Karnataka High Court
Ghodawat Pan Masala Products (I) Ltd. vs State Of Karnataka And Ors. on 12 August, 2002
Equivalent citations: ILR2002KAR4170, [2003]130STC276(KAR), 2003 AIR - KANT. H. C. R. 199, (2003) 130 STC 276 (2002) 53 KANTLJ(TRIB) 157, (2002) 53 KANTLJ(TRIB) 157
Author: P. Vishwanatha Shetty
Bench: P. Vishwanatha Shetty
ORDER P. Vishwanatha Shetty, J.
1. The petitioners in these batch of petitions are registered dealers under the provisions of the Karnataka Sales Tax Act, 1957 (hereinafter referred to as "the KST Act") and also under the provisions of the Karnataka Tax on Entry of Goods Act, 1979 (hereinafter referred to as. "the KTEG Act"). According to the averments made in these petitions, they are carrying on business in stock/sale/distribution of various brands of gutka in the State of Karnataka and outside the State of Karnataka.
2. In these petitions, the petitioners have prayed for (1) a decla-ration that insertion of gutka in Sl. No. 9-A of Part "T" of the Second Schedule to the KST Act, with effect from April 1, 1997 by means of Karnataka Act No. 7 of 1997 is bad in law ; (2) a declaration that the Sl. No. 3 and corresponding entries inserted in the Schedule to the Karnataka Tax on Luxuries Act, 1979 (hereinafter referred to as "the KTL Act") prescribing levy of luxury tax on gutka at 20 per cent by Karnataka Act No. 2 of 2001 and making the levy retrospective in operation with effect from April 1, 2000 by Karnataka Act No. 5 of 2001 as bad in law ; and (3) quashing of notices issued under Sections 4, 2(6-B) of the KTL Act and the orders made under Section 5-A(3) of the Act/demand notices, etc. Now, let me briefly set out the facts as set out by the petitioners in Writ Petition Nos. 9368-9374 of 2001 for the sake of convenience.
3. The provisions contained in the KST Act empower the State of Karnataka to levy sales tax on sales and purchases of various items of goods. Sl. No. 9-A of Part "T" of the Second Schedule to the Act provides for levy of sales tax on tobacco products. Prior to the amendment of Sl. No. 9-A of Part "T" of the Second Schedule, the levy of tax on tobacco products was at 8 per cent and gutka was not treated as one of the items of tobacco products. However, by means of amendment made to the said provision, gutka was included as one of the tobacco products and the rate of tax was increased from 8 per cent to 20 per cent. The amended Sl. No. 9-A of Part "T" of the Second Schedule referred to above reads as follows :
"9-A Tobacco products including gutka and the From l-4-1997
like but excluding such products as 20 per cent."
specified elsewhere in any of the
Schedules.
4. On 23rd January, 2001, Government of Karnataka promulgated Karnataka Ordinance No. 3 of 2001 introducing amendment to the KTL Act of 1979. However, the said Ordinance was replaced by Karnataka Act No. 2 of 2001. Section 2(6-B) of the KTL Act provides for the definition of "stock of luxuries". By means of the said amendment made, to the definition of stock of luxuries, the stock held as on 1st April, 2000 on which tax under the provisions of the KST Act has been paid or has become payable was excluded. Further, Section 4-B of the said Act, which is also the charging section, was amended prescribing levy of luxury tax on gutka even if the entry tax on gutka has been levied or has become leviable under the KTEG Act ; and the Schedule to the said Act was also amended by taking gutka out of Sl. No. 2 of the Schedule which prescribed only 4 per cent of tax and specifying it separately at Sl. No. 3 of the Schedule with the prescription of rate of luxury tax at 20 per cent. Subsequent to the said amendment, amendments were also introduced to the KTL Act by means of Karnataka Act No. 5 of 2001 which came into force with effect from 1st April, 2001. The said amendment provides that the entries relating to Sl. No. 2, as it existed prior to 23rd January, 2001, the word "gutka", is deemed to have been omitted with effect from 1st April, 2000 and after the entries relating to Sl. No. 2 as it existed prior to 23rd January, 2001 column 3 providing for a word "gutka" deemed to have been in force up to 22nd January, 2001 with tax leviable at 20 per cent. The effect of the said amendment is to provide for levy of 20 per cent of luxury tax retrospectively on gutka from 1st April, 2000 to 22nd January, 2001.
5. Sri G. Sarangan, learned Senior Counsel appearing along with Sri Parthasarthy, and Sri B.P. Gandhi, made nine submissions. Firstly, they submitted that the levy of luxury tax at the high rate of 20 per cent on the stocks of gutka which are brought from outside the State of Karnataka is clearly violative of the right to freedom of trade, commerce and intercourse throughout the territory of India guaranteed under Article 301 of the Constitution of India. Elaborating this submission they pointed out that even if the levy of luxury tax as has been levied is considered as a reasonable restrictions imposed on the freedom of trade, commerce or intercourse in public interest, since neither the previous nor subsequent sanction of the President of India has been obtained as required under proviso given to Article 304(b) of the Constitution, the said provision is not saved and there-fore it is liable to be struck down on the ground that it does not have the protection under Article 304(b) of the Constitution. They also submitted that the conjoint reading of the provisions in KTL Act which provides for levy of luxury tax on gutka at 20 per cent is considered along with Section 17-A of the said Act which makes Section 28-A of the KST Act applicable which provides for estab-lishment of check-posts or barriers or both, it would be clear that the restrictions are on intercourse throughout the territory of India. The learned counsel while referring to the definition of stock of luxuries as set out in Section 2(6-B) and also charging Section 4-B of the KTL Act, pointed out that since there are no manufacturers of gutka in the State of Karnataka, there is no factual situation of a stockist coming into the possession of his own stock of gutka within the meaning of Section 2(6-B) of the Act, except by purchase or acquisi-tion from the agencies located outside the State. In support of their contention, they strongly relied upon the decision of the High Court of Allahabad in the case of Varshney General Sales v. State of U.P. and decision of High Court of Kerala in the case of Hallmark Tobacco Company Limited v. State of Kerala reported in [1998] 108 STC 539 ; and also the division Bench decision of the Kerala High Court in the case of State of Kerala v. I.T.C. Limited made in Writ Appeal No. 1510 of 1997 disposed of on 18th June, 2001 Reported in . confirming the judgment of the single Judge made in Hallmark Tobacco Company Limited v. State of Kerala [1998] 108 STC 539 (Ker). It is their submission that levy of luxury tax prescribed under the Karnataka Act being in pari materia with or similar to the levy prescribed under the U.P. Act and the Kerala Act which came up for consideration before the High Court of Allahabad and High Court of Kerala in the cases of Varshney General Sales and Hallmark Tobacco Company Ltd, [1998] 108 STC 539 respectively for the very reasons given in the said decisions the impugned levy is liable to be struck down. They pointed out that the moment stocks of gutka are received by the stockist, the stockist at once becomes liable to pay luxury tax at 20 per cent in addition to entry tax at 4 per cent under the KTEG Act ; and since there are only non-manu-facturer-stockists in the State, who receive or procure gutka from suppliers located outside the State, the exemption contemplated under Sub-clause (i) of Section (3) of Section 4-B of the Act on the value of gutka dispatched to places outside Karnataka is of no avail or use to the stockist. It is their further submission that even it is held that the stockist is entitled to claim the exemption from tax in respect of gutka dispatched to places outside the State, the exemption that may be claimed by the stockist being dependent upon the various circumstances like acceptability of the same by the assessing authority, and there being no certainty of refund of luxury tax paid because of the practice prevalent in the department to deny such refunds by invoking the theory of unjust enrichment, the stockist in the State are placed in a great disadvantage than their counterparts in other States where there is no levy of luxury tax. They submitted that out of 29 States in the country, there is no levy of luxury tax on gutka in 23 States and gutka is banned in the States of Tamil Nadu and Andhra Pradesh. Therefore, they submitted that the levy of luxury tax in the State of Karnataka creates a two-tier price on gutka, one within Karnataka loaded with 20 per cent luxury tax and 4 per cent entry tax and to others outside the State costing less by an equivalent amount, and under these circumstances it is reasonable to infer that the preference of manufacturers of gutka would be to market their product outside the State ; and stockists in the State who receive supplies from manufacturers located in other States cannot compete with others who sell gutka outside the State. They also relied upon the decisions of the honourable Supreme Court in the cases of A.B. Abdul Kadir v. State of Kerala , Atiabari Tea Co. Ltd. v. State of Assam , Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan and Syed Ahmed Aga v. State of Mysore , the Full Bench decision of the Kerala High Court in the case of Yogesh Trading Company v. Intelligence Officer of Sales Tax reported in [1970] 26 STC 45 and in the case of Hallmark Tobacco Company Limited v. State of Kerala reported in [1998] 108 STC 539 (Ker). Secondly, they submitted that the levy of luxury tax on gutka at 20 per cent with retrospective effect from 1st April, 2000 is unreasonable and confis-catory in nature and as such violative of right guaranteed to the petitioners under Articles 14 and 19(l)(g) of the Constitution of India. Elaborating this submission, the learned counsel pointed out that up to 22nd of January, 2001, gutka was made liable to pay luxury tax only at 4 per cent under the KTL Act ; and it is only by means of Karnataka Act No. 2 of 2001, the rate of luxury tax was increased from 4 per cent to 20 per cent prospectively with effect from 23rd January, 2001 ; and it is only by means of Karnataka Act No. 5 of 2001 increase in rate of tax on gutka at 20 per cent was given retrospective effect from 1st April, 2000. In support of their contention they strongly relied upon the decision of the honourable Supreme Court in the case of Empire Industries limited v. Union of India and also in the case of Ujagar Prints v. Union of India reported in AIR 1989 SC 516,C and referred to me pages 430 and 431 of the said judgment ; in the case of D. Cawasji and Co. v. State of Mysore reported in [1985] 58 STC 1 (SC) and the decision of the Bombay High Court in the case of Olympic Oil Industries Ltd. v. State of Maharashtra reported in [1987] 65 STC 191 and referred to me paragraph 29 of the judgment. It is their submission that Karnataka Act No. 5 of 2001 making the levy of tax retrospective in operation not being a curative legislation for validation of any law struck down by the courts, the said provision is liable to be struck down as highly arbitrary, unreasonable and violative of the rights guaranteed to the petitioners under Articles 14 and 19(l)(g) of the Constitution of India. Thirdly, they submitted that the imposition of luxury tax at 20 per cent is also liable to be struck down on the ground that it is discriminatory, arbitrary and violative of right guaranteed to the petitioners under Article 14 of the Constitution of India. It is their submission that when all other tobacco products including cigarettes, which are costlier and more harmful than gutka are being taxed only at 4 per cent, gutka alone is singled out and picked up for hostile discrimination for levy of luxury tax at very high rate of 20 per cent even if entry tax at 4 per cent is paid. It is their contention that there is absolutely no justification to levy luxury tax at 20 per cent in addition to 4 per cent of entry tax on gutka. In support of this contention, the learned counsel also relied upon the decision of the Allahabad High Court in the case of Varshney General Sales and drew my attention to the paragraphs 96 to 98 of the judgment. Fourthly, they submitted that the legislation on tobacco industry being the exclusive domain of the Parliament under entry 52 of the Union List, the levy of luxury tax on gutka, which is a tobacco product, is outside the competency of State Legislature under entry 62 of the State List. In other words, it is their submission that levy of luxury tax on gutka is beyond the competency of the State Legislature as the field is occupied by the Parliament. In support of this submission they strongly relied upon the decision in the case of State of Kerala v. I.T.C. Ltd. and also in the case of Tika Ramji v. State of Uttar Pradesh . Fifthly, they submitted that since the additional excise duty under the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (hereinafter referred to as "the ADE Act") is levied on gutka, it is not permissible for the State to levy luxury tax on gutka. Sixthly, they submitted that gutka being a declared goods under Section 14(ix) of the CST Act and subject to restrictions and conditions prescribed in Section 15 of the said Act, the levy of tax payable in respect of sale or purchase of any goods inside the State cannot exceed 4 per cent of the sale or purchase price thereof ; and the said tax shall not be levied at more than one stage. Elaborating this submission, they pointed out that in view of the Sub-clause (3) of Article 286 of the Constitution, the provisions contained in Sections 14 and 15 of the CST Act will prevail over the impugned provisions ; and therefore the said provision is liable to be struck down to the extent it runs counter to the provisions contained in Sections 14 and 15 of the CST Act. In support of this contention, they relied upon the decision of the honourable Supreme Court in the case of Kothari Products Ltd. v. Government of Andhra Pradesh and also in the case of State of Kerala v. Attesee (Agro Industrial Trading Corporation) reported in [1989] 72 STC 1. Seventhly, they submitted that the continuation of levy of sales tax on gutka at Sl. No. 9-A of Part "T" of the Second Schedule to the Act in spite of the judgment of the honourable Supreme Court in the case of Kothari Products is bad in law. The eighth submission of the learned counsel is that the levy of luxury tax is in effect and substance continuation of sales tax which is not permis-sible in view of the decision of the honourable Supreme Court in the case of Kothari Products . This, the learned counsel pointed out, is clear from the explanatory statement given to the Karnataka Luxuries Amendment Bill wherein it is stated that the decision of the honourable Supreme Court in the case of Kothari Products would be applicable to the State, and as such it is not permissible for the State to continue to levy sales tax on gutka in the State and discontinuance of the sales tax on gutka would result in revenue loss of Rs. 30 crores per annum and therefore it is necessary to increase the rate of luxury tax on gutka from 4 per cent to 20 per cent amending the Luxuries Tax Act. In other words, it is their submission that the impugned levy is liable to be quashed on the ground that it is colourable piece of legislation. Finally, it is submitted by Sri B.P. Gandhi that gutka not being a luxury item, levy of luxury tax on gutka is unconstitutional. He pointed out that since gutka is being consumed by common and poor people and it is being sold in a pouch costing around Re. 1 to Rs. 3, gutka cannot be treated as an item of luxury. Therefore, it is his submission that levy of luxury tax on gutka is beyond the legis-lative competency of the State ; and it is only on luxury items; the State could levy luxury tax under entry 62 of the List II of the Seventh Schedule. In support of this submission, the learned counsel relied upon the decision of the honourable Supreme Court in the case of C. Rajagopalachari v. Corporation of Madras .
6. Sri A.N. Jayaram, learned Advocate-General appearing along with Sri T.K. Vedamurthy, learned Government Pleader, strongly countered each one of the submissions advanced by learned counsel appearing for the petitioners. Firstly, he submitted that since the luxury tax imposed does not interfere with the freedom of trade, commerce and intercourse throughout the territory of India, it was wholly unnecessary to satisfy the requirements of Article 304(b) of the Constitution of India. He submitted that reading of Section 4-B along with Sub-section (6-B), Sub-section (6-C) and Sub-section (9) of Section 2 of KTL Act makes it clear that the tax is imposed on the stock held by a stockist and not on supply or sale or purchase of goods. Elaborating this submission, he pointed out that Sub-clauses (i) to (iii) of Section 4-B of the KTL Act make it clear that no luxury tax is leviable on the value of stock of luxuries : (i) dispatched to places outside the State ; (ii) on which sales tax has been paid or become payable ; (iii) on which the luxury tax has already been paid or become payable. Therefore, it is his submission that the combined reading of Sub-section (3) of Section 4-B and Section 2(6-B) and 2(6-C) and 2(9) will confirm the position that the luxury tax is levied not on the sale or purchase of luxury goods in any year, but only on the basis of value of stock held by a stockist. It is his submission that stock connotes a state of rest as opposed to movement and the effect on the movement of goods on account of levy of luxury tax is not affected. He also pointed out that as a matter of fact the increase in the rate of tax has not restricted or adversely affected the trade and free movement of goods. According to him, the available statistics show that the volume of trade is on increase even after higher levy of luxury tax. He also submitted that the levy of luxury tax at 20 per cent is uniform irrespective of the fact that whether gutka held in stock is of local origin or sources from outside Karnataka ; and there is no discrimination between locally purchased/produced gutka and gutka brought from outside the State. In support of his submis-sion, he referred to me the decisions of the honourable Supreme Court in the cases of Andhra Sugars Ltd. v. State of Andhra Pradesh ; , State of Bombay v. United Motors (India) Ltd. , State of Madras v. N.K. Nataraja Mudaliar reported in [1968] 22 STC 376 ; 1 SCST 773, Hansraj Bagrecha v. State of Bihar reported in [1971] 27 STC 4 ; 1 SCST 796, State of Kerala v. A.B. Abdul Kadir , Vrajlal Manilal & Co. v. State of Madhya Pradesh reported in. It is his further submission that the decisions of the Kerala High Court in the case of I.T.C. Limited and Allahabad High Court in the case of Varshney General Sales have no bearing to the facts of the present case as the tax on gutka is levied in respect of stock held by a dealer. It is also the submission of the learned Advocate-General that the view expressed by the Kerala High Court in the case of I.T.C. Limited and by the High Court of Allahabad in the case of Varshney General Sales that the levy of luxury tax in those cases in-terfere with freedom of trade, commerce and intercourse guaranteed to the petitioners under Article 301 of the Constitution of India, is not a correct principle of law enunciated ; and therefore this Court should not be guided by the said view, even if this Court comes to the conclusion that the principle enunciated in the said decisions has a bearing to the facts of the present case. It is his submission that the petitioners having failed to place any materials before this Court to show that the impugned increase in the rate of tax has adversely affected the free movement of inter-State trade and commerce, they cannot be permitted to urge that the impugned tax has seriously interfered with the right to freedom of trade, commerce and inter-course. Regarding the second contention of the learned counsel appearing for the petitioners that the levy of luxury tax on gutka at 20 per cent with retrospective effect from 1st April, 2000 is unrea-sonable and confiscatory and therefore violative of the rights guar-anteed to the petitioners under Articles 14 and 19(l)(g) of the Constitution of India, the learned Advocate-General while strongly supporting the power of the State to levy luxury tax retrospectively, pointed out that it is well-settled that the State Legislature, which has power to levy luxury tax prospectively, has also the power to levy luxury tax retrospectively. It is his submission that Act No. 5 of 2001 which is made retrospective in operation with effect from 1st April, 2000 is neither unreasonable, confiscatory in nature and it is also not violative of the rights guaranteed to the petitioner under Article 14 and 19(l)(g) of the Constitution of India. It is his further submission that assessees' inability to transmit tax burden to customers is no reason to assail a taxing provision. Justifying the impugned legislation, he submitted that with effect from 1st April, 2000, in view of the decision of the honourable Supreme Court in Kothari Products case , the State is prevented from collecting sales tax at the rate of 20 per cent which it was earlier collecting on gutka. Under these circumstances, as set out in the explanatory note given to the Bill introduced, the State with a view to mobilise re-sources for its welfare measures, thought it fit to exercise the power conferred on it under entry 62 of List II and enhance the luxury tax from 4 per cent to 20 per cent. In support of his submission, he relied upon the decisions of the honourable Supreme Court in the cases of M.P.V. Sundararamier & Co. v. State of Andhra Pradesh , J.K. Jute Mills Co. Ltd, v. State of Uttar Pradesh [1961] 12 STC 429 , Chhotabhai Jethabai Patel and Co. v. Union of India. , Rai Ramkrishna v. State of Bihar , Ram Chandra Kailash Kumar & Co. v. State of U.P. . Thirdly, he pointed out that tobacco and tobacco products having been held to be as luxury items by the honourable Supreme Court, the tax on such luxury goods at 20 per cent cannot be considered as either excessive or unreasonable or discriminatory in nature as vio- lative of the rights guaranteed to the petitioners under Article 14 of the Constitution of India. It is his submission that it is an accepted policy of the Government to impose heavy taxes upon commodities considered dangerous to health and life of human beings, the twin object of levying such heavy tax being to desist the people from consuming the commodities which are hazardous to their health and also to collect huge revenue to the State. In this connection he drew my attention to the statements made in paragraph 5 of statement of objections and paragraphs 13 and 14 of the additional statement of objections. He pointed out that the State has a wide power to pick and choose the items to be taxed and on the rates at which to tax them. Fourthly, the learned Advocate-General pointed out that the power of the State to levy luxury tax on tobacco products is unaffected by the legislative power conferred on the Union Government under entry 52 of List I. It is his submission that so long as the impugned legislation falls in pith and substance within the taxing field of the State as set out in the entry 62 of the List II, the power of the State to levy luxury tax is not impaired. He pointed out that while entry 52 of List I empowers the Parliament to legislate on industries, the control of which by the Union is declared by Parliament by a law to be expedient in public interest, entry 62 of List II empowers State Legislature to levy tax on luxuries ; and entry 52 of List I and entry 62 of List II are intended to serve and achieve different purposes. In support of his submission, he relied upon the decision of the honourable Supreme Court in the case of State of U.P. v. Synthetics and Chemicals Ltd. and referred to me the observations made in the judg-ment at page 1270. So far as the fifth contention of the petitioners that it is not permissible for the State to levy luxury tax on gutka since the additional excise duty under the ADE Act levied on gutka is concerned, it is the contention of the learned Advocate-General that the ADE Act prohibits imposition of excise duty in respect of items declared to be goods of special importance ; and the provisions contained in ADE Act has no application to the present case, as the tax imposed is not levy of excise duty by the State. It is his submission that the luxury tax is imposed, as it could be seen from the provisions of the Act, on the stock of gutka which is an item of luxury. He pointed out that while excise duty is imposed on manufacture of goods, the luxury tax under the impugned provision is imposed on the holding of the stock of goods. So far as the sixth contention of the learned counsel appearing for the petitioners that gutka being declared as goods under Section 14(ix) of the CST Act and as such in view of the prohibitions contained in Section 15 of the CST Act, it is not permissible for the State to levy luxury tax, the learned Advocate-General pointed out that the said contention is totally misconceived for two reasons. Firstly, he pointed out that the prohibition placed under Section 15 of the CST Act being only with regard to the levy of sales tax above the rate of 4 per cent and in the instant case the levy is one of luxury tax by the State in exercise of power conferred on it under entry 62 of List II, the prohibition contained in Section 15 of the CST Act cannot have any application. Secondly, he pointed out that under item (ix) of Section 14 of the CST Act, tobacco products and various sub-headings are mentioned. Sub-heading 2404.40 is not one of the items mentioned in Section 14(ix). Even though the Schedule to the Central Tariff Act, 1985 has under-gone change and as a result of Finance Bill of 2001, entry 2404.04 (pan masala and gutka) were inserted, such amendments to the Central Excise Tariff Act, 1985 do not affect the provisions of Section 14(ix) of the CST Act which continued to remain as they were in 1988. It is his further submission that every amendment subsequently carried out to the Central Excise Tariff Act does not automatically become part of the CST Act. In other words, it is his submission that gutka is not a declared goods under Section 14 of the CST Act as the amendment carried out to the Central Excise Tariff Act has not become part of Section 14(ix) and continues to remain absent as it was not part of the provisions introduced to the Finance Act, 1988. Therefore, he submits that the subsequent changes made introducing 2404.40 in the Central Excise Tariff Act do not change the CST Act and therefore gutka would not be covered under sub-heading 2404.40 so far as CST Act is concerned. So far as the seventh contention of the petitioners that in the light of the judgment of the honourable Supreme Court in the case of Kothari Products it is not permissible for the State to levy sales tax on gutka under Sl. No. 9-A of Part "T" of the Second Schedule to the KST Act, is con-cerned, the learned Advocate General fairly submitted that in the light of the judgment of the honourable Supreme Court, State is not collecting sales tax. He also strongly countered the submission of the learned counsel appearing for the petitioners that the levy of luxury tax is a colourable piece of legislation. Finally, he submitted that the contention of Sri Gandhi that gutka is not an item of luxury is totally misconceived and has been made in total disregard to the law laid down by the honourable Supreme Court in the case of A.B. Adbul Kadir .
Let me, now proceed to examine each of the contentions advanced by the learned counsel appearing for the petitioners in support of the relief sought for by them.
7. It is useful to first consider the contention of Sri Gandhi that gutka is not an item of luxury. I am unable to accede to the submission on the ground that since gutka is being sold in a small packet or pouch costing around Re. 1 to Rs. 3, and is being generally consumed by poorer sections of the society, it is not an item of luxury. This submission is wholly misconceived and overlooks the well-settled legal principles. It cannot be disputed that gutka is not an item of necessity for a day-to-day living of the people. The component of gutka consists of, even according to the petitioners, 7 per cent of tobacco. It is well recognised that consumption of tobacco is harmful to human health, which would have serious adverse impact on the life of the people. Consumption of gutka is an addiction, like an addiction to alcohol. Gutka is generally consumed for pleasure and enjoyment. The petitioners have failed to place any material to show that gutka is being consumed only by a lower strata of society. Even if it so, that cannot be a ground to treat gutka as not an item of luxury. If, as a matter of fact, gutka is being consumed by the poorer sections of the society, may be, they are using it as a substitute for other items of luxury on account of lower price fixed for it. While a sum of Rs. 2 to Rs. 5 is not a big amount and is of no consequence for a well-to-do person ; but for a poor person who earns a small amount, the expenditure incurred on gutka is of serious consequence to him and for the living condition of his family. Any expenditure incurred on something, which is not of necessity and which is in excess of what is required for economic and personal well being, would be an expenditure of luxury. The number of people who consume an item, need hot always necessarily be a factor to decide whether an item consumed by the people is an item of necessity or luxury. The test, is, whether the article in question is an article of need or necessity for day-to-day living. If the said test is applied, it is not possible to take the view that gutka is not an item of luxury. In my views, I am also supported by the decision of the honourable Supreme Court in the case of Express Hotels Private Ltd. v. State of Gujarat wherein the honourable Supreme Court has observed that :
"It is true that while frugal or simple food and medicine may be classified as necessities, articles such as jewellery, perfume, intoxicat-ing liquor, tobacco, etc., could be called articles of luxury." (emphasis* supplied) Similar view is also expressed by the honourable Supreme Court in the case of A.B. Abdul Kadir . At paragraph 14 of the judgment it is observed as follows :
"It may be added that there is nothing static about what constitutes an article of luxury. The luxuries of yesterday can well become the necessities of today. Likewise, what constitutes necessity for citizens of one country or for those living in a particular climate may well be looked upon as an item of luxury for the nationals of another country or for those living in a different climate. 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 border-line case would not be faced when we are dealing with an article like tobacco, which has been recognised to be an article of luxury and is harmful to health."
Therefore, I am of the view that the contention of Sri Gandhi that gutka is not an item of luxury is liable to be rejected. Accordingly it is rejected.
8. Now, the next question which has been very seriously urged by the learned counsel appearing for the petitioners, which requires to be considered is, whether the levy of luxury tax at the rate of 20 per cent would impinge the right to freedom of trade, commerce and intercourse throughout the country guaranteed under Article 301 of the Constitution of India ? Article 301 of the Constitution of India which is included in Part XIII of the Constitution, subject to the other provisions in Part XIII, guarantees free trade, commerce and intercourse throughout the territory of India. However, Article 302 of the Constitution empowers the Parliament to impose such restrictions on the freedom of trade, commerce or intercourse between one State and another or within any part of the territory of India as may be required in public interest. Sub-clause (1) of Article 303 of the Constitution further provides that notwithstanding anything in Article 302, neither Parliament nor the Legislature of a State shall have power to make any law giving, or authorising the giving of any preference to one State over another, or making, or authorising the making of, any discrimination between one State and another by virtue of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule. However, Sub-clause (2) of Article 303 of the Constitution empowers the Parliament to make any such law referred to in Sub-clause (1) of Article 303 of the Constitution of India, if it is declared by such law made by the Parliament that it is necessary to do so for the purpose of dealing with a situation arising from scarcity of goods in any part of the territory of India. Clause (a) of Article 304 of the Constitution provides that notwith-standing anything in Article 301 or 303, the Legislature of State could impose, on goods imported from outside the State or the Union territory, any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced within the State. Clause (b) of Article 304 of the Constitution empowers the State to control the goods with or within the State as may be required in public interest, provided that a Bill imposing such reasonable restriction is introduced or moved in the Legislature of State with the previous sanction of the President. In the instant case, it is not in dispute that the sanction of the President, either previous or subsequent to the passing of the impugned Act, has not been obtained. This being the Constitutional set up, which I am required to bear in mind, I find it useful to refer to some of the provisions of KTL Act. The definition of "stock of luxuries", "stockist", "value of stock of luxuries", "turnover of stock of luxuries", which are respec-tively defined under Section 2(6-B), 2(6-C), 2(8) and 2(9) of the KTL Act read as hereunder :
2(6-B). "Stock of luxuries" means the quantity of luxuries being the own stock of the stockist or stocks entered in the records or accounts of the stockist or the quantity of luxuries the stockist receives or procures, during any year, for stocking, vending or distributing or supplying to a wholesaler, intermediary, retailer or any person, but shall not include any quantity of such luxuries held in stock on the day of the date of commencement of the Karnataka Taxation Laws (Amendment) Act, 1997 or on the first day of April, 2000 on which tax under the Karnataka Sales Tax Act, 1957 (Karnataka Act 25 of 1957) has been paid or has become payable.
2(6-C) "Stockist" means a person who has in his possession or custody or under his control a stock of luxuries procured in any manner or manufactured, made or processed by him in the course of business in the State or brought or caused to be brought by him into the State either on his own account or on account of others from any place outside the State, for stocking, vending or supplying such luxuries.
2(8) "Value of stock of luxuries" means-
(i) in respect of a stockist being a manufacturer of any of the luxuries, the value of such luxuries calculated at the ex-factory price ;
(ii) in respect of any other stockist, the value of such luxuries calculated at the price thereto as per the bill, invoice or consignment note or other document of like nature, of any person within the State or outside the State, from whom such luxuries are received;
(iii) in respect of any stockist mentioned in Sub-clauses (i) and (ii), the value of stock of luxuries shall include,--
(a) excise duty, countervailing duty paid or payable on such luxuries by a manufacturer or importer thereof, as the case may be, and ;
(b) transport charges, insurance charges, packing charges, forwarding and handling charges, if any, for carrying such luxuries to any premises, godown, warehouse or any other place of the stockist in the State.
2(9) "Turnover of stock of luxuries"--n relation to a stockist, in respect of any year, means the aggregate of the value of stocks of luxuries.
As rightly pointed out by the learned Advocate-General, the luxury tax is not imposed on the movement of goods. It does not, in any way, interfere with the import of freedom of trade, commerce and intercourse either to the State of Karnataka or outside the State of Karnataka. As it could be seen from Sub-section (1) of Section 4-B of the KTL Act, tax is levied and collected on the "turnover of the stocks of luxuries". Sub-section (2) of Section 4-B further provides that the tax levied under Sub-section (1) shall be paid by every registered stockist or a stockist liable to get himself registered under this Act. Further, Sub-section (3) of Section 4-B provides that notwithstanding anything contained in Sub-section (1), but subject to the production of proof as may be prescribed, that luxury tax is not leviable on the value of stock of luxuries,--
(i) dispatched to places outside the State.
(i)(a) on which tax under the KST Act (Karnataka Act 25 of 1957) has been paid or has become payable.
(ii) on which tax under this Act has been paid or has become payable ; and
(iii) on which tax under the KTEG Act has been levied or has become leviable.
The emphasis in Sub-section (3) of Section 4-B is also on "the value of stock of luxuries". Sub-section (9) of Section 2 makes "turnover of stock of luxuries" in relation to a stockist in respect of any year, means the aggregate of the value of stocks of luxuries. Sub-section (6-C) of Section 2 of the Act which defines "stockist" provides that a "stockist" means a person who is in possession or custody or under his control of stock of luxuries procured from any manner or manufactured, made or processed by him in the course of business in the State or brought or caused to be brought by him into the State either on his own account or on account of others from any place outside the State, for stocking, vending or supplying such luxuries. Sub-section (6-B) of Section 2 of the Act which defines "stock of luxuries" provides for quantity of luxury being owned, stock of the stockist or stocks entered in the records or accounts of the stockist or the quantity of luxuries the stockist receives or procures, during any year, for stocking, vending or distributing or supplying to a wholesaler, intermediary, retailer, etc. Therefore, the combined reading and the language employed in Sections 4-B, 2(6-B), 2(6-C), 2(8) and 2(9) make it clear that the levy of luxury tax on the "turnover of stock of luxuries" held by a "stockist", in my considered view, will not amount to imposing any restrictions for free movement of trade, commerce and intercourse throughout the territory of the country as guaranteed under Article 301 of the Constitution of India. It is well-settled that it is only such restrictions which would directly and immediately restrict or impede the free-flow or movement of trade would only amount to interference in the course of free trade, commerce and intercourse guaranteed under Article 301 of the Constitution of India. Levy of luxury tax at a maximum rate on the turnover of stock of good irrespective of the source of acquisition, in my view cannot be treated as impinging the right to free trade, commerce and intercourse guaranteed throughout the country. As rightly pointed out by the learned Advocate-General, the petitioners have not placed any materials before this Court to show that the imposition of the luxury tax, has in any manner, as a matter of fact, restricted the free movement of goods in the course of either intra-State or inter-State. On the other hand, it is the submission of the learned Advocate-General that the business of intra-State movement of gutka has substantially gone up even after the impugned tax. In the absence of any material placed by the petitioners to show that free movement of gutka has been actually affected on account of imposition of luxury tax, I have no reason to not to accept the submission of the learned Advocate-General on behalf of the State that the imposition of luxury tax in any manner affected the free movement of goods in the course of inter-State trade. The honourable Supreme Court has taken the view that it is only on such of those restrictions or levy of tax which would directly and immediately restrict or impede the free-flow or movement of trade are only liable to be declared as unconstitutional on the ground that such a levy would impede the free movement of trade, commerce and intercourse guaranteed to the petitioners under Article 301 of the Constitution of India. In this connection it is useful to refer to the observation made by the honourable Supreme Court in the cases of Atiabari Tea Co, Ltd. , Andhra Sugars Ltd. , Video Electronics Pvt. Ltd. v. State of Punjab . In the case of Atiabari Tea Co. Ltd. , the honourable Supreme Court at paragraph 51 of the judgment has observed as follows :
"Thus the intrinsic evidence furnished by some of the articles of Part XIII shows that taxing laws are not excluded from the operation of Article 301 ; which means that tax laws can and do amount to restrictions freedom from which is guaranteed to trade under the said Part. Does that mean that all tax laws attract the provisions of Part XIII whether their impact on trade or its movement is direct and immediate or indirect and remote ? It is precisely because the words used in Article 301 are very wide, and in a sense vague and indefinite that the problem of construing them and determining their exact width and scope becomes complex and difficult. However, in interpreting the provisions of the Constitution we must always bear in mind that the relevant provision 'has to be read not in vacuo but as occurring in a single complex instrument in which one part may throw light on another' (vide James v. Commonwealth of Australia [1936] AC 578 at page 613). In construing Article 301, we must, therefore, have regard to the general scheme of our Constitution as well as the particular provisions in regard to taxing laws. The construction of Article 301 should not be determined on a purely academic or doctrinaire considerations ; in construing the said article we must adopt a realistic approach and bear in mind the essential features of the separation of powers on which our Constitution rests. It is a federal Constitution which we are interpreting, and so the impact of Article 301 must be judged accordingly. Besides, it is not irrelevant to remember in this connection that the article we are construing imposes a constitutional limitation on the power of the Parliament and State Legislatures to levy taxes, and generally, but for such limitation, the power of taxation would be presumed to be for public good and would not be subject to judicial review or scrutiny. Thus considered we think it would be reasonable and proper to hold that restrictions freedom from which is guaranteed by Article 301, would be such restrictions as directly and immediately restrict or impede the free-flow or movement of trade. 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 Article 301. The argument that all taxes should be governed by Article 301 whether or not their impact on trade is immediate or mediate, direct or remote, adopts, in our opinion, an extreme approach which cannot be upheld." (Emphasis* supplied) In the case of Andhra Sugars Ltd. , while considering the tax levied under Section 21 of the Andhra Pradesh Sugarcane (Regulation of Supply and Purchase) Act, on sugarcane would interfere right of freedom of trade, commerce and intercourse under Article 301 of the Constitution of India has taken the view that any discrimination of tax on goods does not offend Article 301 unless it directly impede the free movement or transport of goods. In the instant case, as noticed by me, the tax is levied on the turnover of luxuries held by a stockist. The same percentage is levied irrespective of the basis of acquisition of luxury item. At page 608 of AIR and 225 of STC in the said decision, it is observed as follows :
"Under Section 21, the same rate of tax is levied on purchases of all cane required for use, consumption or sale in a factory. There is no discrimination between cane grown in the State and cane imported from outside. As a matter of fact, under the Act the factory can normally. Buy only cane grown in the factory zone. A non-discriminatory tax on goods does not offend Article 301 unless it directly impedes the free movement or transport of the goods. In Atiabari Tea Co. Ltd. v. State of Assam , J., speaking for the majority said :
'We are, therefore, satisfied that in determining the limits of the width and amplitude of the freedom guaranteed by Article 301 a rational and workable test to apply would be : does the impugned restriction operate directly or immediately on trade or its movement?...... It is the free movement or the transport of goods from one part of the country to the other that is intended to be saved, and if any Act imposes any direct restrictions on the very movement of such goods it attracts the provisions of Article 301, and its validity can be sustained only if it satisfies the requirements of Article 302 or Article 304 of Part XIII.' This interpretation of Article 301 was not dissented from in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan . Normally, a tax on sale of goods does not directly impede the free movement or transport of goods. Section 21 is no exception. It does not impede the free movement or transport of goods and is not violative of Article 301."
In the case of Video Electronics the honourable Supreme Court, while considering what is an interference in the course of free trade, commerce and intercourse, has at paragraphs 20 and 21 of the judgment (pages 99 and 100 STC) observed as follows :
"20. The question as we see is, how to harmonise the construc-tion of the several provisions of the Constitution. It is true that if a particular provision being a taxing provision or otherwise impedes directly or immediately the free-flow of trade within the Union of India, then it will be violative of Article 301 of the Constitution. It has further to be borne in mind that Article 301 enjoins that trade, commerce and intercourse throughout the territory of India shall be free. The first question, therefore, which one has to examine in this case is, whether the sales tax provisions (exemption, etc.) in these cases directly and immediately restrict the free-flow of trade and commerce within the meaning of Article 301 of the Constitution. We have examined the scheme of Article 301 of the Constitution read with Article 304 and the observations of this Court in Atiabari's case , as also the observations made by this Court in Automobile Transport (Rajasthan) Ltd.'s case . In our opinion, Part XIII of the Constitution cannot be read in isolation. It is part and parcel of a single constitutional instrument envisaging a federal scheme and containing a general scheme conferring legislative powers in respect of the matters relating to List II of the Seventh Schedule on the States. It also confers plenary powers on the States to raise revenue for their purposes and does not require that every legislation of the State must obtain assent of the President. Constitution of India is an organic document. It must be so construed that it lives and adapts itself to the exigencies of the situation, in a growing and evolving society, economically, politically and socially. The meanings of the expressions used there must, therefore, be so interpreted that it attempts to solve the present problem of distribution of power and rights of the different States in the Union of India, and anticipate the future contingencies that might arise in a developing organism. The Constitution must be able to comprehend the present at the relevant time and anticipate the future which is natural and necessary corollary for a growing and living organism. That must be part of the constitutional adjudication. Hence, the economic development of the States to bring these into equality with all other States and thereby develop the economic unity of India is one of the major commitments or goals of the constitutional aspirations of this land. For the working of an orderly society economic equality of all the States is as much vital as economic unity.
21. The taxes which do not directly or immediately restrict or interfere with trade, commerce and intercourse throughout the territory of India, would therefore be excluded from the ambit of Article 301 of the Constitution. It has to be borne in mind that sales tax has only an indirect effect on trade and commerce. Reference may be made to the Constitution Bench judgment of this Court in Andhra Sugars Ltd. v. State of Andhra Pradesh , where this Court observed that normally a tax on sale of goods does not directly impede the free movement of transport. See also the observations in Mudaliar's case where at page 395 of STC (page 851 of SCR) it was observed that a tax on sale would not normally offend Article 301. That article made no distinction between movement from one part of the State to another part of the same State and movement from one State to another. In this connection, reference may also be made to the observations in Bengal Immunity's case . Both the preceding cases clearly establish that if a taxing provision in respect of intra-State sale does not offend Article 301, logically it would not affect the freedom of trade in respect of free-flow and movement of goods from one part of the country to the other under Article 301 as well."
Therefore, in the light of enunciation of law made by the honourable Supreme Court in the decisions referred to above, I have no hesitation to hold that levy of luxury tax on "turnover of stock of luxuries" held by a "stockist" will not in any manner interfere with the freedom of trade, commerce and intercourse guaranteed to the petitioner under Article 301 of the Constitution of India. In my considered view, the decision of Allahabad High Court in the case of Varshney General Sales has no application to the facts of the present case. The charging section under U.P. Act is Section 3 of the Act. The combined reading of the charging section and the definition of receipts provided under Section 2(e) and the definition of Section 2(h) and definition of turnover on receipts provided under Section 2(i) make it clear, as pointed out by the Allahabad High Court, is on supply of luxury items. Therefore, in that background the Allahabad High Court took the view that levy of luxury tax on turnover of receipts interferes with the course of free movement of gutka as guaranteed under Article 301 of the Constitution of India and since the said provision is not saved under Article 304(b) of the Constitution of India, the said provision is invalid in law. Therefore, the principle laid down in the said decision, in my view, is of no assistance to the petitioners. Similarly, the decision of the Kerala High Court in the case of I.T.C. Limited is also of no assistance to the petitioners. In the said decision, as it could be seen from the observations made in the course of the judgment, luxury tax is made payable on cigarettes at the rate of 5 per cent on the total value of goods despatched or supplied. Tax is made leviable on the point of supply of goods in the business or trade. This is clear from the observation of the division Bench of the Kerala High Court in the case of I.T.C. Limited made in paragraph 10 of the judgment which reads as hereunder :
"We will now examine whether Section 4A read with Schedule and Section 2(k) would constitute a direct and immediate restriction on the flow of trade and commerce of cigarette from outside the State to the State or within the State. Luxury tax is payable on cigarette at the rate of 5 per cent on the total value of the goods dispatched or supplied. It is leviable on the point of supply of the goods involved in the business or trade. Even though the tax is payable by the person who uses or consumes the cigarette, it has to be collected by the stockists and paid it in Government treasury. The stockist is a person who is engaged in the business or trade. He may manufacture, produce or bring or cause to be brought cigarette into the State. He may be a person to whom cigarette is dispatched from any place outside the State for supply within the State and also a person who supplies cigarettes within the State whether by way of sale or otherwise. The above would clearly show that the levy of tax has a direct and immediate impact on the free movement of goods in the course of inter-State trade and commerce."
Even otherwise, I am of the view, merely because 20 per cent of luxury tax is levied, it is not possible to take the view that the levy of luxury tax interferes with free movement of trade, commerce and intercourse. The Constitutional provisions and the power conferred on the Parliament and the State Legislature in the three Lists of the Seventh Schedule of the Constitution are, if properly understood, in my considered view, there is no scope to come to the conclusion that levy of luxury tax by the State in exercise of constitutional power conferred on it under entry 62 of List II of the Seventh Schedule, requires to be struck down as being an interference for free trade, commerce and intercourse guaranteed under Article 301 of the Constitution of India only on the ground that the tax so levied is on higher side. In the light of the above discussion, I am of the view, the question of the State obtaining previous sanction of the President before introduction of the Bill in question, was totally unnecessary. It is only in cases where the State Legislature intends to impose reasonable restriction on the freedom of trade, commerce and inter-course with or within that State as may be required in public interest it is required to obtain previous sanction of the President before introduction of such a Bill.
9. It is also necessary to point out that there is no merit in the submission of the learned counsel appearing for the petitioners that since Section 17-A of the KTL Act provides for recognition of Section 28-A of the KST Act for the purpose of the KTL Act, with a view vasion of tax under the luxury tax coupled with the power to levy luxury tax amounts to interference in freedom of trade, commerce and intercourse guaranteed to the petitioners under Article 310 of the Constitution of India. The levy of luxury tax has to be independently considered and on such consideration, I have already taken the view, as observed by me earlier, it will not affect the right guaranteed to the petitioners under Article 301 of the Constitution of India. Section 28-A of the KST Act empowers the State Government by issue of notification, directs the establishment of check-posts or erection of barriers, or both, at such a place or places as may be notified with a view to prevent or check the evasion of tax. The division Bench of this Court in the case of Supertronix v. State of Karnataka reported in [2002] 126 STC 275 ; ILR 2000 Kar 49 while considering the constitutional validity of the KST Act in the backdrop of the arguments advanced that the said provision inter-feres with the right of freedom of trade, commerce and intercourse guaranteed under Article 301 of the Constitution of India has nega-tived the said contention. I respectfully agree with the view ex-pressed by this Court in the said decision. Therefore, in the light of the discussion made above, I am of the view that there is no merit in the contention of the learned counsel appearing for the petitioners that the levy of luxury tax interferes with the right to freedom of trade, commerce and intercourse guaranteed to the petitioners under Article 301 of the Constitution of India. Accordingly the said conten-tion is rejected.
10. I find no merit in the second contention of the learned counsel appearing for the petitioners that Act No, 5 of 2001 to the extent it is made retrospective in operation empowering to collect luxury tax with effect from 1st April, 2000, is liable to be struck down on the ground that it seriously invades the right guaranteed to the petitioners under Articles 14 and 19(l)(g) of the Constitution of India or it is confiscatory in nature. As rightly pointed out by the learned Advocate-General it is well-settled that the State Legislature, which has power to levy luxury tax prospectively has also the power to levy luxury tax retrospectively. The only question is, if a law is made retrospective in operation, whether such a law would impinge the rights guaranteed to the petitioners under Articles 14 and 19(l)(g) or any other provisions of the Constitution of India. In the instant case, as noticed by me earlier, it is not possible to take such a view. Merely because, the assessees are not in a position to pass on the luxury tax to the consumers of gutka and therefore, the assessees are liable to pay, in my view is not a ground to hold the retrospective operation of provision is unconstitutional. It is well-settled that assessees' inability to transmit tax burden to customers is no reason to assail a taxing provision. The facts of the present case would indicate that in view of the decision of the honourable Supreme Court in the case of Kothari Products , the State is prevented from collecting sales tax at the rate of 20 per cent which it was earlier collecting on gutka with effect from 1st April, 2000. As it could be seen from the explanatory note given to the Bill introduced, the State with a view to make up the loss has made the impugned provision retrospective in operation from the date on which the State was prevented from collecting sales tax on gutka. It is the stand of the State that with effect from April 1, 2000, the State is not collecting sales tax on gutka. Therefore, even on facts, I am unable to agree with the submission of the learned counsel appearing for the petitioners that the impugned provision would affect the rights of the petitioners guaranteed to them under Articles 14 and 19(l)(g) of the Constitution of India or it is confiscatory in nature. The petitioners have not placed any material in support of the said contention. In the case of J.K. Jute Mills the honourable Supreme Court while taking the view that while according to the accepted notions, the sales tax payable by the seller was intended to be passed on to the purchaser, but it is not an essential characteristic of sales tax that the seller must have the right to pass on it to the consumer, at paragraph 13 of the judgment (page 59 of AIR ; 438 of STC) it is observed thus :
"It is no doubt true that a sales tax is, according to accepted notions, intended to be passed on to the buyer, and provisions authorising and regulating the collection of sales tax by the seller from the purchaser are a usual feature of sales tax legislation. But it is not an essential characteristic of a sales tax that the seller must have the right to pass it on to the consumer, nor is the power of the Legislature to impose a tax on sales conditional on its making a provision for sellers to collect the tax from the purchasers. Whether a law should be enacted, imposing a sales tax, or validating the imposition of sales tax, when the seller is not in a position to pass it on to the consumer, is a matter of policy and does not affect the competence of the Legislature.
Again at paragraph 15 of the judgment (page 439 of STC), the honourable Supreme Court has observed thus :
"The power of a Legislature to enact a law with reference to a topic entrusted to it, is, as already stated, unqualified subject only to any limitation imposed by the Constitution. In the exercise of such a power, it will be competent for the Legislature to enact a law, which is either prospective or retrospective. In Union of India v. Madan Gopal Kabra , it was held by this Court that the power to impose tax on income under entry 82 of List I in Schedule VII to the Constitution, comprehended the power to impose income tax with retrospective operation even for a period prior to the Constitution. The position will be the same as regards laws imposing tax on sale of goods."
Therefore, in the light of the above discussion the grievance of the petitioners that Act No. 5 of 2001 to the extent it makes retro-spective in operation empowering the State to levy luxury tax with effect from 1st April, 2000 is liable to be rejected.
11. Now the next question is whether the levy of luxury tax on tobacco at 20 per cent in addition to 4 per cent of entry tax is liable to be struck down as being highly arbitrary, unreasonable and violative of rights guaranteed to the petitioners under Article 14 of the Constitution of India. I am unable to accept the submission of the learned counsel appearing for the petitioners that merely because, the cigarette which is more expensive and claimed to be more harmful than gutka, is liable to pay luxury tax at 5 per cent, the levy of luxury tax on gutka at 20 per cent in addition to 4 per cent entry tax is liable to be struck down as being arbitrary, unreasonable, discriminatory in nature and violative of rights guaranteed to the petitioners under Article 14 of the Constitution of India. I have already taken the view that gutka is a luxury item. Even according to the petitioners gutka is mixed with 7 per cent of tobacco products. It cannot be disputed that gutka is one of the items which is hazardous to health of the people as such which is highly desirable to deprecate the consumption of gutka. Even according to the petitioners two States in the country have already banned gutka. In this back-ground, if the State in exercise of its legislative power keeping in mind the twin object of desisting people from consuming gutka or at least consumption in huge quantity ; and with a view to mobilize resources for the welfare measure to be undertaken by the State, has imposed the tax on gutka, I find it difficult to hold that such a provision should be struck down by this Court on the ground that it violates the right guaranteed to the petitioners under Article 14 of the Constitution of India. No doubt, the taxing statute also is subject to limitations imposed in the Constitution. However, it is well-settled that the State is given wide discretion in the matter of choice of the articles to be taxed, and also the percentage of tax to be levied. Though cigarette and gutka could be put in one class of articles which are injurious to human health, but for the purpose of levy of luxury tax, if the State has not grouped them together, in my view, it is not permissible for this Court, in exercise of its power under Article 226 of the Constitution of India, to interfere with the choice made by the State of classifying cigarette and gutka differently. The petitioners have not placed any material to show that both cigarette and gutka are in all respects identical and similar. Since the petitioners are alleging discrimination and classification of gutka and cigarette made are not reasonable, the burden is on the petitioners to establish the same. They have failed to discharge the said burden. Further to my mind, the classification of gutka and cigarette differently for the purpose of imposition of luxury tax, having regard to the distinguish-ing features in the matter of taste, price, the nature and status of consumers and the potential to rope in larger sections of the society, more particularly poorer sections of the society, which may have a serious effect on the society in future, on account of consumption of gutka, the classification made cannot be said as unfair, discriminatory, unreasonable and has no direct nexus with the object sought to be achieved. As noticed by me earlier, the twin object of imposing the tax is to minimise the consumption of the said two injurious products and also raise more resources. May be the consumers of cigarette are enlightened affluent sections of the society who are aware of the injurious effect of consuming cigarette while consumers of gutka being poorer sections of the society who are not aware of the injurious consequence of consuming gutka, if the State intends to desist them from consuming gutka who are accustomed to it and also intends to prevent people getting addicted to it in a larger public interest, it is not permissible for this Court to examine the same in mathematical exactitude and come to the conclusion that the classification made is unreasonable. The approach of this Court, while comparing the two obnoxious articles which are health hazardous, should be different from the approach to be made while examining the classification made in respect of other articles. These are all matters of policy. The State, which has better experience and information about the conditions of its people, must be given some latitude and wide discretion in these matters, as the article, which is picked up for levy of luxury tax is being an item which is injurious to human health. The views and assertions of the people who deal with these harmful products to the health of the people as an item of their commercial activity, the sole object of it being profit-motive, should not outweigh the decision of the State lightly by the courts in exercise of their power under Article 226 of the Constitution. In paragraph 5 of the statement of objections and paragraphs 13 and 14 of the additional statement of objections, the State has set out reasons justifying the levy of 20 per cent luxury tax on gutka. It is useful to refer to the statement in paragraphs 13 and 14 of the additional statement of objections which reads as hereunder :
"13. It is submitted that 20 per cent luxury tax levy on 'gutka' and 4 per cent luxury tax levy on other tobacco products is not violative of Article 14 of the Constitution. As submitted above, 'gutka' is a tobacco product which is different and distinct from other tobacco products. It has its own distinctive features. 93 per cent pan masala mixed with 7 per cent tobacco powder yields 'gutka'. It is a tobacco product which is newly catching up in Karnataka in recent years. Such products were not widely consumed earlier in this State. Its impact on public is very adverse. By taxing this obnoxious commodity heavily, the State seeks to reduce its consumption and at the same time, derive revenue for the State. These are laudable objectives as held by the honourable Supreme Court in the case of A.B. Adbul Kadir .
14. It is submitted that the State has a wide power to pick and choose the items to be taxed and the rates at which to tax them. As long as gutka is a product distinct and different from the other tobacco products listed in the tax schedule, the levy cannot be assailed."
I am unable to subscribe to the view taken by the High Court of Allahabad in the case of Varshney General Sales [2003] 130 STC 202 ; (1995) UPTC 105. Therefore, in the light of what is stated above, I have no hesitation to reject the contention of the learned counsel appearing for the petitioners that the impugned levy is liable to struck down on the ground that it affects the rights guaranteed to the petitioners under Article 14 of the Constitution of India.
12. There is also no merit in the fourth contention advanced by the learned counsel appearing for the petitioners that since the Parliament has an exclusive domain to make legislation with regard to tobacco industry under Union List, the levy of luxury tax on gutka, which is a tobacco product, is outside the competency of the State Legislature. The entry 62 of List II confers power on the State Legislature to make legislation providing for levy of taxes on luxuries including taxes on entertainment, amusements, betting and gambling. Therefore, there cannot be any doubt that the State Legislature has a legislative competency to levy luxury tax on luxury items. Entry 52 of List I confers power on the Parliament to make legislation with regard to industries, the control of which by the Union is declared by the Parliament by law to be expedient in public interest. No doubt, Tobacco Board Act has been passed by the Parliament in exercise of its legislative power under List I of entry 52. In my considered view, the power conferred on the State Legislature to levy luxury tax under entry 62 of List II and the power conferred on the Parliament under entry 52 of List I to make legislation with regard to industries, operate in different fields. One does not overlap or occupy the field of the other. The provisions of the Tobacco Board Act, in my view, would not in any manner impair or take away the power of the State Legislature to levy tax on luxury items. Further, the very contention was also negatived by the High Court of Kerala in the case of Hallmark Tobacco Co. [1998] 108 STC 539 and also by the High Court of Allahabad in the case of Varshney General Sales . I respectfully agree with the principle laid down by the High Court of Kerala in the case of Hallmark Tobacco Co. [1998] 108 STC 539 and High Court of Allahabad in the case of Varshney General Sales . It is only in cases where the entire field of legislation is occupied by the Parliament, the State would cease to have legislative competency to make a law. When the Constitution makers have conferred power both on the Parliament and the State Legislature in respect of various items set out in three Lists, merely because the Parliament has passed Tobacco Board Act, it is not possible to come to the conclusion that the field is occupied on account of legislation passed by the Parliament and the State has lost its legislative competency to levy luxury tax in exercise of its legitimate legislative power conferred on it under List II of entry 62. In fact, in the case of Hallmark Tobacco Company Limited [1998] 108 STC 539, the High Court of Kerala, after referring to the decision of the honourable Supreme Court in the case of Buxa Dooars Tea Co. Ltd. v. State of West Bengal and in the case of I.T.C. Limited v. State of Karnataka reported in (1985) Supp SCC 476, and after examining the provisions of the Tobacco Board Act, at paragraph 43 of the judgment has negatived the similar contention. Further, the honourable Supreme Court, in the case of Tika Ramji has observed that : "if the two fields were different and the Central legislation did not intend at all to cover that field, the field was clear for the operation of State legislation and there was no repugnancy at all between Act No. 65 of 1951 and the U.P. Sugarcane (Regulation of Supply and Purchase) Act (24 of 1953)." Similar is the view expressed by the honourable Supreme Court in the case of State of U.P. v. Synthetics and Chemicals Ltd. . At page 1270 of SCST and 306 of STC, it is observed as follows :
"The control exercised by the Central Government by virtue of Section 18G of the IDR Act is in a field far removed from the taxing power of the State under entry 54 of List II. So long as the impugned legislation falls in pith and substance within the taxing field of the State, the control of the Central, Government in exercise of its power under the IDR Act in respect of a controlled industry falling under entry 52 of List I cannot in any manner prevent the State from imposing taxes on the sale or purchase of goods which are the prod-ucts of such industry and which are referable to entry 33 of List III."
Therefore, I do not find any merit in the contention of the learned counsel appearing for the petitioners that the State has no legislative competency to levy luxury tax on gutka.
13. Now the next question that falls for consideration is that , since the additional excise duty is levied on gutka as provided under ADE Act, is it not permissible for the State to levy luxury tax on gutka as contended by the learned counsel appearing for the petitioners ? In my view, there is also no merit in this contention advanced by the learned counsel appearing for the petitioners. It is necessary to point out that the ADE Act prohibits imposition of excise duty in respect of items declared to be goods of special importance and the provisions contained in ADE Act has no application to the present case as the tax imposed is not levy of excise duty by the State. The luxury tax as found by me earlier, is imposed on the holding of stock.
14. So far as the sixth contention of the learned counsel appearing for the petitioners, on examination of rival contentions advanced by the learned counsel appearing for the petitioners and learned Advocate-General, I am unable to accept the contention of the learned counsel appearing for the petitioners that gutka has been declared as goods under Section 14(ix) of the CST Act and as such in view of the prohibitions contained in Section 15 of the CST Act, it is not permissible for the State to levy luxury tax. In my view, the said contention is required to be rejected on both the grounds put forward by the learned Advocate-General. Firstly, on the ground that the prohibition placed under Section 15 of the CST Act being only with regard to the levy of sales tax at the rate of 4 per cent and at a time, and in the instant case, the levy being a luxury tax imposed by the State in exercise of the power conferred on it under entry 62 of List II, the prohibition contained in Section 15 of the CST Act cannot have any application. I am unable to accept the contention of the learned counsel appearing for the petitioners that the levy of luxury tax is a colourable exercise of the power by the State and what is actually levied is the sales tax and not the luxury tax. Section 15 of the CST Act, as observed by me earlier, imposes an embargo on the power of the State Legislature to levy sales tax on the sale or purchase of declared goods and it is made subject to the restrictions imposed under the said provision. Since the luxury tax is levied, as noticed by me earlier, on stock of luxury items and there being no element of sale or purchase, the levy of luxury tax cannot be held to be invalid on the ground that it runs counter to the provisions contained in Clause (a) of Section 15 of the CST Act. No doubt, it is one of the contentions of the learned counsel appearing for the petitioners that though the impugned tax is called as a luxury tax, as a matter of fact and in substance, it is a sales tax and the imposition of tax is a colourable exercise of power by the State. I am unable to accept this contention. When the Legislature is conferred with the power to levy luxury tax under entry 62 of List II, merely because the impugned tax came to be enhanced from 4 per cent to 20 per cent consequent upon the decision of the honourable Supreme Court in the case of Kothari Products [20001 119 STC 553, it is not possible to take a view that what is levied is sales tax and not luxury tax. Secondly, as rightly pointed out by the learned Advocate-General, in sub-section (ix) of Section 14 of the CST Act, tobacco and various sub-headings are mentioned. Gutka is not one of the item mentioned in Sub-section (ix) of Section 14. Even though the Schedule to the Central Tariff Act has undergone a change and as result of Finance Bill of 2001 entry 2404.04 (pan masala and gutka) were inserted, such amendments to the Central Tariff Act does not have the effect of automatically carrying out amendment to item (ix) of Section 14 of the CST Act. The gutka, in my considered view, cannot be treated as a declared goods under Section 14 of the CST Act as amendment carried out to the Central Tariff Act has not become part of Section 14(ix) of the CST Act. Further, this contention was also negatived by the High Court of Allahabad in the case of Varshney General Sales ; 1995 UPTC 105 and by the High Court of Kerala in the case of I.T.C. Limited . I have no reason to take a different view from the one taken in the said two decisions.
15. So far as the contention of the petitioners that in the light of the judgment of the honourable Supreme Court in the case of Kothari Products it is not permissible to levy sales tax on gutka under Sl. No. 9-A of Part "T" of the Second Schedule is concerned, in the light of the statement made by the learned Advocate-General that the State is not collecting sales tax, I find it unnecessary to strike down the said provision. However, the statement made by the learned Advocate-General that the State would not collect sales tax in terms of the power conferred on it under Sl. No. 9-A of Part T of the Second Schedule, in the light of the decision of the honourable Supreme Court in the case of Kothari Products , so long as the said decision holds field is placed on record.
16. Therefore, in the light of the discussion made above, all the contentions advanced by the learned counsel appearing for the petitioners challenging the power of the State to levy luxury tax are liable to be rejected. Accordingly, they are rejected. Consequently, the challenges made to the impugned notices are also liable to be rejected. Accordingly it is rejected.
17. In the light of above, these petitions are liable to be dismissed. Accordingly, they are dismissed. However, no order is made as to costs. Rule issued is discharged.