1. This order will also govern Misc. Petitions Nos. 185 to 190, all of 1961.
2. These are seven applications under Article 226 of the Constitution by persons who manufacture bidis within the limits of Gram Panchayat, Nagod. On 20th October, 1959, the Gram panchayat passed a resolution imposing a tax on bidi manufacturers at the rate of one naya paisa per thousand of bidis manufactured. The resolution was published on 24th December, 1959, for inviting objections to the taxation proposals, The petitioners unsuccessfully objected to the imposition. The imposition of the tax was ultimately approved by the Collector on 21st May, 1960, and it came into force from 1st June, 1960. The petitioners question the validity of the tax on the ground that the Gram Panchayat had no authority whatsoever to levy such a tax and pray that the imposition be declared illegal and the notices of demand for the payment of tax issued to each of the petitioners be quashed.
3. The Gram Panchayat is constituted under Section 12 (1) of the Vindhya Pradesh Gram panchayat Ordinance, 1949 and is the Executive Committee of the Nagod Gram Sabha established under Section 3 of the Ordinance. By Section 31 all the duties, powers and functions of the Gram Sabha except those specified in Chapter III and Sections 14 and 30 are exercised, performed and discharged by the Gram Panchayat.
Section 37 enumerates the taxes which a Gram Sabha may impose. It says that the Gram Sabha may impose any of the enumerated taxes 'subject to the prescribed rules and any orders made by the Vindhya Pradesh Government in this behalf'. Under Section 37 (d) the Gram Sabha has the power to impose ''a tax on trade, calling and profession not exceeding such rate as may be prescribed'. Rule 221 of the Rules made under the Ordinance deals with the manner of imposition of the tax. Sub-rule (1) of Rule 221 provides that a Panchayat may, by resolution, require that no person shall carry on the trade of a weighman, a palledar, a sugar refiner and merchant etc., without obtaining a licence for the same on payment of the fee indicated in the sub-rule. The other sub-rule lays down that merchants dealing in grain, cloth and sugar, refiners and persons carrying on any other prescribed trade may be required by a resolution of the Panchayat to pay a tax 'on the annual income of their trade' according to the scale and limits specified in the sub-rule.
Shri Shrivastava, learned counsel appearing for the petitioners, contended that the Gram Panchayat's power under Section 37 was limited by Rule 221 as Section 37 itself stated that subject to the prescribed rules a Gram Sabha could impose the tax stated in that provision; that consequently under the head of 'tax on trade, calling and profession' the Gram Panchayat could impose only those taxes which fell within Rule 221; that the impugned tax in its nature was neither a tax on the annual income of the petitioners' trade falling under Sub-rule (2) of Rule 221 nor a licence fee falling under Sub-rule (1); and that it was not even a tax on trade, calling or profession but simply a tax on production and manufacture of bidis.
4. In reply, Shri Singh learned counsel appearing for the Gram Panchayat, argued that Rule 251 did not in any way restrict the power conferred on a Gram Sabha under Section 37, in regard to the imposition of taxes; and that the tax in question was in substance a tax on trade and profession and not a tax on production or on bidis manufactured or an excise duty.
5. In our opinion, this tax imposed by the Gram Panchayat on bidi manufacturers at the rate of one naya paisa per thousand of bidis manufactured was not within the competence of the Panchayat. The Gram Sabha's and consequently the Gram Panchayat's power to impose taxes is contained within the limits of Section 37 and the prescribed rules. It is common ground that the Panchayat purported to impose the impugned tax under Section 37 (d), that is, as tax on trade, calling and profession. On the face of it, the tax is neither a licence fee contemplated by Sub- rule (1) of Rule 221, nor a tax on the annual income of the trade as envisaged by Sub-rule (2). There is no dispute that the tax does not fall under Rule 221. Leaving aside the question whether Rule 221 puts a limitation on Section 37 and assuming that the said rule in no way fetters the power of the Panchayat to impose a tax on trade, calling and profession, it does not require much elaboration to come to the conclusion that the impuged tax is not a tax on trade, calling or profession but is a tax in the nature of an excise duty on the manufactured bidis.
6. Recently we had occasion to deal with the construction of Section 37 (d) in Sheoratanlal Gu-labchand v. Gram Sabha Jaitwara, Misc. Petn. No. 331 of 1960, D/- 20-7-1961 (MP) and we pointed out that a tax on trade, calling and profession must have as its base either the occupation itself or the income derived therefrom and that the classification, of assessees in the levy of a lax on trade, calling and profession is according to the profession or income or both. The tax which has been levied by the Gram Panchayat here is neither on the occupation itself nor on the income derived therefrom but is on the fact of manufacture of bidis by the petitioners. The tax is on the petitioners qua manufacturers. The liability to tax is on the bidis and depends on the number of bidis manufactured. As soon as bidis are manufactured and come into existence, the petitioners become liable to pay the tax irrespective of the fact whether subsequently they self the bidis or smoke them themselves, or destroy them, or give them free to anyone. The tax is not even on the sale value of the bidis manufactured. It is in pith and substance a tax leived upon the petitioner-manufacturers in respect of the bidis manufactured by them. It is clearly an excise duty.
In Governor-General in Council v. Madras Province, AIR 1945 PC 98 the Privy Council considered that the term 'duty of excise' meant and said:-
'.... a duty of excise is primarily a duty levied upon a manufacturer or producer in respect of the community manufactured Or produced. It is a tax upon goods not upon sales or the proceeds of sale of goods.'
As here the liability for the payment of the tax is occasioned by the fact of manufacture of bidis and depends on the number of bidis manufactured, the tax is clearly a tax imposed on manufacturers of bidis in respect of the bidis manufactured by them.
7. Learned counsel for the Gram Panchayat prayed in aid of his argument the observation of the Supreme Court in Hingir-Rampur Coal Co. v. State of Orissa, AIR 1961 SC 459 that the method in which 'the fee is recovered' is a matter of convenience and by itself cannot fix upon the levy the character of the duty of excise. It was said that the tax was on the trade or profession of manufacturing bidis and that the mere fact that the tax had been imposed by reference to the number of bidis manufactured would not by itself make the tax a duty of excise.
It is quite true that the method employed for the recovery of a tax is not conclusive of its nature. The character of the impost must be determined by its pith and substance, and as the Supreme Court pointed out in AIR 1961 SC 459 (supra), the method adopted for determining the levy or its recovery may be relevant in considering the character of the impost; 'its effect must be weighed along with and in the light of the other relevant circumstances.' In the Supreme Court case the question was whether a levy made under the Orissa Mining Areas Development Fund Act, 1952, on all extracted minerals from any mine in any mining area at a rate not exceeding 5 per centum of the value of the minerals at the pit's mouth was a fee properly so called or a tax in the nature of an excise duty. On an examination of the provisions of the Act it was held by the Supreme Court that the scheme of the Act indicated that the case was levied against the class of persons awning mines in the notified area and was levied to enable the Government to render specific services to the said class by developing the notified mineral area; that there was an element of quid pro quo in the scheme; that the cess collected was constituted into a specific fund; and that its application was regulated by a statute and confined to its purpose and there was a definite co-relation between the impost and the purpose of the Act which was to render service to the notified area. It was on these considerations that the levy was held to be a fee and not an excise duty.
Here, there are no circumstances whatsoever to indicate that even though the tax has been levied by reference to the number of bidis manufactured, yet it is not an excise duty but a tax on trade or profession. The tax is connected directly with the fact of manufacture itself. It is not a licence fee for engaging in the business of manufacturing bidis independently of the fact of production. The manufacture of bidis itself without any more is not any trade, profession Or calling carried on with a view to profit. The trade profession or calling consists in the manufacture of bidis and of selling or marketing them subsequently; but the tax imposed is not on the sale of the bidis Or on their saleable value. ,
8. Learned counsel for the respondent also referred to District Council, Bhandara v. Kisorilal, AIR 1949 Nag 190 and Karanja Municipality v. New East India Press Co. Ltd., Bombay, AIR 1949 Nag 215.
In the first case it was held that a tax imposed by the District Council of Bhandara on persons carrying on the occupation of husking milling or grinding of grains was a tax on professions, trades, callings or employments within the meaning of Section 142A of the Government of India Act, 1935. Leamed counsel said that in this case also the levy was made with reference to tEie commodity but none the less it was held to be a tax on trade, profession or calling. We do not agree. There is a material distinction between the present case and the case of Bhandra District Council.
The levy that was imposed in the Nagpur case (AIR 1949 Nag 190) was not on the production of any grain. The levy was made dependent on the service rendered by persons engaged in husking, milling or grinding of grains and the value of the service for the purpose of the levy was determined by reference to the khandis of grain husked, milled or grinded. Thus the levy in that case was purely and simply on the trade of husking, milling Or grinding of grains.
In the other Nagpur case the Municipal Committee levied a tax of ten pies per boja of ginned cotton. It was held that this was a tax on profession, trade, calling or employment within the meaning of Section 142A of the Government of India Act, 1935. Here, again, the tax was not on cotton produced but on the value of the service rendered by persons carrying on the trade of pressing and ginning cotton. This case is similar to AIR 1949 Nag 190 (supra) and is distinguishable on the same grounds.
9. Reliance was placed also on Chopda Municipality v. Motilal, AIR 1958 Bom 487 where a levy imposed by the municipality under the designation of 'cotton manufacturing tax' at the rate of one rupee per bale of cotton full-pressed within its limits was held to be a tax on trade. It was observed in the Bombay case that in considering the question as to the nature of a tax the Court must have regard to the nature, the pith and substance of the tax, and not merely to the form in which it may have been imposed. The learned Judges of the Bombay High Court further stated that as the liability to pay the ''cotton manufacturing tax' has been placed on the manager of the factory and the quantum of tax is computed With reference to the number of bales pressed by him it is on the trading activities of the manager that the liability is imposed; that the primary incidence of the tax is not related to cotton bales and therefore it cannot be considered to be a tax on commodity; and that the tax was in respect of a skilled occupation involving the application of manufacturing process to a commodity submitted to the person carrying on the occupation and was, therefore a tax on trade.
The Bombay case is of no assistance to the respondent-Panchayat. It is not different from the Nagpur cases. In all those cases the levy was not on any commodity but it was based on the value of the service rendered by the persons on whom the levy was made in an occupation 'involving the application of manufacturing process to a commodity submitted to them'. The manufacture of bidis does not involve the rendering of any service by the petitioners and the levy made by the Gram Panchayat is not on the value of any service rendered.
10. For all these reasons our conclusion isthat the tax imposed by the Gram Panchayat,Nagod, is not a tax on trade, calling or professionbut it is simply a tax in the nature of an exciseduty on the manufacture of bidis. The Panchayathas no competence under the Ordinance to imposesuch a levy. The imposition of the tax is, therefore declared to be illegal. The result is that allthese petitions are allowed and the demandnotices issued to each of the petitioners for thepayment of the tax amount are quashed. The petitioners shall have costs of these applications.Counsel's fee in each case is fixed at Rs. 50/-.The outstanding amount of the security depositshall be refunded to the petitioners.