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TMI Blog2002 (8) TMI 813X X X X Extracts X X X X X X X X Extracts X X X X ..... e ground that the purported levy of tax is in effect and substance a tax on sales and not on luxuries and, therefore, it is a colourable legislation beyond the legislative competence of the State Legislature, liable to be struck down for being violative of articles 14, 19(1)(g), 245, 246, 301 and 304 of the Constitution of India. 3.. Though these petitions are filed by different manufacturers of gutkha, the facts involved, questions of law sought to be raised and the challenges sought to be set up therein are common. So they were heard together and are being disposed of together by this common judgment. The main challenge relates to validity of section 3B of the Luxury Tax Act but, before we set out those grounds, it would be convenient to refer briefly the historical background and the structure of the impugned legislations. The background and structure of legislation: 4. The pan masala containing tobacco (gutka) is exigible for tax under the Excise Act. The said product was also exigible to sales tax under the provisions of the BST Act and the petitioners have been paying the same in the sense that it being covered under package scheme of incentives, they were entitled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0-2001) Heading No. Sub-heading No. Description of goods Rate of Sp. Duty of excise 21.06 2106.00 Pan masala 16 per cent Notification No. 16/98 CE (NT) dated 2nd June, 1998 as amended by Notification No.28/99 CE dated 8th June, 1999 reads as under: Tariff value Tariff values for pan masala in retail packages: In exercise of powers conferred by sub-section (2) of section 3 of the Excise Act (1 of 1944) and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 5/97-Central Excise (NT), dated the 1st March, 1997, the Central Government hereby fixes tariff value in respect of the goods, specified in column (1) of the table hereto annexed, and falling under the sub-heading No. 2106.00 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), equivalent to the amount specified in the corresponding entry in column (2) of the said table. Description of goods Amount (1) (2) Pan masala in retail packages- (1) Containing not exceeding two gms. per pack Re. 1.00 per unit pack ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manner specified in the Fourth Schedule. The said amendment reads as under: "The Fourth Schedule [see section 127(a)]: In the First Schedule to the Tariff Act (1) in chapter 21, for note 3, the following note shall be substituted, namely: Note 3 in this chapter 'pan masala' means any preparation containing betelnuts and one or more of the following ingredients, namely, (1) lime and (2) kattha (catechu), but not tobacco, whether or not containing any other ingredients, such as cardamom, copra and menthol." In chapter 24, after note 5, the following note has been inserted: Note 6 in this chapter, "Pan masala containing tobacco" commonly known as "Gutkha" or by any other name, means any preparation containing betel nuts and tobacco and any one or more of the following ingredients, namely, lime and kattha (catechu), whether or not containing any other ingredients such as cardamom, copra and menthol. The Finance Bill, 2001: Clause 129 of the Finance Bill, 2001 (Bill No. 17 of 2001) introduced in the Parliament reads as under: 129. (1) In the case of goods specified in the Seventh Schedule, being goods manufactured or produced, there shall be levied and collected for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l material times. (b) No suit or other proceedings shall be maintained or continued in any court, Tribunal or other authority for any action taken or anything done or omitted to be done, in respect of any excisable goods under any of such rule, notification or order, and no enforcement shall be made by any court, or any decree or order relating to such action taken or anything done or omitted to be done as if the amendment made by section 125 of the Finance Act, 2001 had been in force at all material times. Clause 128 of the Finance Bill, 2001 (Bill No. 17 of 2001) reads as under: 128. The Additional Duties of Excise (Goods of Special Importance) Act, 1957 hereinafter referred to as the Additional Duties of Excise Act, shall be amended in the manner specified in the Sixth Schedule. Entry 2404.49 of the Sixth Schedule reads as under: Heading No. Sub-heading No. Description of good Rate of Sp. excise duty 2404.49 Pan masala containing tobacco 18 per cent The petitioners claim that they have been paying excise duty under Chapter sub-heading 21.06 of Tariff Act. The Finance Act, 2001 has put "Pan masala contain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion.-For the purposes of this section, the expression 'resale of goods' means the resale of those goods on the sale of which tax was leviable under this section at the time of their purchase." Section 7 of the BST Act deals with the single point levy on sales tax of the declared goods specified in Schedule and the same reads as under: "1. There shall be levied a sales tax, on the turnover of sales of declared goods specified in Schedule B, at the rate set out against each of them in column (3) thereof, but after deducting from such turnover- (i) resales of goods on the purchase of which the dealer is liable to pay purchase tax under section 14; (ii) resales of goods purchased by the dealer on or after the appointed day from the registered dealer, otherwise than on a declaration furnished under section 11 or 12, if requirements of section 12A are satisfied; (iii) resales of goods purchased by the dealer on or after the appointed day from a dealer liable to pay tax under section 4, if a certificate as provided in sub-section (2) of section 12A is furnished; (iv) sales of goods to a commission agent holding a permit who purchases on behalf of principal, upon such commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g title of the Maharashtra Tax on Luxuries Act, 1987 (hereinafter, in this Chapter, referred to as 'the Luxury Tax Act'), after the words 'tax on luxuries' the words 'and tax by way of cess on other facilities, services, enjoyments, utilities, consumption, etc.', shall be inserted." Section 22 of the Amendment Act reads as under: "In the preamble of the Luxury Tax Act, after the words 'tax on luxuries' the words 'and tax by way of cess on other facilities, services, enjoyments, utilities, consumption, etc.', shall be inserted." Section 23 of the Amending Act reads as under: "In section 1 of the Luxury Tax Act, in sub-section (1), after the words 'tax on luxuries' the words 'and tax by way of cess on other facilities, services, enjoyments, utilities, consumption, etc.', shall be inserted." Section 25 of the Amending Act reads as under: "In section 3B of the Luxury Tax Act, for sub-section (2) the following sub-section shall be substituted, namely: '(2) There shall be levied a tax on a turnover of the receipts of a tobacconist, in so far as the turnover of receipts relates to the tobacco specified in column (2) of the Table hereunder, at the rates set out in column (3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conist" means,- (i) a manufacturer who supplies tobacco whether by way of sale or otherwise, and includes any person for the purpose of business gets the manufacturing done from any other person, whether or not on job-work basis: but does not include any person who manufactures tobacco only on job-work basis without obtaining any proprietary right over it at any stage; (ii) any person who for the purposes of business brings or causes to be brought tobacco in the State or to whom any tobacco is despatched from any place outside the State and who supplies such tobacco whether by way of sale or otherwise; (iii) any person who supplies tobacco from a place within the State to any place outside the State, whether by way of sale or otherwise; (iv) any person who does not buy or otherwise obtain manufactured tobacco under a brand name but supplies whether by way of sale or otherwise such unmanufactured tobacco in a sealed container under a brand name. Explanation.-For the removal of doubts, it is hereby declared that: (1) an agriculturist, as defined in the Bombay Sales Tax Act, 1959 who exclusively supplies unmanufactured tobacco grown on land cultivated by him personally w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax, other than tax already levied or leviable shall, until his turnover of receipts against first exceeds Rs. 50,000 cease: Provided that, where the tobacconist becomes liable to pay tax against in the same year in which he ceased to be liable aforesaid, then in respect of the turnover of receipts during the period commencing on the date of cessation of liability to tax and ending on the date on which his turnover of receipts does not exceed Rs. 50,000 no tax shall be payable. Section 3B. Levy of luxury tax on a tobacconist .-(1) Subject to the provisions of this Act and the Rules made thereunder, there shall be levied a tax on the turnover of receipts of a tobacconist. (2) There shall be levied a tax on the turnover of the receipts of a tobacconist, in so far as the turnover of receipts relates to the tobacco specified in column (2) of the Table hereunder, at the rates set out in column (3) thereof: Table Serial No. Type of tobacco Rate of tax in a rupee (1) (2) (3) 1. Cigars, cheroots and cigarettes 8 paise 2. Snuff 8 paise 3. Jarda whether manufactured or unmanufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness gets the manufacturing done from any other person, whether or not on job-work basis: but does not include any person who manufactures tobacco only on job-work basis without obtaining any proprietary right over it at any stage. X Y X + Y X Nil [Section 3B(2)(b) and (c)] (b) because the tobacco has been supplied by way of inter-State consignment to another State, whether the consignment is to himself or to any other person and further, in support of such claim, produces on demand a certificate as may be prescribed; and (c) because the tobacco has been supplied by way of sale in the course of inter-State trade or commerce or in the course of export outside the territory of India and in support thereof produces a proof of such sale or export. 2. Importer [section 2(o-2)(ii)] Any person who for the purposes of business brings or causes to be brought tobacco in the State or to whom any tobacco is despatched from any place outside the State and who supplies such tobacco whether by way of sale or otherwise. X Y X + Y X + Nil [section 3B(2)(b) and (c)] as above 3. Exporter [section 2(o-2)(iii)] Any person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venth Schedule to the Constitution of India. In his submission, the respondents having become aware of the law laid down by the apex Court in the case of Kothari Products Ltd. v. Government of Andhra Pradesh [2000] 119 STC 553; (2000) 9 SCC 263 that no sales tax could be levied on the pan masala containing tobacco (gutka), it being an item subjected to levy of additional excise under the Additional Duties of Excise Act, 1957 proceeded to impose tax on sale under the guise of luxury tax. The levy of luxury tax is, therefore, illegal and unconstitutional. The petitioners submit that after the pronouncement of the judgment by the apex Court in the matter of Kothari Products Ltd. [2000] 119 STC 553; (2000) 9 SCC 263, the State of Maharashtra withdrew levy of sales tax on pan masala containing tobacco (gutka) with effect from May 1, 2001 and, simultaneously, substituted the same with the levy of tax under the Luxury Tax Act. The respondents introduced luxury tax on gutka as device only because the same could not be brought to tax under the BST Act in view of the decision of the apex Court in the case of Kothari Products Ltd. [2000] 119 STC 553; (2000) 9 SCC 263. By this amendment gutk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be deemed to be an inter-State sale or as the case may be, an export sale). Our attention was drawn to the special provision which has been made for grant of refund of tax to the tobacconist. The new rule 27A analogues to rule 43.0 of the BST Rules has been introduced in Maharashtra Tax on Luxury Rules, 1987. It is provided in rule 27A that if a tobacconist supplies tobacco by way of inter-State consignment or inter-State sale or export out of India, then he shall be entitled to claim refund of tax on the tobacco that was supplied to him, subject to the proof that the tax leviable under the Act has actually been paid on the very tobacco so supplied, and the tobacco has been supplied by him by way of inter-State consignment transfer or inter-State sale or export out of India. The tax leviable is to be refunded without any deduction. It is also provided that certain provisions of Luxury Tax Rules will apply to a tobacconist as they apply to a hotelier. 10.. The submission of the petitioners, based on the entire scheme of the impugned provisions of the Act, is that the levy of tax is on sale of tobacco and that there is no distinction between supply of luxury and sale of luxury ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffect of all the provisions of the Act needs to be taken into account for determining whether it is a tax on sale or not. The levy of sales tax on gutka under the BST Act being impermissible in view of the decision of the apex Court in Kothari Products Ltd. [2000] 119 STC 553; (2000) 9 SCC 263, the recourse taken by the respondents to introduce levy of the luxury tax on gutka amounts to colourable legislation unsustainable in law. 12.. The next line of argument which has been advanced on behalf of the petitioners is that the tax on the vending and stocking of tobacco cannot be considered to be luxury as contemplated by entry 62 of List II of the Seventh Schedule to the Constitution. According to the said entry, the State Legislatures can make laws in respect of "taxes on luxuries, including taxes on entertainments, amusements, betting and gambling". The question, therefore sought to be raised is whether tobacco can be considered to be an article of luxury? 13.. Mr. Aney, learned counsel appearing for some of the petitioners, adopted different line of argument relying on the text of the legislative entry 62 (List II, Seventh Schedule) and contended that the word "luxury" is fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of the Federal Court [1938] 1 STC 1 (FC); AIR 1939 FC 1, Ralla Ram v. Province of East Punjab AIR 1949 FC 81, R.R. Engineering Co. v. Zila Parishad AIR 1980 SC 1088; A.B. Abdul Khadir v. State of Kerala AIR 1976 SC 182, Union of India v. Bombay Tyre International Ltd. AIR 1984 SC 420 and Express Hotels Private Ltd. v. State of Gujarat [1989] 74 STC 157 (SC); AIR 1989 SC 1949. 15.. The learned counsel appearing for the State relying upon Abdul Kadir's case AIR 1976 SC 182, Express Hotels Private Ltd. [1989] 74 STC 157 (SC); AIR 1989 SC 1949 and Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938 [1938] 1 STC 1 (FC) further submitted that the Supreme Court has held that tobacco is an item of luxury and, therefore, now, it is not open to the petitioners to raise a debate contending that tobacco is not a luxury. He submits that the impugned enactment neither overlaps nor encroaches upon the field occupied by the Parliament. The levy is only on luxury, not per se on sale of tobacco or gutka. The Legislature, therefore, has not made any inroad into the field of legislation occupied by the Parliament. He further contended that when a particular legi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, as such, the question of it being a colourable legislation does not arise at all. In his submission, the doctrine of colourable legislation is attracted only when a Legislature in the guise of legislating in respect of a subject-matter for which it has competence, transgresses the limits of its constitutional power. It can never be invoked where the challenge is that the legislation falls under another entry in the same List. In support of his submission he sought to place reliance on the judgment of K.C. Gajapati Narayan Deo v. State of Orissa AIR 1953 SC 375, Hari Krishna Bhargav v. Union of India AIR 1966 SC 619 and Abdul Khadir AIR 1976 SC 182. He relied upon Mumbai Grahak Panchayat v. State of Maharashtra 1983 Tax LR 2770 (Bom); (1983) 85 BLR 218 at 231 and further went on to submit that burden is on the petitioners to show that it is a colourable legislation and they failed to discharge the said burden. 19.. The learned counsel for the respondents further submitted that the judgment of the apex Court in Kothari Products Pvt. Ltd. [2000] 119 STC 553; (2000) 9 SCC 263, has no application to the facts of the present case in as much as the luxury tax has nothing to do with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ering the first question whether the levy of tax in pith and substance is on sale of pan masala containing tobacco or it is a tax on supply of luxury, viz., gutka, it is also necessary to refer to some of the decisions of the Federal Court and the Supreme Court which have laid down certain principles while construing/interpreting the legislative entries in Lists I and II of the pre-Constitution Act and Constitution of India. 22.. In Ralla Ram's case AIR 1949 FC 81, the Federal Court was considering the question whether the provisions of the Punjab Urban Immovable Property Tax Act were within the powers of the Provincial Legislature which enacted it. The argument that was advanced was that the basis of the tax is the annual value of the property and since the same basis is used in the Income-tax Act for determining income from property, and generally speaking 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. 23.. The Federal Court referred to the following observations of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 119 of the U.P. Kshetra Samities and Zilla Parishads Act is a tax on status of an individual and not tax on income? Section 120 of that Act provided that where, before the appointed date, there was in force "Circumstances and Property Tax" under the District Boards Act, 1922, such tax might continue to be levied by the Zilla Parishad at the same rates and on the same conditions under which it was being levied under the District Boards Act. Section 131 provides that the total amount of the tax shall not exceed the amount as may be prescribed by Rules framed under the Act. Rule 7 framed under section 172 of the District Boards Act, 1922, which provided for a maximum levy of Rs. 2,000 on a single assessee, remained in force until the framing of rules under the Act of 1961. The appellant challenged the said rule on the ground that the State Legislature cannot over-reach its taxing 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 subject-matter outside its sphere, it cannot exercise the power to levy a tax on circumstances by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice it to point out that section 3 was a charging section and provided that "for the period beginning with the 17th day of August, 1950 and ending on 31st day of December, 1957, every person vending or stocking tobacco within any area to which this Act extends shall be liable and shall be deemed always to have been liable to pay a luxury tax on such tobacco in the form of a fee for licence for the vend and stocking of the tobacco, at such rates as may be prescribed, not exceeding the rates specified in the Schedule". The matter went up to the Supreme Court. The arguments that were advanced were that the tax levied under section 3 of the Act in reality and substance is an excise duty even though described as luxury in the said charging section and as such the State Legislature was not competent to enact the Act. 26.. Repelling the said contention, the Supreme Court held that the 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 con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etence. In the present case, we find that in enacting the impugned provisions, the State Legislature, as already pointed out above, has exercised a power of levying luxury tax in the shape of licence fee on the vending and stocking of tobacco. The enactment of a law for levying luxury tax is unquestionably within the legislative competence of the State Legislature in view of entry 62 in List II of the Seventh Schedule to the Constitution. As such, it cannot be said that the impugned Act is a colourable piece of legislation. In other words, the Supreme Court upheld the power of State Legislature to levy luxury tax on the vending of luxury, viz., tobacco." 27.. The apex Court while dealing with the entries in the Constitution held in number of cases that it 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. It is now well-settled that there is always a presumption in favour of constitutionality of an enactment and the burden is upon the person who attacks it to show that there has been a clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso appear to be in direct conflict with each other. It is then the duty of this Court to reconcile the entries and bring about harmony between them." 30.. In the Western India Theatres Ltd. AIR 1959 SC 582; [1959] Supp 2 SCR 63 the Supreme Court was dealing with the scope of the power of the Provincial Legislature under section 100 of the Government of India Act, 1935 with respect to entry 50 in the Seventh Schedule of the said Act to make laws with respect to "taxes on luxuries including taxes on entertainments, amusements, betting and gambling". The contention of the appellant in that case was that the entry authorised in a law imposing taxes on persons who received or enjoyed the luxuries, etc., and that law made with respect to that entry could not impose a tax on persons who provide the luxuries, entertainment or amusements. It was contended that those who provide the luxury, etc., did not themselves receive or enjoy the luxury or entertainment or amusement, but were simply carrying on their profession or trade and were not amenable to be taxed under the entry. Rejecting the argument it was said: (SCR p. 69). "In view of this well-established rule of interpretation, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , where the division Bench has pointed out that the tax which can be imposed under entry 62 is a tax on goods or entries or articles which constitute luxuries. The relevant observations are as follows: "With regard to luxuries it is significant to note that plural and not singular is used, and the luxuries in respect of which a tax can be imposed under entry 62 is a tax on goods or articles which constitute luxuries, and it is again significant to note that the topic luxuries only is to be found in entry 62 in the taxation power and not in either entry 33 or 34. That clearly shows that what was contemplated was a tax on certain articles or goods constituting luxuries and not legislation controlling an activity which may not be necessary activity but may be unnecessary and in that sense a luxury." This view has been approved by the Supreme Court in the Western India Theatre's case AIR 1959 SC 582. 33.. The next question to which attention must, therefore, be directed is, what is a luxury and what is the criterion on which an article or goods can be described as luxury in contradistinction with necessaries. We may however point out that a luxury tax is a known concept in the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in ourselves. An expenditure on something which is in excess of what is required for economic and personal well-being 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 well-off. The use of tobacco has been found to have deleterious effect upon health and a tax on tobacco has been recognised 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." From the above, it is clear that it is a well-settled proposition that tobacco is an article of luxury and it has deleterious effect on and is harmful to health. Therefore, it does not warrant any debate on the question whether tobacco is an article of luxury or not. 35.. One of the contentions canvassed by Shri Aney, appearing for some of the petitioners is that in so far as section 3B of the Luxury Tax Act is concerned, it envisages a tax not on consumption or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 'luxuries' is required to be so wide as to comprehend in it, every aspect which can fairly and reasonably be said to be embraced by it, then, the taxing power cannot be limited to or conditioned in the manner suggested. Once the legislative competence and the nexus between the taxing power and the subject of taxation is established, the other incidents are matters of fiscal policy behind the taxing law. The measure of the tax is not the same thing as, and must be kept distinguished from, the subject of the tax." The survey of aforesaid cases will unequivocally goes to establish that it is a well-settled law that when power is conferred upon the Legislature to levy tax that power must be widely construed: it must include the power to impose tax and select the articles or commodities or persons for the exercise of such power: it must likewise include the power to fix the rate and prescribe the machinery for the transaction. This also gives jurisdiction to make such legislation, so as to prevent evasion of tax. The Legislature has wide discretion in the matter of taxing the people. When a challenge to the validity and legality of an enactment is made on the ground that it is a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the legislative competence of the State Legislature under entry 62, List II of the Seventh Schedule to the Constitution. The submission of the learned counsel for the petitioners, if accepted, will unduly restrict the scope of the legislative entry which should otherwise have widest and most liberal meaning and connotation given to the entries, the first contention (i.e., contention"A") is unacceptable and hence rejected. Re: Contention "B" 38.. The petitioners submitted that the levy of luxury tax on pan masala containing tobacco (gutka) under Luxury Tax Act is in violation of the Central Sales Tax Act enacted by the Parliament. Under section 14 of the Central Sales Tax Act there is a list of goods of special importance in inter-State trade or commerce. Item (ix) refers to tobacco. Section 15 of the said Act provides for restrictions and conditions in regard to tax on sales or purchases of the declared goods (enumerated in section 14) within the State. Section 15 clearly lays down that every sales tax law of the State shall so far as it imposes or authorises the imposition of a tax on sale or purchase of declared goods be subject to the following restrictions: (a) the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w, the question sought to be debated has become academic in view of our findings on contention "A": wherein we upheld the levy of luxury tax on pan masala containing tobacco on the ground that the Luxury Tax Act is within the legislative competence of the State Legislature under entry 62 of List II of the Seventh Schedule to the Constitution of India. We, therefore, do not think it necessary to delve on this contention raised by the petitioners. The apex Court, time and again, reiterated and warned the High Courts that while deciding the constitutional issues, the court should restrict itself to the questions which are necessary for determination of the real issues necessary for deciding the case at hand and should avoid discussing or recording findings on academic issues. Respectfully following the said warning, we propose to refrain from dealing with and deciding this question and recording our finding on this issue. The view taken on contention "A", however, relieves us of the necessity of going into this question. Re: Contention "C" Submissions: 41.. Mr. Jetly on behalf of the petitioners contended that the provisions of the impugned Act are violative of article 301 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. N.K. Nataraja Mudaliar [1968] 22 STC 376; AIR 1969 SC 147, Andhra Sugar Ltd. v. State of Andhra Pradesh [1968] 21 STC 212; [1968] 1 SCR 705; AIR 1968 SC 599 and Video Electronics Pvt. Ltd. case [1990] 77 STC 82; AIR 1990 SC 820 in support of his submission. 44.. The learned counsel appearing for the State, repelling the contentions of the petitioners, contended that the object and purpose of the levy on pan masala containing tobacco is not only to augment revenue but also to suppress or limit or discourage consumption of tobacco which is hazardous to health. Article 47 of the Constitution mandates that the State shall regard improvement of public health as its primary duty. Article 37 provides that the State shall apply the directive principles of the State Policy in making the laws and this precisely what the State has done. He placed reliance on the Finance Minister's budget speech, the contents of which are as under: "38. In the Union Budget, certain changes have been made regarding classification of pan masala and gutka. It is necessary to make corresponding changes in the Luxury Tax Act and Sales Tax Act. At this stage, it is not necessary to hold forth on the harmful e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he words throughout the territory of India extend the freedom not only to inter-State, but also in intra-State transactions and movements. "Freedom" in this article does not mean absolute freedom but freedom from all restrictions except those which are provided in other articles of Part XIII, as well as regulatory and compensatory measures. The power of the Union or the State to exercise legitimate regulatory control is independent of the restrictions imposed by articles 302 to 305. 47.. A violation of freedom guaranteed by article 301 would take place only where a legislative or executive act operates to restrict trade, commerce or intercourse, directly and immediately as distinct from creating some indirect or inconsequential impediment which may be regarded as remote. It therefore, follows that regulatory or compensatory measures cannot be regarded as violative of the freedom. It is not the case of the State that the levy is compensatory but a positive case is sought to be made out that the levy is regulatory. (Emphasis supplied). Here italicised. 48.. Let us consider whether the impugned levy of luxury tax can be said to be regulatory in nature and beyond the pale of chal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to differences in habits, social customs and standards of public morality. A new factor of growing importance since the middle of the 19th Century has been the rapid urbanisation, industrialisation and mechanisation of our modern every day life in the leading nations of the world, and the consequent wider recognition of the advantages of sobriety in safeguarding public order and physical efficiency'." The question which arises here is: whether restrictions are permissible only in relation to alcoholic liquor directly or can be extended to the articles like tobacco or pan masala containing tobacco which are not intoxicating by themselves but which have potentiality to injure the public health. Strong reliance is placed on the Full Bench decision in T.K. Abraham v. State of Travencore AIR 1958 Ker 129, the observations wherefrom were approved by the Supreme Court in A.B. Abdul Kadir's case AIR 1976 SC 182 in the following words: "(13) It is no doubt true that for those who have been lured by the charms and blandishments of Lady Nicotine there are few things which are so soothing to the distraught nerves and so entertaining as tobacco and its manifold preparations. One of them h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in this country alone. It has also been found by the Parliamentary Committee on Subordinate legislation (10th Lok Sabha) that treatment of tobacco related diseases and the loss of productivity caused therein cost the country almost Rs. 13,500 crore annually, which more than offsets all the benefits accruing in the form of revenue and employment generated by tobacco industry. 50.. One of the World Bank publications carrying title "Curbing the Epidemic Governments and the Economics of Tobacco Control" in no uncertain terms mentions that smoking already kills one in ten adults worldwide. By 2030, perhaps a little sooner, the proportion will be one in six, or 10 millions deaths per year-more than any single cause. Whereas until recently this epidemic of chronic disease and premature death mainly affected the rich countries. It is now rapidly shifting to the developing world. By 2020, seven of every 10 people killed by smoking alone will be in low and middle income nations. Gutka-the pleasure poison has started to claim young victims in our country. A scientific study has revealed that 70 per cent of the patients, suffering from a Gutka-induced high risk pre-cancerous oral disease ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndividual in any country can influence future rates of disease and premature death more than all the doctors, health workers and scientific researcher together. The reason for this surprising answer is that the Minister for Finance can increase the tax on tobacco product causing their price to rise, which will result in less tobacco product being purchased, used and consumed. So less used today means less disease, disability and premature death in future years. 56.. Taxation is a powerful weapon for reducing tobacco consumption; while simultaneously raising extra revenue for the Government. Tax is used as potential tobacco product control measure. Progress is being made in many countries to make tax policy workable for health. In most countries, tobacco products are among the leading preventable causes of disease and in short term. Price, which is directly affected by tax, is the single most important influence on tobacco consumption. The combination of these facts explains why the Minister of Finance who has ability to rise tobacco tax is potentially such important ally of public health. Tobacco taxes can take several forms. Specific tobacco taxes, added as fixed amount to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he State has successfully made out a case that the impugned levy is to prevent injurious effect of tobacco product (gutka) on public health. 60.. The learned counsel for the State rightly relied upon the speech of the Minister introducing the budget. The courts are entitled to consider such external or historical facts as may be necessary to understand the subject-matter to which statute relates or to have regard to the mischief which statute is intended to remedy. In State of M.P. v. Dadabhoy's New Chirimiri Ponri Hill Colliery Co. Pvt. Ltd. AIR 1972 SC 614 reference was made to the speech of the Minister introducing the Bill to find out the object intended to be achieved. Further, in Union of India v. Steel Stock Holders Syndicate AIR 1976 SC 879 reference was made to the speech of the Deputy Minister introducing the Bill. In our opinion, the budget speech of the Finance Minister can very well be taken into account to find out the legislative intent. 61.. Having considered the material placed before us, and the rival submissions debated by the parties, we are of the opinion that the impugned legislation is regulatory in nature and is not open to challenge on the touchstone of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Constitutional provisions and the power was not to be exercised outside the purview of any constitutional limitations. 64.. In State of Bombay v. R.M.D. Chamarbaugwala AIR 1957 SC 699, the Supreme Court has held that the protection afforded by article 301 is confined to such activities as may be regarded as lawful trading activity and does not extend to any activity which is res extra commercium and cannot be said to be trade. The words "throughout the territory of India" extend the freedom not only to inter-State but also to intra-State transactions and movements. Freedom under article 301 does not mean absolute freedom from all restrictions and barriers except those which are provided in other articles of Part XIII as well as regulatory and compensatory measures. The power of the Union or the State is to be exercised with legitimate restrictions imposed by articles 302-305 as has been ruled by the Supreme Court in State of Madras v. N.K. Natraja Mudaliar [1968] 22 STC 376; [1968] 3 SCR 829; AIR 1969 SC 147. While examining whether there is a violation of the freedom guaranteed by article 301, one has to scrutinise whether the impugned legislative or executive act operates t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot out of the purview of article 301 of the Constitution. Such imposition may amount to impeding movement of goods, but mere imposition of tax would not amount to impede trade, commerce and intercourse, unless it impedes its movement directly and immediately. 68.. In Weston Electroniks v. State of Gujarat [1988] 70 STC 52 (SC); AIR 1988 SC 2038, it was reiterated that while State Legislature may enact a law imposing a tax on the goods imported from other States as is levied on similar goods manufactured in that State the imposition must not be such as to discriminate between goods so imported and the goods so manufactured and that taxing laws could be restrictions on trade, commerce and intercourse, if they hamper the flow of trade and if they were not what could be termed to be compensatory taxes or regulatory measures. 69.. It is by now settled law that the object of Part XIII is not to make inter-State trade, commerce or intercourse absolutely free. Reasonable restrictions in public interest are permissible. Mandate against discrimination dictates the placing of inter-State trade, commerce and intercourse undergone not at greater disadvantage than that borne by intra-State t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 2(o-2)(i) defines the manufacturer who supplies tobacco whether by way of sale or otherwise, and includes any person for the purpose of business who gets the manufacturing done from any other person, whether or not on jobwork basis; but does not include any person who manufactures tobacco only on job-work basis without obtaining any proprietary right over it at any stage: The importer under section 2(o-2)(ii) means any person who for the purposes of business brings or causes to be brought tobacco in the State or to whom any tobacco is despatched from any place outside the State and who supplies such tobacco whether by way of sale or otherwise. Similarly, exporter has been defined in section 2(o-2)(iii) as any person who supplies tobacco from a place within the State to any place outside the State, whether by way of sale or otherwise. Reading of these provisions along with charging section would show that if the pan masala containing tobacco (gutka) is to be brought from outside in the State of Maharashtra and supplied within Maharashtra, luxury tax is attracted because of section 3A. However, if it is brought from the other State to the State of Maharashtra and supplied to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sale where a State boundary intervenes between the manufacturing centre and the consuming centre need be treated as a burden, especially where that tax is ultimately to come out of the residents of the very State by which such sale is taxable. Freedom of trade and commerce applies as much within a State as outside it. It appears to me again, with great respect, that there is no warrant for treating such a tax as in any way contrary either to the letter or the spirit of the freedom of trade, commerce and intercourse provided under article 301." 73.. In V. Guruviah Naidu and Sons v. State of Tamil Nadu [1976] 38 STC 565, the Supreme Court observed as follows: "Article 304(a) does not prevent levy of tax on goods: what it prohibits is such levy of tax on goods as would result in discrimination between goods imported from other States and similar goods manufactured or produced within the State. The object is to prevent discrimination against imported goods by imposing tax on such goods at a rate higher than that borne by local goods since the difference between the two rates would constitute a tariff wall or fiscal barrier and thus impede the free-flow of inter-State trade and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to importation has ended. The obligation to pay luxury tax arises only when the goods are committed to intraState trade and commerce. It is not because the petitioners are importers of gutka that they are required to comply with that law. The levy operates at that stage, not beforehand; it does not restrict the trade and commerce of the petitioners. If the impugned provision or section entails any consequence to the petitioners' intra-State trade or commerce, the consequence is economic, it does not operate on inter-State trade and commerce. The obligation to pay luxury tax which the Act imposes is upon those who wish to sell the goods in question in the State of Maharashtra. It is not because he wishes to conduct inter-State trade and commerce by supplying luxury. 75.. A person, who in the course of his inter-State trade brings gutka into the State of Maharashtra from other State may store the goods for further trading, he may destroy them, may send them on to another State and may supply them in the State, but levy of luxury tax will only be in such last mentioned case. In other words only in the last mentioned case the goods are subjected to levy of luxury of tax. To sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 4A of the impugned Act is the levy of tax on the despatches and supply of a declared commodity, i.e., cigarettes in the course of inter-State trade and commerce. In other words, the movement part of the inter-State trade and commerce in cigarettes is involved here. Under section 4A, the tax is levied on the value of the tobacco despatched for supply in the course of inter-State trade and commerce and the rate of tax is 5 per cent. What is necessary to find out here is whether the impugned levy directly and immediately impedes or restricts the movement of cigarette in the course of trade and commerce. ..........Section 4A of the impugned Act in substance and form imposes a levy of tax at the rate of 5 per cent on the despatch of cigarettes for supply made in the course of inter-State trade and commerce which is declared to be free. In other words, it is an imposition of tax direct on the movement of goods at the rate higher than 4 per cent specified under section 15(a) of the Central Sales Tax Act. It is an impediment or restriction which is direct and immediate. Due to compulsion arising out of existing statute the impugned levy cannot be enforced on the movement of the goo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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