TMI Blog1994 (11) TMI 420X X X X Extracts X X X X X X X X Extracts X X X X ..... allenged 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 During the hearing of this case the impugned Ordinance was repealed and substituted by the U.P. Tax on Luxuries (Second) Ordinance, 1994 (Ordinance No. 22 of 1994) retrospectively with effect from 1st June, 1994 which is almost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 continuing. Thus even those petitioners on whom there is no liability of tax by virtue of this, still maintain their ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 aforesaid "pan masala" tobacco priced at Rs. 150 or less per kg. have been exempted from tax from September 25, 1994. Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 approximately Rs. 30. They export 96 per cent of the total turnover outside the State of U.P. and primarily for consumption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 could be levied on tobacco by the State, hence imposition under the guise of luxury tax is a colourable piece of legislation amounting to fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds.-(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 of inter-State trade or commerce." Entry 54, List II was amended to take into account the insertion of entry 92-A in List I, and read as under: "54. Taxes on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 after the 1st April, 1958 do not participate in the distribution of the net proceeds. Provision is also being made in the Bill for including these three goods to be of special importance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct 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 I and II of the said 1957 Act). The argument is that if any State levied and collected a tax on the sale and purchase of tobacco by or under any law of that State the amount of additional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 distributed among the States on the basis of consumption. The Second Finance Commission after studying the revenue earned by the various States from the various taxes levied on goods of special imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 infringement of the consensus achieved in 1956; (iii) The imposition of such levies changes the final price of these products from State to State and thereby segments the Indian common market. In view of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the time of or before the delivery thereof and the price if charged separately, of any primary or secondary packing, other than the cost of freight or delivery or the amount realised as luxury tax when such cost or amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and restrictions as it may impose, exempt from levy of tax any class of tobacconists. ...................... 6.. Registration.-(1) Every tobacconist liable to pay tax under this Ordinance shall, within one month from the date on which he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, indicates that there is no nexus of the impugned tax co-relating with luxury, but it co-relates with the sale, with the manufacturer or consignment transactions in the course of business and trade. Even if it pertains to transaction of luxury goods, cannot be construed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents. 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 any matter enumerated in List I. By clause (3) State Legislature is given power to legislate exclusively in respect of any matter enumerated in List II but subject to power of Parliament as given in List I and List III under clauses (1) and (2). In the Concurrent List ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Provincial Legislature, we must try to ascertain the pith and substance or the true nature and character of the conflicting provisions, and (2) that, before an Act is declared ultra vires, there should be an attempt to reconcile the two conflicting jurisdictions, and, only if such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 under the levy must bear a relationship to the nature of the levy. In the case before us, however we find that the nexus with the tea estate is lost altogether in the provisions for exemption or reduction of the levy and that throughout the nexus is confined to despatches of tea rather than rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 certainly a legislation on 'taxing of agricultural income' as described in entry 46, List II of the Seventh Schedule...... it purports to increase the existing rates of agricultural income-tax, the highest rate being fixed at 12 annas 6 pies in the rupee. This may be unjust or inequitable, but that does no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions 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 p. 50: 'The headings prefixed to sections or sets of sections in some modern statutes are regarded as preambles to those sections. They cannot control the plain words of the statute but they may explain ambiguous words.' If there is any doubt in the interpretation of the words in the section, the heading certainly helps us to resolve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 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. State Industrial and Investment Corporation of Maharashtra Ltd. (1993) 2 SCC 144. Supreme Court in unequivocal words held, marginal notes appended to a section cannot be used for construing a section. In view of this we proceed to examine the statute without taking aid of the marginal notes. 43.. Now coming back to the impugned Ordinance, section 3 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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, viz., first supply in the chain of supply of tobacco. Both the provisos indicate that fixation of liability co-relates, in the first proviso to the receipt of tobacco and in the second proviso to the supply of tobacco. Section 2(d) defines the "place of business" refers it to a place which tobacconist uses for the supply of tobacco. Similarly, section 2(e) the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 tobacco. Similarly, the definition of tobacconist includes a manufacturer. But it is significant that incidence of tax is at point when such manufacturer makes supply of tobacco by way of sale or otherwise. This also clearly indicates that incidence of tax is not at the stage of manufacture but at a latter stage, viz., when the supply of tobacco is made. Only by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me 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 contention is that in that case though the court held the levy has no co-relation with the production or manufacture, it only means in case it is on manufacture it would be excise duty. It is urged in the present case "tobacconist " includes even a manufacturer. Hence, on the parity of reasoning the present impugned levy be held as an excise duty. The Supreme Court in this cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 well-off. 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. 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 in case of an article like tobacco, which has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 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 article 366 by the introduction of "(29A)" in it. 53.. In the present case, the definition of "tobacco" is not to be found in any legislative entry. This apart, it is always open to a Legislature to give an artificial meaning to a word, of course that has to be within its competence in relation to the field of legislation. Once it could be found that meaning given is within its competence then not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 tax-A tax on commodities or service that are considered to be luxuries rather than necessities. Modern examples are taxes levied on the purchase of jewellery, perfume and tobacco." In Webster's Comprehensive Dictionary, International Edition, the word "luxury" is defined: "Luxury 1. A free indulgence in the pleasures that gratify the senses. 2. Anything that ministers to comfort or pleasure that is ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 was intended to be that an excisable commodity is subject to the legislation of the Centre in respect of all taxes on or connected with its production, manufacture, etc., etc., but when such commodity enters the precincts of a Province and a tax has to be imposed on its sale within the Province for purposes of consumption therein and the tax is in no way connected with its production, etc., but it is imposed with respect to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 stockist and vendors both wholesalers and retailers were held to be valid. It was only struck down for non-compliance of article 304(b). In the case of vendors and stockists, if the above principle is applied there is no element of enjoyment but in effect they are also trader trading by stocking and vending the tobacco. 62.. Similarly, State of West Bengal v. Anal Chowdhury 1984 Tax LR 2512, is a case where luxury tax imposed on the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 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 its folds the giver producers going down till the stage of consumption. If a producer or trader deals in luxury goods, earns profit on luxury goods, if taxation are made on it then such taxation would not be beyond legislative competence even if consumed outside the State. The petitioners' contention restricts the meaning of the words "taxes on luxuries" by limiting taxes only if consumed or enjoyed within the territory of this State. If tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 could be on those who provided it." 67.. In view of all these we hold State Legislature was competent to impose luxury tax on tobacco under entry 62, List II of the Seventh Schedule. 68.. Accordingly, we hold that the impugned Ordinance is a tax on luxuries, not a tax on sale, manufacture or on transaction of consignment, hence ground No. (A) with all its sub-grounds is held as against the petitioners. 69.. Before taking up ground No. (B) at the out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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). The argument is, the impugned levy impedes the freedom of trade, commerce and intercourse, hence is violative of article 301 of the Constitution and the same having not obtained prior assent of the President under article 304(b) is ultra vires. The petitioners deal in tobacco both within and outside the State by exporting out and importing into the State. Tobacco is a declared commodity of special importance by Parliament under section 14 of 1956 Act and to bring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the movement part of the trade that it has in mind and the movement or the transport part of trade must be free subject of course to the limitations and exceptions provided by the other articles of Part XIII. That we think is the result of article 301 read with the other articles in Part XIII.... Thus the intrinsic evidence furnished by some of the articles of Part XIII shows that taxing laws are not excluded from the operation of article 301, which means that tax laws can an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of Part XIII, the following propositions emerge: (1) trade, commerce and intercourse throughout the territory of India are not absolutely free, but are subject to certain powers of legislation by Parliament or the Legislature of a State; (2) the freedom declared by article 301 does not mean freedom from taxation simpliciter, but does mean freedom from taxation which has the effect of directly impeding the free-flow of trade, commerce and intercourse; (3) the freedom envisaged in arti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperty 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 shows that the State has the exclusive right or privilege of manufacture or sale of liquor. Trade in liquor has historically stood on a different footing from other trades. Restrictions which are not permissible in other trades are lawful and reasonable so far as the trade in liquor is concerned. That is why even prohibition of the trade in liquor is not only permissible but is also reasonable. The reasons are public morality, public interest and harmful and dangerous character of the liqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 general demoralising effect on his dependents. This is not attributable in the case of tobacco. Merely it is injurious to health would not per se constitute a ground for prohibiting trade pertaining to tobacco or declaring a citizen has no right to trade in it. Thus there cannot be any parity between this and liquor. To the same effect gambling or adulterated food cannot be equated with tobacco. Of course, trade in gambling and adulterated food not only defaces social fibre but in no orderly society it cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chased 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 be deemed to have been obstructed merely because in a particular State the rate of tax on sales is higher than the rates prevailing in other States. .................. "........The rate which a State Legislature imposes in respect of inter-State transactions in a particular commodity must depend upon a variety of factors. A State may be led to impose a high rate of tax on a commodity either when it is not consumed at all within the State or if it feels that the burden which is falling on consumers within the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 borne in mind that article 301 enjoins that trade, commerce and intercourse throughout the territory of India shall be free. The first question, therefore, which one has to examine in this case is, whether the sales tax provisions (exemption etc.) in these cases directly and immediately restrict the free flow of trade and commerce within the meaning of article 301 of the Constitution. We have examined the scheme of article 301 of the Constitution read with article 304 and the observations made by this Court in Atiabari's case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 right overflows. If obligations dry up, the rights dry up. Wealth of a nation is gauged by the degree of obligations by individuals, social organs, Government and Constitutional functionaries. When one has to claim a right, it is that right which is obstructed, what otherwise belongs to him. Right may be branded, as inherent right, human right, social right, legal or constitutional right, etc. These rights are protected by protectors, given to one entitled. In contributing towards social, economical and political justice a consentious cit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcise 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, effect of it on trade of a particular goods, effect of industrial development of that goods these all have to be weighed as against collection of revenue. 83.. Now, adverting to the facts, we find in paragraph 14 of the rejoinder affidavit in Civil Misc. Writ Petition No. 628(T) of 1994 while denying the averments made in the counter-affidavit it is averred under Standards of Weights and Measurement Package Rules, 1976, the petitioner has to declare and print the maximum retail sale price of the commodity on the package. This price is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 increases the price of this commodity affecting the trade, were taken in the main petition. The petitioners have averred by illustration that the price of pan masala is Rs. 100 the petitioners have to pay Rs. 50 as Central excise duty and sales tax of Rs. 10 including surcharge on that the luxury tax would be payable at which may be up to 25 per cent. In paragraph 21 this averment made by one of the petitioners in Writ Petition No. 628(T) of 1994 is when the petitioners transfer by way of inter-State sale or on consignment basis or by way of stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 Rs. 5 or less per packet of ten and biris has been excluded from the definition though pan masala, which are also priced at Rs. 1.50 to Rs. 2 per pouch is admittedly less than Rs. 5 has not been exempted which clearly exposes differential treatment by the State, which is not based on any intelligible differentia. C. Similarly, khaini which is consumed by poorest of poor being sold for 25 to 50 paise per packet is included in the definition of tobacco but cigarettes priced at Rs. 5 or less per packet often and biris being excluded. Both, such cig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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); [1963] 1 SCR 404, in deciding whether the taxation law is discriminatory or not it is necessary to bear in mind that the State has a wide discretion in selecting persons or objects it will tax, and that a statute is not open to attack on the ground that it taxes some person or objects and not others; it is only when within the range of its selection, the law operates unequally, and that cannot be justified on the basis of any valid classification, that it would be violative of article 14. It is well-settled that a State does not have to tax everything in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 arbitrariness' in the context of the felt needs of the times and societal exigencies informed by experience to determine reasonableness of the classification. For this, it is first necessary to discern the true purpose or object of the impugned enactment because it is only with reference to the true object of the enactment that the existence of a rational nexus of the differentia on which the classification is based, with the object sought to be achieved by the enactment, can be examined to test the validity of the classification." "The scope for permissible classificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ine. 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 manufacturer to get his goods manufactured from SSI units without brand name and then affix the brand name himself without having to pay duty......." This was a case pertaining to tax on manufacture in which exemption notification denying exemption to goods manufactured by small-scale manufacturers bearing brand name of large scale manufacturer, was held unconstitutional. It was held that amending notification did not justify since it was open to a large scale manufacturer to get his goods manufactured from small-scale industrial units without brand name and then affix the brand name h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld 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 there be no reasonable criteria with the object sought to be achieved, it would be arbitrary, unreasonable and would amount to dissimilar treatment of similarly placed person or goods hence violative of article 14 of the Constitution. 93.. With these principles let us examine the various subgrounds raised by the petitioner. Sub-ground A: We find "tobacconist" is defined to include a manufacturer whose turnover of receipt in a year exceeds Rs. 1 lakh. By proviso to section 3 the taxable turnover of receipt has been increased to Rs. 2 lakhs in cases of a tobacconist who is not a manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 manufacture. But this would not be applicable where luxury tax is imposed. The same goods while being sold without a brand name will have different value or field of marketability than if it is with a branded name. Every brand name has a goodwill, which creates its own field depending upon the degree of goodwill. The very commodity in a commercial field is saleable at different value one under a branded name and other without it. Thus we find the classification between branded and unbranded unmanufactured tobacco falls under clear two categories for the purposes of luxury tax. But befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 principles of exclusion or inclusion are to be applied. The test could only be one of palpable arbitrariness applied in the context of the felt needs of the times and societal exigencies informed by experience. Classifications based on differences in the value of articles or the economic superiority of the persons of incidence are well recognised. A reasonable classification is one which includes all who are similarly situated and none who are not. In order to ascertain whether persons are similarly placed, one must look beyond the classification and to the purposes of the law." 97.. Thus, ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 from its ambit cigarettes of Rs. 5 or less per packet of ten, but including khaini (another form of tobacco) which is being sold at 25 paise to 50 paise per packet is discriminatory and is violative of article 14. 98.. It is not possible for the court to either add something or delete something from the definition clause to make it valid. This would amount to legislation to which this Court has no power. Hence we have no option but to hold this provision violative of article 14 of the Constitution. 99.. The last argument pertains to Ground No. D was formally pressed only by the petitioners in Wri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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