1. Challenge to the validity of a state amendment imposing sales tax on Virginia tobacco while exempting country tobacco, specifically regarding export business. (Para 1 , 2 )
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1962 Supreme(SC) 137
SUPREME COURT OF INDIA
6th April, 1962.
B.P. SINHA, C.J.I., P.B. GAJENDRAGADKAR, K.N. WANCHOO, N. RAJAGOPALA AYYANGAR AND T.L. VENKATARAMA AYYAR, JJ.
M/s. East India Tobacco Co., etc., Appellants
Versus
State of A.P. and another; (in both the Appeals), Respondents.
Civil Appeals Nos. 290 and 291 of 1961.
Advocates appeared
Mr. A. S. R. Chari, Senior Advocate (Mr. K. R. Chaudhuri, Advocate, with him), for Appellants (in both appeals); Mr. A.V. Viswanatha Sastri, Senior Advocate (M/s. T. V. R. Tatachari and P. D. Menon, Advocates with him), for Respondents (in both appeals).
Advocates:
A.S.R.CHARI, A.V.VISHWANATHA SASTRI, K.R.CHAUDHARY, P.D.MENON, T.V.R.TATACHARI
A.S.R.CHARI, A.V.VISHWANATHA SASTRI, K.R.CHAUDHARY, P.D.MENON, T.V.R.TATACHARI
Taxation laws are valid under Article 14 if based on a reasonable classification of objects. Under Article 286(1)(b), only the sale occasioning the export is exempt from tax; preparatory local purchases made for the purpose of export are taxable.
Headnote:(A) Constitution of India - Articles 14 and 286(1)(b) - Sales Tax - Taxation of specific variety of tobacco - Validity of classification - Tax on sales in the course of export - The State has wide discretion in selecting the persons or objects it will tax, and a statute is not open to attack on the ground that it taxes some objects and not others, provided the classification is reasonable and not based on clear and hostile discrimination (Paras 4, 6). Where a specific variety of tobacco differs from the country variety in taste, light, colour, texture, price, and use, it can be treated as a class in itself, and the imposition of tax on such variety while exempting another is not obnoxious to Article 14 (Paras 4, 8).
(B) Constitution of India - Article 286(1)(b) - Sale in the course of export - Only the sale which actually occasions the export is protected from taxation under Article 286(1)(b). A purchase made locally for the purpose of subsequent export is an act preparatory to export and does not fall within the purview of a sale "in the course of export" (Paras 11, 14).
Facts of the case:
Appellants, engaged in the export of tobacco, challenged the validity of an amendment to a sales tax act that imposed a tax on the sale of a specific variety of tobacco while exempting the country variety. The appellants contended that the tax was discriminatory and violated the constitutional prohibition against taxing sales in the course of export, as the local purchases were made specifically to fulfill contracts with foreign customers.
Findings of Court:
The court found that the specific variety of tobacco possesses distinct characteristics from the country variety, justifying its treatment as a separate class for taxation. Furthermore, it held that local purchases preceding the actual export sale are not protected under the constitutional exemption for sales in the course of export.
Issues: (1) Whether the taxation of one variety of tobacco while exempting another is discriminatory and violative of Article 14 of the Constitution; (2) Whether a tax on local purchases made for the purpose of export constitutes a tax on sales in the course of export, thereby contravening Article 286(1)(b) of the Constitution.
Ratio Decidendi: The legislature possesses wide latitude in classifying objects for taxation; as long as there is a real and material distinction between the taxed and untaxed objects, the classification is valid under Article 14. Regarding Article 286(1)(b), the exemption applies only to the sale that occasions the export, not to preparatory purchases made by the exporter.
Result: Appeal dismissed.
Legal Category Hierarchy
Table of Contents
2. Whether taxing Virginia tobacco is discriminatory under Article 14 and whether such tax constitutes a tax on sales in the course of export under Article 286(1)(b). (Para 2 , 3 )
3. The State possesses wide discretion in tax classification; Virginia tobacco is distinct from country tobacco, and purchases preceding an export sale are not sales in the course of export. (Para 4 , 5 , 6 , 7 , 8 , 9 , 10 , 11 , 12 , 13 , 14 )
4. Tax classification is valid if based on real distinctions; Article 286(1)(b) protects only the sale occasioning export, not preparatory purchases made for export. (Para 4 , 8 , 14 )
5. Appeals dismissed with costs. (Para 15 )
6. Does taxing one variety of a commodity while exempting another violate Article 14?
No, provided there is a real distinction between the categories. The State has wide discretion in selecting objects for taxation, and the burden lies on the challenger to prove the classification is not based on a valid distinction. (Para 4 , 5 , 6 , 8 )
7. Does a purchase made locally for the purpose of subsequent export constitute a sale in the course of export under Article 286(1)(b)?
No. Only the sale that actually occasions the export is protected under Article 286(1)(b). Purchases preceding such a sale are preparatory acts and do not fall within the purview of sales in the course of export. (Para 11 , 12 , 13 , 14 )
Judgment
VENKATARAMA AIYAR, J. :These are appeals against the judgment of the High Court of Andhra Pradesh in petitions Nos. 1172 of 1956 and 56 of 1957 filed under Art. 226 of the Constitution questioning the validity of the Andhra Act XIV of 1955 insofar as it imposes a tax on the sale of Virginia tobacco, The appellants are firms doing business in the export of tobacco. The usual course of that business is stated to be that they first enter into contracts with their customers abroad for the sale of tobacco that thereafter they purchase the requisite quantities of goods locally and then export them to the foreign purchasers in performance of their contracts, Prior to October 1 1953, the area wherein the appellants carried on business formed part of the State of Madras, and on that date the State of Andhra was constituted, and the area in question fell within that State. The law relating to sales tax in force in that area is the Madras General Sales Tax Act, IX of 1939. Section 5 of this Act provides far exemption of tax on sales of goods specified therein and S. 6 confers on the State Government power to exempt the tax payable on the sale of any specified class of good or by any specified class of per- sons. In exercise of the powers conferred by S. 6 the Government of Madras issued on March 31, 1953, a notification No. 144 exempting the sale; of unmanufactured tobacco from sales tax. After the Andhra State came into existence the Legislature of that State enacted Act XIV of 1955 hereinafter referred to as the Amendment Act whereby it amended S. 5 of the Madras General Sales Tax Act by adding as item (viii) the following:-
"(viii) raw tobacco (except country variety thereof) whether cured on uncured shall be liable to tax under Section 3. Sub- section (1) only at the point of the first purchase effected in the State of Andhra by a dealer who is not exempt from taxation under Section 3, Sub-section (3) but at the rate of seven and half pies for every rupee on his turnover.
Explanation :- For the purpose of this item, country variety of tobacco means variety of tobacco other than Virginia and other similar varieties of tobacco."
As a result of this enactment exemption from tax was limited to sales of what is known as country tobacco (Nattu tobacco) and so far as sales of Virginia tobacco are concerned, they became liable to be taxed. Pursuant to the Amendment Act, the Andhra Government issued on November 4,1955, a notification No. 711 cancelling the earlier notification No. 144 dated March 31, 1953.
2. Acting under the provisions of the Amendment Act, the Additional Commercial Tax Officer, Guntur, issued notices to the appellants to produce the account books relating to their business in tobacco for the purpose of assessing sales tax. To this the appellants replied by filing petitions under Art, 226 of the Constitution in the High Court of Andhra Pradesh challenging the constitutionality of the Amendment Act on the grounds inter alia that in taxing sales of Virginia tobacco and exempting from tax sales of other tobacco the Act was discriminatory, and that in consequence it was obnoxious to Art. 14 of the Constitution and that further it was in contravention of Art. 286 (1) (b) as it was really a tax on sales in the course of export of tobacco. They accordingly prayed that a mandamus might be issued directing the respondents to forbear from making an assessment on the sales of tobacco. The learned judges disagreed with these contentions and dismissed the petitions, holding that the impugned Act did not infringe any constitutional provisions, but granted certificates under Art, 133 of the Constitution. That is how these appeals come before us.
3. On the arguments addressed to us, two questions arise for our determination:
(1) Is the impugned Act repugnant to Art, 14 for the reason that it singles out Virginia tobacco for taxation?
(2) Is the impugned legislation in contravention of Art. 286 (1)(b) as imposing a tax on sales in the
