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TMI Blog1957 (9) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... were added: "(viii) raw tobacco (except country variety thereof), whether cured or uncured, shall be liable to tax under section 3, sub-section (1), only at the point of the first purchase effected in the State of Andhra by a dealer who is not exempt from taxation under section 3, sub-section (3), but at the rate of seven and a half pies for every rupee on his turnover. Explanation: For the purpose of this item, country variety of tobacco means variety of tobacco other than 'Virginia' and other similar varieties of tobacco." The constitutional validity of item (viii) is impugned on the ground that it is obnoxious to the doctrine of equal protection of laws enshrined in Article 14 of the Constitution of India. The State, the argument proceeds, by selecting Virginia tobacco from the other categories of tobacco and by imposing tax thereon has discriminated against dealers in that variety without any rational basis and without any reasonable relation to the object sought to be achieved, namely, the raising of revenue and, therefore, the said discrimination offends the provisions of Article 14 of the Constitution of India. To appreciate the argument advanced, it is necessary at the ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred or in the liabilities imposed. But these propositions conceived in the interests of the public, if logically stretched too far, may not achieve the high purpose behind them. In a society of unequal basic structure, it is well-nigh impossible to make laws suitable in their application to all the persons alike. So a reasonable classification is not only permitted but is necessary if society should progress. But such a classification cannot be arbitrary but must be based upon differences pertinent to the subject in respect of and the purposes for which it is made." To this, we will add the statement of Professor Willis that: "If any state of facts can reasonably be conceived to sustain a classification, the existence of the state of facts must be assumed and that one, who assails a classification, must carry the burden of showing that it does not rest upon any reasonable basis." It is also necessary to bear in mind the presumption of law laid down in Middleton v. Texas Power Light Company249 U.S. 152 at 157. that: "It must be presumed that a legislature understands and correctly appreciates the need of its own people, that its laws are directed to problems made manifest by expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia33 L.Ed. 892. the said law was sought to be impugned on the ground that it denied the tax payers equal protection of the laws. But the Supreme Court repelled the argument. In doing so they made the following observations: "The provision in the 14th Amendment that no State shall deny to any person within its jurisdiction the equal protection of the laws, was not intended to prevent a State from adjusting its system of taxation in all proper and reasonable ways. It may, if it chooses, exempt certain classes of property from any taxation at all such as churches, libraries and the property of charitable institutions. It may impose different specific taxes upon different trades and professions and may vary the rates of excise upon various products; it may tax real estate and personal property in a different manner; it may tax visible property only and not tax securities for payment of money; it may allow deductions for indebtedness, and not allow them. All such regulations and those of a like character, so long as they proceed within reasonable limits and general usage are within the discretion of the State Legislature or the people of the State in framing their Constitution. But cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t which that difference shall be emphasised by legislation are largely in the power of the State. The said principles are culled out from the decisions cited at the Bar. In Rolland C. Heisler v. Thomas Colliery Company67 L.Ed. 237. it was held that the differences between bituminous coal and anthracite form a just basis for their different classification under the tax laws, so that a tax may be laid upon one and not upon the other, without violating the equal protection of laws guaranteed by the 14th Amendment to the Federal Constitution. Adverting to an argument similar to that advanced before us. Mr. Justice McKenna made the following observations at page 242: "The fact of competition may be accepted. Both coals, being compositions of carbon are of course capable of combustion and may be used as fuels but under different conditions and manifestations and the difference determines a choice between them as fuels. By disregarding that difference and the greater ones which exist and by dwelling on competition alone, it is easy to erect an argument on the strength against the taxation of one and not of the other. But this may not be done. The differences between them are a just basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mendment does not require that the amount of taxes shall be mathematically equivalent in order to admit of exoneration from one form of taxation because of the imposition of another but if the evident intent and general operation of the tax legislation are to adjust the burden with a fair and reasonable degree of equality the constitutional requirement is satisfied. 2.. The boundary between what is permissible and what is forbidden by the constitutional requirement of equal protection of laws is incapable of exact delimitation. 3.. The equal protection clause of the fourteenth amendment does not preclude the States from resorting to classification for the purposes of legislation, so long as the classification is founded upon pertinent and real differences as distinguished from irrelevant and artificial ones." From the aforesaid statement of the principles, it is clear that the fundamental principle of classification is the same whether it relates to tax law or other laws but the approach is slightly different and greater latitude is given to a State, if the classification is made to adjust the burden on a fair and reasonable degree of equality. The same principles have been res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also found in the judgment of a Division Bench of the Madras High Court in Syed Mohammed Co. v. State of Madras.[1952] 3 S.T.C. 367; (1952) 2 M.L.J. 598. The well-settled principles culled out by the learned Judges from the decided cases may be grouped thus: 1.. The guarantee of equal protection of laws does not require that the same law should be made applicable to all persons or that the law should have the same operation on all persons. It prohibits only an application of different laws to persons who are in similar circumstances. 2.. The requirements as to equal protection of laws do not forbid legislative classifications, provided such classifications rest on some difference germane to the purpose of the statute. 3.. A classification cannot be upheld on purely fanciful grounds. 'We have no right to conjure up possible situations which might justify discrimination'. 4.. With reference to taxing statutes, the Legislature has considerable latitude in making classifications. 5.. Taxing statutes must also satisfy the test of equal protection and are liable to be struck down if they do not. 6.. There is a strong presumption in favour of the validity of legislative cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ination or, in the words of another learned Judge, the discriminations are not to be supported by mere fanciful conjecture. Subject to this caution, sufficient latitude is shown to States in the matter of classification. It is also well-settled that there is a strong presumption in favour of the validity of legislative classification and it is for the person whe seeks to question it, to allege and prove that the classification is obnoxious to the constitutional prohibition. The decided cases have gone to the length of holding that if any state of facts can reasonably be conceived to sustain a classification, the existence of that state of facts must be assumed. Briefly stated, whether it is a taxation law or any other law, it must satisfy the test of the equality clause. But, in the case of tax laws, presumably in view of their importance for the good administration of the country, a larger discretion is given to the State in the matter of classification. The presumption of constitutional validity raised by the courts and the burden of proof thrown on the citizen have given sufficient latitude to the State to adjust the burden of taxation on a fair and reasonable degree of equality ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other real differences between them. It is true that in the various counter-affidavits filed by the State, no further facts are brought out to sustain the classification. Learned counsel, therefore, is justified in contending that it is not the duty of the Court to make minute inspection of the field of possibilities to persuade itself somehow to sustain the tax at all events but must base its judgment on facts established in the case. Bearing in mind the said caution, we shall ascertain whether there are facts that can reasonably be conceived without pure speculation to sustain the classification. Learned counsel also relies upon the provisions of Madras Acts VIII of 1939 and IV of 1953 in support of his contention that there is no substantial difference between Virginia tobacco and Nattu tobacco for the purpose of taxation. This legislative practice, the argument proceeds, indicates that tobacco does not admit of any differential treatment on the basis of real differences. The mere fact that no such distinction was made for the purpose of those Acts, cannot affect the real existing differences, if any, sustaining separate treatment for the purpose of imposition of the new tax. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State pick out Virginia and leave out Nattu tobacco. We are told that the subsequent Act imposes a tax also on Nattu tobacco, though at a lower rate, for the purpose of revenue. Neither the preamble to the Amending Act, nor the provisions thereof elucidate this point. The legislative proceedings do not disclose the reason. The counter-affidavits filed by the Governmenment did not state the reasons for this discrimination. But the aforesaid differences between the two products, as disclosed in the aforesaid official publication, appear to us to be real and they can afford a reasonable basis for the State to classify them for the purpose of taxation. It is likely-we are not speculating but there is every justification for assuming-that the Legislature, having regard to the obvious differences between the two products, particularly from the point of view of prices and the class of consumers, thought that Virginia tobacco could bear the tax without detriment to the export trade, the business of the dealers and the class of consumers of that product, while any such imposition at the same rate would stifle the business in Nattu tobacco and ultimately affect the consumers of that product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cochin v. Shanmugha Vilas Cashew-nut Factory, Quilon[1953] S.C.J. 471; 4 S.T.C. 205.. Therein, Patanjali Sastri, C.J., elucidated the position clearly thus at page 475: "The phrase 'integrated activities' was used in the previous decision to denote that 'such a sale' (i.e., a sale which occasions the export) 'cannot be dissociated from the export without which it cannot be effectuated, and the sale and the resultant export form parts of a single transaction'. It is in that sense that the two activities-the sale and the export-were said to be integrated. A purchase for the purpose of export like production or manufacture for export, is only an act preparatory to export and cannot, in our opinion, be regarded as an act done 'in the course of the export of the goods out of the territory of India', any more than the other two activities can be so regarded. As pointed out by a recent writer, 'From the legal point of view it is essential to distinguish the contract of sale which has as its object the exportation of goods from this country from other contracts of sale relating to the same goods, but not being the direct and immediate cause for the shipment of the goods.......When a mercha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcial Taxes, Anantapur v. Nagendrappa[1956] 7 S.T.C. 568; 1956 A.L.T. 863., that a purchase for the purpose of export is only an act preparatory to export and not an act done in the course of the export of goods out of the territory of India, and, therefore, a levy of tax under rules 4(2)(d) and 16(2) does not contravene Article 286(1)(b) of the Constitution. The question has been finally set at rest by the three decisions of the Supreme Court and it is not open to the petitioners to attempt to reopen the same before us. It is then argued that though the Act purports to impose tax on the purchase of goods within the Andhra State it is a fraud on power, for, indirectly, it operates as a burden on export trade. The same argument was advanced in a slightly different form in State of Travancore-Cochin v. Shanmugha Vilas Cashew-nut Factory[1953] 4 S.T.C. 205. and was rejected by the Supreme Court at page 213 in the following words: "Nor is it correct to say that it is necessary to extend the exemption to these transactions to avoid double taxation. It is true that in the previous decision it was indicated that the object underlying the exemption was the avoidance of double taxation on t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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