Trade-restrictive cess on tea despatches was held unconstitutional for lack of Article 304(b) compliance and legislative competence.

A levy on tea estates was held, in substance, to be a tax on despatches of tea because the statutory scheme fixed the cess by reference to despatches, rates, exemptions and reductions tied to movement and sale of tea. On that basis, the impost directly and immediately burdened trade and commerce, and it could not be saved under Article 304(b) because prior Presidential sanction was not shown. The measure was also found beyond State legislative competence, since no supporting entry in the State or Concurrent Lists was established for a levy truly on despatches of tea. The amendments were struck down insofar as they applied to tea estates, and cess paid under them was held refundable.

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Issues: (i) whether the rural employment cess imposed on tea estates was, in substance, a levy on despatches of tea so as to directly and immediately restrict the freedom of trade under Article 301 of the Constitution of India and fail for want of compliance with Article 304(b) of the Constitution of India; (ii) whether the impugned levy was beyond the legislative competence of the State because the subject matter fell outside the State field and within a covered field.

Issue (i): whether the rural employment cess imposed on tea estates was, in substance, a levy on despatches of tea so as to directly and immediately restrict the freedom of trade under Article 301 of the Constitution of India and fail for want of compliance with Article 304(b) of the Constitution of India.

Analysis: The statutory scheme fixed the cess by reference to despatches of tea, with differential rates, exemptions, and reductions linked to despatches, classes of tea, and sale centres. The Court held that the measure of the levy had no real nexus with tea estates as land, and that the substance of the impost was a tax on despatches of tea. A levy of that character directly and immediately impeded the movement of tea in trade and commerce throughout India. The amendments were not shown to have been introduced or moved with prior Presidential sanction, so they could not be saved under Article 304(b) of the Constitution of India.

Conclusion: The levy, insofar as it related to tea estates, was unconstitutional and void for violation of Article 301 of the Constitution of India and non-compliance with Article 304(b) of the Constitution of India.

Issue (ii): whether the impugned levy was beyond the legislative competence of the State because the subject matter fell outside the State field and within a covered field.

Analysis: If treated as a tax on tea estates, the levy could only be supported as a tax on lands and buildings under Entry 49 of List II of the Seventh Schedule to the Constitution of India. But on its true construction it was a levy on despatches of tea, for which no supporting entry in List II or List III was shown. The Court also noted the Union control over the tea industry under the Tea Act, 1953, including the cess on tea produced in India, and held that the State legislation trench upon a covered field.

Conclusion: The impugned provisions were also void for want of legislative competence.

Final Conclusion: The amendments of 1981 and 1982 were struck down insofar as they purported to apply to tea estates, and the cess paid under those provisions was held refundable.

Ratio Decidendi: Where the substance of a tax nominally imposed on land or estates is in truth a levy on the despatch of goods, the impost directly affects trade and commerce and is invalid unless it satisfies Article 304(b) of the Constitution of India, including prior Presidential sanction; if no supporting legislative entry exists, it is also void for want of competence.

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