1994 (11) TMI 420 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the impugned Ordinance under the guise of luxury tax is imposing:
- (a) Tax on sale and purchase of tobacco.
- (b) Levy of excise duty.
- (c) Levy of tax on consignment.
2. Whether it is violative of Article 301 of the Constitution and not saved by Article 304(b) of the Constitution.
3. Whether it is in violation of Article 14 of the Constitution.
4. Whether the impugned Ordinance is void as it purports to legislate in respect of tobacco, the control of which has been taken over by Parliament by the passing of the Tobacco Boards Act, 1975.

Issue-wise Detailed Analysis:

1. Whether the impugned Ordinance under the guise of luxury tax is imposing:
(a) Tax on sale and purchase of tobacco:
- Argument: The impugned tax is claimed to be a tax on sale falling within the definition of "a tax on sale or purchase of goods" under Article 366(29A) of the Constitution, thus violating Section 15 of the Central Sales Tax Act, 1956, and Article 286(3) of the Constitution.
- Court's Finding: The impugned Ordinance is not "a tax on sale or purchase" of tobacco. The Ordinance is imposing a luxury tax on the supply of tobacco, not a sales tax. Hence, there is no violation of Section 15 of the Central Sales Tax Act, 1956, or Article 286(3) of the Constitution.

(b) Levy of excise duty:
- Argument: The impugned levy is claimed to be a levy of excise duty falling under Entry 84, List I, and thus ultra vires Articles 245 and 246 of the Constitution.
- Court's Finding: The impugned levy is not a levy of excise duty but a luxury tax on the supply of tobacco. Therefore, it does not fall under Entry 84, List I, and is not ultra vires Articles 245 and 246 of the Constitution.

(c) Levy of tax on consignment:
- Argument: The impugned levy is claimed to be a tax on consignment, which is exclusively within the competence of the Union under Entry 92-B, List I, read with Article 269(1)(h) of the Constitution.
- Court's Finding: The impugned levy is not a tax on consignment. The Ordinance imposes a luxury tax on the supply of tobacco, not on consignment transactions. Therefore, it does not fall under Entry 92-B, List I, and is not ultra vires.

2. Whether it is violative of Article 301 of the Constitution and not saved by Article 304(b) of the Constitution:
- Argument: The impugned levy impedes the freedom of trade, commerce, and intercourse, thus violating Article 301 of the Constitution. The levy has not obtained prior assent of the President under Article 304(b).
- Court's Finding: The impugned levy directly and immediately impedes the movement of tobacco, thus violating Article 301. The levy is not saved by Article 304(b) as there was no prior assent from the President. Therefore, the impugned Ordinance is ultra vires Article 301.

3. Whether it is in violation of Article 14 of the Constitution:
- Argument: The Ordinance is discriminatory in various aspects, such as differential treatment between different classes of tobacconists and arbitrary exclusion of certain types of tobacco from taxation.
- Court's Finding: The classification between different classes of tobacconists and the inclusion of certain types of tobacco while excluding others is arbitrary and discriminatory. Specifically, the exclusion of cigarettes priced at Rs. 5 or less per packet of ten while including khaini, which is sold at 25 paise to 50 paise per packet, is discriminatory and violates Article 14.

4. Whether the impugned Ordinance is void as it purports to legislate in respect of tobacco, the control of which has been taken over by Parliament by the passing of the Tobacco Boards Act, 1975:
- Argument: The Parliament has taken over the control of the tobacco industry through the Tobacco Boards Act, 1975, making the State Legislature incompetent to legislate on this matter.
- Court's Finding: The field of legislation for imposing luxury tax by the State is different from the control of the tobacco industry under the Tobacco Boards Act, 1975. The State Legislature is competent to impose luxury tax on tobacco. Therefore, the impugned Ordinance is not void on this ground.

Conclusion:
The impugned Ordinance is declared void and ultra vires due to its violation of Articles 14 and 301 of the Constitution. The writ petitions are allowed with costs.