9911796707
TMI Blog2002 (8) TMI 813X X X X Extracts X X X X X X X X Extracts X X X X ..... ging the validity of the amended provision of the Luxury Tax Act on the ground that the purported levy of tax is in effect and substance a tax on sales and not on luxuries and, therefore, it is a colourable legislation beyond the legislative competence of the State Legislature, liable to be struck down for being violative of articles 14, 19(1)(g), 245, 246, 301 and 304 of the Constitution of India. 3.. Though these petitions are filed by different manufacturers of gutkha, the facts involved, questions of law sought to be raised and the challenges sought to be set up therein are common. So they were heard together and are being disposed of together by this common judgment. The main challenge relates to validity of section 3B of the Luxury Tax Act but, before we set out those grounds, it would be convenient to refer briefly the historical background and the structure of the impugned legislations. The background and structure of legislation: 4. The pan masala containing tobacco (gutka) is exigible for tax under the Excise Act. The said product was also exigible to sales tax under the provisions of the BST Act and the petitioners have been paying the same in the sense that it bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2001) Heading No. Sub-heading No. Description of goods Rate of Sp. Duty of excise 21.06 2106.00 Pan masala 16 per cent Notification No. 16/98 CE (NT) dated 2nd June, 1998 as amended by Notification No.28/99 CE dated 8th June, 1999 reads as under: Tariff value Tariff values for pan masala in retail packages: In exercise of powers conferred by sub-section (2) of section 3 of the Excise Act (1 of 1944) and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 5/97-Central Excise (NT), dated the 1st March, 1997, the Central Government hereby fixes tariff value in respect of the goods, specified in column (1) of the table hereto annexed, and falling under the sub-heading No. 2106.00 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), equivalent to the amount specified in the corresponding entry in column (2) of the said table. Description of goods Amount (1) (2) Pan masala in retail packages- (1) Containing not exceeding two gms. per pack Re. 1.00 per unit pack (2) Containing more than 2 gms. But not exceeding 4 gms. per pack Rs. 2.00 per unit pack (3) Containing more than 4 gms. but les ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1, for note 3, the following note shall be substituted, namely: Note 3 in this chapter 'pan masala' means any preparation containing betelnuts and one or more of the following ingredients, namely, (1) lime and (2) kattha (catechu), but not tobacco, whether or not containing any other ingredients, such as cardamom, copra and menthol." In chapter 24, after note 5, the following note has been inserted: Note 6 in this chapter, "Pan masala containing tobacco" commonly known as "Gutkha" or by any other name, means any preparation containing betel nuts and tobacco and any one or more of the following ingredients, namely, lime and kattha (catechu), whether or not containing any other ingredients such as cardamom, copra and menthol. The Finance Bill, 2001: Clause 129 of the Finance Bill, 2001 (Bill No. 17 of 2001) introduced in the Parliament reads as under: 129. (1) In the case of goods specified in the Seventh Schedule, being goods manufactured or produced, there shall be levied and collected for the purposes of the Union, by surcharge, a duty of excise, to be called the National Calamity Contingent Duty (hereinafter referred to as "the National Calamity Duty", for short), at the rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ification or order, and no enforcement shall be made by any court, or any decree or order relating to such action taken or anything done or omitted to be done as if the amendment made by section 125 of the Finance Act, 2001 had been in force at all material times. Clause 128 of the Finance Bill, 2001 (Bill No. 17 of 2001) reads as under: 128. The Additional Duties of Excise (Goods of Special Importance) Act, 1957 hereinafter referred to as the Additional Duties of Excise Act, shall be amended in the manner specified in the Sixth Schedule. Entry 2404.49 of the Sixth Schedule reads as under: Heading No. Sub-heading No. Description of good Rate of Sp. excise duty 2404.49 Pan masala containing tobacco 18 per cent The petitioners claim that they have been paying excise duty under Chapter sub-heading 21.06 of Tariff Act. The Finance Act, 2001 has put "Pan masala containing tobacco" under Chapter 24 of Tariff Act. Entry 2404.49 sets out that the basic rate of duty is 16 per cent and additional duty of 18 per cent from March 1, 2001. Apart from this the surcharge duty of excise, i.e., National Calamity Duty under the Seventh Schedule to the Finance Act, 2001 at the rate of 10 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds as under: "1. There shall be levied a sales tax, on the turnover of sales of declared goods specified in Schedule B, at the rate set out against each of them in column (3) thereof, but after deducting from such turnover- (i) resales of goods on the purchase of which the dealer is liable to pay purchase tax under section 14; (ii) resales of goods purchased by the dealer on or after the appointed day from the registered dealer, otherwise than on a declaration furnished under section 11 or 12, if requirements of section 12A are satisfied; (iii) resales of goods purchased by the dealer on or after the appointed day from a dealer liable to pay tax under section 4, if a certificate as provided in sub-section (2) of section 12A is furnished; (iv) sales of goods to a commission agent holding a permit who purchases on behalf of principal, upon such commission agent furnishing a declaration as provided in section 12; and (v) sales of goods to a dealer holding the certificate of entitlement, who purchases such goods by furnishing a declaration as provided in clause (g) of section 12." Section 5 of the BST Act deals with sales and purchases of certain goods free from all taxes and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble of the Luxury Tax Act, after the words 'tax on luxuries' the words 'and tax by way of cess on other facilities, services, enjoyments, utilities, consumption, etc.', shall be inserted." Section 23 of the Amending Act reads as under: "In section 1 of the Luxury Tax Act, in sub-section (1), after the words 'tax on luxuries' the words 'and tax by way of cess on other facilities, services, enjoyments, utilities, consumption, etc.', shall be inserted." Section 25 of the Amending Act reads as under: "In section 3B of the Luxury Tax Act, for sub-section (2) the following sub-section shall be substituted, namely: '(2) There shall be levied a tax on a turnover of the receipts of a tobacconist, in so far as the turnover of receipts relates to the tobacco specified in column (2) of the Table hereunder, at the rates set out in column (3) thereof. Table Serial No. Type of tobacco Rate of tax in a rupee (1) (2) (3) 1. Cigars, cheroots and cigarettes 8 paise 2. Snuff 8 paise 8 paise 3. Jarda whether manufactured or unmanufactured supplied for a value not exceeding rupees one hundred and fifty per kilogram. 8 paise 4. Gutka and Pan Masala containing tobacco 25 paise 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from any place outside the State and who supplies such tobacco whether by way of sale or otherwise; (iii) any person who supplies tobacco from a place within the State to any place outside the State, whether by way of sale or otherwise; (iv) any person who does not buy or otherwise obtain manufactured tobacco under a brand name but supplies whether by way of sale or otherwise such unmanufactured tobacco in a sealed container under a brand name. Explanation.-For the removal of doubts, it is hereby declared that: (1) an agriculturist, as defined in the Bombay Sales Tax Act, 1959 who exclusively supplies unmanufactured tobacco grown on land cultivated by him personally whether or not in a sealed container but not under a brand name; (2) a person who exclusively supplies unmanufactured tobacco whether or not in a sealed container but not under a brand name; and (3) a person, not being a person referred to in sub-clause (iii), who exclusively obtain tobacco whether by way of purchase or otherwise from a registered tobacconist, shall not be deemed to be a tobacconist for the purpose of this clause: 2(p) "turnover" of receipts: (i).................... (ii) in the case of toba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st .-(1) Subject to the provisions of this Act and the Rules made thereunder, there shall be levied a tax on the turnover of receipts of a tobacconist. (2) There shall be levied a tax on the turnover of the receipts of a tobacconist, in so far as the turnover of receipts relates to the tobacco specified in column (2) of the Table hereunder, at the rates set out in column (3) thereof: Table Serial No. Type of tobacco Rate of tax in a rupee (1) (2) (3) 1. Cigars, cheroots and cigarettes 8 paise 2. Snuff 8 paise 3. Jarda whether manufactured or unmanufactured supplied for a value not exceeding rupees one hundred fifty per kilogram 8 paise 4. Gutka and pan masala containing tobacco 25 paise 5. Tobacco other than the tobacco specified above 20 paise Provided that, the tax shall be levied under sub-section (2), after deducting from such turnover, receipts in respect of which the tobacconist proves to the satisfaction of the Commissioner that, (a) tax on the very tobacco supplied by him whether by way of sale or otherwise has already been paid by any other person and in support thereof produces a proof of such payment; or (b) the tobacco has been supplied by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proof of such sale or export. 2. Importer [section 2(o-2)(ii)] Any person who for the purposes of business brings or causes to be brought tobacco in the State or to whom any tobacco is despatched from any place outside the State and who supplies such tobacco whether by way of sale or otherwise. X Y X + Y X + Nil [section 3B(2)(b) and (c)] as above 3. Exporter [section 2(o-2)(iii)] Any person who supplies tobacco from a place within the State to any place outside the State, whether by way of sale or otherwise. X Exempted Not applicable X + Nil [section 3B(2)(b) and (c)] as above A. Outside State Maharashtra If supplied within Maha rashtra Luxury tax is attracted because of section 3A. B. Outside State Maharashtra If supplied to some other State Luxury tax is attracted because of section 3B(2)(b) and (c) C. Maharashtra Maharashtra If supplied within Maharashtra Luxury tax is attracted because of section 3A D. Maharashtra Outside State If supplied outside State No luxury tax is attracted because of section 3B(2)(b) and (c) E. Outside State Outside State If supplied directly and if the goods happened to pass through the territory of Maharashtra No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evice only because the same could not be brought to tax under the BST Act in view of the decision of the apex Court in the case of Kothari Products Ltd. [2000] 119 STC 553; (2000) 9 SCC 263. By this amendment gutka which was originally subjected to the provisions of the BST Act has been taken out and by Maharashtra Act No.22 of 2001 brought within the purview of Luxury Tax Act. It is, therefore, urged that levy sought to be introduced on gutka in the form of luxury tax under the provisions of Luxury Tax Act is being used as an alternative of the BST Act. The mere change in the nomenclature does not change the incidence of the levy. It amounts to colourable exercise of power beyond the legislative competence of the State of Maharashtra amounting to fraud on Constitution and statute, therefore, liable to be struck down. 9.. The learned counsel for the petitioners in order to reinforce the aforesaid submission submitted that the levy of luxury tax under the impugned legislation is being directly levied on the sale price which is evident from the definition of the term "receipt" defined under section 2(k) of the Luxury Tax Act. Every tobacconist is held liable to register for payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioners, based on the entire scheme of the impugned provisions of the Act, is that the levy of tax is on sale of tobacco and that there is no distinction between supply of luxury and sale of luxury as the supply of tobacco and sale of tobacco both include transfer of goods, i.e., property for consideration. In other words, there is transfer of ownership in goods for a consideration. Therefore, the incidence of tax in substance is on the sale of tobacco products. In the submission of petitioners, if it is not a tax on sale of tobacco, then there was no need for the Legislature to provide for exemption to a tobacconist whose turnover of receipts is less than Rs. 50,000 under the proviso to section 3A or under amended section 3B of the impugned Act. The very fact that the inter-State transaction of supply is exempted from the levy of tax is, in his submission, one of the pointer to indicate that, in pith and substance, the levy is on the turnover of receipts in respect of supply of tobacco products and not on consumption or supply of luxury. 11.. The learned counsel for the petitioners based on presumption that the impugned levy is on sale, contended that article 286 of the Const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el appearing for some of the petitioners, adopted different line of argument relying on the text of the legislative entry 62 (List II, Seventh Schedule) and contended that the word "luxury" is followed by and associated with the words "entertainments, amusements, betting and gambling" as such the word "luxury" must be given its specific and restricted meaning applying the principle of noscitur a sociis or the analogy of the ejusdem generis principles. In his submission, although a pan masala containing tobacco may be an item of luxury, in that event, the legislation ought to have been to tax the consumption of such items of luxury. In other words, tax ought to have been on consumption or enjoyment of gutka. But the impugned legislation is imposing tax on the turnover of receipts so far as it relates to the petitioners, not on consumption of gutka, as such the impugned legislation is beyond the legislative competence of the State Legislature. He sought to place reliance on section 2(o) which defines tax to mean, tax levied on luxuries and tax levied by way of cess on other facilities, services, enjoyment utilities, consumption, etc. He also placed reliance on section 3(1) and (2), i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se on sale of tobacco or gutka. The Legislature, therefore, has not made any inroad into the field of legislation occupied by the Parliament. He further contended that when a particular legislation falls within the exact words of an entry in the State List, and is valid under article 246(3) of the Constitution, in that event, no question of reconciliation arises. He placed reliance on Ram Krishna Ramnath Agarwal of Kamptee v. Secretary, Municipal Committee Kamtee AIR 1950 SC 11 and also sought to borrow assistance from the case of Abdul Kadir AIR 1976 SC 182, to support his contention. 16.. The learned counsel for the State further submitted that the distribution of legislative power is to be found in Part XI of the Constitution and not in the entries. In other words, the source of power is articles and not in the entries. The entries are the heads of legislation as such, they should not be read in a narrow or restricted sense. They must be given the widest possible meaning. In support of his submission, he relied upon Banarasi Dass v. Wealth Tax Officer [1965] 56 ITR 224 (SC); AIR 1965 SC 1387 and also placed reliance on the case of Elel Hotels and Investments Ltd. v. Union of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the apex Court in Kothari Products Pvt. Ltd. [2000] 119 STC 553; (2000) 9 SCC 263, has no application to the facts of the present case in as much as the luxury tax has nothing to do with the Additional Duties of Excise Act, 1957. The levy is not a tax on sales. Alternatively, he submits that the State's power to legislate in respect of the various entries in List II is not taken away by the Additional Duties of Excise Act, 1957 enacted by the Parliament under entry 84 of List I. He sought to place reliance on the case of State of Bihar v. Bihar Chamber of Commerce [1996] 103 STC 1 (SC); AIR 1996 SC 2344. He thus contends that the contention of the petitioners in this behalf is liable to be rejected. He further brought to our notice that so far as legislative competence of the State Legislature under entry 62 is concerned, as many as three High Courts of the country, namely, Allahabad High Court in the case of Kamadgiri Agencies v. State of U.P. (unreported) and in Varshney General Sales v. State of U.P. [2003] 130 STC 202 (All.); 1995 UPTC 105; Andhra Pradesh High Court in ITC Limited v. State of Andhra Pradesh [1999] 112 STC 506 and the single Judge Bench of Kerala High Court in H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is in substance a tax on income and, therefore, beyond the legislative competence of the Provincial Legislature. 23.. The Federal Court referred to the following observations of Lord Atkin in Gallahagher v. Lynn 1937 AC 863 at page 870, while construing the scope of the Punjab Act: "'It is well-established that you are to look at the true nature and character of the legislation' Russell v. The Queen [1882] 7 AC 829, 'the pith and substance of the legislation'. If, on the view of the statute as a whole, you find that the substance of the legislation is within the express powers, then it is not invalidated if incidentally it affects matters which are outside the authorised field. The legislation must not under the guise of dealing with one matter in fact encroach upon the forbidden field." It was also observed: "It is the essential character of the particular tax charged that is to be regarded, and the nature of the machinery, often complicated, by which the tax is to be assessed is not of assistance except in so far as it may throw light on the general character of the tax." In conclusion, it was held as follows: "In the first place, we have to look into the charging section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of "sale of goods", exercise a power to legislate in respect of a subject-matter outside its sphere, it cannot exercise the power to levy a tax on circumstances by an artificial and colourable understanding of that expression so as to acquire the power to impose a tax on income. Repelling the above arguments, it was held as follows: "16. It may be, and is often so, that the tax on circumstances and property is levied on the basis of income which the assessee receives from his profession, trade, calling or property. That is, however, not conclusive on the nature of the tax. It is only as a matter of convenience that income is adopted as a yardstick or measure for assessing the tax. As pointed out In re: A Reference under Government of Ireland Act, 1920 [1936] AC 352 the measure of the tax is not a true test of the nature of the tax. Therefore, while determining the nature of a tax, though the standard on which the tax is levied may be a relevant consideration, it is not a conclusive consideration. One must have regard in such matters, as stated by the Privy Council in Governor General in Council v. Province of Madras [1945] 1 STC 135; (1945) 72 IA 91 at page 99, not to the name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be deemed to be in the nature of excise duty. The argument that the tax on the vending and stocking of tobacco cannot be considered to be luxury tax as contemplated by entry 62 of List II of the Seventh Schedule to the Constitution was also repelled. While upholding the levy, the learned Judges referred to the following observations made by the Supreme Court in State of Madras v. N.K. Nataraja Mudaliar [1968] 22 STC 376; [1968] 3 SCR 829; AIR 1969 SC 147: "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 regulation. In the words of justice Stone, 'every tax is in some measure regulatory' [Sonzinsky v. United States (1937) 300 US 506]. According to Roy Blough, the taxing power 'becomes an instrument available to Government for accomplishing objectives other than raising revenues'. To some extent every tax imposes an economic impediment to the activity taxed as compared with others not taxed, but that fact by itself would not make it unreasonable. It is well-settled that when power is conferred u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is always a presumption in favour of constitutionality of an enactment and the burden is upon the person who attacks it to show that there has been a clear transgression of the constitutional principles and that in order to sustain the presumption of constitutionality, the court may take into consideration common report, the history of the times and may assume every state of facts which can be conceived existing at the time of the legislation. [see Ram Krishna Dalmia v. Justice Tendolkar [1959] SCR 279; AIR 1958 SC 538]. 28.. In B. Banerjee v. Smt. Anita Pan AIR 1975 SC 1146 the Supreme Court after referring to the decision in Ram Krishna Dalmia's case [1959] SCR 279; AIR 1958 SC 538 has observed (at p. 1150, para 9): "Some courts have gone to the extent of holding that 'there is a presumption in favour of constitutionality, and a law will not be declared unconstitutional unless the case is so clear as to be free from doubt: and "to doubt the constitutionality of a law is to resolve it in favour of its validity"'." 29.. It is also necessary to refer to the principle that while considering the question as to whether a legislation is covered by a particular entry in any of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enable to be taxed under the entry. Rejecting the argument it was said: (SCR p. 69). "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 the tax." The concept of "luxuries" as a subject of tax was not confined to those who received the luxury. It could be on those who provided it. 31.. One more principle which has to be borne in mind in the light of the contentions raised on the ground of colourable legislation is that the entries in the three legislative Lists are divided into two groups, one relating to the power to tax and the other relating to power o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods can be described as luxury in contradistinction with necessaries. We may however point out that a luxury tax is a known concept in the field of taxation. The word "luxury" has not been defined under the Act. Therefore, let us find out the meaning of the word "luxury". In Black's Law Dictionary, 5th edition, "Luxury tax" is described as follows: "Generic term for excise imposed in purchase of items which are not "necessaries: e.g., tax on liquor or cigarettes." The criterion for determining whether an article is an item of luxury or not cannot be uniform in all circumstances. What is a luxury in one part of the country may be a necessity in another part of the country or in some other country and the content of that concept must vary according to time and circumstances and there can never be an absolute definition of "luxury". In Encyclopaedia Britanica the meaning of the word "luxury tax" is set out thus: "Luxury tax: A tax on commodities or services that are considered to be luxuries rather than necessaries. Modern examples are taxes levied on the purchase of jewellery, perfume, and tobacco." The concept of a tax on luxuries in entry 62, List II cannot be limited merely t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the petitioners is that in so far as section 3B of the Luxury Tax Act is concerned, it envisages a tax not on consumption or enjoyment of luxury but on the turnover of receipts in respect of supply of tobacco by way of sale as such it is beyond the scope of the legislative entry. The apex Court repelling more or less similar contention in the case of Express Hotels Pvt. Ltd. [1989] 74 STC 157; AIR 1989 SC 1949 observed as under: "There might possibly be some distinction between the ideas of 'entertainment' and 'luxuries'. With due respect to the High Court, the interpretation that commended itself to the High Court would unduly restrict the scope of the legislative entry. On such an interpretation, it might be possible for a person to go further and also contend that no 'entertainment' was actually derived. The concept of 'luxuries' in the legislative entry takes within it everything that can fairly and reasonably be said to be comprehended in it. The actual measure of the levy is a matter of legislative policy and convenience. So long as the legislation has reasonable nexus with the concept of 'luxuries' in the broad and general sense in which the expressions in legislative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of taxing the people. When a challenge to the validity and legality of an enactment is made on the ground that it is a colourable piece of legislation what has to be proved to the satisfaction of the court is that though the Act is ostensibly within the legislative competence of the Legislature in question but in substance and reality it covers a field which is outside the legislative competence. In the present case, we find that the State Legislature has properly exercised its power and luxury tax is levied on the supply of luxury. In common parlance of law, luxury tax is the subject of the State legislation in view of entry 62 of List II of the Seventh Schedule to the Constitution, as such, it cannot be said that the legislation is colourable in nature. 36.. At this juncture, it would not be out of place to mention that the luxury tax legislations legislated by the Legislature of Uttar Pradesh, State of Kerala, State of Andhra Pradesh have been upheld by the respective High Courts and all of them were unanimous so far as legislative powers of the State Legislature in levying luxury tax is concerned. All the three High Courts upheld the levy of luxury tax on tobacco on the gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he imposition of a tax on sale or purchase of declared goods be subject to the following restrictions: (a) the tax payable under that law in respect of any sale or purchase of such goods inside the State shall not exceed four per cent of the sale or purchase price thereof, and such tax shall not be levied at more than one stage; (b) where a tax has been levied under that law in respect of the sale or purchase inside the State of any declared goods and such goods are sold in the course of inter-State trade or commerce, and tax has been paid under this Act in respect of the sale of such goods in the course of inter-State trade or commerce the tax levied under such law shall be reimbursed to the person making such sale in the course of inter-State trade or commerce in such manner and subject to such conditions as may be provided in any law in force in that State. The submission of the petitioners is that levy of 25 paise in a rupee is a direct infringement of section 15 of the Central Sales Tax Act, 1956 and, therefore, it cannot be sustained. The same being in contravention of the law made by the Parliament, it should be struck down. The petitioners based on the assumption that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf of the petitioners contended that the provisions of the impugned Act are violative of article 301 not saved by article 304(b) of the Constitution. In his submission, the impugned Act would impede the freedom of trade, commerce and intercourse throughout the country. It is thus violative of article 301 of the Constitution. He strongly relied on the judgments of the High Courts, namely, Allahabad High Court and Kerala High Court (both cited supra) wherein, similar levy of luxury tax has been held to be violative of article 301, not saved by article 304(b) of the Constitution of India. He also relied upon the judgment of the Gauhati High Court in the case of All Assam Zarda Merchant Association v. State of Assam [1999] 115 STC 92, which deals with the levy of sales tax, with which we are not concerned in the present proceedings. 42.. Mr. Rana, learned counsel appearing for the State, on the other hand, contended that taxation simpliciter is not within the sweep of article 301. He further contended that freedom as contemplated does not mean freedom from taxation. In his submission, petitioners must show that the tax directly and immediately is restrictive of trade, commerce and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Luxury Tax Act and Sales Tax Act. At this stage, it is not necessary to hold forth on the harmful effects of addiction to tobacco products such as jarda, snuff, gutka. In order to discharge such consumption, I propose to tax jarda and snuff at the rate of eight per cent, and to tax gutka at the rate of twenty five per cent instead of the present rate of twenty-three per cent." In nutshell, the submission is that the luxury tax is merely regulatory in nature and does not infringe article 301 of the Constitution. Consideration: 45.. Article 301 imposes a limitation upon the exercise of legislative power, whether by the Union or by the State. The object of the freedom declared by this article 301 is to ensure that the economic unity of India may not be broken up by internal barriers. Part XIII of the Constitution is headed "Trade, commerce and intercourse within the territory of India". Article 301 of the Constitution is in general term which reads as under: Article 301 which deals with freedom of trade, commerce and intercourse provides: "Subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free." Article 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levy of luxury tax can be said to be regulatory in nature and beyond the pale of challenge on the score of article 301 of the Constitution. Although, the Directive Principles of State Policy contained in Part IV of the Constitution are not enforceable by the courts, nonetheless the articles included in Part IV of the Constitution (articles 36 to 51) contain certain directives which it shall be the duty of the States to follow both in the matter of administration as well as in making of laws. They embody the aims and objects of the State under a republican Constitution that of bringing about ideal economic justice. It has been described as a matter of constitutional obligation of the State to implement Directive Principles of State Policy. A large body of legislation under article 19(1)(g) when challenged, has been upheld by the Courts as being in furtherance of such policy, as being valid on the touchstone of directive principles. So far as intoxicating drinks are concerned, their effects are well-established specially for the Indian society. This was the reason why the framers of the Constitution considered it fit to include it, in expressed terms: in article 47 while indicating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ves and so entertaining as tobacco and its manifold preparations. One of them has gone to the extent of saying that he who doth not smoke hath either known no great griefs, or refuseth himself the softest consolation, next to that which comes from heaven (Bulwer Lytton. What will he Do with it?) Charles Lamp in 'A Farewell to Tobacco' observes: 'For thy sake, tobacco, I would do anything but die'. The fact all the same remains that the use of tobacco has been found to have deleterious effect upon health and a tax on tobacco has been recognised as a tax in the nature of a luxury tax. One of the earliest indictments of tobacco is in Robert Burton's Anatomy of Melancholy wherein he says: 'It's a plague, a mischief, a violent purger of goods, lands, health, hellish, devilish, and damned tobacco, the ruin and overthrow of body and soul.' Another indictment is from James I of England (Counterblaste to Tobacco) when it is said: 'A custom (smoking) loathsome to the eye, harmful to the brain, dangerous to the lungs and in the black stinking fume thereof, nearest resembling the horrible Stygian smoke of the pit that is bottomless.' The taxation of the objects or procedures of luxurious c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, suffering from a Gutka-induced high risk pre-cancerous oral disease, are below the age of 35 years. 51.. It is also a well-established fact that the patients with precancerous disease have 400-times higher chances of developing oral cancer than the normal persons. In our country the unprecedented rise in the young gutka eaters, especially school going children, has became a real cause of concern. The most dangerous aspect of the trend is that the tobacco chewing (mainly gutka eating) habit has a younger generation firmly in its grip. 52.. A control study conducted in Central India by Public Health Institution, Nagpur, Department of Preventive and Social Medicine, Clinical Epidemiology Unit, Government Medical College, Nagpur, Dy. Patil Women's Medical College, Pune, with respect to tobacco consumption practices and risk of Oro-pharyngeal cancer is one of the leading cancers in South and Southeast Asia. In Bangladesh, India, Pakistan and Sri Lanka, it is the most common and accounts for about a third of all cancers (WHO, 1984). Approximately, 90 per cent of Oro-pharyngeal cancers in these regions have been attributed to the habit of tobacco chewing and smoking. 53.. The impac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eral forms. Specific tobacco taxes, added as fixed amount to the price of tobacco products, allow the greatest flexibility and allow Governments to raise the tax with less risk, that the industry will respond with actions that keep low the real amount charged. Ad valorem taxes, such as value added taxes (VAT) or sales taxes are a percentage of the base price and are imposed virtually by all countries-often on top of the specific excise tax. Ad valorem taxes may be imposed at the point of sale or as in African countries on wholesale price. Taxes may vary according to the place of manufacture or the type of product: for example, some Governments impose higher taxes on tobacco products produced abroad than on domestically produced ones. An increasing number of countries now earmark taxes raised on tobacco for anti smoking activities or other specific activities. For example, one of China's largest cities, Chonggning, and several U.S. States earmark part of the revenue from tobacco taxes for education about tobacco's effects, counter advertising and other control activities. Other countries use earmarked tobacco taxes to support health services and some of them to prevent its use and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature and is not open to challenge on the touchstone of article 301 of the Constitution. 62.. Alternatively, assuming trade in tobacco would constitute to be a trade within the meaning of article 301, then the second limb of the defence is that even if it is a trade, the imposition of tax does not impede movement of goods directly and immediately. In this view of the submission, the most important question that falls for determination in this batch of cases is whether the impugned provisions of the Act impede provision of Part XIII referred to in article 301. 63.. The complexity of the problem with which we are concerned and called upon us to decide in the present proceedings has been considered in some of the reported judgments of the apex Court. Our attention was drawn to the decision of the apex Court in the case of Atiabari Tea Co. Ltd. v. State of Assam [1961] 1 SCR 809; AIR 1961 SC 232, wherein it has been held that the freedom of trade, commerce and intercourse guaranteed by article301 was wider than the one contained in section 297 of the Government of India Act, 1935, and it included freedom from tax laws also. Article 301 provides that the flow of trade shall run smo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he impugned legislative or executive act operates to restrict or barricade trade, commerce and intercourse directly and immediately, as distinct from creating some indirect or inconsequential impediments which may be regarded as remote. 65.. In Atiabari Tea Co. Ltd. v. State of Assam [1961] 1 SCR 809; AIR 1961 SC 232 tax on goods carried by road outside State was struck down. In Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan [1963] 1 SCR 491; AIR 1962 SC 1406, sub-section (1) of section 4 of the Rajasthan Motor Vehicles Taxation Act which provided that no motor vehicles should be used in any public place or kept for use in Rajasthan unless the owner thereof had paid in respect of it a tax at the appropriate rate specified in the Scheme to the Act within the time allowed was challenged on the ground that it constituted direct and immediate restriction on the movement of trade and commerce with and within Rajasthan in as much as the motor vehicles which carries passengers and goods within or through Rajasthan had to pay the tax which imposed a pecuniary burden on a commercial activity and was, therefore, hit by article 301 of the Constitution of India and was not saved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disadvantage than that borne by intra-State trade, commerce and intercourse. The primary object is to avoid barriers around the State borders. Fractionalisation of the country's trade, commerce and intercourse is to be avoided. A tax which is made condition precedent of the right to enter upon and carry on business is a restriction on the right to carry on trade and commerce within article 301 of the Constitution. It is in this light we must examine the impugned provisions. 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 of the Constitution. The taxes which do not directly or immediately restrict or interfere with trade, commerce and intercourse throughout the territory of India, would therefore be excluded from the ambit of article 301 of the Constitution. 70.. It has to be borne in mind that levy of tax like sales tax has only an indirect effect on trade and commerce. Reference may be made to the Constitution Bench judgment in Andhra Sugar Ltd. v. State of Andhra Pradesh [1968] 21 STC 212 (SC); [1968] 1 SCR 705; AIR 1968 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State of Maharashtra and supplied to any other States, no luxury tax is attracted because of sections 3B(2)(b) and (c). If it is supplied within the State of Maharashtra, i.e., by way of intra-State transactions, then the luxury tax is attracted because of section 3A. However, if it is supplied from Maharashtra to any other outside State, no luxury tax is attracted because of sections 3B(2)(b) and (c). Similarly, if the goods are supplied from outside Maharashtra to any other outside States directly, no luxury tax is attracted even if the goods happened to pass through the territory of Maharashtra because none of the provisions of the Act intervenes in such transactions. It is thus clear that the general rate applicable to the goods locally made and made on those imported from other States is the same. Therefore, one fails to understand as to how article 301 would get attracted and much less violated. At this juncture, it would be proper to refer to the observations made in N.K. Nataraja Mudaliar case [1968] 22 STC 376 (SC); [1968] 3 SCR 829 (at page 395 of STC; pages 850-51 of SCR), Mr. Justice Bachawat after referring to several cases observed as follows: "But, there can be no d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-flow of inter-State trade and commerce. The question as to when the levy of tax would constitute discrimination would depend upon a variety of factors including the rate of tax and the item of goods in respect of the sale of which it is levied. The scheme of items 7(a) and 7(b) of the Second Schedule to the State Act is that in the case of raw hides and skins which are purchased locally in the State, the levy of tax would be at the rate of 3 per cent at the point of last purchase in the State. When those locally purchased raw hides and skins are tanned and are sold locally as dressed hides and skins, no levy would be made on such sales as those hides and skins have already been subjected to local tax at the rate of 3 per cent when they were purchased in raw form. As against that, in the case of hides and skins which have been imported from other States in raw form and are thereafter tanned and then sold inside the State as dressed hides and skins, the levy of tax is at the rate of 1½ per cent at the point of first sale in the State of the dressed hides and skins. This levy cannot be considered to be discriminatory as it takes into account the higher price of dressed hides ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to levy of luxury of tax. To say that this last requirement infringes article 301 of the Constitution seems to us to be a proposition that cannot be supported. 76.. Let us now turn to the decisions referred to by the petitioner from two different High Courts, who did not sustain levy of luxury tax imposed by the respective States and held it to be violative of article 301 not saved by article 304(b) of the Constitution. With due respect, we have already indicated our dissent, as we could not persuade ourselves to accept the view taken by them. The first judgment cited was from Allahabad High Court in the case of Varshaney General Sales [2003] 130 STC 202; 1995 UPTC 105. In that case, the transfer by way of inter-State or consignment basis or by way of stock transfer under ordinance were subjected to levy of luxury tax on the total gross receipt irrespective of the fact whether the same has been sold in U.P. or sent to other State. In this view of the matter, the levy of luxury tax was held to be ultra vires article 301 of the Constitution. The second judgment cited was from Kerala High Court in the case of Hall Mark Tobacco Co. Ltd. [1998] 108 STC 539. The Kerala High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the movement of the goods in the course of inter-State trade and commerce, whatever form and shape it may assume at the point of levy or collection. ................. In the result, section 4A of the Kerala Tax on Luxuries Act, 1976 and Schedule thereto as amended by the Kerala Finance Bill, 1994 are declared unconstitutional, invalid and inoperative." 77.. Having examined the basis and mechanism to levy luxury tax adopted by the State of Uttar Pradesh and State of Andhra Pradesh in contrast to the impugned legislation, its provisions, basis and mechanism, we prima facie feel that the provisions of the impugned legislation are quite different than that of the two legislations which were subject-matter of judicial scrutiny in the judgments of the two High Courts referred to herein. None of the petitioners could satisfy us that the provisions involved in the present cases are similar and identical with that of two legislations with which both High Courts were dealing. In our view, these two judgments referred to herein are of no assistance to the petitioners. Apart from this, we are unable to subscribe ourselves to the view taken by two High Courts assuming the provisions which ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
