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TMI Blog1998 (11) TMI 633X X X X Extracts X X X X X X X X Extracts X X X X ..... by M/s. Godfrey Philips India Limited and others and W.P. Nos. 1560 of 1997 and 25071 of 1996 are filed by M/s. Purandas Ranchoddas and Sons and others. The 1st respondent is the State of Andhra Pradesh and the 2nd respondent is the Union of India, the 3rd respondent is the Chairman, Central Board of Excise and Customs and the 4th respondent is the Commissioner of Commercial Taxes. By W.P. No. 16909 of 1996, the petitioner is challenging the levy of luxury tax on cigarettes and tobacco products at a rate of 5 per cent on manufacturers and importers of all forms of manufactured tobacco including cigarettes. Originally an ordinance was promulgated on August 1, 1996 amending the AR Tax on Luxuries Act, 1987 (State Act 24 of 1987). The said Ordinance later on became an Act (Act No. 28 of 1966). The petitioners in other writ petitions also challenged the validity of the Act No. 9 of 1997. 2.. The facts in brief are as follows: The was a meeting of the National Development Council in December, 1956 and in the said meeting, it was unanimously decided that sales tax levied, inter alia, on tobacco including manufactured tobacco should be replaced by a surcharge as Central excise duty le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y tax on sales of tobacco; that there is no distinction between the supply of luxury and sale of luxury as the supply of tobacco and sale of tobacco include transfer of goods, i.e., property in goods is transferred for consideration. In other words, there is transfer of ownership in goods for a consideration. Therefore, the incidence of tax is on; sale of tobacco products. If it is not a tax on sale of tobacco, there is no need to exempt a tobacconist whose turnover receipts are less than Rs. 2 lakhs under the 1st proviso and the tobacconist who sells tobacco products in small bunks and the consignment of sale and inter-State transactions under the 3rdproviso. The very fact that inter-State transaction of supply is exempted from the levy of tax is a pointer to indicate that, in pith and substance, the levy is on the sale of tobacco. Article 286 of the Constitution provides restriction as to imposition of tax on the sale or purchase of goods. It imposes a prohibition prohibiting the State from imposing a tax on the sale or purchase of the goods. Under sub-article (3) of article 286, the Parliament declared certain articles as articles of special importance, one of which is tobacco a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Karnataka is not competent to levy market fee in respect of tobacco under the Karnataka Agricultural Produce Marketing (Regulation) Act, 1966, because that directly clash with the Tobacco Board Act of 1975, and contended that since the Tobacco Board Act of 1975 has occupied the field, the State Government is not competent to levy luxury tax on tobacco as it would amount to encroaching upon the field occupied by the Parliament. 6.. While the learned Advocate-General contended that the impugned enactment is within the legislative competence of the State Legislature under entry 62 of the Constitution. It is not a tax on sale of tobacco, but it is a tax on supply of luxury, viz., tobacco. The Concise Oxford Dictionary meaning of supply is to provide or furnish and, therefore, it is a tax on supply of luxuries, viz., tobacco. The essential character of levy is a tax on supply of luxury, viz., tobacco. It is, only, as a matter of convenience that sale is adopted as a yardstick or measure for assessing the tax. The fact that the incidentally it takes the sale as a measure for the levy of tax does not change the essential character of levy. In support of his contentions, he relied on: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 Wheat 316 at p. 428 which were referred by the learned Judges in Atiabari's case AIR 1961 SC 232: "The power of taxing the people and their property is essential to the very existence of the Government, and may be legitimately exercised on the objects to which it is applicable to the utmost extent to which the Government may choose to carry it. The only security against the abuse of this power is found in the structure of the Government itself." The learned Advocate-General also relied on the following observations: "Therefore the true position appears to be that, though the power of levying tax is essential for the very existence of the Government, its exercise must inevitably be controlled by the constitutional provisions made in that behalf. It cannot be said that the power of taxation per se is outside the purview of any constitutional limitations." and contended that since the power of taxation is essential and a sovereign Government without it cannot function, it stands on a different footing from that of a regulation. Therefore, the fact that the Tobacco Board Act has occupied the field under entry 52 of List I does not take away the legitimate power of the State Leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ething 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. A 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 wellbeing 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 B well off. The use of tobacco has been found to have deleterious, effect upon health and a tax on tobacco has been recognized 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 been recognised to be an article of luxury and is harmful to health." 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with respect to any of the matters enumerated in the Federal Legislative List, i.e., List I in Seventh Schedule to the Act. Entry (45) in the List is as follows: "Duties of excise on tobacco and other goods manufactured or produced in India". The Government of India said that the tax imposed by section 3(1) of the impugned Act, in so far as it may fall on motor spirit and lubricants of Indian origin, is a duty of excise within entry (45) and therefore an intrusion upon a field of taxation reserved by the Act exclusively for the Federal Legislature". Repelling the said contention, Gwyer, C.J., held as follows: "The power to make laws with respect to duties of excise given by the Constitution Act to the Federal Legislature is to be construed as a power to impose duties of excise upon the manufacturer or producer of the excisable articles, or at least at the stage of, or in connection with, manufacture or production, and it extends no further. Thus the Central Legislature will have the power to impose duties on excisable articles before they become part of the general stock of the Province, that is to say, at the stage of manufacture or production, and the Provincial Legislature, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peaking the annual value is the fairest standard for measuring income and, in many cases, is indistinguishable from it, the tax levied by the impugned Act is in substance a tax on income and, therefore, beyond the legislative competence of the Provincial Legislature. 18.. The Federal Court referred to the following observations of the Lord Atkin in Gallahagher v. Lynn 1937 A.C. 863 at page 870, while construing the scope of the Punjab Act: 11, It is well-established that you are to took at the true nature and character of the legislation' Russell v. The Queen, 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 ct encroach upon the forbidden field." It was also observed that: "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xing power by making an artificial definition of words and expressions used in the legislative entries. Just as it cannot, by an artificial definition of "sale of goods", exercise a power to legislate in respect of a subjectmatter 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 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 state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levy of tax contemplated by the provisions of section 3 of the Act has nothing to do with the manufacture or production of tobacco and, as such, 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 944) observed as follows: "....... when excise was levied on a manufacturer at the point of the first sale by him 'that may be because the taxation authority imposing a duty of excise finds it convenient to impose that duty at the moment when the excisable article leaves the factory or workshop for the first time on the occasion of its sale. But the method of collecting the tax is an accident of administration; it is not of the essence of the duty of excise, which is attracted by the manufacture itself.It was further observed that: "................Therefore, subject always to the legislative competence of the taxing authority, the sail tax can be levied at a convenient stage so long as the character of the impost, that is, it is a duty on the manufacture or production, is not lost. The method of collection does not affect the essence of the duty, but only relates to the machinery of collection for administrative convenience." It was also held that: "While the levy is on the manufacture or production of goods, the stage of collection need not in point of time synchronize with the completion of the manufacturing process. While the levy in our country has the status of a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 is within the legislative competence of the Legislature in question, in substance and reality it covers field which is outside the legislative competence. 25.. Therefore, the proper approach is to look at the true nature and character of the legislation, the pith and substance of the legislation. If on the view of the statute as a whole, 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 same standard may be employed as a measure for levy of different taxes. It is the essential character of the particular tax charged that is to be regarded and the nature of the machinery 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. 26.. Further we have to look into the charging section of the statute because the identification of the subject-matter of the tax is only to be found in that section. We must look not to the mere form but to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnover of receipts of a tobacconist relating to the supply of luxuries, namely, tobacco products, specified in the Schedule by way of sale or otherwise, at the rate of tax and at the point of levy specified in the Schedule; Provided that a tobacconist whose turnover of receipts in a year is less than rupees two lakhs shall be exempt from tax; Provided further that a tobacconist who sells tobacco products in a small bunk shall be exempt from payment of tax on his turnover of receipts irrespective of the quantum of the turnover of receipts in a year; Provided also that no tax under this sub-section shall be payable on that part of the turnover of receipts which relates to: (i) the tobacco products which are supplied by way of consignment to another State, whether the consignment is to himself or to any other person and in support of such claim, the proprietor produces, on demand a certificate as may be prescribed; and (ii) the tobacco products which are supplied by way of sale in the course of inter-State trade or commerce or by way of sale in the course of export outside the territory of India and in support thereof the proprietor produces such proof of such sale or export ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provides for assessment of escaped or under-assessed tax. Section 9 deals with imposition of penalty in certain cases. Section 10 provides for payment of tax, penalty and other dues payable under the Act in instalments while section 10A provides for attachment of property and section 10B deals with the Rowers of the Deputy Commissioner. Section 11 provides for appeal. Section, 12 provides for revision and section 12A provides for appeal and revision. Section 13 provides for court fee on appeal and application for revision while section 14 provides for refund of tax. Section 15 deals with offences while section 16 deals with offences by companies. Section 17 deals with compounding of offences. Sections 18, 19 and 20 deal with maintenance of accounts and powers of inspection. Section 20B provides for inspection of goods while in transit. Section 29 confers power on the State Government to notify exemptions and reductions of tax or interest. Schedule appended to the Act reads as under: 30.. The Statement of Objects and Reasons appended to the Act declares that"The object of the original A.P. Tax on Luxuries Act, 1987 is to mobilise additional resources and to compensate the loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of luxury, it is not a "tax on sale". Further, the sale in section 3-A of the Act represents the measure for tax and it is open to the Legislature to specify the measure for assessing the levy. The Legislature thought fit that the price charged by the tobacconists on sale by himself should represent the measure. Therefore, the argument of the learned counsel for the petitioners that it is in effect a tax on sale cannot be countenanced. 33.. The relevant entry in List II of the Seventh Schedule of the Constitution reads as follows: "62. Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling." 34.. If thy tax levied under the charging section is on the supply of a luxury, it is within entry 62, of List II. Therefore, it is within the legislative competence of the State Legislature to impose a tax on luxury. The fact that the tobacco is a luxury as pointed out in the earlier paragraphs is judicially recognised. In our view the essential character of the levy is on the supply of luxury, viz., tobacco. In order to determine the essential character of the tax, we have to look to the charging section of the statute because identification of the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be the machinery for the recovery of tax. In imposing tax, the Legislature has a wide discretion. Therefore, since the Legislature has wide discretion in selecting the articles or commodities or persons for imposing a tax, in exercise of that power, it has exempted a tobacconist whose turnover-of receipts is less than rupees two lakhs and a tobacconist who sells tobacco products in a small bunk and the interState transactions. It is also well-settled that the power to impose taxes is one' so unlimited in force and so searching in extent, that the courts scarcely venture to declare that it is subject to any restriction whatever, except such as rest in the discretion of the authority which exercises it. Therefore, the fact that the tobacconist whose turnover of receipts is less than Rs. 2 lakhs and the tobacconist who sells the tobacco in a small bunk and the inter-State transactions are exempted from the provisions of the Act, does not in any way change or alter the essential character or nature of the tax. As pointed out in the earlier paragraph, the essential character of the levy in this case is on the supply of luxury, viz., tobacco products. 37.. Further there is a reason for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e all the relevant provisions of the legislation and ascertain the essential substance of it. By doing so, we cannot ignore the meaning and purpose behind other provisions of the Act. As pointed out in the earlier paragraph, it is for the Legislature to select the objects which are to be subjected to the tax and which are not subjected to the tax. If the intention of the Legislature is to exclude certain commodities from the purview of the tax, for valid reasons that does not alter the nature of the tax. 42.. The same reasoning is applicable to section 29 of the impugned legislation. It is true that it empowers the State Government by notification, exemption and reduction of tax or interest payable under the Act on sale or supply of tobacco. It is true that the expression sale is also used in the said section. It is also true that if the essential character of levy is on the supply of a luxury it is not necessary to use the expression "sale" in section 29 of the Act. The reason perhaps may be that the Legislature have incorporated the provisions of the Sales Tax Act in toto in the impugned legislation. Hence, the expression "sale" was also occurred in section 29. It is on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dges were of the view that the essential character of the levy is on despatches of tea and not taxes on lands and buildings which is within its legislative competence. The judgment, therefore, has no application to the present situation. 44.. The next question that arise for consideration is whether the impugned legislation is within the competence of the State Legislature in view of the occupation of the field by the Centre under entry 52 of List I of the Seventh Schedule of the Constitution? Entry 52 of List I of Seventh Schedule reads as follows: "Industries, the control of which by the Union is declared by Parliament by law to be expedient in the public interest". In exercise of the power conferred under articles 245 and 246 read with entry 52 of List I of Seventh Schedule of the Constitution the Parliament enacted the Tobacco Board Act of 1975. The object of the Tobacco Board Act is to regulate tobacco industry particularly virginia tobacco industry and for maintaining and improving exports and thereby augmenting the country's foreign exchange resources. In order to achieve that object the production of tobacco was to be planned carefully to suit the specified needs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viable was enhanced from time to time. The said levy was challenged. The matter went up to the Supreme Court. The argument of the petitioners was that since the field was occupied by the Parliament in enacting the Tobacco Board Act, the State Legislature is incompetent to levy the fee under the Karnataka Agricultural Produce Marketing (Regulation) Act, 1966. Justice Fazal Ali with whom Justice Varadarajan had agreed dissenting with Justice S.S. Mukharji held as follows: "..................When the Parliament took over the tobacco industry without any preconditions or permutations and combinations and established a Tobacco Board for regulating the sale and purchase of tobacco under entry 52 of List I the entire field of tobacco industry was fully occupied and nothing remained for the States to do, and thus neither the doctrine of entrenchment nor that of pith and substance would have any substance." ".............. The doctrine of occupied field has a great place in the interpretation as to whether or not a particular Legislature is competent to legislate on a particular entry. This means that when the field is completely occupied by List I, as in this case, then the State Legis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he committee. In other words, it has empowered the market committee to collect the fees for allowing the traders to auction the agricultural produce on the platforms of the market committees. This provision is exactly in conflict with section 14A of the Tobacco Board Act, 1975. Section 14A of the Tobacco Board Act provides for the levy of fee for the services rendered by the Board in relation to the sale or auction of tobacco on the platforms established by the Board under the Act. In other words, under the Tobacco Board Act, 1975, the tobacco is to be sold on a registered auction platform established by the Board and the Board is competent to levy fees on the auctioneers and the fees is to be collected both from the sellers as well as the purchasers. The market committee under the Karnataka Agricultural Produce Marketing (Regulation) Act is also empowered to collect fees from the sellers and purchasers who auction their agricultural produce on the market yards established by the market committees. Since the Parliament has already occupied the field empowering the Board to collect fees from the purchasers and sellers, it is a clear encroachment by the State of Karnataka on the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tailed examination of these enactments for discovering whether there is any overlapping." It was further held that: "When a question arises as to the precise head of legislative power under which a taxing statute has been passed, the subject for enquiry is what in truth and substance is the nature of the tax. No doubt, in a sense, but in a very remote sense it has relationship to mining as also to the mineral won from the mine under a contract by which royalty is payable on the quantity of mineral extracted. But that, does not stamp it as a tax on either the extraction of the mineral or on the mineral right. It is unnecessary for the purpose of this case to examine the question as to what exactly is a tax on mineral rights seeing that such a tax is not leviable by Parliament but only by the State and the sole limitation on the State's power to levy the tax is that it must not interfere with a law made by Parliament as regards mineral development. Our attention was not invited to the provision of any such law enacted by Parliament. In the context of sections 78 and 79 and the scheme of lose provisions it is clear that the land cess is in truth a 'tax on lands' within entry 49 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of Special Areas through Special Area Development Authorities......... Surely, the functions, powers and duties of municipalities do not become an occupied field by reason of the declaration contained in section 2 of the Mines and Minerals (Development and Regulation) Act, 1957. Though, therefore, on account of that declaration, the legislative field covered by entry 23, List H, may pass on to the Parliament by virtue of entry 54, List I, the competence of the State Government to enact laws for municipal administration will remain unaffected by that declaration." It was further observed that: "The reasonings adopted in this decision shows that it is not correct to say that the property, tax provided for in the Act of 1973 is beyond the legislative competence of the State Legislature; that tax has nothing to do with the development of mines. The power conferred by the State Legislature on Special Area Development Authorities to impose the property tax on lands and buildings is therefore not in conflict with the power conferred by the Coal Mines Nationalisation Act on the Union Government to regulate and develop the coal mines so as to ensure rational and scientific utilisati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conferred or service rendered to meet the expenses connected thereof. Thus, fees is nothing but payment for some special privilege granted or service rendered (Municipal Corporation of the City of Baroda v. Babubhai Himatlal AIR 1989 SC 2091). Therefore, the levy of fees stands oft a different footing than the tax. As pointed out in the earlier paragraph, the power to tax is a sovereign power and while dealing with the entry in the legislative List, it was held by the Supreme Court in Express Hotels Private Ltd. v. State of Gujarat [1989] 74 STC 157 (SC) at para 7; AIR 1989 SC 1949, para 6 as follows: "6. We are dealing with an entry in a legislative List. The entries should not be read in a narrow or pedantic sense but must be given their fullest meaning and the widest amplitude and be held to extend to all ancillary and subsidiary matters which can fairly and reasonably be said to be comprehended in them." 50.. In Ishwari khetan Sugar Mill's case AIR 1980 SC 1955, the question that arose for consideration is whether the State Legislature is competent to enact U.P. Sugar Undertakings (Acquisition) Act (23 of 1971) under which all die sugar undertakings set out in the Schedule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enactment and the field occupied by such enactment is the measure of erosion. (Emphasis* supplied by us). Subject to such erosion, on the remainder the State Legislature will have power to legislate in respect of declared industry without in any way 6renching upon the occupied field. State Legislature which is otherwise competent to deal with industry under entry 24, List II, can deal with that industry in exercise of other powers enabling it to legislate under different heads set out in Lists II and III and this power cannot be denied to the State". 55.. In other words when once Parliament occupied the field by enacting a legislation under entry 52 of List I the Legislative power of the State to legislate in respect of entry in List II does not automatically come to an end, it depends on the scope of the legislation and consequent control assumed by the Parliament. 56.. We have already analysed the provisions of the Tobacco Board Act, 1975 and the impugned legislation. Tobacco Board Act, as pointed out in the earlier paragraph, only deals with regulations of export and import of tobacco and maintenance of standards of tobacco for the purpose of export, while the impugned legi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made in that behalf. It cannot be said that the power of taxation per se is outside the purview of any constitutional limitations". 61.. It was further held that "it seems to us that article 301 read in its proper context and subject to the limitations prescribed by the other relevant articles in Part XIII, must be regarded as imposing a constitutional limitation on the legislative power. of Parliament and the Legislatures of the States. What entries in the legislative Lists will attract the provisions of article 301 is another matter; that will depend upon the content of the freedom guaranteed; but wherever it is held that article 301 applies, the legislative competence of the Legislature in question will have to be judged in the light of the relevant articles of Part XIII; this position appears to us to be inescapable". 62.. It was also held that, "At this stage we would content ourselves with the statement that the freedom of trade guaranteed by article 301 is freedom from all restrictions except those which are provided by the other articles in Part XIII ..............the effect of article 302 is to provide for an exception to the general rule prescribed by article 301. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the restrictions contemplated by article 301 and such measures need not comply with the requirements of the proviso to article 304(b) of the Constitution". It was also held that "for the tax to become a prohibited tax it has to be a direct tax the effect of which is to hinder the movement part of trade. So long as a tax remains compensatory or regulatory it cannot operate as a hindrance". 66.. In State of Madras v. N.K. Nataraja Mudaliar [1968] 22 STC 376 (SC); [1968] 3 SCR 829, the question that arose for consideration was that whether a part of the turnover of assessee's business in matches arose out of intraState sale transactions at the assessee's depot at Ongole (in the State of Andhra Pradesh) to which depot the goods were despatched by him from his place of business in the State of Madras. The Deputy Commercial Tax Officer subjected the turnover to tax. The assessee contended that the provisions of the Central Sales Tax Act which permitted levy of tax at varying rates in different States were invalid, and that 1he transactions brought to tax were not in truth inter-State transactions. In that context, the Supreme Court observed that "the flow of trade does not necessari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in Nataraja Mudaliar's case [1968] 22 STC 376; [1968] 3 SCR 829, and held that the different rates of tax in different States do not ipso facto violate article 301 of the Constitution as the flow of trade does not depend on the rates of sales tax and depends on variety of other factors which were enumerated in the said decision. 69.. Sri N.S. Murthy also contended that it was held in Abdul Khadir's case AIR 1976,SC 182, that the levy of tax on tobacco was to impede free-flow of trade and is violative of article 301, but in view of the sanction obtained from the President, the validity was upheld. It is true that in Abdul Khadir's case AIR 1976 SC 182, it was held that the levy of tax directly impedes the free-flow of trade and as such it is violative of article 301 of the Constitution of India. It is, therefore, necessary at this stage to find out the nature of levy in the said decision. Under rule 16 of the relevant Rules, "A" class licensees are entitled to purchase tobacco from any dealer within or without the State without any quantitative restriction. This class of licensees could sell only to other A class licensees or "B" class licensees. It was also mentioned in that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te can levy by virtue of entries in List II. Therefore, the arguments of the learned counsel for the petitioners are rejected. 74.. It is also argued by Sri Murthy that the levy of 50 paise in every rupee under Act 9 of 1997 on chewing tobacco preparations commonly known as khara masala, kimam, dokta, zarda, sukha and surti is arbitrary and violative of article 14 of the Constitution. While the learned Advocate-General argued that the object of the Act is not only to raise additional revenues, but is also to prevent the use of the tobacco products mentioned above as they are health hazards. If the price of the product is enhanced, automatically the use of the product will be reduced which results in achieving the object of protecting the public interest. 75.. We agree with the arguments of the learned Advocate-General that the levy of 50 paise in every rupee on the tobacco products mentioned above is not discriminatory and violative of article 14 as the object of the levy is to prevent the use of the product by the public in order to safeguard the public health as it is now well recognised by the courts that the use of the above products results in hazards of the health. We, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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