§ (1) No Provincial Legislature or Government 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 or take any executive action prohibiting or restricting the entry into, or export from, the Province of goods of any class or description; or
- (b) by virtue of the entry in the said List relating to taxes on the sale of commodities, have power to impose any such tax which differentiates between goods of any class or description by reference to the country or place in which they were produced or manufactured.
§ (2) Any law passed in contravention of this section shall, to the extent of the contravention, be invalid.—[Mr. Butler.]
§ Brought up, and read the First time.
§ 6.51 p.m.
§ Mr. BUTLER
I beg to move, "That the Clause be read a Second time."
The Committee will be fully seized of the importance of this new Clause. It would indeed be a serious situation if we were to allow to develop within India in future serious restrictions of trade and so upset many of the arrangements that have been made in other directions. The Committee will realise that this is a subject which has demanded considerable care and attention on the part of the Government, and the Government have finally drafted this proposed Clause for the purpose of achieving, as far as possible, free trade within India. The object of Paragraph (a) is to stop a provincial legislature, by its power to legislate on items in the provincial legislative list, from checking the distribution of trade in India. Therefore, the Clause draws particular attention to the items in the provincial legislative list which might empower the Province so to legislate as to check the free circulation of trade. These items are in particular No.26—Trade and commerce within the Province; markets and fairs; and so forth—arid 28—Production, supply and distribution of commodities; and so forth. I take these two as typical examples of the attempt which the proposed Clause makes to prevent a provincial legislature legislating in such a way as to stop the free circulation of trade.
Paragraph (b) of the new Clause attempts to meet a wish which has been put to us, especially by the European Association and others interested in this matter. The object of it is to avoid the situation which might arise supposing that some commodity had come in through the Customs and had been dealt with there, and it was then proceeded to be dealt with in the Province to the detriment of the original object which had been achieved by the operation of the Customs. For instance, there might be discrimination as between British and Belgian steel entering a particular Province, and this paragraph has been inserted to prevent any particular Province destroying the original value of 1406 the general Customs policy of the Federation as a whole. Sub-section (2) of the proposed Clause, taken with the rest of the Clause, shows the manner in which it differs from the new Clause suggested by the hon. Member for Kidderminster (Sir J. Wardlaw-Milne)—(Free Trade within, British India). The proposed Clause of the hon. Member is in general terms. It says, for instance, in Sub-section (1):There shall be Free Trade within British India.Our Clause achieves the same object, but in a more precise way, and, by including a particular reference to the legislative list, it makes it possible for the courts to interpret our Clause and to make sure that there are no loopholes. It would be difficult for the court to interpret the proposed Clause of the hon. Member for Kidderminster, however; it might be possible to find loopholes in it, and thus it would not achieve the object which the hon. Member and we have in mind. That is the reason why our Clause is framed with reference to the legislative List. It leaves it possible still for the Provinces to take measures, for instance, under items 30 and 39 of the provincial legislative list to deal with such a question as duties of excise on liquor. Item 30 of the provincial legislative list gives power for the regulation of intoxicating liquor, narcotic drugs, and so forth; whereas item 39 gives power to impose duties of Excise. These duties of Excise are vital to the welfare of the Provinces. I believe that in the Province of Madras from three to four crores of revenue accrue by this power of putting duties of Excise on liquor and so forth; and in a Province like the United Provinces two crores accrue to the provincial revenue from this source. It is not thought that by allowing this power to the Provinces it will lead to any contravention of the principle of free trade. In the same way, we must allow the Provincial Governments to legislate on such questions as health, the movement of diseased cattle and so forth, and if our Clause were drawn in a different way with reference to the items on the legislative list this would be impossible, It is to achieve the object of free trade, and not unduly to restrict the Provinces with regard to Excise or health questions that we have drawn our Clause in this manner.
§ 6.59 p.m.
§ Lord EUSTACE PERCY
I am a little troubled about the drafting of this new Clause. I think that what the Under-Secretary has said about paragraph (a) is right, and that that paragraph probably goes as far as it is possible to go. Paragraph (b), however, seems to me to be very inadequate. It prohibits a province from imposing differential taxation according to the origin of the goods by virtue of power to impose taxes on the sale of commodities. What about the power of a province to impose cesses on the entry of goods into their local area? A local municipality can put a cess of one rate upon goods corning from Bihar and another rate on goods coming from Punjab. I give only that one instance in order not to detain the Committee. I would suggest that we are here exposed to a very grave danger of allowing differential taxation of various kinds which is not a tax on sale.
§ 7.1 p.m.
§ Sir JOHN WARDLAW-MILNE
I am in the happy position in this Committee, on the very few occasions when I find it necessary to speak, of being able to thank my right hon. Friend the Secretary of State, or my hon. Friend the Under-Secretary, or the Legal Officers of the Government for having met a point which I have brought before them. I would like on this occasion to say how very grateful I am for the manner in which they have tried to meet a very difficult point. It is, however, my misfortune that I generally have to go on to use the word "but." Here, again, I am afraid I have to say that while they have met the point which I endeavoured to bring before them in the new Clause which appears on the top of page 1625 of the Order Paper—which, I think, has been to some extent met by paragraph (a) of this proposed new Clause—I find myself still in some difficulty, particularly with regard to paragraph (b.) I want to express these difficulties not in any carping spirit, because I know the tremendous difficulties there must have been in dealing with this question of securing that Free Trade shall exist between the different Provinces of India.
May I say here that I do think—and I am sure that every Member of the Committee will agree—that it is essential that we should ensure beyond any possible doubt that trade will be perfectly free 1408 between the various Provinces of India, and that there is no possibility of any Province putting on taxes on goods which are to be imported from another Province. Paragraph (b) of the Clause deals particularly with the prohibiting of any Provincial Legislature or Government from putting on taxes on the sale of commodities in a differential fashion. The first difficulty is that I am not quite clear as to what a tax on sales really is. To what point does that phrase carry us? Is a tax on sales imposed only the first time that the goods are sold, or every time the goods are sold? Goods are often sold more than once. Is the tax to go on every time the goods change hands? Another point which will appear difficult to anybody is this: Is the tax to be collected from the seller or from the buyer? Presumably it is to be from the seller. At what point will the goods change hands? To my mind, all these are difficulties, and I think that the Government will have to consider this paragraph (b) a little further.
I find myself in another difficulty. Under Item 47 of the Seventh Schedule of the Bill it will be found that the Provincial Governments have power to put a tax on the sales of commodities—which I understand to be the point we are dealing with—and also on turnover. It seems clear to me that if the matter is going to be dealt with in this way it will be necessary to include the word "turnover," if indeed anybody can tell me exactly what "turnover" means. I have tried to discover what it means, and I find it described in different ways. Some dictionaries describe it as the volume of goods or commodities sold in a given period; others say that it is the money drawn from a business in a given time. But a tax on turnover is, in effect, a tax on sales. To my mind, there cannot be a tax on turnover which is not a tax on sales. I would like the Attorney-General, if he will, to consider whether there will not have to be one of two alternatives—either to take "turnover" out of Item 47 of the Seventh Schedule or to include it in paragraph (b) of this Clause, so as to prevent Provincial Governments having the power of putting on differential taxes on turnover. I do not know whether it is possible or necessary to define where the locus of a sale takes place.
1409 In pointing out these difficulties, I do not want in any way to detract from what I said at the beginning—that I am very grateful indeed to the Government for endeavouring to meet this difficulty. As long as we can be sure—and I am certain that I am speaking for every Member of the Committee in saying this—that there is no possible impediment to the free exchange of goods between one Province and another in India, we shall achieve what we all want. My only reason for pointing out the difficulties is that as the Clause is drawn at present it seems to me that the matter of turnover, which has not been dealt with, should either be omitted from the Schedule or put in here; and also that the question of sales must be better defined than it has been so far.
§ 7.5 p.m.
§ Sir WALTER SMILES
I would like to ask the Under-Secretary whether it would not be possible for paragraph (b) to be avoided, because a great many commodities are produced only in one Province in India; and by just taxing that particular commodity it would have exactly the same effect as if paragraph (b) did not exist. I would instance, for example, the fact that manganese is probably produced only in the Central Provinces. Gold, so far as I know, is mined only in Mysore. Jute is a monopoly of Bengal and Assam; and tea is also a monopoly of Assam and Bengal. There are other places certainly in which jute or even tea may be produced, but I just select those places. I would ask the hon. Gentleman if he, with his ingenuity, can devise any form of words which would meet this objection?
§ 7.7 p.m.
§ Mr. H. WILLIAMS
I think that the considerations put forward by the Noble Lord and the hon. Member for Kidderminster (Sir J. Wardlaw-Milne) are serious considerations, and I would ask the Law Officers to study a good number of our commercial treaties. If hon. Members will carry their minds back to 1921, when a promise was made in this country to put a tax on malting barley by collecting it at the maltsters or the breweries, they will remember that that could not be done because the Board of Trade had to inform the Ministry of Agriculture, which was inquiring into the subject, that under our commercial 1410 treaties we cannot have a differential system of taxation of goods once they have cleared the ports. We are seeking in paragraph (b) to achieve exactly the same thing. I have not with me at the moment the volume containing our commercial treaties, but my recollection is that the words used in those treaties are very clear and definite. Possibly if the Law Officers will have a look at some of our commercial treaties containing this clause against any internal discriminatory taxes, they will get words of a kind more general than the words at present in paragraph (b.) It seems to me very necessary that we should have this paragraph, because I think that India is a party to a great many of the commercial treaties we have with foreign countries; and India as a whole is debarred by treaty from doing the thing we are now preventing the Provinces from doing.
We all know the difficulties that exist from time to time owing to the Constitution of the united States; where it sometimes happens that a State is, strictly speaking, doing something contrary to the treaty obligations of the united States as a whole, and there exists no satisfactory means of coercing the State which is committing this breach of the obligations of the united States as a whole. Here, equally, if this Bill became law and was in operation to-morrow, and any Province was to do the things we are trying to stop them doing they would, in fact, be committing a breach of several commercial treaties which India has with other countries. I strongly urge on those concerned to take serious note of the remarks made by the two hon. Gentlemen who have spoken. It would be most unsatisfactory if we suddenly found India involved in serious disputes, not only with other countries in the Empire but with foreign countries, because the Provinces through their action had committed a breach of international obligations and the. Federation was not in a position to coerce the Provinces for having so acted.
§ 7.11 p.m.
§ Mr. KIRKPATRICK
I should like to know whether we are to understand that the position here does not interfere with local municipalities applying what are called cesses—which are referred to in Item No. 48 of the Seventh Schedule? There is a curious custom in India by which large municipalities can charge 1411 what are known locally as octroi duties. The position is that any municipality can interfere with such distributing centres as Delhi, Amritsar and Cawnpore. People do not realise how in these large distributing centres goods are imported from the ports and distributed all over India and Central Asia. The local municipality might easily impose some sort of cess, an arrival cess or a departure cess. Take the case of Delhi, which is a distributing market for raw sugar. Delhi is on one side of the Jumna, and in the Punjab; and across the Jumna are the United Provinces. There are a number of small raw sugar factories on the United Provinces side of the Jumna which find it a great disability in their business that they are not able to sell to the distributing dealers in Delhi. Does this mean completely free trade to all municipalities or will they be permitted to put on cess taxes?
§ 7.14 p.m.
§ The SOLICITOR-GENERAL
Various points have been raised, and I will try to reply to them in the order in which they were put. The Noble Lord the Member for Hastings (Lord E. Percy) raised the point of cesses. There is an item of this nature in the Provincial List. We certainly will give consideration to that point. My hon. Friend who spoke last also referred to cesses. As the matter stands at present, the question of cesses is in the Provincial List; therefore it is a matter with which the Provincial Legislatures can deal. They can control the powers of municipalities in that behalf. The point raised by my Noble Friend was rather a different one. His point was whether the power to impose cesses could be used for differentiating between goods according to their place of origin or Provinces of origin in India. I understand there are difficulties about dealing with this matter owing to the large variety of customs and cesses in different parts of India, but we are giving consideration to the point raised by the Noble Lord, and if there is any danger of the cesses being used for that purpose, we will use our utmost endeavours to find a form of words to prevent it happening.
§ Lord E. PERCY
I said that, in order not to delay the Committee, I was giving cesses as only one example. The same 1412 thing applies to a number of other taxes, like taxes on luxuries.
§ The SOLICITOR-GENERAL
I can assure my Noble Friend, as I know he realises, that this is not an easy question. We have done our best, and we still have the matter under review, to pick out those items which could be used to differentiate but which clearly ought not to be used to differentiate, but I think all hon. Members will agree that it would be wrong to prevent a Province from passing what would be perfectly proper legislation, based on considerations of public health, for keeping out diseased animals, pests, liquors and excise laws generally. My Noble Friend has instanced luxuries as a second example, and we will certainly consider the point, but, speaking for the moment without having gone personally into each item with the care with which it has been considered by those who are actually dealing with this matter, it seems to me that luxuries might go beyond the border line. There might be legitimate legislation directed against some particular luxuries which it might be wrong to bring within the Clause.
§ Lord E. PERCY rose—
§ Lord E. PERCY
No, I am not in the least impatient, but I think there is a misunderstanding here. I can understand that so far as (a) is concerned, the restriction on entry, the interference with the free flow of goods, there may be difficulties, but I would like the Solicitor-General to give me an instance of any circumstances in which a Province would be justified, as contemplated under (b), in imposing a differential tax according to the origin of the goods. I cannot think of an instance where a Province would need to do that or would be justified in doing it.
§ The SOLICITOR-GENERAL
As I say, I have to deal with these matters as they arise, and I think that so far as luxuries are concerned, my Noble Friend could make out a very good case, but (b) says that no Provincial Legislature or Government shall:by virtue of the entry in the said list relating to taxes on the sale of commodities, have power to impose any such tax which differentiates between goods of any 1413 class or description by reference to the country or place in which they were produced or manufactured.My Noble Friend's point is that that applies equally to the taxing of luxuries.
§ The SOLICITOR-GENERAL
But you must relate the nature of your prohibition to the kind of taxes to which it would be applicable. There is the case of a tax on income—
§ Lord E. PERCY
Why cannot you say that nothing in the Legislative List shall be deemed to authorise a Provincial Legislature imposing a tax of this kind?
§ The SOLICITOR-GENERAL
We will consider that point, but there, again, obviously different considerations may arise. I appreciate the difficulty that my Noble Friend finds, but we thought —subject to further consideration—that by making the tax one on the sale of commodities we had covered the point. However, I will undertake that the matter shall be reconsidered in the light of what the Noble Lord has said. My hon. Friend the Member for Kidderminster (Sir J. Wardlaw-Milne) referred to turnover. I do not think that a tax on turnover will ever be a tax on commodities with reference to their origin, because turnover surely refers to an amount of money—the turnover of a business. My hon. Friend shakes his head
§ The SOLICITOR-GENERAL
I think turnover is understood to be a sum of money. The turnover of a business is expressed in pounds, shillings and pence, or in rupees, according to the country with which we are dealing. A tax on turnover is distinguished from a tax on profits by the fact that turnover represents the volume of business done irrespective of whether any profit is made or not. So I do not think there is any danger from that quarter; but we will look into the point.
§ Sir J. WARDLAW-MILNE
I thank the hon. and learned Gentleman for promising to look into the point, but I still do not see the difference between turnover and sales.
§ The SOLICITOR-GENERAL
That particular application of the principle of this new Clause to turnover is one of the matters which is still under consideration. I do not know whether I followed the point which was put by my hon. Friend the Member for East Croydon (Mr. H. Williams), but I see that he has again disappeared, and as he is apparently not very interested in getting an answer I will not weary the Committee by trying to answer a question which I do not understand.
§ 7.23 p.m.
§ Sir H. CROFT
I do not rise with a view to opposing this Clause, though I cannot understand why the Solicitor-General was unable to give a clear answer to the Noble Lord with reference to all types of commodities entering a Province. I do not think the Noble Lord was at all pleased to hear of the possible exception of luxuries. I could not personally see what that had to do with the case. When my hon. Friend the Member for Kidderminster (Sir J. Wardlaw-Milne) rejoices that the Government have gone some way to meet his new Clause, I confess that I think he may be a little over-happy in imagining that it is going to solve the fiscal difficulties of India, and I would utter this word of warning. Everybody must be delighted to see that the Government are anxious to promote the freest interchange of commodities over as large an area in India as possible. I only hope that means that when we reach a Clause to which we shall come a little later they will have the same anxiety and determination to promote Free Trade or at least reciprocal trade, between this country and India, since they have learned the advantages of a Free Trade area within the Imperial system. I know that I shall have the support of the three faithful Members of the Liberal party for that Clause a little later.
I only desire to emphasise the desirability, since this principle is accepted, of doing everything we can to extend the free area, and I would point out to the Government that in every other federation the abolition of Customs has been almost a basic fact. Here, as I gather, unless some special arrangements can be made, we are to have one-third of the great area of India still protruding itself within this Free Trade area, and so we 1415 welcome the spirit of the Government, and hope they will progress in their task; but I must remind them that this Free Trade area is to be obstructed by all the hundreds of islands which will exist in the midst of that system.
§ 7.26 p.m.
§ Mr. A. SOMERVILLE
By paragraph (a) Free Trade is established in India, and it will not be possible for any Provincial Legislature to prohibit the entry of any commodity; but suppose that a Provincial Legislature finds that a particular commodity is injurious to the people of the Province, will there be any power in the Bill to enable that Legislature to prevent the entry of that commodity I Take opium, for instance.
§ The ATTORNEY-GENERAL
They must not base place exclusion upon the entries mentioned in the Amendment, but they can base place exclusion on other entries in the Provincial List, and narcotic drugs are mentioned in Entry 30.
§ 7.27 p.m.
§ Sir J. WARDLAW-MILNE
I am glad to say that this is a case in which I find myself in entire agreement with my hon. and gallant Friend the Member for Bournemouth (Sir H. Croft), which has not always been the case, I am sorry to say, in connection with this Bill. I am most anxious to have the widest possible free area. There is one last point I wish to put before His Majesty's Government. I do not wish to suggest the advantages of a Clause which I have put on the Paper, but there is in that Clause the statement:There shall be Free Trade within British India,and I ask the Government to consider whether it would not be possible to include in their own Clause a definite statement of principle of that character. It would not be a new thing. A statement referring to Free Trade within the area of a Federation exists in other parts of the British Empire. I speak without having had an opportunity of reference, but I believe it exists in Canada, South Africa and in Australia. However we may afterwards define the application of it in connection with the Seventh 1416 Schedule, I suggest that it would be a great advantage to have a clear and definite statement of Parliament's intention that there shall be Free Trade within British India.
§ 7.29 p.m.
§ Mr. EMMOTT
I respectfully suggest to the Committee that the answer given by the Solicitor-General to the Noble Lord the Member for Hastings (Lord E. Percy) did not cover the whole case raised by the Noble Lord. I listened carefully to what the hon. and learned Member said, and what seemed to me to be very clear was this, that he showed that it may be necessary to leave the Provinces power to prohibit the entry of classes of goods, but what he failed to show the Committee, and what it seemed to me he was really uncertain of himself, was that it is necessary to leave the Provinces power to impose taxation which is differential by reference to country or place of origin of goods. The two considerations are quite different, and I ask the Government, if they will not consider seriously the suggestion made by the Noble Lord, whether they will not consider making paragraph (b)read in some such way as this: "By virtue of any entry in the said List have power to impose any tax," and so on.
§ 7.15 p.m.
§ Mr. MOLSON
As the learned Solicitor-General is going to look into this matter again I will suggest one further point. That is the definition of the word "cess." The kind of duty that my hon. Friend the Member for Preston (Sir W. Simles) referred to were the octroi, later turned into the terminal taxes. Terminal taxes are covered under Clause 135, and they may, except during the interim period, only be levied and collected by the Federation. That is a very good safeguard against what has happened in the past. I ask the learned Attorney-General to consider exactly what is the difference between a cess on the entry of goods into a local area, a tax which may be imposed by a Provincial Government, and the terminal tax, probably for the benefit of a municipality, which may be. imposed only by the Federation even if the proceeds subsequently are to be paid over to the Province for such purposes as may be laid down. One of the difficulties we have had in these discussions is that none 1417 of us knows what exactly the word "cess" means.
§ 7.17 p.m.
§ Mr. H. WILLIAMS
I apologise to the learned Solicitor-General for not having been present when he replied to my question, but, as the right hon. Member for Epping (Mr. Churchill) said on a famous occasion, I was "reinforcing the Revenue." In all seriousness I believe that the words in our commercial treaties do make it clear that you cannot have an internal discriminating excise tax, and that is what we are trying to achieve in paragraph (b) of this Clause. As it stands it is too narrowly drawn. It does not matter, if we only get the right words here, what Clause 135 says about terminal taxes and assessing. If we get the right words in this Clause it will be clear that no kind of internal discriminating tax may be imposed. There are commercial treaties which have been in existence for hundreds of years under which this country cannot do what we say the Indians shall not do. The words which have proved satisfactory in those Treaties, which have existed ever since the day that Cromwell signed them, ought to be good enough for the purposes of this Bill.
§ Question, "That the Clause be read a Second time," put, and agreed to.
§ Clause added to the Bill.