TaxTMI 
TaxTMI 
1994 (11) TMI 420
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....ifically pleaded their sale of tobacco outside the State being up to 98 per cent. The validity of the Ordinance is challenged being violative of articles 14, 19(1)(g), 213, 245, 246, 265, 269, 286, 301 and 304 of the Constitution of India and further being ultra vires of the Central Sales Tax Act, 1956 (hereinafter referred to as "the 1956 Act"). During the hearing of this case the impugned Ordinance was repealed and substituted by the U.P. Tax on Luxuries (Second) Ordinance, 1994 (Ordinance No. 22 of 1994) retrospectively with effect from 1st June, 1994 which is almost similar to the earlier Ordinance except some minor changes which we shall be referring to later hence, this is also challenged by an amendment. It is also relevant to mention that during the hearing, under section 4 of the U.P. Ordinance No. 8 of 1994 by Notification No. TT 2-3355/XI-9 (383)-93 U.P. dated 24th September, 1994 with effect from 25th September, 1994 tobacco priced at Rs. 150 or less per kg. and pan masala by whatever name called with or without tobacco have been exempted from tax. By virtue of the deeming clause under section 13(2) of the substituted Ordinance No. 22 the notification is deemed to be co....
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....own or depots from within to outside the State would amount to a tax on consignment, the levy which is exclusively with the Union under entry 92-B of List I read with article 269(1) of the Constitution and thus ultra vires. Finally this Ordinance is also void since it purports to legislate in respect of tobacco, the control of this industry has been taken over by the Parliament by passing of the Tobacco Boards Act, 1975 and the entire field being covered by it the State was not competent to legislate on it. This last point though raised in the petition but only learned counsel appearing for the Writ Petition No. 730(T) of 1994 made formal submissions. 3.. The Ordinance came into force from 1st June, 1994, in pursuance of notification dated May 28, 1994 issued under section 1(2). By notification issued on the same day, i.e., May 28, 1994 under section 3 of the Ordinance, a tax has been fixed at 15 per cent payable on the turnover of receipts of all classes of tobacco except pan masala, by every tobacconist. By subsequent notification dated June 15, 1994, pan masala was also included to be taxed at 15 per cent as luxury tax. But again by notification dated September 24, 1994 as af....
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....xtent of 40 per cent, 30 per cent basic excise duty under Central excise and 10 per cent additional excise duty in lieu of sales tax not being charged on tobacco in the State of Uttar Pradesh. The manufacturer of hooka tobacco also pay excise duty and bulk of their product is exported to foreign countries. The sales of the petitioner relate to the sale made by the petitioners to the wholesale dealers in tobacco, the distributors of tobacco, who in turn, through salesmen, sell to panwalas, etc., who then sell to the consumers. 7.. The petitioners in Civil Misc. Writ Petition No. 591(T) of 1991 (M/s. Ravindra & Company and others) are engaged in the sale of tobacco. Petitioner No. 1 is a partnership firm consisting of three partners, viz., petitioner Nos. 2, 3 and 4. They are selling tobacco, which is not manufactured and is not subject to any manufacturing process. This tobacco is sold under the brand name of "Bandar Dholak Chhap" and "Hari Chhap". This tobacco is unmanufactured branded tobacco. They sell tobacco in "puriyas/packets" of 7 gms. and 9 gms., each of which is retailed at the price of 50 paise and 60 paise per puriya respectively. The price of per kilogram of this is ....
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....te can levy sales tax on "tobacco"? (b) whether the impugned levy is in fact levy of excise duty falling under entry 84, List I hence ultra vires articles 245 and 246 of the Constitution? (c) whether the impugned levy is in fact a levy of tax on consignment which is exclusively within the competence of the Union falling under List I, entry 92-B read with article 269(1)(h) of the Constitution, hence ultra vires? (B) Whether it is violative of article 301 of the Constitution and not saved by article 304(b) of the Constitution? (C) Whether it is in violation of article 14 of the Constitution? (D) Whether the impugned Ordinance is void as it purports to legislate in respect of tobacco, the control of this industry has been taken over by Parliament by the passing of the Tobacco Boards Act, 1975? 11.. Now we take up the petitioners' submission on ground No.(A)(a). The contention is that the impugned levy though has been termed as "luxury tax" but truly it is a cloak delusioning for sales tax. In other words, ostensibly though termed as "luxury tax" but it is in fact sales tax. Further the respondents were fully aware that on the situation existing no sales tax....
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....ticle 286 after its amendment by the Sixth Amendment reads as under: "286. Restrictions as to the imposition of tax on the sale or purchase of goods.-(1) No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where, such sale or purchase taxes place- (a) outside the State ; or (b) in the course of the import of the goods into, or export of the goods out of the territory of India. (2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1), (3) Any law of a State shall, in so far as it imposes, or authorises the imposition of,- (a) a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce, (b)............... be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify." By the 6th Amendment, (i) entry 92-A was inserted in List I, namely: "Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course....
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....rade or commerce. Section 15 places restrictions and conditions in regard to tax on sale or purchase of declared goods within a State. One of the restrictions contained in section 15 is that a tax payable in respect of any sale or purchase of declared goods inside the State shall not exceed 4 per cent of the sale or purchase price thereof, and such tax shall not be levied at more than one stage. 15.. Shortly after the Central Sales Tax Act, 1956 was enacted, Parliament enacted the Additional Duties of Excise (Goods of Special Importance) Act, 1957. Reliance has been placed on the Statement of Objects and Reasons of this 1957 Act which is quoted hereunder: "The object of the Bill is to impose additional duties of excise in replacement of the sales tax levied by the Union and the State on sugar, tobacco and mill-made textiles and to distribute the net proceeds of these taxes, except the proceeds attributable to Union territories, to the States. The distribution of the proceeds of the additional duties broadly follows the pattern recommended by the Second Finance Commission. Provision has been made that the States which levy a tax on the sale or purchase of these commodities aft....
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....t from 1st October, 1958, and simultaneously the declaration contained in section 7 of the 1957 Act was repealed. It is significant, it is from that date tobacco under the U.P. Sales Tax Act has been exempted from tax. 16.Placing reliance on the aforesaid constitutional and legislative history learned counsel for the petitioners submitted that in view of article 366(29A)(f), viz., definition of "tax on sale or purchase of goods", which includes even supply for cash or deferred payment of any article, the impugned tax is, in fact, tax on sale and not on luxuries. In other words, the impugned tax to the extent it seeks to levy tax on supply, for consideration, tobacco including cigarettes, pan masala, etc., is nothing but a tax on sale falling within the definition of the aforesaid article. Further, all forms of manufactured tobacco including cigarettes are declared by Parliament to be goods of special importance in inter-State trade or commerce under section 14 of the 1956 Act. Under the 1957 Act on or after 1st of April, 1958, manufactured tobacco including cigarettes were liable to levy and collection of additional excise duty in lieu of sales tax (section 3 read with Schedules....
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....n by the States as well as by the Central at para 32 of chapter VIII of the Report, which is reproduced below: "The main question to be considered in relation to the sales tax or special taxes on tobacco and tobacco manufacturers is their incidence in relation to the Central excise duties. Several complaints have been received by us about the unduly heavy burden of the Central and State taxes on tobacco and tobacco manufacturers. These goods are also liable to be octroi duties of municipalities in many instances. The need is obvious for ensuring proper co-ordination between the different taxes on tobacco levied by the Central Government, the States and the local authorities. We consider that such co-ordination would be best evolved through the machinery of the Inter-State Taxation Council to which we have already alluded." Pursuant to the above observations in the meeting of the National Development Council held in December, 1956 it was agreed unanimously that sales tax levied in States on mill-made textiles, tobacco including manufactured tobacco and sugar should be replaced by a surcharge on the Central excise duties on these articles with the income derived therefrom to be....
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....ditional excise duty in lieu of sales tax under 1957 Act referred to sugar, textile and tobacco to the items which was subject to additional excise duty to replace all the taxes then being imposed on such products. The relevant portion of letter is reproduced below: ".......It has now come to our notice that some States have imposed or now contemplate imposing various levies on tobacco products. These levies are not in tune with the consensus that emerged unanimously at the meeting of the NDC held in December 1956. These levies can be objected to on the following grounds: (i) Where these levies are called sales or purchase taxes, they constitute a direct infringement of the AED Act, 1957; (ii) In other case, the nomenclature has been changed or levied under any other entry in the State List, the levies will affect collection of AED and may also constitute an infringement of the consensus reached in the NDC meeting held in December 1956. In any case, it is felt that the intention all along has been to reserve these commodities for taxation by the Central Government under the heading of additional duties of excise. Thus any levy whatsoever would possibly constitute an infrin....
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....the consignment is to the person making it or to any other person), where such consignment takes place in the course of inter-State trade or commerce is exclusively with the Union and State is incompetent to legislate on it under List II. 23.. To appreciate the argument of the learned counsel for the petitioner on each of the sub-grounds of ground No. (A) it is necessary to refer to relevant provisions of the impugned Ordinance: "An Ordinance to provide for levy and collection of luxury tax on tobacco and matters connected therewith or incidental thereto. ...................... 2.. Definitions.-(1) In this Ordinance- (a)...................... (b)..................... (c) 'luxury tax' or 'tax' means the tax levied under section 3; (d) 'place of business' includes an office or any other place which a tobacconist uses for the purpose of supplying tobacco or where he keeps his books of accounts; (e) 'receipt' means- (i) in respect of supply of tobacco by a tobacconist made by way of sale, the amount or valuable consideration received or receivable by him for such sale including any sum charged for anything done by him in respect of the tobacco so sold at t....
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....or the purposes of this clause; (i) 'turnover of receipts' means the aggregate of the amounts of receipts of a tobacconist during a year in respect of the supply of tobacco by way of sale or otherwise; ...................... 3.. Levy of luxury tax.-(1) Every tobacconist shall be liable to pay luxury tax on his turnover of receipts at such rate, not exceeding twenty-five per cent, as the State Government may, by notification, specify and different rates may be specified for different classes of tobacco: Provided that a tobacconist who does not manufacture or receive tobacco from outside the State shall be liable to pay tax on his turnover of receipts from the date his turnover of receipts exceeds two lakh rupees: Provided further that in a chain of supply of tobacco, the tax shall be realised from the earliest of the tobacconists in the State and a successive tobacconist shall be exempt from payment of tax if he furnishes, in the manner prescribed, proof of payment of tax on such tobacco. 4.. Exemption from tax.-Notwithstanding anything in this Ordinance, the State Government may, by notification, exempt any class of tobacco, or subject to such conditions an....
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....made by way of sale is the amount of valuable consideration received or receivable by him for such sale and (ii) is in respect of supply of tobacco by a tobacconist made otherwise than by way of sale, its normal price at which such tobacco is sold, shall have the same meaning as assigned to it in section 4 of the Central Excises and Salt Act, 1944. The "tobacconist" is defined and it includes a manufacturer who supplies tobacco by way of sale or otherwise and any person, for the purpose of business who brings tobacco in the State or to whom tobacco is sent from any place outside the State and also includes any person who supplies tobacco from a place within the State to any place outside the State by way of sale or otherwise and also any person who does not buy or otherwise obtain unmanufactured tobacco under a brand name, but supplies the same by way of sale or otherwise in a sealed container under a brand name. The definition of turnover of receipts refers to the receipt by a tobacconist during one year in respect of such supply of tobacco by way of sale or otherwise. The argument is looking to the charging section, and the various definitions under the definition clause, indicat....
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....tive intent and meaning. In substance, the argument is, first construe the impugned Ordinance, whether it in fact is imposing luxury tax, if it is, needless to go into other alternative interpretation that it is a tax on sales, manufacture or transaction of consignments. Further when challenge is on the ground of colourable exercise of legislative power then imputation to it of motive, mala fides, extraneous consideration is misconceived. What truly to be found is whether the State Legislature is or is not competent to legislate. 27.. Before embarking to construe the impugned statute, it is pertinent to spell out, the principles of interpretation in this regard. In a Federal Constitution time and again in exercise of legislative powers, conflict arose between the Union and the State, transgressing into the field occupied by the other and question of its interpretation is often raised. Our Constitution has demarcated the field within which the Union and State exercise their powers to legislate. List I for the Union, List II for the States and List III for concurrent exercise of power by both. By clause (1) of article 246 Parliament has exclusive power to make laws in respect of a....
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.... tracing of legislative authority to the residuary entry. What is true in other jurisdictions is true in this branch of law also, namely, that one must have regard to the substance of the matter and not to the form or label." In Provincial Treasurer of Alberta v. C.E. Kerr [1933] AC 710 (PC), it was held: "The identification of the subject-matter of the tax is naturally to be found in the charging section of the statute, and it will only be in the case of some ambiguity in the terms of the charging section that recourse to other sections is proper or necessary." In Ralla Ram v. Province of East Punjab AIR 1949 FC 81 (87), it was held: "....In the first place, we have to look into the charging section of the statute,.... 'the identification of the subject-matter of the tax is only to be found in that section'........ It is true that we must look not to the mere form but to the substance of the levy, and the tax must be held to be invalid, if in the guise of a property tax it is really a tax on income......... The principles deducible from these pronouncements are, (1) that where there is an apparent conflict between an Act of the Federal Legislature and an Act or the ....
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.... SC 2015: "The statute speaks of a levy 'in respect of a tea estate', and it says that the levy will not exceed Rs. 6 on each kilogram of tea on the despatches from such tea estate of tea grown therein............ Now, for determining the true nature of the legislation, whether it is a legislation in respect of tea estates, and therefore of land, or in respect of despatches of tea, we must, as we have said, take all the relevant provisions of the legislation into account and ascertain the essential substance of it........ If the levy is regarded as one in respect of tea estates and the measure of the liability is defined in terms of the weight of tea despatched from the tea estate there must be a nexus between the two indicating a relationship between the levy on the tea estate and the criteria for determining the measure of liability. If there is no nexus at all it can conceivably be inferred that the levy is not what it purports to be......... 'Any standard which maintains a nexus with the essential character of the levy can be regarded as a valid basis for assessing the measure of the levy.' It is apparent that the standards laid down for measuring the liability ....
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....Legislature. No mala fides, fraud or motive could be attributed to the Legislature. 34.. Colourable legislation is spoken with reference to the Act of Legislature, with reference to two entries one to which it actually falls and to other which ostensibly is projected to fall. Once the Legislature enacts within the entry to which it is competent then the validity cannot be challenged of it being unjust or unequitable the doctrine of colourable legislation has no application where powers of a Legislature are not fettered by any constitutional limitations. The words "giving colour" itself depicts covering or concealing the true nature of the object coloured. In other words, what is projected is different from what it truly is on account of its colouring. It is here courts by proper examination, by lifting the veil of its colour should find its true nature to expose whether it is a mere pretence or disguise. When Legislature colours a statute, means it is purporting to act within limits of its power, though actually it has transgressed. In K.C. Gajapati Narayan Deo v. State of Orissa AIR 1953 SC 375, it was held: "The Orissa Agricultural Income-tax (Amendment) Act, 1950 is....
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....he marginal note itself along with the other provisions of the Constitution was passed by the constituent assembly, hence reliance was placed. See Hotel Balaji v. State of Andhra Pradesh [1993] 88 STC 98 (SC): "In my opinion, there is considerable force in the substance of the contention of these States that these provisions only impose a tax on purchases. The marginal title to the provisions indicates that their direct purpose is to levy a tax on purchases effected in the State in certain circumstances. The tax is couched as a tax on all goods (in U.P.) and on raw or processing materials and consumable stores (in the State of Gujarat)." In this case the marginal note was relied on for drawing inference in interpreting statute. See Bhinka v. Charan Singh AIR 1959 SC 960: "If there is any ambiguity-we find none-it is dispelled by the heading given to the section and also the description of the nature of the suit given in the Schedule. The heading reads thus: 'Ejectment of person occupying land without title.' 'Maxwell on Interpretation of Statutes', 10th Edn., gives the scope of the user of such a heading in the interpretation of a section thus, at....
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....same time the court pointed out that unlike the marginal notes in the statutes of the British Parliament, the various articles of the Constitution were passed by the Constituent Assembly with the marginal notes and, therefore, the court considered it permissible to use the marginal note to understand the meaning and purport of the article. But so far as statutes are concerned this Court in the case of Board of Muslim Wakfs v. Radha Kishan (1979) 2 SCC 468 held in no uncertain terms that the weight of the authority was in favour of the view that the marginal note appended to a section cannot be used for construing the section........." 41.. This decision of the Supreme Court has clearly laid down that taking aid of the marginal note in interpreting the provisions is not permissible. 42.. It is true in Hotel Balaji v. State of Andhra Pradesh [1993] 88 STC 98 (SC) marginal note was taken as an aid to interpret provision of a statute though the question whether it could be used as such was not raised, while in Kalawatibai v. Soiryabai AIR 1991 SC 1581 it holds, marginal note not to be resorted to particularly when language is plain and simple. But in Maharashtra Tubes Ltd. v. Sta....
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....le, consignment and on manufacture, hence it is necessary to examine the entire statute. 45.. The Ordinance is known as "the Uttar Pradesh Tax on Luxuries (Second) Ordinance, 1994". Its preamble is: ".......to provide for levy and collection of luxury tax on tobacco and matters connected therewith or incidental thereto." The preamble was substituted for the earlier preamble which was in the earlier Ordinance No. 8 of 1994. Read as following: "to provide for levy and collection of tax on supply of tobacco and matters connected therewith or incidental thereto." The words "tax on supply of" have been deleted and substituted by the words "luxury tax on". 46.. The Act does not define "luxury". Section 2(c) defines "luxury tax" to be a tax levied under section 3; the first proviso of section 3 dilutes the rigor of liability to pay by a tobacconist which is on his turnover of receipt of rupees one lakh under section 2(h)(i) by increasing the taxable turnover of receipt to rupees two lakhs and above in the cases of tobacconist who does not manufacture or receive tobacco from outside the State. Further under second proviso liability to pay tax is fixed at one point only, v....
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....hich empowers the State Government to exempt from tax, refers to exempt any class of tobacco. Here again, the emphasis is on the class of tobacco. Under section 6(6) no person who is not a registered tobacconist shall, in respect of supply of tobacco realise from any person any amount by way of luxury tax. This shows that the impugned tax could be passed on to the consumer but only when a tobacconist is registered. Significantly, even this sub-section refers to the supply of tobacco made by way of sale or otherwise. Again the emphasis is on the supply of tobacco. Even in section 9(1)(d) the penalty clause refers that any tobacconist being liable for registration, supplies or continues to supply tobacco by way of sale or otherwise without obtaining registration certificate is liable for penalty. Here again, emphasis is on the supply of tobacco. 47.. From all these, the irresistible conclusion is that the incidence of tax is on the supply of tobacco and not on sale, consignment or manufacture. The reference to sale in section 2(a)(i), otherwise than sale in section 2(e)(ii) as alleged to be consignment transactions is only to include comprehensively all forms of supply of tobac....
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....ax empowering the same authorities as in U.P. Trade Tax Act, and some of the provisions of that Act and Rules have been mutatis mutandis adopted. In our considered opinion this by itself does not and cannot change the nature of the tax. It is always open to a Legislature instead of creating separate authorities to entrust the duties on the authorities existing under some other statute. To the same effect, we find, even under the Expenditure Tax Act, 1987, wherein sections 6 and 24 of that Act envisage and provide for authorities to administer Act, engrafts the machinery and procedure of the Income-tax Act. 49.. In the case of Buxa Dooars Tea Co. Ltd. v. State of West Bengal [1989] 74 STC 447 (SC); AIR 1989 SC 2015, where the impugned provision speaks of levy or cess in respect of tea estates, but the court on scrutinizing the various provisions of said Act, held that the incidence of tax is on despatches of tea rather than on the tea estate. We find to the same effect in the present case the incidence of tax is on supply of tobacco rather than on manufacturer, seller or other person. 50.. The petitioner relied on A.B. Abdul Kadir v. State of Kerala AIR 1976 SC 182. The conten....
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....t to the production and measure of tax is on its price received or receivable on its sale or normal price receivable assigned to it in section 4 of the Central Excises and Salt Act, 1944. Even this indicates that there is no co-relation of the tobacco which is subject of tax with its manufacture. 51.. This case further concludes, the tobacco is an article of luxury. In this regard it is held: "The word 'luxury' has not been used in the sense of something pertaining to the exclusive preserve of the rich. The fact that the use of an article is popular among the poor sections of the population would not detract from its description or nature of being an article of luxury. The connotation of the word 'luxury' is something which conduces enjoyment over and above the necessaries of life. It denotes something which is superfluous and not indispensable and to which we take with a view to enjoy, amuse or entertain ourselves. An expenditure on something which is in excess of what is required for economic and personal well-being would be expenditure on luxury although the expenditure may be of a nature which is incurred by a large number of people, including those not economically we....
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....tutional." This would be of no help to the petitioners. The question arose regarding a transaction whether it could be treated to be a sale within the meaning of entry 54 of the provincial List. Earlier, in State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [1958] 9 STC 353 (SC); AIR 1958 SC 560, the Constitution Bench was called upon to interpret entry 48 under the Government of India Act, 1935, to the expression "sale of goods". Similarly, while interpreting entry 54 of the State List under the present Constitution relying on the meaning given in entry 48 of the Provincial List it was held that attempt by the State Legislature to enlarge the meaning of the expression "sale", have been held to be beyond the legislative competence. This was a case where the competence of the State Legislature qua a legislative entry was in question, when meaning is given in a legislative entry of a word and the State Legislature enlarges the well-settled meaning of that entry it would definitely be a case of incompetence of the State Legislature as it would amount to travelling beyond its legislative field. In fact, on account of this the definition of "sale" was enlarged by amending articl....
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....a legal fiction something within it what its ordinary meaning does not include. 54.. Applying this principle, we find under section 2(g) tobacco has been defined to include pan masala. This may be treated to be an artificial meaning for the purpose of this Act to be a tobacco though commonly it is not as such. In the impugned Ordinance tobacco is subjected to tax exemptions, referred to as goods supplied, etc. Legislature taxing both tobacco and pan masala as luxury goods, brought under one meaning by the definition clause to be treated as tobacco. This may also be for convenience of subjecting it comprehensively under one nomenclature. Thus, instead of describing both separately every time, in the various provisions, gave this comprehensive meaning. Hence, for the purpose of this Ordinance including pan masala as tobacco would neither be said to be illegal or ultra vires. 55.. Next question is whether "pan masala" would be a luxury goods or not. It cannot be denied it is for self enjoyment for gratification of senses. It would never be construed as an article of necessity. 56.. In Encyclopaedia Britannica the meaning of the word "luxury tax" is set out thus: "Luxury ta....
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....incial Legislature to impose tax on the sale of goods falling under item 48 of List II. This was under Government of India Act, 1935. 59.. Entry 45 (List I) related to "duties of excise on tobacco and other goods manufactured or produced in India". Item 49 of List II relates to "cesses on the entry of goods into a local area for consumption, use or sale therein". Entry 50 (List II) relates to "taxes on luxuries". The court relying on the said entry held: "The expression is, therefore, wide enough to include goods which fall under item 45 of List I. If so, cesses on commodities ordinarily excisable by the Centre under item 45 (List I) would be within the exclusive competence of the Provincial Legislature, if levied on the entry of the goods into the local area for the purpose of consumption, use or sale therein. Similarly, item 50 (List II) relates to 'taxes on luxuries'. These 'luxuries' may be excisable under item 45 (List I) ; yet being objects of consumption within the Province, they appear to have been taken out of the purview of item45 (List I) and allocated to the Provinces." It is in this background the court further held: "........the scheme of taxation w....
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....ect could amount to giving restricted meaning of the legislative entry "taxes on luxuries". 61.. In Western India Theatres Ltd. v. Cantonment Board AIR 1959 SC 582, it was held, in construing a legislative entry, the widest possible construction of its meaning be given. This decision while interpreting entry 50 (List II) further held: ".......there can be no reason to construe the words 'taxes on luxuries or entertainments or amusements' in entry 50 as having a restricted meaning so as to confine the operation of the law to be made thereunder only to taxes on persons receiving the luxuries, entertainments or amusements. The entry contemplates luxuries, entertainments and amusements as objects on which the tax is to be imposed. If the words are to be so regarded, as we think they must, there can be no reason to differentiate between the giver and the receiver of the luxuries, entertainments, or amusements and both may, with equal propriety, be made amenable to the tax............" The principle of Mumbai Grahak Panchayat v. State of Maharashtra 1983 Tax LR 2770 is contrary to the decision in A.B. Abdul Kadir's case AIR 1976 SC 182, where tax on luxuries as licences on stock....
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....reliance was placed in A.B. Abdul Kadir v. State of Kerala AIR 1976 SC 182, that though tobacco is held as a luxury goods but the same was consumed within the State. The petitioners' reliance on three decisions, viz., Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938 In re [1938] 1 STC 1 [PC], Federation of Hotel & Restaurant Association of India v. Union of India [1989] 74 STC 102 (SC); (1989) 3 SCC 634 and A.B. Abdul Kadir v. State of Kerala AIR 1976 SC 182 is not of much help as in none, the question was directly raised, whether in case luxury goods, if not consumed within the State, the Legislature would be competent to legislate over it. 64.. It is well-settled in construing legislative entry widest possible meaning should be given, of course keeping it within permissible field. Taxes on luxuries would include all aspects of luxuries. One of the reasons for such taxations is to curb the activities of luxuries. To do so, if it is to be confined to only last stage, viz., consumption, measure to curb such activity has to be limited. To curb one has to take measure from the first stage, viz., when goods are manufactured, including within....
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....ould only be in case consumption within the State. The tax on luxury as has been held in Express Hotels Private Ltd. v. State of Gujarat [1989] 74 STC 157 (SC) ; AIR 1989 SC 1949, would be both on corporeal things, viz., luxury goods and incorporeal like enjoyment of the hotel or restaurant. See Western India Theatres Ltd. v. Cantonment Board, Poona, AIR 1959 SC 582: "...........In view of this well-established rule of interpretation, there can be no reason to construe the words 'taxes on luxuries or entertainments or amusements' in entry 50 as having a restricted meaning so as to confine the operation of the law to be made thereunder only to taxes on persons receiving the luxuries, entertainments, or amusements. The entry contemplates luxuries, entertainments, and amusements as objects on which the tax is to be imposed. If the words are to be so regarded, as we think they must, there can be no reason to differentiate between the giver and the receiver of the luxuries, entertainments, or amusements and both may, with equal propriety, be made amenable to tax...... The concept of 'luxuries' as a subject of tax was not confined to those who received or enjoyed the luxury. It cou....
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....fringement of the revenue laws, Sir W. Scott observed that 'the court is not bound to a strictness at once harsh and pedantic in the application of statutes. The law permits the qualification implied in the ancient maxim, de minimis non curat lex. Where there are irregularities of very slight consequence, it does not intend that the infliction of penalties should be inflexibly severe. If the deviation were a mere trifle, which, if continued in practice, would weigh little or nothing on the public interest, it might properly be overlooked'." 71.. This principle is applicable where there are trifling irregularities or omissions or for trifle deviations which would weigh very little in public interest may be overlooked. This would not be applicable where trial of one's right or claim is in issue affecting him. This principle of de minimis non curat lex would not be applicable on the facts of the present case. Not only is there a serious challenge of their claim based on constitutional rights but affecting amounts running into lakhs of rupees could by no stretch be held as trifling irregularity or omission or it affecting only fraction. 72.. Next we take up ground No.(B). ....
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....therein. Similarly, first part of article 304(b) treats imported goods in the State on the same terms as similar goods manufactured in that State. Article 304(b) empowers the State Legislature to impose reasonable restrictions on the freedom of trade without or even in the same State subject to consideration that Legislature has to obtain prior sanction of the President by the proviso of article 304. 74.. The petitioners relied on Atiabari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232: "...........it certainly includes movement of trade which is of the very essence of all trade and is its integral part. If the transport or the movement of goods is taxed solely on the basis that the goods are thus carried or transported that, in our opinion, directly affects the freedom of trade as contemplated by article 301. If the movement, transport or the carrying of goods is allowed to be impeded, obstructed or hampered by taxation without satisfying the requirements of Part XIII the freedom of trade on which so much emphasis is laid by article 301 would turn to be illusory. When article 301 provides that trade shall be free throughout the territory of India primarily it is th....
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.... be free. The learned Judges in this connection took the view that the levy of tax as a condition preceding to the entry of goods into a place directly impeded the flow of trade to that place. The conclusion arrived at by the High Court in this respect, in our opinion, was correct and sound." Repelling the reliance of petitioners for the respondents it is contended that this was a case where a class of licence fee who desires to bring tobacco inside the State has to pay licence fees in advance before it is brought within the taxable territory. See Hansraj Bagrecha v. State of Bihar [1971] 27 STC 4 (SC); [1971] 2 SCR 412: In this case rule 31B of the Bihar Sales Tax Rules, 1959 was struck down as the operation of the rule was held not restricted only to transactions in the course of intra-State trade and commerce but also restricted on inter-State transactions. This decision further holds that imposition of tax may in circumstances impede free-flow of trade, commerce and intercourse but every tax does not have that effect. See Indian Cement Ltd. v. State of Andhra Pradesh [1988] 69 STC 305 (SC); AIR 1988 SC 567: "...........Thus, on a fair construction of the provisions ....
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.... right to trade in it, nor fundamental right. See Cooverjee B. Bharucha v Excise Commissioner and the Chief Commissioner, Ajmer AIR 1954 SC 220: "That when the liquors are taken in excess the injuries are confined to the party offending is a fact which does not exist. The injury, it is true, first falls upon him in his health, which the habit undermines; in his morals, which it weakens; and in the self-abasement which it creates. But as it leads to neglect of business and waste of property and general demoralisation, it affects those who are immediately connected with and dependent upon him" See Nashirwar v. State of Madhya Pradesh AIR 1975 SC 360: "There is no fundamental right of citizens to carry on trade or to do business in liquor. There is the police power of the State to enforce public morality to prohibit trades in noxious or dangerous goods. There is power of the State to enforce an absolute prohibition of manufacture or sale of intoxicating liquor. Article 47 states that the State shall endeavour to bring about prohibition of the consumption except for medicinal purposes of intoxicating drinks and of drugs which are injurious to health. The history of excise law ....
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....ngh AIR 1964 SC 1135: "We might in this connection add that the respondent cannot assert any fundamental right under article 19(1) to carry on business in adulterated food stuffs. " Strong reliance has been placed on the Full Bench decision in T.K. Abraham v. State of Travancore-Cochin AIR 1958 Ker 129: "Tobacco is almost as deleterious as liquor and one of the earliest and more famous inditements is in Robert Burton's Anatomy of Melancholy where in dealing with its common abuse by most men he said: 'tis a plague, a mischief, a violent purger of goods, lands, health, helish, devilish and damned tobacco, the ruin and overthrow of body and soul'." With respect we beg not to concern with this view. Tobacco may be injurious to the health but it cannot constitute as deleterious as liquor. Liquor not only is an intoxicant, but almost derails a man of his senses with self-abasement degrading in morals, ruining the family. This cannot be said about tobacco. 78.. So far decision on liquor the foundation was that the liquor is not only injurious to health but undermines one's moral. It is, in fact, self-abasement, leading to neglect of business and waste of property and gen....
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....are unable to accept the view propounded by the High Court. The flow of trade does not necessarily depend upon the rates of sales tax; it depends upon a variety of factors, such as the source of supply, place of consumption, existence of trade channels, the rates of freight, trading facilities, availability of efficient transport and other facilities for carrying on trade. Instances can easily be imagined of cases in which notwithstanding the lower rate of tax in a particular part of the country goods may be purchased from another part, where a higher rate of tax prevails. Supposing in a particular State in respect of a commodity, the rate of tax is 2 per cent, but if the benefit of that low rate is offset by the freight which a merchant in another State may have to pay for carrying that commodity over a long distance, the merchant would be willing to purchase the goods from a nearer State, even though the rate of tax in that State may be higher. Existence of longstanding business relations, availability of communications, credit facilities and a host of other factors- natural and business-enter into the maintenance of trade relations, and the free-flow of trade cannot necessarily ....
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....nly such restrictions or impediments which directly or immediately impede the free flow of trade, commerce and intercourse fall within the prohibition imposed by article 301. A tax may in certain cases directly and immediately restrict or hamper the flow of trade, but every imposition of tax does not do so. Every case must be judged on its own facts and in its own setting of time and circumstance." Lastly, reliance is placed in Video Electronics Pvt. Ltd. v. State of Punjab [1990] 77 STC 82 (SC); AIR 1990 SC 820: "It is necessary to bear in mind that taxes may and sometimes do amount to restrictions but it is only such taxes as directly and immediately restrict trade that would fall within the mischief of article 301. Mr. Salve, however, rightly reminded us that regulatory measures or measures imposing compensatory taxes for using trading facilities do not come within the purview of restrictions contemplated under article 301............It is true that if a particular provision being taxing provision or otherwise impedes directly or immediately the free flow of trade within the Union of India then it will be violative of article 301 of the Constitution. It has further to be b....
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....tes. A merchant in such a case may be willing to purchase from a State where the rate of tax may be higher but the cost of freight being low its total cost be less. In other words, the consideration has to be whether by imposition of tax, in effect, affects its price to the extent that in competition with similar goods the viability of its penetration in the commercial field qua the purchasing consideration of the consumers becomes difficult. Therefore, the question is whether the imposition of luxury tax in this State, which is not in other States, keeping in view the commodity being declared as a commodity of special importance under section 14 of the 1956 Act, limiting imposition of sales tax at 4 per cent in inter-State sales coupled with the 1957 Act preceded by Taxation Inquiry Commission reports including letter of the Finance Minister, affects the free-flow of this commodity or it impedes its movement within the meaning of article 301. 81.. It is also relevant to point out in this context that rights and obligations are the two sides of the same coin. In proportion of the obligatory contributions, proportionate right is receivable. If obligations overflow receivable righ....
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....ing complementary to each other, aiding and assisting to secure to its citizen, social, economical and political justice. Though, functioning in diverse fields but for common objective, as resolved in the Preamble. As spirit in an individual lies in his integrity, character, reverance and inspiration, is equally applicable to the Executive, Legislature and Judiciary. Thus these constitutional functionaries should not only act in unison as complementary to each other but should quench its thirst for power some times by restraining to exercise its right for attainment of social justice. 82.. These observations were made, as we find subject-matter of taxation is tobacco. Entire gamut of tobacco taxation history does indicate, right from last four decades, it is drawing attention of not only Union but all the States of this country in taking measures in dealing in the trade, taxation and movement of this article. The purpose, reason and measures taken have to be kept in mind even when one acts within limit of its powers. Otherwise this may in a given case amount to defeating social justice by legal justice. Thus while imposing tax may be within its competence, the burden of tax, eff....
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....ether the two reasons given by the High Court in support of this decision are valid. The first reason, as we have already indicated, is that the High Court thought that the plea in question had not been raised by the appellant in his writ petition. This reason is no doubt, technically right in the sense that this plea was not mentioned in the first affidavit filed by the appellant in support of his petition; but in the affidavit-in-rejoinder filed by the appellant this plea has been expressly taken. This is not disputed by Mr. Chetty, and so, when the matter was argued before the High Court, the respondents had full notice of the fact that one of the grounds on which the appellant challenged the validity of the impugned order was that he had not been given a chance to show cause why the said notification should not be issued. We are, therefore, satisfied that the High Court was in error in assuming that the ground in question had not been taken at any stage by the appellant before the matter was argued before the High Court." Therefore, this technical objection raised on behalf of the respondents has no merit. 85.. Further, we find the basic facts, that the impugned tax incre....
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....le cause in the public interest. Once it is held it is violative of article 301, then it is for the State to show at least compliance of article 304(b) by getting prior assent of the President of India. Having found impugned impedes movement of tobacco it is held impugned Ordinance is violative of article 301 of the Constitution of India. Admittedly, in the present case, which is not in dispute, there is no assent from the President of India. Thus, impugned levy is held to be ultra vires of article 301. 87.. The next ground of challenge is that it is violative of article14 of the Constitution, inter alia, on the following grounds: A. The definition of the word "tobacconist" in section 2(h) read with proviso to section 3 exhibits treating the two classes of tobacconists one less favourably than other. The tobacconist who does not manufacture or brings tobacco from outside the State, the liability to tax is only when turnover of his receipt exceeds rupees two lakhs while other tobacconist who is manufacturer or brings tobacco from outside, the liability is when his turnover of receipt is rupees one lakh only. B. The definition of "tobacco" in section 2(g), cigarettes priced at ....
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....minatory treatment, hence violative of article 14 of the Constitution. 89.. In the matter of hostile discrimination the doctrine of equal protection, is equally applicable to the fiscal statutes though a wider latitude is made available to the Legislature in the matter of classification of objects, persons and things for the purpose of taxation though the classification, if made, should not be arbitrary. However, two conditions must be fulfilled ; the classification must be founded on an intelligible differentia and the differentia must have a rational nexus with the object sought to be achieved. It is significant to quote from the case of Sri Srinivasa Theatre v. Government of Tamil Nadu [1993] 89 STC 201 (SC); JT (1992) 2 SC 312. This decision approved the following observations made earlier in the case of S.K. Dutta, Income-tax Officer v. Lawarence Singh Ingty [1968] 68 ITR 272 (SC); [1968] 2 SCR 165: "It is not in dispute that taxation laws must also pass the test of article 14. That has been laid down by this Court in Moopil Nair v. State of Kerala [1961] 3 SCR 77. But as observed by this Court in East India Tobacco Co. v. State of Andhra Pradesh [1962] 13 STC 529 (SC); ....
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....to the mischief to which the enactment is directed and its remedy, while the latter relates to the legal meaning of the enactment.' There is thus a clear distinction between the two. While the purpose or object of the legislation is to provide a remedy for the malady, the legislative intention relates to the meaning or exposition of the remedy as enacted. While dealing with the validity of a classification, the rational nexus of the differentia on which the classification is based has to exist with the purpose or object of the legislation so determined.........." However, in applying this principle it is also necessary to see the following passage of the same judgment which has bearing in deciding the question raised by the petitioner: "It is well-settled that the latitude for classification in a taxing statute is much greater ; and in order to tax something it is not necessary to tax everything. These basic postulates have to be borne in mind while determining the constitutional validity of a taxing provision challenged on the ground of discrimination. One has to look beyond the ostensible classification and to the purpose of the law and apply the test of 'palpable arbitr....
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....lling in the same category a question arises at once before a court whether there is justification for the discrimination. In the present case, we are not satisfied that the reason behind the rate of 30 per cent on the turnover of arishtams and asavas constitutes good ground for taking those two preparations out from the general class of medicinal preparations to which a lower rate has been applied......." In this case the rate of tax imposed on arishtams and asavas, the two ayurvedic medicines were challenged which was higher than the other general class of ayurvedic medicine. The court held the commodity belongs to the same class of category, viz., the ayurvedic medicines. There was no rational basis for discriminating between one commodity from the other. The petitioners relied in the case Banner & Co. v. Union of India (1994) 70 ELT 181 (Cal), which held: ".......denying exemption benefit to goods manufactured by smallscale manufacturers but bearing brand name of a large scale manufacturer unconstitutional since not passing the test of reasonable classification. Stated objectives of amending notification not justifying the denial since still open to large scale manufactur....
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....mination while testing in a taxation statute is less rigorous. If there is equality among each group it would not be held to be discriminatory. 92.. In a fiscal statute within the same class of goods, viz., tobacco, as in the present case, it is permissible to make further classification of its commercially known commodity like, cigarettes, zarda, khaini, snuff gul, etc. It is open to a State to include all or any within the purview to tax or gradually bring them under it in a phased way or to prescribe different rate of tax. Inclusion of any one or some and exclusion of other would not per se amount to discriminatory treatment. Similarly same principle applies while exercising power of exemption but this has to be based on some reasonable criteria. In case a criteria, not to include for taxation, up to a priced level, not to affect consumption by the poor, then State has further to satisfy based on intelligible differentia with the object sought to be achieved by the impugned State as to why similar group of commodity subjected to tax falling under the same criteria has been left out. In other words what was reason of choosing one and leaving out other similarly placed. If ther....
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....d to tax falls under separate class or group. Thus, exclusion of cigarettes of Rs. 5 or less per packet of ten cannot be said to be discriminatory to pan masala when it is sold in small packets as they are two separate and distinct commodities in itself falling under separate class or group. Hence, no discrimination. 95.. Coming to sub-ground D, the discrimination alleged is by including unmanufactured tobacco under the branded name and excluding unmanufactured tobacco not under branded name for taxation by virtue of Explanation to section 2(n). It is urged there is no difference between the two as both are tobacco. Hence, it is discriminatory and violative of article 14. Reliance is placed in the case of Banner & Co. v. Union of India (1994) 70 ELT 181 (Cal). In this amended notification denying exemption benefit of goods manufactured by small-scale manufacturer under brand name of a large scale manufacturer was challenged. It was held, mere putting a brand name on the commodity already manufactured there is no manufacture. The commodity remains the same. For the purpose of excise of course placing brand name does not make it to be a different commodity, it does not amount to m....
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....tremely wide discretion in classifying items for tax purposes, so long as it refrains from clear and hostile discrimination against particular persons or classes." After enunciating this principles that a wide latitude is given to the Legislature in the fiscal statute in making class among subject of persons, subject-matter, event, etc. It further held: "But, with all this latitude, certain irreducible desiderata of equality shall govern classifications for differential treatment in taxation laws as well. The classification must be rational and based on some qualities and characteristics which are to be found in all the persons grouped together and absent in the others left out of the class. But this alone is not sufficient. The differentia must have a rational nexus with the object sought to be achieved by the law. The State, in the exercise of its Governmental power, has, of necessity, to make laws operating differently in relation to different groups or class of persons to attain certain ends and must, therefore, possess the power to distinguish and classify persons or things. It is also recognised that no precise or set formulae or doctrinaire tests or precise scientific ....
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....rview such class of cigarette which is consumed by person, who are economically not well off. No other rationale has been argued by the respondent. If that be so, question does arise what is intelligible differentia of differentiating it from khaini sold at 25 paise to 50 paise per packet which is also consumed by persons who are not economically well off. If the rationale was not to tax cigarettes, which are low priced then khaini, which is also sold in small packets for 25 paise to 50 paise should also have been excluded from the purview of tax. Petitioners' case is that khaini chewing tobacco costs 25 paise to 50 paise per packet of 10 grams. We do not find any rationale behind such classification nor any nexus is decipherable with the object sought to be achieved. It clearly shows arbitrariness and also differential treatment among similarly placed goods. It is not a case of choosing one class of goods and leaving other but visualising beyond the classification, we find among derivatives of tobacco similarly placed dissimilar treatment is meeted out. It is a case of arbitrary choosing one from among other similarly placed. Accordingly, we hold definition of tobacco by excluding....