1969 (7) TMI 110 - SC - Central Excise

The argument that all taxes should be governed by Art. 301 whether or not their impact on trade is immediate or mediate, direct or remote, adopts,cannot be upheld.

Issues Involved:
1. Repeal of Cochin Tobacco Act by Finance Act, 1960.
2. Validity of Kerala Act 9 of 1964 under Articles 301 and 304 of the Constitution.
3. Classification of the levy as a luxury tax or a duty of excise.
4. Competence of the State Legislature to enact the impugned Act.
5. Refund of the licence fee collected under the repealed Act.

Issue-wise Detailed Analysis:

1. Repeal of Cochin Tobacco Act by Finance Act, 1960:
The respondents, dealers in tobacco, contended that the Cochin Tobacco Act stood repealed by the Finance Act, 1960 due to the extension of the Central Excise and Salt Act, 1944 to Travancore-Cochin. Consequently, the rules framed under the Cochin and Travancore Acts for issuing licenses and collecting fees were invalid ab initio. The Supreme Court previously held that the rules requiring licenses for storage and sale of tobacco were superseded on April 1, 1960, by virtue of Section 13(2) of the Finance Act, 1960, rendering the new rules framed in August 1950 and January 1951 invalid.

2. Validity of Kerala Act 9 of 1964 under Articles 301 and 304 of the Constitution:
The Kerala High Court held that the Kerala Act 9 of 1964 was ultra vires the Constitution, as it violated the guarantee contained in Articles 301 and 304. The High Court followed the decision in Kalyani Stores v. The State of Orissa, concluding that in the absence of tobacco production within Kerala, the state could not impose a tax on imported tobacco, thus violating Article 301. However, the Supreme Court clarified that the High Court misinterpreted the Kalyani Stores case. The imposition of a tax does not per se infringe Article 301 unless it directly and immediately restricts the free flow of trade. The High Court needed to determine whether the provisions of Act 9 of 1964 and the notification dated January 25, 1951, constituted such restrictions.

3. Classification of the levy as a luxury tax or a duty of excise:
The respondents argued that the license fee was essentially a duty of excise, which falls under the Union List, and thus beyond the competence of the State Legislature. The High Court dismissed the writ petition initially, holding that the tax levied was a luxury tax under entry 62 of the State List, not a duty of excise. The Supreme Court allowed the parties to argue this matter upon re-hearing in the High Court.

4. Competence of the State Legislature to enact the impugned Act:
The respondents claimed that the State Legislature lacked the power to levy and collect the license fee under the impugned Act, as it was essentially a duty of excise. The appellant contended that the legislation fell under Entry 62 of List II, making it within the competence of the State Legislature. The Supreme Court remitted this issue for further arguments and determination by the High Court.

5. Refund of the license fee collected under the repealed Act:
Following the Supreme Court's earlier decision, the respondents sought a refund of Rs. 1,11,750 collected as a license fee. The appellant refunded Rs. 73,500 but retained the balance. After the enactment of Act 9 of 1964, the appellant demanded the refund amount back, leading to the respondents filing a writ petition, which the High Court allowed, declaring the Act and rules ultra vires. The Supreme Court directed the High Court to re-examine the issue in light of the law laid down in this judgment.

Conclusion:
The Supreme Court allowed the appeal, setting aside the Kerala High Court's judgment and remitting the case for re-hearing. The High Court was instructed to give parties an opportunity to file further affidavits and determine whether the provisions of Act 9 of 1964 and the notification dated January 25, 1951, directly and immediately restricted the free flow of trade, commerce, and intercourse under Article 301. The issue of whether the levy constituted a luxury tax or a duty of excise and the competence of the State Legislature to enact the impugned Act were also to be reconsidered.

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