TMI Blog1975 (11) TMI 160X X X X Extracts X X X X X X X X Extracts X X X X ..... provision of this Act which is concerned with production or manufacture of tobacco or which links the tax under its provisions with the manufacture or production of tobacco. The same is the position of the rules issued on August 3, 1950 and January 25, 1951 and Mr. Krishnamurthy Iyer on behalf of the appellants has frankly conceded that those rules are in no way concerned with the production or manufacture of tobacco. It would, therefore follow that the levy of tax contemplated by the provisions of section 3 of the Act has nothing to do with the manufacture or production of tobacco and, as such, cannot be deemed to be in the nature of excise duty. Argument that the provisions of the Act fall under entry 84 of List I of the Seventh Schedule to the Constitution must, therefore, be held to be bereft of force. We agree with the learned Judges of the High Court that such levy directly impedes the free flow of trade and as such is violative of article 301 of the Constitution. The requirement of the proviso regarding the sanction of the President has been satisfied. It is no doubt true that the assent of the President was given subsequent to the passing of the Bill by the legislature b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A somewhat similar law was in operation in the erstwhile Travancore State. On April 1, 1950 after the Constitution had come in force and Travancore-Cochin had become a Part State Finance Act (No. 25 of 1950) extended the Central Excises and Salt Act (No. 1 of 1944) to Part State of Travancore-Cochin by section 11 thereof. Section p 13 (2) of the Finance Act provided that "if immediately before the 1st lay of April 1950, there is in force in any State other than Jammu and Kashmir a law corresponding to, but other than, an Act referred to in r sub-sections (1) or (2) of section 11, such law is hereby repealed with effect from the said date. . . ". In consequence of this provision in Finance Act, 1950, the rules which were in force on April 1, 1950 were changed in the Cochin area by notification dated August 3, 1950 and the system of auction sales of A class and class shops was done away with and instead graded licence fees were introduced for various classes of licensees, including class licensees. Similar change was made for the Travancore area. Notification dated January 25, 1951 was issued in this context. A class licensees under the new rules were called stockists, class licensee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he respondent-State that the amounts of Rs. 1,14,750 collected by the State from them by way of licence fee under the invalid rules might be refunded to them. The respondent-State refunded. 73,500 to the appellants on April 29, 1963. On July 10, 1963 the appellants filed original petition No. 1268 of 1963 in the Kerala High Court for issue of a writ to the respondent State to pay the balance amount of Rs 41.250 which along with interest came to Rs. 52,800 to the appellants. During the pendency of the above petition on December 16, 1963 the Governor of Kerala promulgated ordinance No. 1 of 1963 which was later replaced by Kerala Luxury Tax on Tobacco (Validation) Act of 1964 (Act of 1964). This Act received the assent of the President on March 3, 1964. Original petition No. 1268 of 1963 was thereupon amended with a view to challenge the validity of the above mentioned Act. In the meanwhile, on January 21, 1964 demand was made in view of the ordinance by the State Government calling upon the appellants to pay the amount of Rs. 73,500 which had been refunded to them by the State Government. Original petition No. 934 of 1964 was filed by the appellants in the Kerala High Court to chall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod beginning with the 17th day of August, 1950 and ending on the 31st day of December, 1957, shall be deemed to have been validly levied or collected in accordance with law as if this Act were in force on and from the 17th day of August, 1950 and the fees for licences were a luxury tax on tobacco levied under the provisions of this Act, and accordingly,- (a) no suit or other proceeding shall be maintained or continued in any court for the refund of any fees paid or purported to have been paid under any of the said rules or notifications; and (b) no court small enforce a decree or order directing the refund of any fees paid or purported to have been paid under any of the said rules or notifications. 6. Recovery of licence fees refunded- Where any amount paid or purported to have been paid as a fee for licence under any of the rules or notifications specified in sub-section (3) of s. 4 has been refunded after the 24th day of January, 1962, and such amount would not have been liable to be refunded if this Act had been in force on date of the refund, the person to whom the refund was made shall pay the amount so refunded to the credit of the Government in any Government trea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly sent back to the High Court with the direction to take further affidavits in the matter. The Court left it open to the parties to argue as to whether the levy in question was in substance a duty of excise and as such whether it was not competent for the State Legislature to enact the provisions in question. After remand affidavits were filed on behalf of the appellants and the respondent-State. The learned Judges of the High Court as per judgment under appeal gave the following findings: "(1) The levy being in respect of goods produced out side the State, it cannot be, and is not, an excise duty falling within entry 84 of the Union List. (2) The tax is on tobacco, an article of luxury, consumed within the taxing territory, levied on the occasion of its stocking and vending by the importers into the taxing territory. It clearly answers the description of luxury tax falling within entry 62 of the State List. (3) There being no competing internal goods, the mere fact that the levy is only on imported goods can only have, like any other tax, the economic effect of reducing the demand by reason of increasing the price. The consequent diminution in the quantity of goods imported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to frame new rules in August 1950 and January 1951 for there would be no law to support the new rules. The above question does not arise for determination in these appeals before us. What we are concerned with is the constitutional validity of the Kerala Act 9 of 1964. This Act was enacted subsequent to the above decision of this Court rendered on January 24, 1962. No question relating to the validity of the above mentioned Act in the very nature of things could arise at the time of the earlier decision in 1962. We, therefore, are of the view that the judgment dated January 24, 1962 of this Court does not operate as res judicate regarding the points of controversy with which we are concerned in these appeals. It has next been argued on behalf of the appellants that the levy for the licence fee for stocking and vending of tobacco, even though described as luxury tax in charging section 3 of the Act, is in reality and substance an excise duty on tobacco. Excise duty on tobacco under entry 84 of List I of the Seventh Schedule to the Constitution can only be levied by Parliament and, as such, according to the learned counsel for the appellants, the State Legislature was not competen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entry, the State Legislatures can make laws in respect of "taxes on luxuries, including taxes on entertainments, amusements, betting and gambling". Question, therefore, arises as to whether tobacco can be considered to be an article of luxury. The word "luxury" in the above context 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 well off. According to Encyclopaedia Britanica, luxury tax is "a tax on commodities or services that are considered to be luxuries rather than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... living, as against economic and social progress, which is tending to "level" such differences (see page 634 of the Encyclopaedia of the Social Sciences Volumes IX-X, 14th Printing). It may be added that there is nothing static about what constitutes an article of luxury. The Luxuries of yesterday can well become the necessities of today. Likewise, what constitutes necessity for citizens of one country or for those living in a particular climate may well be looked upon as an item of luxury for the nationals of another country or for those living in a different climate. A number of factors may have to be taken into account in adjudging a commodity as an article of luxury. Any difficulty which may arise-in borderline case would not be faced when we are dealing with an article like tobacco, which has been recognised to be an article of luxury and is harmful to health. The learned Judges of the High Court were of the opinion that the levy of tax in question was violative of article 301 of the constitution, according to which subject to the provisions of Part XIII, trade, commerce and intercourse throughout the territory of India shall be free. The learned Judges in this connection to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the freedom of trade, commerce or intercourse between one State and another or within any part of the territory of India as may be required in the public interest. Perusal of article 302 and article 304 shows that while Parliament can impose restrictions on the freedom of trade, commerce or intercourse between one State and another or within any part of the territory of India as may be required in the public interest, so far as the State Legislatures are concerned, restrictions must satisfy two requirements, firstly, they must be in the public interest and, secondly the restrictions should be reasonable. Shall J. speaking for the majority of the Constitution Bench in the case of State of Madras v. N. K. Nataraja Mudaliar ([1968] 3 S.C.R. 829) observed that the exercise of the power to tax may normally be presumed to be in the public interest. The above observations though made in the context of article 302 have equal relevance under article 304. Not much argument is needed to show that the power to tax is essential for the maintenance of any governmental system. Taxes are levied usually for the obvious purpose of raising revenue. Taxation is also resorted to as a form of regula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rce or intercourse in the public interest are reasonable, is upon the State. It is also true that no effort was made in the affidavit filed on behalf of the State in this case to show as to how the restrictions were reasonable, but that fact would not necessarily lead the court to hold that the restrictions are unreasonable. If the court on consideration of the totality of facts finds that the restrictions are reasonable, the court would uphold the same in spite of lack of details in the affidavit filed on behalf of the State. In judging the question of reasonableness of restriction in the present case, we must bear in mind that the levy of luxury tax relates to tobacco, the consumption of which involves health hazard. Regulation of the sale and stocking of an article like tobacco which has a health hazard and is considered to be an article of luxury by imposing a licence fee for the same, in our opinion, is a permissible restriction in public interest within article 304(b) of the Constitution. The material on record shows that except for cultivation of tobacco on experimental basis, no tobacco is grown in the area with which we are concerned. The levy of luxury tax is bound to res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e grounds advanced with a view to assail the validity of the Act was that its provisions were not applicable to the Telengana area. We are unable to accede to the submission that this Court lost sight of the fact that the Act was not applicable to the Telengana area in holding that its provisions were protected by article 304(b) of the Constitution. It is also true that the levy of tax relates only to the period from August 17, 1950 to December 31, 1957, but that too was due to the historical reason that the licence fee had been realised only during that period and the object of the impugned Act was to validate the recovery already made. Argument has also been advanced by Mr. Krishnamurthy Iyer that the impugned Act is a colourable piece of legislation because what is sought to be done is to validate the levy made under provisions of law which were found to have been repealed. It is further pointed out that those provisions of law were found by this Court to be similar to the provisions of the Central Execises and Salt Act and as such, those provisions were beyond the competence of a State Legislature. Any levy made under those provisions cannot, according to the learned counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tobacco. The enactment of a law for levying luxury tax is unquestionably within the legislative competence of the State Legislature in view of entry 62 in List II of the Seventh Schedule to the Constitution. As such, it cannot be said that the impugned Act is a colourable piece of legislation. In the case of Jaora Sugar Mills (P) Ltd. access was levied under the Madhya Pradesh Sugarcane (Regulation of Supply and Purchase) Act, 1958 on sugarcane. This Court in the earlier case of Diamond Sugar Mills(2) had held that such a levy was not valid. Following the above decision the Madhya Pradesh High Court struck down section 23 which was the charging section of the Madhya Pradesh Sugarcane (Regulation of Supply and Purchase) Act, 1958. There were similar Acts in- several other States which suffered from the same infirmity and to meet that situation, Parliament passed the Sugarcane Cess (Validation) Act, 1961. The Act made valid by section 3 all the assessments and collections made before its commencement under the various State Acts and laid down that all the provisions of the (1) [1966] 1 S.C.R 523. (2) [1961] 3 S.C.R 242. State Acts as well as the relevant notifications, rules, etc., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are that the levy should be of a nature which can answer to the description of luxury tax and that the State Legislature should be competent to enact a law for recovery of luxury tax. Both these conditions as stated above are satisfied. As regards the power of the legislature to give retrospective operation to a tax legislation, we may also refer to the case of Rai Ramkrishna Ors. v. State of Bihar([1964] 1 S.C.R 897) wherein it was held that where the legislature can make a valid law, it can provide not only for the prospective operation of the material provisions of the said law but can also provide for the retrospective operation of the said provisions. The legislative power was held to include the subsidiary or the auxiliary power to validate law which had been found to be `H invalid. It was also observed that in judging the reasonableness of the retrospective operation of law for the purpose of article 304(b), The test of length of time covered by the retrospective operation could nob by itself be treated as decisive. Again, in the case of Epari Chinna Krishna Moorthy, Proprietor, Epari Chinna Moorthy Sons, Berhampur, Orissa v. State of Orissa([1964] 7 S.C.R. 185.) the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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