9911796707
TMI Blog1995 (11) TMI 430X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2.. For the sake of brevity, applicant No. 1 will be referred to as "company". It is actually a company under the Companies Act, 1956, which carries on the business of distribution and sale of cigarettes. Applicant No. 2 is a share-holder of the company and is an Indian citizen. The case of the applicants is that the Luxury Tax Act enacted by the State Legislature levies a luxury tax on tobacco products at a rate not exceeding 20 per cent on manufacturers and importers of cigarettes and certain other tobacco products. The provisions are allegedly violative of articles 301, 304, 286, 265, 269, 245, 246, 19(1)(g) and 14 of the Constitution of India and ultra vires the Central Sales Tax Act, 1956 (hereinafter mentioned as "the 1956 Act"). The luxury tax is alleged to be nothing but a sales tax and hence it is in contravention of the legislative scheme for taxation of tobacco (vide paragraph 4 of the application). 3.. According to the applicants, the legislative history of taxation of tobacco indicates that having regard to the importance of tobacco in inter-State trade and commerce and the fact that it was subjected to an unduly high level of taxation by the Centre, the States an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that it receives orders from main dealers in West Bengal and purchases cigarettes from VST Industries Ltd., by taking delivery at the factory gate at Hyderabad or at the factory gate of NTC Ltd., at Agarpara in West Bengal, as the case may be. Such sales are allegedly at arms' length and on a principal to principal basis, price being the sole consideration of sale. Then the company transports the stocks to its godowns at Siliguri, Boinchee and Calcutta in West Bengal, from where the goods are sold to 68 main dealers in West Bengal and other main dealers in neighbouring States. The main dealers sell the stocks to 4,245 secondary wholesalers, who sell the same to approximately 80,000 retailers throughout the State, from whom direct customers purchase cigarettes. Neither the company nor VST Industries Ltd., of which the company is a subsidiary owned by VST Industries Ltd., has a factory in West Bengal. 5.. The further case of the applicants is that upon a combined reading of relevant provisions of the Constitution of India and 1956 Act and 1957 Act, the position which emerges is that all forms of manufactured tobacco including cigarettes are declared by Parliament to be goods of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "turnover of stock of luxuries" and "value" thereof as given in section 2(h), (l) and (m) respectively. By referring to the definition of "stockist" in section 2(i), it is contended that the luxury tax has a direct nexus with sale or purchase of "luxuries". The imposition of luxury tax is termed as arbitrary, unenforceable and unconstitutional, because the measure of tax is based, in violation of the settled principle of fiscal law to the contrary, on allegedly vague and indifferent expressions like ex-factory price or invoice price-(vide paragraphs 22 and 23). 7.. The applicants have put forward alternative cases to the effect that the impugned luxury tax is, in pith and substance, excise duty in disguise, or a tax on inter-State sales or purchases or consignments of goods. It is alleged that in the case of a manufacturer-stockist, the stock comes into being in his hands after the activity of manufacture is complete. Hence, the luxury tax is said to be a tax on manufactured goods or directly on manufacture. In support of this contention, reference is made to sections 6 and 7 of the Luxury Tax Act. The legislative power to levy excise duty being within the exclusive domain of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es" and is levied simply on the existence of stock. Hence, it is really not a tax on "luxuries" within entry 62 of List II. It is claimed that as a result of the Luxury Tax Act, importation into and sales of cigarettes in West Bengal by applicants have suffered a serious setback to the extent of a fall from 360 million to 85 million per month on an average. The company's total turnover has fallen from Rs. 16.5 crores to Rs. 3.4 crores per month. The validity of similar taxes introduced in the States of Maharashtra and Kerala has been challenged in the respective High Courts which granted conditional stay. The present application, it is stated, was initially filed on May 18, 1994 in the High Court at Calcutta as a writ petition under article 226 of the Constitution, but was subsequently withdrawn and filed in this Tribunal on the basis of the order of the Supreme Court of India suspending the judgment of the High Court in the case of Kesoram Industries Ltd., reported in AIR 1993 Cal 78, and also suspending operation of all similar orders of the High Court in all proceedings. 8.. Respondent No. 2, Union of India, has not entered appearance. Respondent Nos. 1 and 3 have resisted the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of the clauses of article 366(29A). Although tobacco has been so declared under 1956 Act, the restriction is no absolute bar to impose tax on sale or purchase, and, in any event, Luxury Tax Act does not provide for a tax on sale or purchase of tobacco, and hence the restriction of article 286 does not affect or limit the State's power to levy luxury tax. 9.. The further case of contesting respondents is that there was no necessity of obtaining previous sanction of the President of India for the impugned enactment, because levy of luxury tax in no way restricts the freeflow of trade, commerce and intercourse, and it does not amount to a direct or immediate impediment to the free-flow of tobacco products. Entry 62, List II of the Seventh Schedule is the relevant entry for the purpose of this dispute, and the rest are irrelevant. Similarly, according to respondents, reference to provisions of 1956 Act is of no significance. From the objects and reasons of 1957 Act it is allegedly clear that the additional duties of excise is levied in replacement of sales taxes leviable by the States on tobacco products and some other articles. Under the Luxury Tax Act, the incidence of the levy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax is a tax on inter-State consignment or inter-State sale or purchase within the meaning of entries 92A and 92B of List I and article 269 of the Constitution and 1956 Act. The luxury tax is imposed after termination of movement of goods from one State to another. It is clearly an impost on the holding of stock, and the State Legislature is well within its competence under entry 62 of List II to levy it. The expression -"sale in the course of inter-State trade or commerce"-has a definite legal connotation, and its meaning cannot be stretched to any event which takes place subsequent to termination of movement of goods from one State to another. Entries 92A and 92B of List I do not have any application, once the inter-State sale, purchase or consignment of goods from one State to another comes to an end. It is contended that where the field of legislation is reserved to a State Legislature under the State List in the Constitution, it is free to enact law within its competence, whether or not the neighbouring States enact similar laws imposing similar tax. If this encourages smuggling of tobacco items into the taxing States, the same can be dealt with under appropriate law. It is den ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds the luxury tax laws of the States of Maharashtra and Kerala, and the interim orders passed by the High Courts of those States, respondents have submitted that the provisions of the enactments have not been set out and, in any case, the interim orders of the High Courts are not relevant. When the applicants filed the writ petition earlier before the Calcutta High Court, no stay of operation of Luxury Tax Act was granted by the High Court, and thereafter applicants did not press the writ petition for hearing and hence the said writ petition stood disposed of without entering into the merits of the matter. 11.. Applicants have used an affidavit-in-reply. They have reiterated their contentions in the main application. According to applicants, the contents of the letter of the Union Finance Minister dated 4th May, 1957 addressed to the Chief Minister of West Bengal have been misinterpreted. According to them, the correct interpretation will be that the principle of distribution of additional excise duty would be related to complete exemption from sales tax or purchase tax or any other impost by whatever name called, on certain commodities including tobacco. Hence, the State cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be noted, however, that a licence is required to be taken when a stockist is liable to pay luxury tax, namely, when a stockist holds a stock of luxuries. Section 7 requires a licensed stockist to furnish returns of turnover of stock of luxuries and to pay luxury tax. Section 8 relates to interest on luxury tax not paid within due time. Section 9 provides for assessment, penalty and determination of interest. Section 2 gives a few definitions. Clause (c) defines "luxuries" as commodities, specified in the Schedule, for enjoyment over and above the necessaries of life. The Schedule to the Luxury Tax Act mentions cheroots, cigarettes, cigar, pan masala of various forms and descriptions and smoking mixtures for pipes and cigarettes. "Stock of luxuries" has been defined in clause (h) as quantity of luxuries that a stockist receives in, or procures for, his stock, or records or accounts for in his books of account, in West Bengal for stocking, vending, supplying or distributing to a wholesaler, dealer, retailer, distributor or any other person, but shall not include any quantity of such luxuries held by him for stock on the first day of the relevant prescribed period. According to claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or defend someoneelse's rights under article 226. However, assuming that applicant-company has an indirect locus standi to challenge the luxury tax from a manufacturer's point of view, I am proceeding to examine the contention of applicants. It is true that if the luxury tax is a tax on manufacture, it will be beyond the State's legislative competence, because the excise duty under the Central Act of 1944 is exclusively within the competence of the Union. But, is the luxury tax a tax on manufacture, or is it tantamount to Central excise duty? The following extract from page 12 of the applicants' "written submissions" will disclose their contention: "Once the tobacco products, say cigarettes, are manufactured, they immediately become stocks in the hands of the manufacturer without his having to do anything further. Thus, the possession of such products is inseparable and indistinct from the manufacture of the products. In such a situation, when the tax is levied on stocks which emerges from the process of manufacture of the product, it is directly and immediately connected with manufacture and is, therefore, a duty of excise." By referring to the two cases of A.B. Abdulkadir AIR 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on stocking of both imported and locally manufactured items of goods and is only related to stocking. It is not linked with manufacture or processing. He further pointed out that under section 5(a) of the Luxury Tax Act no tax is leviable on stocks (whether imported or locally manufactured) "despatched to places outside West Bengal", and thereby even all the stocks of locally manufactured luxury items are not brought under the net of tax. Having considered the rival contentions of the parties on this question, I am of the opinion that the luxury tax is neither on manufacture or processing, nor in any way linked or connected therewith. It is solely related to stocking of luxury items within West Bengal, excluding the stocks despatched outside the State. Clearly, stocking is a state which is subsequent to and distinct from manufacture or importation, and it comes into being after manufacture or importation comes to an end. There is no scope for treating the state of stocking as equivalent to manufacture or importation. That being the true position, it is not an excise duty, nor is it in the nature thereof. On behalf of respondents reliance was rightly placed on AIR 1976 SC 182 (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufacturer the value of such luxuries calculated at the ex-factory price at the time of receipt or entry thereof in his stock and in the case of a stockist being an importer on the value of such luxuries calculated at the price thereof as per the consignor's bill, invoice or consignment note or other documents of like nature................... 'Price' has not been defined in the Act. Nor is there any provision in the impugned Act prescribing the method for determining the price. In the absence of any such definition or provision, 'price' is to be construed in the light of the definition of 'price' given under the Sale of Goods Act, 1930. Section 2(10) of the Sale of Goods Act defines 'price' to mean the money consideration for a sale of goods. The consideration for the sale of goods can only be contemplated when there is either an agreement of sale or such agreement to sell becomes a sale on the fulfilment of conditions of the agreement of sale (section 4 of the Sale of Goods Act). In other words, there cannot be any price until and unless there is a sale of goods. Therefore, the concept of price on which the liability under the Act is fixed is inextricably linked up with the transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re simply acting as agents for the sale there was no need at all to fix the price in the contract........The important point is that if the contract was one of agency, there was no need to mention the price at all as between the plaintiff and the defendants.' (see paragraph 5, pages 183-184 of the Report). It is, therefore, clear that where goods are despatched by a principal to his agent, a price does not come into existence. In the case of stock transfer, there is not even an agent involved, for, the goods are despatched by the owner to his own godown and, therefore, there is much less a possibility of there being a price at the time of import. Therefore, in instances (b) and (c), the tax is incapable of being levied, leaving only instance (a), i.e., where the goods are imported in the course of inter-State sale. In other words, the tax is leviable only on sales. It is further to be noted that when the goods are brought into West Bengal from outside, this can happen only in either of the two ways, viz., the goods can be brought into West Bengal under a pre-existing contract of sale or a concluded sale. In that event, the movement of the goods from outside into West Bengal will b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The luxury tax is not because one has sold the goods, but because he has stocked the goods. The expression 'value of stock of luxuries' occurring in section 2(m) of the West Bengal Luxury Tax Act, 1994 refers to 'ex-factory price' or 'price'. The determination of the value under the Act is on the basis of a price. Here the price is a measure of taxation and not the taxable event itself. In a legislation providing ad valorem tax, price as a measure of tax is judicially recognised. A measure of valuation based on 'ex-factory price' or 'price' in a taxing legislation does not necessarily postulate a concluded sale or the existence of an agreement for sale. In this connection the definition of the words 'price', and 'ex-factory price' as given in Black's Law Dictionary are reproduced below: Price.-'something one ordinarily expects voluntarily in exchange for something else. The consideration given for the purpose of a thing. The amount which a prospective seller indicates as the sum in which he is willing to sell, market value. The term may be synonymous with cost and with value as well with consideration, though price is not always identical either with consideration.' Factory pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sure of a tax, which will not determine the character of the tax. By referring to Stroud's Judicial Dictionary, he submitted that price is the sum of money or its equivalent at which a thing is valued, or is the amount of money which the property would fetch if sold in the open market. By relying on Black's Law Dictionary, Mr. Mitra submitted that price is something which one ordinarily accepts voluntarily in exchange for something else. It is the consideration given for the purchase of a thing or the amount which a prospective seller indicates as the sum for which he is willing to sell the commodity. The term may be synonymous with cost, value, as well as consideration, though it is not always identical with either. Dr. Pal, learned counsel for applicants, relied on the case of Hotel Balaji [1993] 88 STC 98 (SC); AIR 1993 SC 1048, on the principle of linkage with price which, according to him, indicates a sale or an agreement for sale. In that manner, Dr. Pal wanted to convince that by using the medium of price for determination of value of stock of luxuries, luxury tax is linked not with stocking, etc., but with a sale or purchase. But Mr. Mitra for the Revenue relied on Federati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ury items. By referring to AIR 1967 SC 181 [Gordon Woodroffe and Co. (Madras) Ltd. v. Shaik M.A. Majid and Co.]. Dr. Pal submitted that the question of price does not arise, where there is no sale and where the contract is that of mere agency. But that decision does not assist the applicants. Even if the taxing authorities fail to determine the "value of stock of luxuries" under section 2(m) and consequently fail to assess the tax in a particular case, "price" being clearly a measure of determination of value and nothing more, non-mention of price in the specified documents will not make the law ultra vires the Constitutional provisions, nor will it make the luxury tax, a tax on sale or purchase. Moreover, when we are considering the case of an importer-stockist under section 2(m)(ii), the measure of determining value of stock of luxuries for the purpose of levy of luxury tax is the price as per consignor's bill, invoice or consignment note or other document which generally accompanies importation of goods, be it as a result of a prior sale or as a result of despatch by a principal to his agent or as a result of mere a stock transfer. Section 3 of the Carriers Act, 1865 lays own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erms of section 15 of 1956 Act. Applicants' further contention is that in cases of stock transfer and despatch by the principal to his agent, it will be a consignment of goods in the course of inter-State trade, and Parliament alone is the competent authority to impose a tax on consignment of goods under entry 92B of List I of the Seventh Schedule. As regards all these submissions, the contention of Mr. A. Mitra, learned counsel for respondents, was that the levy of luxury tax has no nexus with anything prior or subsequent to the event of stocking, nor any connection with sale of any description. If no goods are held in stock, there is no question of liability of luxury tax. The tax is exigible under section 4 on "turnover of stock of luxuries" which is defined in section 2(l) as "aggregate of the values of stock of luxuries". Mr. Mitra for respondents rightly argued that it is immaterial whether or not, the goods held in stock were acquired by purchase or subsequently those are sold away. In my opinion, the luxury tax does not depend upon the nature of transaction as a result of which the goods are brought into West Bengal or upon the manner of disposal thereof. Creation of stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is imposed, no State tax can be levied. The aspects of such two taxes are obviously separate. This is the philosophy behind distribution of taxing powers. The Supreme Court has already ruled in Federation of Hotel & Restaurant Association of India [1989] 74 STC 102; AIR 1990 SC 1637, that it is the true nature and character of the legislation, and not its ultimate economic result that matters. The argument of applicants that cigarettes or tobacco products are being taxed, in substance, on their sales or purchases, has already been found to be without substance. In this context, I may refer to the case of Express Hotels Private Ltd. [1989] 74 STC 157 (SC) where the constitutionality of a few State Acts enacted under entry 62 of List II (regarding luxuries) was questioned. The West Bengal Entertainment and Luxuries (Hotels and Restaurants) Tax Act, 1972 was also involved in that case. The court observed that the taxable event need not necessarily be the actual utilisation or the actual consumption, as the case may be, of the luxury. A luxury which can reasonably be said to be amenable to a potential consumption does provide the nexus. Section 4 of the said 1972 Act which envisages a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tock of goods locally manufactured. Relying on Atiabari Tea Co. Ltd. AIR 1961 SC 232, Dr. Pal for applicants submitted that even if the State Legislature was competent to enact the law, it must still stand the test of validity under Part XIII of the Constitution which guarantees free-flow of trade and commerce. True, the question of legislative competence is different from the question of contravention of article 301. Also true, in Atiabari Tea Co. case AIR 1961 SC 232, the Supreme Court quoted with approval the following observation of Cardozo, J., in the case of Charles H. Baldwin (1934) 79 Law Ed. 1032 at page 1038 involving a similar provision in the American Constitution: "This part of the Constitution was framed under the dominion of a political philosophy less parochial in range. It was framed upon the theory that the peoples of the several States must sink or swim together and that in the long run prosperity and salvation are in union and not division." But in the same decision, the Supreme Court also held in paragraph 51: "Taxes may and do amount to restrictions; but it is only such taxes as directly and immediately restrict trade that would fall within the purview of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... article 301. In view of the distinguishing features in West Bengal Act, the ratio in A.B. Abdul Kadir v. State of Kerala AIR 1976 SC 182 on this point does not apply to it. The impugned luxury tax cannot be held to be contravening article 301, merely because it is leviable on imported goods also. It bears no such nexus with importation as to amount to a direct and immediate impediment. 22.. By relying on Bhailal Bhai [1964] 15 STC 450 (SC); AIR 1964 SC 1006, it was contended on behalf of applicants that the impugned luxury tax directly impedes the freedom of trade and commerce guaranteed by article 301, and even if it is saved under article 304(a), non-compliance of the proviso to article 304(b) should make it ultra vires article 301. Relevant paragraphs in the case of Bhailal Bhai [1964] 15 STC 450 (SC); AIR 1964 SC 1006 are extracted below for due appreciation of the true ratio thereof: "(9) There can be no doubt that the tax payable at the point of sale by the importer in Madhya Bharat directly impeded the freedom of trade and commerce guaranteed by article 301 of the Constitution. It is true that the import by itself would not bring in the liability to tax and that if the im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h tobacco leaves, manufactured tobacco and tobacco used for bidi manufacturing, imported from other States have to pay on sale by the importer. This tax is therefore not within the saving provisions of article 304(a). As already pointed out, it contravenes the provisions of article 301 of the Constitution. The tax has therefore been rightly held by the High Court to be invalid. It is clear that the assessment of tax under these notifications was thus invalid in law." In the case of Bhailal Bhai [1964] 15 STC 450 (SC); AIR 1964 SC 1006, section 3 of the Madhya Bharat Sales Tax Act, 1950 imposed tax on various dealers including importers and (also theoretically) manufacturers. Section 5 of the said Act laid down the rate of tax, empowering the Government to specify, by notification, the goods and the point of their sale at which the tax was payable. In the relevant notifications issued under section 5, the point of sale of tobacco items by dealers was "importer". In paragraph 8 of the judgment, the Supreme Court held that with effect from January 22, 1954 the point, at which the tax was payable, was the sale by an importer. On these facts, the High Court held that the said taxing pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IR 1964 SC 1006, there was no compliance of article 304(a). Hence, the Supreme Court held that the High Court had rightly declared the tax invalid. In the present case, Mr. A. Mitra, learned advocate for the Revenue, contended that here, there is full compliance of article 304(a), for which the question of contravention of article 301 or non-compliance of the proviso to article 304(b) does not arise at all. He relied on Video Electronics [1990] 77 STC 82 (SC); AIR 1990 SC 820. Dr. Pal, appearing for applicants, however, submitted that in spite of compliance of article 304(a), non-compliance of article 304(b) would make the Luxury Tax Act ultra vires article 301, if there is a contravention thereof. In my opinion, the Luxury Tax Act does not contravene article 301. Its provisions read together, leave no one in doubt that all manufacturers and importers are liable to pay the tax except for the stock despatched from the State of West Bengal to places outside the State, in view of section 5(a). Section 5(a) indicates that neither all imported goods nor all manufactured goods are liable to luxury tax. It cannot, therefore, be said that the taxing event or stocking of "luxuries" is, in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel for applicants relied on Hotel Balaji v. State of Andhra Pradesh [1993] 88 STC 98 (SC); AIR 1993 SC 1048, paragraph 9 (page 111 of STC). The question which arose in that case was whether the levy was one with reference to the sale or purchase of goods. There was some difficulty to identify the last purchase on which the tax was to be levied. In that context, the court observed: "The ambit of the power to levy a tax in respect of sale of goods is very wide and will cover any tax which has a nexus with the sale or purchase of goods including a last purchase in the State. This I think is a more appropriate test to be applied in these cases rather than the test of 'taxable event' which is somewhat ambiguous in the context." The case of Hotel Balaji [1993] 88 STC 98 (SC); AIR 1993 SC 1048 was followed in the case of Devi Dass Gopal Krishan Pvt. Ltd. [1994] 95 STC 170 (SC); (1994) Supp 2 SCC 59. In my opinion, on the aforesaid principle, there is no nexus between importation and levy of tax according to the provisions of the Luxury Tax Act of West Bengal. Dr. Pal contended that the nexus with importation arises due to the fact that the stocking can be made only after importat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s an immunity against contravention of article 301 (as argued by learned counsel for applicants) and (ii) whether the immunity will be operative when both article 304(a) and article 304(b) together are complied with (as contended by the learned counsel for applicants). This question has no relevance in respect of stockists who manufacture "luxuries" within West Bengal. 26.. The next contention of Dr. D. Pal, learned advocate for applicants, was that if the impugned luxury tax is really a tax on sales or purchases, then the State cannot levy the same in view of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (in short, "1957 Act"), and because the State of West Bengal has been actually receiving its allotted share of the additional excise duty collected by the Central Government in respect of tobacco products. According to him, the expression-"tax on sale or purchase", appearing in 1957 Act, should be construed in the light of the Reports of the Taxation Enquiry Commission, 1953 and the Second Finance Commission and other relevant materials which led to the passing of 1957 Act. The arguments proceed to the effect that the task assigned to the Second Finance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consistent with it, should be avoided in preference to an interpretation which furthers its object. In order to justify the references made to the different Commissions and their Reports, Dr. Pal submitted that it is permissible to refer to the legislative history for interpretation of an Act, and relied on the case of K.P. Varghese [1981] 131 ITR 597 (SC); AIR 1981 SC 1922. It was held in K.P. Varghese [1981] 131 ITR 597 (SC); AIR 1981 SC 1922 that speeches of Members of the Legislature made during debate on the passing of the Bill are inadmissible for the purpose of interpretation, but the speech made by the mover of the Bill explaining the reason for introduction thereof is admissible. This was decided on the principle that everything which is logically relevant for the ascertainment of meaning of the statute should be admissible. The arguments on behalf of applicants on this question were rounded up by submitting that even though the impugned tax is called luxury tax, it is a sales tax in substance within the proviso to the Second Schedule to 1957 Act, and hence by levying such a tax, the State of West Bengal has lost the right to receive a share of the collection of additional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the entry, namely, taxes on luxuries is essentially a variant of entry 48, namely, sales tax. For in most cases the most convenient method of levying a tax on an article of luxury is in the form of a tax on its sales. In some cases it might, however, be more convenient to levy it in the form of a use tax, as for example, on motor vehicle, but there are few luxuries, the use of which appear to lend itself to such taxation." On the basis of such language, Dr. Pal contended that the additional excise duty was intended to replace not only sales tax but all kinds of State taxes on tobacco products. This is not correct, because we find from the letter of the Finance Minister of India addressed to the Chief Minister of West Bengal on which the Revenue has placed reliance, that it was intended to replace only taxes on sales or purchases, by whatever name called. Paragraph 3 of the said letter dated May 4, 1957, annexure "A" to the affidavit-in-opposition, is clear on this point. In the first paragraph of that letter itself, the Finance Minister of India stated that in the National Development Council Meeting held on 8th and 9th December, 1956, it was unanimously decided that sales ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. 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............". The preamble of 1957 Act was silent as to the question of replacement of any State tax. But the Second Schedule to 1957 Act which is a part of the statute, read with section 4 thereof, provides that unless the Central Government by special order otherwise directs, no State which levies and collects a tax on sale or purchase of the declared goods shall be entitled to payment of any sum out of proceeds of additional excise duty. Therefore, levy of additional excise duty by 1957 Act was in replacement of only taxes on sales or purchases, and not in replacement of all kinds of taxes on tobacco products, as contended on behalf of applicants. I have already held that the impugned luxury tax is not a tax on sale or purchase of goods, nor a tax of such nature. It is a tax imposed by the State under entry 62 of List II of the Seventh Schedule to the Constitution. A tax on sale or purchase of goods, however, is leviable by the States under entry 54 of List II. The two are different powers u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 55 STC 1 (SC); AIR 1983 SC 1019 (paragraphs 73 to 76) ; (pages 38 and 39 of STC), he argued that there are both general and taxing entries in Lists I and II of the Seventh Schedule, and a legislation by Parliament under a general entry cannot denude the States of the legislative competence to enact taxing statutes. Mr. Mitra also referred to the case of State of U.P. v. Synthetics and Chemicals Ltd. [1992] 87 STC 289 (SC) ; (1991) 4 SCC 139 in this connection. He also distinguished the case of I.T.C. Ltd. (1985) Supp SCC 476. That, according to Mr. Mitra, was a case involving levy of a fee, not tax under any specific taxing entry in the State List. Mr. Mitra submitted that there can be no conflict of taxing power between the Union and the States, because each is supreme in its own field, and the field of taxing power of each is well-demarcated. He also referred to the case of Behar Potteries Ltd. v. State of West Bengal, a judgment of this Tribunal dated October 9, 1991, relating to education cess and rural employment cess in respect of areas of coal mines in West Bengal. 29.. The Tobacco Board Act, 1975, was enacted by Parliament under entry 52 of List I which reads as: "Industri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of I.T.C. Ltd. (1985) Supp SCC 476, the provision in the Karnataka Act relating to levy of a market fee which rests on quid pro quo was held ultra vires the Constitution, because the field of legislation on regulation of markets and providing marketing facilities was exclusively occupied by the Union by enacting the Tobacco Board Act, 1975, under entry 52 of List I. In the instant case, there is no such repugnancy, no such encroachment. The case of I.T.C. Ltd. (1985) Supp SCC 476 is no authority for the proposition that enactment of the Tobacco Board Act, 1975, has denuded the States of their competence to legislate for levy of permissible taxes on tobacco products. 30.. Mr. A. Mitra, learned counsel for Revenue, finds support from paragraphs 73 to 76 of the judgment in Hoechst Pharmaceuticals Ltd. [1984] 55 STC 1 (SC) at pages 38 and 39; AIR 1983 SC 1019, at pages 1043 and 1044. In that case, it was held, inter alia, that: "Taxation is considered to be a distinct matter for purposes of legislative competence. Hence, the power to tax cannot be deduced from a general legislative entry as an ancillary power. Further, the element of tax does not directly flow from the power to regula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being entry 62 of List II. Mr. A. Mitra, learned counsel for Revenue also relied on the case of Federation of Hotel and Restaurant Association of India [1989] 74 STC 102 (SC); AIR 1990 SC 1637. A five-Judge Bench of the Supreme Court was seized of the question whether the Parliament was competent to enact the Expenditure Tax Act, 1987, in view of the State's power to levy tax on "luxuries" under entry 62 of List II. While upholding the legislative competence of the Parliament, the court made the following observations which apply to the present case: "Wherever legislative powers are distributed between the Union and the States, situations may arise where the two legislative fields might apparently overlap. It is the duty of the courts, however difficult it may be, to ascertain to what degree and to what extent, the authority to deal with matters falling within these classes of subjects exists in each Legislature and to define, in the particular case before them, the limits of the respective powers. It could not have been the intention that a conflict should exist ; and, in order to prevent such a result, the two provisions must be read together, and the language of one interpret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the West Bengal Rural Employment and Production Act, 1976, is well-applicable to the instant dispute. In that case, inter alia, the following points were held: (i) that the levy of a duty of excise or cess on tea under section 25 of the Tea Act, 1953, was altogether different and distinct in character from the impugned cesses relatable to entry 49 of List II. The Central Government's power under the Tea Act, 1953, regarding levy of excise duty or cess on tea and for control of cultivation of tea did not affect the competence of the State Legislature in as much as the State Legislature did not seek to control the cultivation of tea, but sought to levy the tax on the land comprised in a tea estate; (ii) in our constitutional system, where all the important legislative heads are assigned to the Centre, courts should be slow to adopt an interpretation which tends to deprive the States of the few powers assigned to them under the Constitution; and (iii) the "measure of a tax is not determinative of its essential character". "The same transaction may involve two or more taxable events in its different aspects" and "the fact that there is overlapping does not detract from the disti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of an excise duty in relation to a manufacturer-stockist as defined in the first part of the definition of "stockist" in section 2(i) of the Act and the State Legislature is not competent to levy such an excise duty, besides being inconsistent with the Additional Duties of Excise Act, 1957. The impugned tax is also a tax on sale or purchase of goods of special importance in inter-State trade and commerce and is, therefore, violative of section 15 of the Central Sales Tax Act, 1956, read with article 286(3) of the Constitution. The impugned tax can also be viewed as a tax on the movement of goods into West Bengal in the course of inter-State sales or on consignment of goods on transfer falling within entry No. 92A or 92B of List I and hence the State Legislature has no competence to levy such a tax. 36.. Let us first examine the ground of violation of article 301 read with article 304 of the Constitution of India on which great stress was laid by Dr. D. Pal appearing for the applicant-company. 37.. Dr. Pal submitted that according to the scheme of the Act, when an importer brings his goods from outside the State of West Bengal into West Bengal and is in possession of such luxu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isfy the requirements of article 304(b) and the previous sanction of the President is required to be obtained before the introduction or moving of such a Bill. Since, in the present case, the admitted position is that the sanction of the President has not been obtained before the introduction or moving of the Bill in the State Legislature, the impugned Act suffers from the infirmity of non-compliance with the constitutional mandate laid down in the proviso to article 304(b) of the Constitution. It is not also the fact that the requirement of article 255 has been complied with by obtaining Presidential assent subsequently. Hence he has argued that the impugned Act should be struck down as being violative of these constitutional provisions. In support of his arguments he has relied on the decisions of the Supreme Court in the case of Atiabari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232, State of Madhya Pradesh v. Bhailal Bhai [1964] 15 STC 450 (SC); AIR 1964 SC 1006 and A.B. Abdul Kadir v. State of Kerala AIR 1976 SC 182. 38.. Mr. A. Mitra, appearing on behalf of the respondents, namely, the State of West Bengal and others, has submitted that there cannot be any dispute about cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i [1964] 15 STC 450 (SC); AIR 1964 SC 1006, relied on by the applicant are also inapplicable to the present case. In any event, the Act is protected by article 304(a) which permits a State Legislature to impose on goods imported from other States or Union territories any tax to which similar goods manufactured or produced in that State are subjected, so however, as not to discriminate between goods so imported and goods so locally manufactured or produced. Under the Act, luxury tax is also leviable at the same rate on a manufacturer's stock produced within the State and hence the Act does not discriminate between imported goods and locally manufactured goods. A reference was made in this connection to the decision of the Supreme Court in the case of Video Electronics reported in [1990] 77 STC 82; AIR 1990 SC 820; (1990) 3 SCC 87 where the provisions in a State legislation for exemption of sales tax for a limited period for newly set up establishments in the State was held to be valid and not violative of article 301. The other contentions of the applicant have also been denied. 39.. The primary point, therefore, for determination is whether the provisions in the Act constitute any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trade cannot be subject to any restrictions in the form of taxes imposed on the carriage of goods or their movement, all that is meant is that the said restrictions can be imposed by the State Legislatures only after satisfying the requirements of article 304(b). 41.. In the case of State of Madhya Pradesh v. Bhailal Bhai [1964] 15 STC 450 (SC); AIR 1964 SC 1006, the sales tax imposed by the notifications issued under the Madhya Bharat Sales Tax Act (30 of 1950) on tobacco leaves, manufactured tobacco (for eating, smoking and snuffing) and tobacco used for bidi manufacturing payable at the point of sale by the importer in Madhya Bharat was under challenge as directly impeding the freedom of trade and commerce guaranteed by article 301 of the Constitution. It was held that even though it was the sale in Madhya Bharat of the imported goods that created the liability to tax and not the import by itself, the trade and commerce as between Madhya Bharat and other parts of India was directly impeded by the tax and hence the tax contravened the provisions of article 301. The tax was held to be invalid, since similar goods manufactured or produced in the State of Madhya Bharat were not at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of article 301. 44.. From the above pronouncements of the Supreme Court, it becomes clear that for a violation of article 301, the tax has to have the effect of directly or immediately restricting or interfering with the free movement of trade and commerce. If there is no violation of article 301, article 304 which provides the exceptions to article 301, has no manner of application. However, if, on the other hand, article 301 is violated and there is a direct or immediate restriction on free movement of trade and commerce, for the enactment in question to be valid, it must come under the exceptions of article 304. The basic and crucial question to be decided, therefore, is whether there is a violation of article 301 by the imposition of the luxury tax in the instant case before us. 45.. The question of violation of article 301 and non-compliance with article 304(b) has been raised in the case before us only in so far as it relates to the liability to luxury tax imposed on an importer-stockist as defined in the second part of the definition of "stockist" in section 2(i) of the Act. It is the case of the applicant that even assuming though not admitting that the impugned luxu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be a violation of article 301 if the tax is levied as a condition precedent prior to the entry of goods and there would be no violation of article 301 if the tax is levied on the goods after they have entered the State. For the purposes of article 301, what is important is not the taxing event or the legislative competence or the point of levy and collection of the tax but whether the tax acts as a direct impediment to the free movement and flow of trade. It is immaterial whether the tax is levied prior to the movement or subsequently. This is borne out by the decision of the Supreme Court in the case of Bhailal Bhai [1964] 15 STC 450; AIR 1964 SC 1006. In that case, it was the sale in Madhya Bharat of the imported goods that created the liability to tax and not the import by itself. The tax was payable by an importer in Madhya Pradesh at the point of sale when the movement of goods into the State had long since been completed. Even so, it was held that there was a violation of article 301. The only difference between that case and the case before us is that, in the case of Bhailal Bhai [1964] 15 STC 450 (SC); AIR 1964 SC 1006, it was a liability to sales tax at the point of sale b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the circumstances, it has to be held that the provisions of the Act violate the provisions of article 301 and though the impugned tax levied under the Act meets with the requirement of article 304(a), the Act suffers from the lacuna that neither prior Presidential sanction nor his subsequent assent has been obtained in terms of article 304(b) or article 255. 48.. In the result, it is held that the West Bengal Luxury Tax Act, 1994, has put a direct and immediate restriction on the freedom of trade of an importer-stockist as defined under section 2(i) of the Act in violation of article 301. Since in doing so, it has not complied with the provisions of article 304(b) or article 255 it is declared to be void. As such, it is not necessary to go into the other points urged in support of the challenge against the validity of the Act. 49.. There will be no order for cost. ORDER In view of the judgment of the majority, the application is dismissed and the interim order dated April 28, 1994 stands vacated. No order is made for costs. After the judgment is delivered, Mr. Asit Chakraborty, Advocate, submits on behalf of Mrs Chandrima Bhattacharjee, learned advocate for the applicants, tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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