods and the seller merely manufactures them on behalf of the buyer and that under the agreements the seller is required to affix the trade-marks of the buyer on the manufactured goods and that indicates that the goods belong to the buyer. The orders of <ORG>. were challenged under Article 226. <ORG> held that the goods were manufactured by the seller as its own goods, and therefore, the wholesale price charged by the seller must form the true basis for the levy of excise duty. Dismissing the appeals of <ORG>, ^ HELD: 1. <ORG> was right in concluding that the wholesale price of the goods manufactured by the seller is the wholesale price at which it sells those goods to the buyer, and it is not the wholesale price at which the buyer sells those goods to others. [101 D-E] 2. The relevant provisions of the agreements and the other material on the record show that the manufacturing programme is drawn up jointly by the buyer and the seller and not merely by the buyer, and that the buyer is obliged to purchase the manufactured product from the seller only if it conforms to the buyer's standard. For this purpose the buyer is entitled to test a sample of each batch of the manufactured product and it is only on approval by him that the product is released for sale by the seller to the buyer. It is apparent that the seller cannot be said to manufacture the goods on behalf of the buyer. [100 B-C; F] 3. It is clear from the record that the trade-marks of the buyer are to be affixed on those goods only which are found to conform to the specifications or standard stipulated by the buyer. All goods not approved by the buyer cannot bear those trade-marks and are disposed of by the sellers without the 97 advantage of those trade-Larks. The trade-marks are affixed only A after the goods have been approved by the buyer for sale by the seller to the buyer. The seller owns the plant and machinery, the raw material and the labour and manufactures the goods and under the agreements, affixes the trade-marks on the goods. The goods are manufactured by the seller on its own account and the seller sells the goods with the trade-marks affixed on them to the buyer. <CITATION> ,  Supp. 1 S.C.R. 586, 592, 598, <ORG>, etc. . <ORG> and Others.  S.C.R. 21 at 31, <CITATION> .  Excise Law Taxes 733 at 734 and <ORG> and others etc. etc. v. <ORG> etc. etc.  Excise Law Times 1896, inapplicable. JUDGMENT:

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2619 of 1977.

From the Judgment and Order dated 25.6.1977 of <ORG> in Special Civil Application No. 1324 of 1976.

AND Civil Appeal No. 4399 of 1985 From the Judgment and Order dated 14.12.1976 of <ORG> in Special Civil Application No.. 68 of 1975.

<NAME>, Solicitor General, <NAME>, <NAME>, <NAME>, <NAME> and <NAME> for the Appellants.

<NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, Mrs. <NAME>, <NAME>, hiss <NAME>, <NAME> and <NAME> for the Respondent.

The Judgment of the Court was delivered by <NAME>, J. These appeals by special leave are directed against the judgments and orders of the Gujarat high Court allowing two writ petitions preferred by the respondent challenging the levy of excise duty. As they raise identical questions of law for consideration they are disposed by a common judgment The respondent is a company limited by shares. of the total share capital, 65 per cent is owned by <ORG>, 30 per cent belongs to a foreign company known as <ORG> of Basle in Switzerland and the remaining 5 per cent to <ORG> of India Limited. The respondent <ORG> (referred to shortly as the "seller") entered into an agreement with the <ORG> of India Limited ("the buyer") on March 24, 1971 under which certain specified products, which included U.F. Resins and M.F. Resins, were to be manufactured by the seller in accordance with a manufacturing programme drawn up jointly by the seller and the buyer. The resins were to be manufactured in accordance with restrictions and specifications constituting the buyer's standard, and they were supplied at prices agreed upon between the seller and the buyer from time to time. The buyer was entitled to test a sample of each batch of these goods, and it was only after it had given its approval that the goods were to be released for sale to the buyer. Another agreement between the two took place on June 1, 1975 in respect of Epoxy Resins and the terms of the agreement were similar to the terms of the earlier agreement. It was understood that the products manufactured under the two agreements would bear certain trade marks which were the property of the foreign company, <ORG> of Basle. In this connection, on December 7, 1971 a tripartite agreement was executed between the buyer the seller, and the foreign company in respect of four trade-marks, Aerolite, Melocol, Melolam and Resicart. The foreign company, which owned these trade-marks, as well as the seller recognised the buyer as the registered or licensed user thereof. The buyer authorised the seller to affix the said trade-marks on the products manufactured under the first contract, and the seller was to do so "as an agent for and on behalf of the buyer and not of his own account." The seller had also agreed to refrain from selling or dealing in, directly or indirectly, goods bearing the said trade-marks or any other marks similar thereto save and except for the explicit purpose of fulfilling the seller's obligations under the first agreement. The buyer reserved the right to revoke the authority given to the seller to affix the trade-mark. A similar tripartite agreement was executed between the three parties on December 1, 1973 in respect of the second agreement between the buyers and the seller, namely, that relating to Epoxy Resins. The trade-mark concerned was Araldite.

The respondent filed a declaration for the purposes of the levy of excise under the <ORG>s and Salt Act , 1944 showing the wholesale prices of different classes of goods sold by it during the period May, 1972 to May, 1975. The declaration included the wholesale prices of the different resins manufactured under the two aforesaid agreements. The Assistant Collector of <ORG> revised those prices upwards on the basis that the wholesale price should be the price for which the buyer sold the product in the market. The Assistant Collector proceeded on the footing that the buyer was the manufacturer of the goods and not the seller. The respondent appealed to the Collector of <ORG>. The appeals were allowed by the Collector, and he accepted the plea that the wholesale price disclosed by the seller was the proper basis for determining the excise duty. The appellate orders were, however, revised by <ORG> under sub-s.(2) of s. 36 of the Act, and the orders made by the Assistant Collector were restored. The respondent filed a writ petition in <ORG> against the orders of <ORG>, and <ORG> held that <ORG> was wrong and the appellate Collector was right on the question as to the liability of the seller to excise duty.

The basis on which <ORG> proceeded in holding that the wholesale price of the goods should be the wholesale price charged by the buyer is that the goods were manufactured by the seller on behalf of the buyer, specially as they were embossed with the trade-mark of which the buyer alone was the registered user in India, that the two agreements between the seller and the buyer envisaged that the goods were manufactured by the seller on behalf of the buyer and that therefore the buyer itself should be regarded as the manufacturer of the goods for the purpose of levying excise duty. <ORG> has differed from the view taken by <ORG> and has held that the goods were manufactured by the seller as its own goods, and therefore the wholesale price charged by the seller must form the true basis for the levy of excise duty.

Excise duty is levied under s. 3 of the Central Excises and Salt Act , 1944 on goods manufactured in India and, broadly, for the purposes of computing the duty the value of the article is deemed under s. 4 of the Act (as it stood before its amendment by Act XXII of 1973) to be the wholesale cash price for which an article of the like kind and quality is sold or is capable of being sold at the time of the removal of the article chargeable with duty from the factory for delivery at the place of manufacture. The words "manufacture" and "manufacturer" have been defined by clause

(f) of s. 2 of the Act, and for the purposes of the present controversy what is relevant is that part of the definition which defined "manufacturer of goods as being any person who engages in their production or manufacture on his own account." The appellant contends that on the facts and circumstances of this case it must be held that the buyer is the person engaged in the production of the goods and the seller merely manufactures them on behalf of the buyer.

The entire question before us is whether the goods are manufactured by the seller or are manufactured by the seller on behalf of the buyer. The relevant provisions of the agreements and the other material on the record show that the manufacturing programme is drawn up jointly by the buyer and the seller and not merely by the buyer, and that the buyer is obliged to purchase the manufactured product from the seller only if it conforms to the buyer's standard. For this purpose the buyer is entitled to test a sample of each batch of the manufactured product and it is only on approval by him that the product is released for sale by the seller to the buyer. In other words, the buyer has the right to reject the goods if he does not approve of them. If the manufactured goods are not in accordance with the buyer's standard, they are either reprocessed to bring them up to the requisite quality or if that is not possible the goods are sold to the buyer for a different purpose if they are compatible with the specifications of some other product and provided that the buyer has a need for that product, or the goods are sold to others in the market as sub-standard goods at a lower price of the goods are destroyed. It is significant to note that the buyer is not obliged to purchase the goods manufactured by the seller regardless of their quality, and that in the event of rejection by the buyer the alternatives present before the seller extent to the sale of the manufactured goods to others or even to the very destruction of the goods. It is apparent that the seller cannot be said to manufacture the Roods on behalf of the buyer.

The appellant relies also on the circumstance that under the agreements the seller is required to affix the trade-marks of the buyer on the manufactured goods and, it is said, that indicates that the goods belong to the buyer. It seems to us clear from the record that the trade-marks of the buyer are to be affixed on those goods only which are found to conform to the specifications or standard stipulated by the buyer. All goods not approved by the buyer cannot bear those trade-marks and are disposed of by the sellers without the advantage of those trade-marks. The trade marks are affixed only after the goods have been approved by the buyer for sale by the seller to the buyer. The seller owns the plant and machinery, the raw material and the labour and manufactures the goods and under the agreements affixes the trade-marks on the goods. The goods are manufactured by the seller on its own account and the seller sells the goods with the trade marks affixed on them to the buyer.

The appellant has invited our attention to certain observations in <CITATION>  Supp. 1 S.C.R. 586 at 592 and 598., South Bihar Sugar Mills Ltd.., etc. v. <ORG>,  3 S.C.R. 21 at 31., <CITATION> .  Excise Law Times 733 at 734., and <ORG> etc. v. <ORG> etc. etc.,  Excise Law Times 1896., but in none of those observations do we find any acceptable support for the proposition that the goods are manufactured by the seller on behalf of the buyer.

In the result, we hold that <ORG> is right in concluding that the wholesale price of the goods manufactured by the seller is the wholesale price at which it sells those goods to the buyer, and it is not the wholesale price at which the buyer sells those goods to others.

The appeals are dismissed with costs.

A.P.J. Appeals Dismissed.


JUDGMENT <NAME>, C.J.

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

2. The Government of India Act, 1935, vests in <ORG> the power of imposing duties of excise on goods manufactured or produced in India, subject to certain exceptions which do not include the goods dealt in by the respondents. The power of imposing taxation on the sale of goods is given to <ORG>s. When the respondents first came into Court their case was that a tax on the sale of goods is in all cases an excise duty and therefore <ORG> had exceeded its power in enacting the General Sales Tax Act . In view of the decision of <ORG> 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 <ORG>, it was impossible for the respondents to maintain that the Madras General Sales Tax Act was invalid in its entirety, but the question whether a tax on the first sale of goods manufactured or produced within the Province constituted an excise duty remained open to them. Consequently at the hearing the respondents confined themselves to this question in their attack on the validity of the Act. The respondents also raised the question whether the assessing authority was entitled to impose i he tax both on their purchases of groundnuts and their sales of groundnut oil and groundnut cake, relying here on a proviso to Section 3 of the Act to the effect that in respect of the same transaction the buyer and the seller shall not both be taxed, but only one of them, and that when the amount for which goods are bought by a dealer has been included in his turnover, the amount of the sale price shall be excluded. They averred that the goods which they bought and the goods which they sold were the same goods and therefore they could not be taxed both as buyers and sellers.

3. The District Munsif held that a tax on the first sale of goods manufactured in the Province was an excise duty within the meaning of the Act and consequently granted a declaration" to the effect that the Act and the rules framed thereunder in so far as they impose a tax on such sales are ultra vires <ORG>. The District Munsif did not grant an injunction, because he considered that there could be no reasonable doubt that the Provincial Government would honour a decree of a Court of law, and naturally this has been accepted to be the case. The District Munsif also accepted the respondents' plea that groundnut oil and groundnut 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 Rs. 163-11-0 was accepted by the District Munsif.

4. <ORG> appealed to <ORG>, but the Advocate-General of Madras applied for an order transferring the appeal to this Court. The application was not opposed and in view of the importance of the case this Court granted the application. The appellant's contentions may be summarised as follows:

(1) An excise duty implies only a tax on the manufacture or production of goods before they leave the hands of the manufacturer or producer and as such a tax can be imposed before any sale takes place, there is no conflict of power. <ORG> has free scope to impose an excise duty before a sale takes place, leaving <ORG> 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 the Act and the rules are ultra vires, if intra vires the validity of an assessment can only be raised before the tribunals constituted by the Act and not in a Court of law.

5. While not disputing that the rules fall within the scope of the Act, assuming the Act to be intra vires, the respondents join issue on all these contentions. The most important question is the first of those just enumerated. If a tax on the first sale of goods manufactured or produced within the Province is an excise duty 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. <NAME> intimated that his clients were only concerned with the levy of the tax on their sales.

6. The entry in the Federal List relating to duties of excise is Entry No. 45, which reads as follows:

Duties of excise on tobacco and other goods manufactured or produced in India except--

(a) alcoholic liquors for human consumption;

(b) opium, Indian hemp and other narcotic drugs and narcotics; non-narcotic drugs;

(c) medicinal and toilet preparations containing alcohol, or any substance included in sub-paragraph (b) of this entry.

7. The power of imposing excise duties on the excepted goods is given to <ORG> by Entry No. 40 of the Provincial List. If such goods are manufactured or produced in the Province <ORG> 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 fully discussed in the judgments of <ORG> in The Central Provinces Case (1939) 1 M.L J. (Supp.) 1 : (1939) 1 F.C.R. 18. Broadly speaking, an excise is a duty imposed on goods manufactured or produced in the country as opposed to a customs duty, which is levied on goods imported from other countries, but this broad distinction will not suffice here. In the United Kingdom such taxes as the entertainment tax and the dog tax are regarded as duties of excise, and so are licence fees. Therefore 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. <ORG> stands alone. According to <NAME>, [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.L.J. (Supp.) 1 : (1939) 1 F.C.R. 18, although <NAME>, <NAME>, maintained that the primary and fundamental meaning in English of an excise duty is still that of a tax on articles produced or manufactured in the taxing country and intended for home consumption and that the Government of India Act, 1935 did not intend to give the words 'duties of excise' an extended meaning. The learned Chief Justice of India observed (page 47):

In my opinion the power to make laws with respect to duties of excise given by the Constitution Act to <ORG> 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 the question did not arise in that case.

9. <NAME>, J., was also of the opinion that the wider meaning given by commentators and economists and accepted in England may be inapplicable to the Indian Constitution and in the course of his judgment said (page 77):

The essence of a tax on goods manufactured or produced is that the right to levy it accrues by virtue of their manufacture or production. It is immaterial whether the goods are actually sold or consumed by the owner or even destroyed before 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 at all come into existence before the time of the sale. It cannot at all be levied unless the goods are actually sold, and may not be leviable if they are transferred in some other form. Thus a duty on goods manufactured or produced is distinct and separate from and independent of a duty on their sale and, (except probably at the stage of the first sale) there seems to be no good reason why the two may not co-exist without overlapping.

10. In excepting the first sale, <ORG>, had in mind the decision of <ORG> in <ORG> and <ORG> v. South Australia (1927) 38 Com.L.R. 408, to which we shall refer presently.

11. In the opinion of <NAME>, 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 <ORG> meant to reserve to <ORG> the power of imposing a tax on sales for the purposes of consumption, and the only question in The Central Provinces Case (1939) 1 M.L.J. (Supp.) 1 : (1939) 1 F.C.R. 18, was whether a tax levied by <ORG> on the sale to the consumer was lawful. <NAME>, J., laid great stress on Entry No. 16 in Schedule I of the Devolution Rules made under Section 45-A of the previous Government of India Act. The relevant portion of that entry read as follows:

16. Excise, that is to say, the control of production, manufacture, possession, transport, purchase and 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 commodity in the Province at any stage from production to sale. He expressed his conclusion in these words (page 116):

On a careful review of the whole question, I am therefore inclined to hold that <ORG> intended:

(1) That, as regards goods centrally excisable, taxes on their sale within the Province for purposes of consumption, when such taxes are in no way connected with their production, manufacture, etc., within the Province, but are imposed on their sale in the Province merely as existing articles of trade and commerce, should be exclusively within the competence of <ORG>.

(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 <ORG>. A corollary of this rule will be that the residuary powers, if any, of levying and collecting excise duties on those goods (save on their sales as aforesaid) will remain exclusively within the competence of <ORG>.

13. As we read the judgments delivered in the Central Provinces Case (1939) 1 M.L.J. (Supp.) 1 : (1939) 1 F.C.R. 18, the learned Chief Justice of India was of the opinion that a tax on the sale of a commodity cannot be an excise duty unless it is connected with its manufacture or production, but he expressed no opinion on whether a tax on the sale by the manufacturer or producer should be classified as an excise duty. <NAME>, 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. <NAME>, 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 Entry No. 48 in the Provincial List indicated that this was the intention of <ORG>. It cannot be disputed, in fact it has been conceded by both sides, that the judgments of <ORG> in The Central Provinces Case (1939) 1 M.L.J. (Supp.) 1 : (1939) 1 F.C.R. 18, leave, open the question whether a tax on the sale by the manufacturer or producer constitutes an excise duty, but, of course, even when obiter the observations of <ORG> must be treated with great respect.

14. At this stage it will be convenient to discuss the judgments delivered by <ORG> in <ORG> <ORG> <CITATION> (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 <ORG> can only have regard to the provisions contained therein; but this does not mean that the <ORG> is precluded from examining the judgment in <ORG> <ORG> v. South Australia (1927) 38 Com.L.R. 408, in order to see whether they throw light on the meaning to be attached to the words "excise duties" used in the Government of India Act, 1935, and we consider that these judgments do render great assistance in solving the first of the problems with which this <ORG> is now confronted. The Act of the South Australian Parliament imposed a tax of three pence on every gallon 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 <ORG> were of the opinion that the Act was ultra vires, because it violated the power of <ORG> to impose duties of excise. With the one exception the learned Judges were all of the opinion that a tax on the first sale amounted to an excise duty. The basis of their decision was that a tax on the first sale was a tax on the production of the article.

15. In citing this case and in an endeavour to find support for his argument that even a tax on the first sale is not an excise duty the learned Advocate-General laid great stress on this passage in the judgment of <NAME>, J., (page 426):

Licences to sell liquor or other articles may well come within an excise duty law, if they are so connected with the production 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 Constitution. Such taxing regulations are, in my opinion, not "withdrawn" from the States, however they might stand in presence of relevant <ORG> Legislation respecting foreign or inter-state trade. I agree with the reasoning in <NAME> v. <NAME> (1904) 1 Com.L.R. 497. Therefore, if the taxation by the State Act under Section 4 were simply on motor spirit as an existing substance in South Australia and not subject to any foreign or inter-state operation of trade or commerce it would 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 <NAME>, 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 therefore an excise duty; but if the tax is imposed after the goods have left his hands it is not. This is made clear by the following passage in the judgment of <NAME>, J., (page 430):

The first sale of motor spirit, after its production either by primary or later processes, is naturally and in the ordinary course of business a sale by the producer, and a sale by him is certainly included. A tax on that sale, so described, is essentially a burden and a tax on the production of the goods? Production of 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, or, as here, on the sale immediately following production.

17. <NAME>, J., also said that a tax on the sale of an article is a tax on the article itself and in accepting the definition in Mill's Political Economy, 4th Edition, Vol. II, page 434, that "taxes on the sale of consumable commodities are simply taxes on those commodities". <NAME>, J., said the same thing.

18. The learned Advocate-General has accepted the proposition stated by the learned Chief Justice of India in The Central 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. <ORG> has said that a tax imposed on the first sale of goods is so connected with their production that it is an excise duty and no reason has been advanced in the course of the arguments in this case to induce us to think otherwise. The tax operates on the goods themselves and it is imposed before they leave the hands of the manufacturer or producer. In the normal course he is certainly not going to part with his goods until a contract of sale has been entered into. This being the case it seems to us that the tax is intimately connected with the , manufacture or production of the goods. We hold that <ORG> 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 <ORG>.

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, because obviously <ORG> could never have intended that there should be a conflict. Entry No. 45 in the Federal List and Entry No. 48 in the Provincial List can be reconciled by reading into Entry No. 48 of the Provincial List a power to tax all sales subsequent to the sale by the manufacturer or producer, that is, when the property in the goods has passed beyond the manufacturer or producer and the goods have become part of the general stock of the Province. On this basis <ORG> 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 <NAME>, J., on <ORG> 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 Sales Tax Act does impose a tax on first sales. The learned Advocate-General has said that the tax is is imposed on a dealer's turnover and that it is not in reality a tax on sales. In this connection he has pointed to an argument advanced by the Advocate-General of India in The Central Provinces Case (1939) 1 M.L.J. (Supp.) 1 : (1939) 1 F.C.R. 18, to the effect that the only power given to <ORG> by Entry No. 48 is a power to impose a tax on turnover. The contention of <ORG> was that the Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act constituted an infringement of the power of <ORG> and the argument of the learned Advocate-General of India was advanced in support of this contention. <ORG> 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 based on the dealer's turnover. "Turnover" is defined by Section 2 (1) as meaning the aggregate amount for which goods are either bought by or sold by a dealer, whether for cash or for deferred payment or other valuable consideration, provided that the proceeds of the sale by a person of agricultural or horticultural produce grown by himself or grown on land in which he has an interest, whether as owner, usufructuary mortgagee, tenant or otherwise, is excluded from his turnover. By an amending Act, which received the assent of the Governor on the 4th March, 1940, the tax is now Rs. 4 per month if a dealer's turnover does not exceed Rs. 20,000 and one-quarter of one per cent. of the turnover if it exceeds Rs. 20,000. Any dealer whose turnover in any year is less than Rs. 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 <ORG> makes him pay a tax on each transaction or whether it makes him pay a lump sum when the sales for a particular period have been ascertained, the result is the same--a tax on his purchases or sales. The whole includes the part. And the very title given to the Act implies that it is a tax on sales. Moreover it is to be remembered that a <ORG> cannot do indirectly that which it has no power to do directly. In fact the learned Advocate-General did not appear to be pressing his second point, although he did suggest that the Court should accept the contention of the learned Advocates-General of India in The Central Provinces Case (1939) 1 M.L.J. (Supp.) 1 : (1939) 1 F.C.R. 18 that <ORG> merely intended to give to the Provinces the power to impose a tax on turnover and not a power to tax individual transactions, but in doing so he overlooked the fact that the decision in The Central Provinces Case (1939) 1 M.L.J. (Supp.) 1 : (1939) 1 F.C.R. 18 makes such an argument untenable. Notwithstanding that the tax imposed by the Madras General Sales Tax Act is based on turnover, we hold that it is in fact a tax on sales and that in so far as it imposes a tax on the first sales of goods manufactured or produced within the Province, it is ultra vires the Provincial <ORG>. This means that we consider that in calculating a dealer's turnover for the purposes of the Act the sale by him of goods which he has manufactured or produced must be excluded.

22. In view of these findings it is not necessary for us to decide the third and fourth questions stated by the learned Advocate-General.

23. As it has not been suggested that in ordering the refund of Rs. 163-11-0 the District Munsif committed any error, assuming his decision on the main issue to be correct, the decree passed by him will stand. Consequently the appeal will be dismissed with costs and a certificate for two counsel granted. A memorandum of cross-objections has been filed by the respondents, but they have not pressed it and it will also be dismissed, in this case without costs.

24. As this judgment involves a substantial question of law as to the interpretation of the Government of India Act, 1935, a certificate will issue in accordance with the provisions of Section 205 of that Act.