# A. l!. ABDUL KADIR v. KEllALA

- **Citation:** [1976] 2 S.C.R. 690
- **Court:** Supreme Court of India
- **Decided:** 1975-11-12
- **Case number:** Civil Appeals Nos. 1689-1690 and 1692-1705 of 1972
- **Bench:** H. R. Khanna, P. N. Bhagwati, S. Murtaza Fazal Ali
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/a-l-abdul-kadir-v-kellala-6870
- **Pages:** 18

## Headnote

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II
Keralc• Luxury Tax on Tobacco (Validation) Act, 1964 (9 of 1964) Stare
Legisla/llre-if competent to enact-if could enact a taxation law relrospectirel)'.
Co11stitution of India-Art. 304(b )-reasonable restricti01z-puhlic interestcoloural>le legislation-tests to decide. E1lt!y 84 of List l and Entry 62 of List
lI Luxury-meaning ofThe Finance Act 1950 extended the Central Excise and Salt Act, 1944 lo the
Part B State of Travancore Cochin and repealed the Cochin Tobacco Act, 1909
and the Tobacco Act (Travancore Act I of 1087). Thereafter a system of
licensing wa~ introduced by which the licensees were required to pay a specified
fee in respect of tobacco imported into the State. The appellants challenged
unsuccessfully in the High Court the collection of the licence fee for the period
between August 1950 a!ld December 1957. The Act and rules having been
declared by this Court.as invalid ab initio, the State refunded a portion of the
licence fee collected; but the appellants• filed writ petitions claiming refund ol'
the remainder of the licence fee paid by them. During the pendency of the
writ petitions the Kerala Luxury Tax on Tobacco (Vartdation) Act of 1964
(Act 9 of 1964) was passed by the State legislature to provide for the levy of
a luxury tax on tobacco and validate the levy and collection of fees for licences
for
the
vend
and
stocking
of
tobacco
for
the
period
between
August 17, 1950 and December 31, 1957 and it received the assent of the President. The appellants then challenged the validity of the 1964 Act, but the
State on the other hand demanded payment of the pait of the fee earlier refund.
ed to the parties. The validity of the demand notice was questioned by the
appellants. On the question of validity of the 1964 Act, the High Court held
that ( 1) the levy being in respect of goods produced outside the State, was not
an excise duty falling within Entry 84 of the Union List; (2) the tax clearly
answers the description of luxury tax falling within entry 62 of State List; (3)
however, the payment of the tax being a condition precedent to the bringing
of the goods into the taxing terri'tory, it was a direct impediment on the free
flow of goods, and (4) even so, it is saved by Article 304(b). being a reasonable ta.ii: levied in. public interest.
Dismissing the appeals,
HELD: (1) The;_ judgment of this Court in A. B. Abdulkadir & Ors. v.
The State of Kerala & Anr. (1962] Supp. 2 S.C.R. 741 docs not operate as
res. judicata regarding the points in controversy in these appeals. What was
held in that case was that the Cochin Tobacco Act and the similar Tranvancore
Act taken along with the rules framed under those Acts were in substance law
corresponding to the Central Excise and Salt Act. The Cochin Tobacco Act
and the similar Travancore Act stood repealed· on April 1, 1950 and there
would be no power in the State Government thereafter to frame new rules in
August 1950 and January 1951 for there would be no law to support the new
rules. In the instant case what is questioned is the constitutional validity of
Act 9 of 1964 which was enacted subsequent lo the above decision of this
Court. [698 C-G]
(2){a) The argument that the provisions of the Act fell 1mder Entry 84
of List I of the Seventh Schedule is bereft of force.
The liability to pay the
tax is on stocking and vending of tobacco. There is no provision in the Act
which is concerned with production or manufacture ot tobacco or which Jinks
the tax under its provisions with the manufacture or production of tobacco.
[699-D-E]
. J.
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A. l!. ABDUL KADIR v. KEllALA
691
(b) Excise duty is a tax on articles produced or manufactured in the taxing·
country. Generally speaking, . the tax is on the manufacturer or producer, yet
laws are to be found which impose a duty of excise at stages subsequent to the
manufacture or production. [69.SH, 699A]
A. B. Abdu/kadir & Ors. v. The Stare of Kera/a & Anr. [1962] Supp. 2 S.C.R.
7 41 refened to .
(c) Where, however, the levy i

## Text

_Characters 0–39,191 of 57,227. This is a partial read: ask again with offset=39191 for what follows._

690
A
A. B. ABDUL KADIR & ORS. ETC.
·v.
STATE OF KERALA
November 12, 1975 ·
B
(H. R. KHANNA, P. N. BHAGWATI AND S. MURTAZA FAZAL ALI, JJ.]
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II
Keralc• Luxury Tax on Tobacco (Validation) Act, 1964 (9 of 1964) Stare
Legisla/llre-if competent to enact-if could enact a taxation law relrospectirel)'.
Co11stitution of India-Art. 304(b )-reasonable restricti01z-puhlic interestcoloural>le legislation-tests to decide. E1lt!y 84 of List l and Entry 62 of List
lI Luxury-meaning ofThe Finance Act 1950 extended the Central Excise and Salt Act, 1944 lo the
Part B State of Travancore Cochin and repealed the Cochin Tobacco Act, 1909
and the Tobacco Act (Travancore Act I of 1087). Thereafter a system of
licensing wa~ introduced by which the licensees were required to pay a specified
fee in respect of tobacco imported into the State. The appellants challenged
unsuccessfully in the High Court the collection of the licence fee for the period
between August 1950 a!ld December 1957. The Act and rules having been
declared by this Court.as invalid ab initio, the State refunded a portion of the
licence fee collected; but the appellants• filed writ petitions claiming refund ol'
the remainder of the licence fee paid by them. During the pendency of the
writ petitions the Kerala Luxury Tax on Tobacco (Vartdation) Act of 1964
(Act 9 of 1964) was passed by the State legislature to provide for the levy of
a luxury tax on tobacco and validate the levy and collection of fees for licences
for
the
vend
and
stocking
of
tobacco
for
the
period
between
August 17, 1950 and December 31, 1957 and it received the assent of the President. The appellants then challenged the validity of the 1964 Act, but the
State on the other hand demanded payment of the pait of the fee earlier refund.
ed to the parties. The validity of the demand notice was questioned by the
appellants. On the question of validity of the 1964 Act, the High Court held
that ( 1) the levy being in respect of goods produced outside the State, was not
an excise duty falling within Entry 84 of the Union List; (2) the tax clearly
answers the description of luxury tax falling within entry 62 of State List; (3)
however, the payment of the tax being a condition precedent to the bringing
of the goods into the taxing terri'tory, it was a direct impediment on the free
flow of goods, and (4) even so, it is saved by Article 304(b). being a reasonable ta.ii: levied in. public interest.
Dismissing the appeals,
HELD: (1) The;_ judgment of this Court in A. B. Abdulkadir & Ors. v.
The State of Kerala & Anr. (1962] Supp. 2 S.C.R. 741 docs not operate as
res. judicata regarding the points in controversy in these appeals. What was
held in that case was that the Cochin Tobacco Act and the similar Tranvancore
Act taken along with the rules framed under those Acts were in substance law
corresponding to the Central Excise and Salt Act. The Cochin Tobacco Act
and the similar Travancore Act stood repealed· on April 1, 1950 and there
would be no power in the State Government thereafter to frame new rules in
August 1950 and January 1951 for there would be no law to support the new
rules. In the instant case what is questioned is the constitutional validity of
Act 9 of 1964 which was enacted subsequent lo the above decision of this
Court. [698 C-G]
(2){a) The argument that the provisions of the Act fell 1mder Entry 84
of List I of the Seventh Schedule is bereft of force.
The liability to pay the
tax is on stocking and vending of tobacco. There is no provision in the Act
which is concerned with production or manufacture ot tobacco or which Jinks
the tax under its provisions with the manufacture or production of tobacco.
[699-D-E]
. J.
..
A. l!. ABDUL KADIR v. KEllALA
691
(b) Excise duty is a tax on articles produced or manufactured in the taxing·
country. Generally speaking, . the tax is on the manufacturer or producer, yet
laws are to be found which impose a duty of excise at stages subsequent to the
manufacture or production. [69.SH, 699A]
A. B. Abdu/kadir & Ors. v. The Stare of Kera/a & Anr. [1962] Supp. 2 S.C.R.
7 41 refened to .
(c) Where, however, the levy imposed or tax has no nexus with the manufature or production of an article, the impo·st or tax cannot be regarded to ·be
one in the nature of excise duty.
[699-B·C]
(3) The word •J.uxurv' has not been used in the sense of something pertaininir to the exclusive preserve of' the rich. The connotation of the word 'luxury'
is "something which conduces enjo.yment over· and above the necessaries of life.
1 There is nothing static about what constitutes an article of Immry. The luxuries
!
of. yesterday could welJ become the necessities of today. Likewise, what con·
stitutes necessity for citizens of one country or for those living in a particular
climate may well be Jookccl upon as an item of luxury for the nationals of
another country or for those Jiving in a different climate. A number of factors
may have to be taken into account in adjudging the commodity as an article_
of luxury. (699 G, 701B]
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B
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(4) (a) The High Court was right in its view that the levy of tax was
violative of Article 301 of the Constitution. But while the Parliament can
impose restrictions on the freedom of trade, commerce or intercourse between
one State and another or within any part of the territory of India as m~ be
D
required in the public interest, so far as the State legislatures are concerned,
restrictions must satisfy two requirements, firstly they must be in public inter-
•
est, and secondly, the restrictions should be reasonable.
[701, F; 702DE]
State of Madrar; v. N. K. Natarata Muda/iar [1968] 3 S.C.R. 829 referred
to.
(b) To some extent every tax imposes an economic impediment to the activity taxed as compared with others not taxed. But that fact by itself would.
E
not make it unreasonable. The Jaw of taxation in the ultimate analysis is the
result of' the balancing of several complex considerations. The legislatures have
a wide discretion in the matter.
[702G, 703-AB]
'
.
( c) In considering the question whether the restriction is reasonable
in
public interest the Court will have to balance the importance of .freedom ·of
trade as against the requirement of public interest. [703-B]
Khyerban Tea Co. Ltd. v. State of Madras [1964] 5 S.C.R. 975 referred
to.
·
( d) The onus of showing that the restrictions on the freedom of trade, commerce or intercourse in the public interest are ·reasonable is uoon the State.
-
[703D]
Jn the present case the levy of luxury tax relates to tobacco the consumption of which is a health hazard.
Regulation of the sale and stocking of such
an article and treating it as an article of luxury by imposing a licence fee is a
permissible restriction in public: interest within Art. 304(b) of the Constitu·
tion.
[703-F]
(e) The. fact that the operation of the Act was confined to a particular
area, and did not extend to the entire State was. due ,to historical reasons. The
object of the Act was to validate the recoveries already made.
[704-B]
Nazeeria Motor Service etc. etc. v. State of Andhra Pradesh & Anr. [1970J
2 S.C.R. 52 referred to.
(f) The levy of tax is protected by Article 304(b) of the Constitution as
the requirement of the proviso regarding the sanction of the President has been
s~tiil/ied. Though the assent of the President was given subsequent' to
the
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SUPREME COURT REPORTS
[ 197 6] 2 '5.C,R.
passing of the Hill by the State Legislature, that fact would not affect the validity
of the impugned Act in view of the provisions of Article 255 of the Constitution.
[702 AB]
(5 )(a) Where a topic 1s qot included within the relevant List dealing with
the legislative competence of the State Legislature, Parliament, by making a law
cannot attempt to confer such legislative competence on the State legislatures.
This principle would, however, have no application where what is sought to be
done i\J to validate the ~very of licence fee for stocking and vending of
tobacco. The impugned provisions have nothing to do with the production
and manufacture of tobacco. The levy is sought to be made as luxury tax
which is within tbe competence of State legislature and not as excise duty
which is beyond the leiiislative competence of the State legi!lalur~. If the levy
in Question could be justified under a provision whicb is within the legislative
competent of •he State legislature, the levy shall be held to be validly imposed
and cannot be comidered to be impermissible.
[705-B-D]
(b) The impugned Act cannot be said to be a colourable piece of legislation.
Where a challenge to the validity of a legal enactment is made ou the
ground that jt is a colonrable piece of legislation~ what is to be proved is that
tnough the Act ostensibly is within the legislative competence of the lcgislarure.
in substance and reality it covers a field which is outside its legislative competence.
In the present caSJ!, in enacting the impugned provisions the State k:gislature has exercised power of levying luxury tax in the >hape of licerux fee
on the vend 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. [705-E-F]
'
!aora Sugar Mills (P) Ltd. v. State of Madhya Pradesh & Ors. [1966] I
S.C.R 523 and Diamo11d Sugar Mills Ltd. & A11r. v. The State of Uttar Pradcs/1
ct A11r. [1961) 3 S.C.R. 242 distinguished.
(c) The Slate legislature has sought to validate the recovery of the amounts
alrearly made by treating those amounts as luxury tax.
The fact that
the
validation of the levy entailed converting the character of the collection from
an impermissible excise duty into permissible luxury tax would not make it
unconstitutional. The only conditions are that the levy should be of a nature
which can answer to the description of luxury tax and that the State legislature should be competent to enact a law for recovery of.luxury tax.
Both these
conditions are satisfied.
[706-FGJ
'
(6)(a) Where the State legislature can make valid law it can prOYide not
only for the prospective operation of the material provisions of the law but
can also provide for the retrospective operation of the provisions.
[706-G]
(b) In judging the reasonableness of the retrospective operation of law for
the purpose of Article 304(b), the test of length of time covered by the retrospective operation could not by itself be treated. as decisive.
[706H, 707 A]
(c) It is not correct to say that the legislation should be held to be invalid
because its retrospective operation might operate harshly in some cases.
[707 A]
Rai Ramkrishna & Ors. v. State of Bilzar [1964] 1 S.C.R. 897 :.nd Epari
Chi1111a Krishna Moort/1y, Proprietor, Epari Chi1111a.Moorthr &: Sons. Berlt"mp11r,
01·i.1·sa v. State of Orissa [1964] 7 S.C.R. 185 app!Ied.
(d) If a provision regarding. the levy of luxury tax is
within
the compclellce of the State legislature, the said legislature would be well within ils competence to enad a law for recovery of an amonnt which. though already refund·
ed to a party, paiiakes of tho nature of a luxury tax i nthe light of •hat law.
(707-CJ
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 1689-1690
and 1692-1705 of 1972.
From the Judgment and Order dated the 15th October, 1970 of the
Kerala High Court at Ernakulam in O.P. Nos. 934 and 944 and W.A.
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A. B. ABDUL KADIR v. KERALA (Khamza, J.)
693
Nos. 15, 17, 18, 20, 22, 24, 27, 31, 32, 51-55of1965 and W.A. No.
A
170 of 1965 respectively.
T. S. Krishnamurthy Iyer, C. K. Viswanatha Iyer and T. A. Ramac:handran for the Appellants in C.As. Nos. 1689, 1962 •and. in C.As.
1694 to 1 705 of 1972.
C. K. Viswanatha Iyer and T. A. Ramachcmdran for the appellants
B
in C.As. Nos. 1690 and 1693.
D. V. Patel and K. R. Nambiar for Respondents in all the appeals.
The Judgment of the Court was delivered by
KHANNA, J. Whether the provisions of the Luxury Tax on Tobacco
(Validation) Act, 1964 (Act 9 of 1964) (hereinafter referred to as the
Act) enacted by the State Legislature of Kerala are void on the ground>
that ( 1) the State Legislature lacked the legislative competence to enac that Act, and (2) the provisions of the Act contravened article 301
of the Constitution and were not protected by article 304 is the main
question which arises for determination in these 16 civil appeals Nos.
1689, 1690 and 1692 to 1705 filed on certificate against the judgment
of the Kerala High Court. A Division Bench of the High Court has upheld the validity of the Act.
We may set out the chequered history giving rise to civil appeals
1689 and 1692. Learned counsel for the parties are agreed that it is
not necessary to set out the facts of the other cases and that the decision
in the above two appeals would also govern those other cases.
The
appellants were dealers in tobacco and tobacco preparations in Mattancherry in erstwhile Cochin State. Jn 1909 Cochin Tobacco Act (Act
7 of 1084 M.E.) was enacted by the Maharaja of Cochin. Section 4
of that Act prohibited the transport, itnport or export, sale and cultivation of tobacco, except as permitted by the Act and the rules framed
thereunder. Jn pursuance of the power given by that Act the Diwan of
Cochin made rules relating to matters specified in the Act. Under the
rules it became necessary to obtain a licence for cultivation of tobacco
plant. Drying, curing, manufacturing and the storing of tobacco cultivated in the State was to be done under the supervision of an Excise
Officer in licenced manufacturing yards and store houses. The system
which was in force for the collection of tobacco revenue up to August
l 950 was to auction what were called A class and B class shops. In
addition, there were C class shops, the licence for which was granted
either on the recommendation of or in consultation with B class licensees.
A somewhat similar law was in operation in the erstwhile Travancore
State. On April 1, 1950 after the Constitution had come in force and
Travancore-Cochin had become a Part B State Finance Act (No. 25
·of 1950) extended the Central Excises and Salt Act (No. l of 1944)
to Part B State of Travancore-Cochin by section 11 thereof. Section
13 (2) of ihe Finance Act provided that "if immediately before the 1st
day of April 1950. there is in force in any State other than Jammu and
Kashmir a law corresponding to, but other than, an Act referred to in
sub-sections (1) or (2) of section 11, such law is hereby repealed wtih
effect from the said date ...... ". Jn consequence of this provision in
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SUPREME COURT REPORTS
[1976] 'i s.c.R.
Finance Act, 1950, the rules which were in force on April 1, 1950 were
changed in the Cochin area by notification dated August 3, 1950 and
the system of auction sales of A class and B class shops was done away
with and instead graded licence fees
were
introduced
for various
classes of licensees, including C class licensees. Similar change was
made for the Travancore area. Notification dated January 25, 1951
was issued in this context. A class licensees under the new rules were
called stockists, B class licensees were wholesale sellers and C class
licensees were retailers. A class licensees were to pay a specified minimum fee for a fixed maximum quantity of tobacco and tobacco goods
possessed by them and an additional fee for an additional quantity. The
fee was to be levied only in respect of the tobacco imported into the
State. The State of Travancore-Cochin collected licence fee from the
appellants for the period from August 17, 1950 to December 31, 1957.
In 1956 the appellants, who'were A class licensees, filed writ petitions
in Kerala High Court for refund of the licence fee collected from them
on the ground that t~e Cochin and Travancore Tobacco Acts stood
repealed by the Finance Act of 1950 because of the extension of the
Central Excises and Salt Act to Part B State of Travancore-Cochin. The
petitions were opposed on behalf of the State and it was contended that
the Cochin Act or the similar Travancore Act did not stand repealed
from April 1, 1950. It was urged that the State was competent to
frame new rules under the Cochin Tobacco Act and the corresponding
fravancore Act. It was further stated that the tax in question could
be validly levied under entry 60 or 62 of List II of the Seventh Schedule
to the Constitution. The High Court dismissed the petitions holding
that the laws under which the new rules were framed were in force and
were valid under entry 62 of List II of the Seventh Schedule.
The
appellants then came up in appeal to this Court. It was held by this
Court in its judgment dated January 24, 1962 reported in (1962)
Supp. 2 SCR 741 that the Cochin Tobacco Act of 1084 and the rules
framed thereunder as also similar provisions in Travancore, requiring
licences to be taken out for storage and sale of tobacco and for payment of licepce fee in respect thereof were law corresponding to the
provisions of the Central Excises and Salt Act, 1944 and hence stood
repealed on April 1, 1950 by virtue of section 13 (2) of the Finance
Act, 1950. It was further held that as the parent Acts, namely, the
Cochin Tobacco Act and corresponding Travancore Act had· stood repealed, the new rules framed in August 1950 a!nd January 1951 under
those Acts for the respective areas of Cochin and Travancore for the
issue of licences and payment of fee therefor for storage of tobacco
were invalid ab initio.
After the above decision of this Court the appellants made a demand
to the respondent-State that the amounts of Rs. 1,14,750 collected by
the State from them by way of licence fee under the invalid rules might
be refunded to them.
The respondent-State refunded Rs. 73,500 to
the appellants 01!- _April 29, 1963. On J~ly _ 10, 1963 th7 appellants
filed original petition No. 1268 of 1963 m the Kerala High Court for
issue of a writ to the respondent-State to pay the balance amount of
Rs. 41.250 which along with interest came to Rs. 52,800 to the
appellants. During the pendency of the above petition on December 16,
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A. B. ABDUL KADIR v. KERALA (Khanna, I.)
695
1963 the Governor of Kerala promulgated Ordinance No. 1 of 1963
A
which was later replaced by Keral'a Luxury Tax on Tobacco (Validation) Act of 1964 (Act of 1964). This Act received the assent of the
President on March 3, 1964. Original petition No. 1268 of 1963 was
thereupon amended with a view to challenge the validity of the above
mentioned Act. In the meanwhile, on January 21, 1964 demand was
made in view of the Ordinance by the State Government calling upon
the appellants to pay the amount of Rs. 73,500 which had been reB
funded to them by the State Government.
Original petition No. 934
of 1964 was filed by the appellants in the Kerala High Court to challenge the validity of demand notice dated January 21, 1964 as also the
vires of the Act.
At this stage it may be appropriate to refer to the relevant provisions of the Act. The preamble of the Act reads as under :
c
"PREAMBLE : WHEREAS it is expedient to provide for
the levy of a luxury tax on to):>acco for the period beginning
with the 17th day of August, 1950 and ending on the 31st
day of December 1957, and the validation of the levy and
collection of fees for licences for the vend and stocking of
tobacco for the aforesaid period :
D
BE it enacted in the Fifteenth Year of the Republic of
India as follows : -"
Section 2 (ii) of the Act defines tobacco to include leaf of the tobacco
plant, snuff, cigars, cigarettes, beedies, bcedi tobacco, tobacco powder
and other preparations or admixtures of tobacco. Section 3 is the
charging section and provides that "for the period beginning with the
17th day of August 1950 and ending on the 31st day of December,
l 957, 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". Section "4(1) of the Act gives power to the State Government
to make rules by publication in the gazette to carry out the purposes of
the Act. According to sub-section ( 3) of section 4 of the Act, "the
rules and notifications specified below purported to have been issued
under the Tobacco Act of 1087 (Travancon; Act I of 1087) or the
Cochin Tobacco Act, VII of 1084, as the case may be, in so far as they
relate or purport to relate to the levy and collection of fees for licences
for the vend and stocking of tobacco, shall be deemed to be rules issued
under this section and shall be deemed to have been in force at all
material times."
Among the rules and 11otifications specified in subsection (3) of section 4 are rules published on August 3, 1950 and
January 25, 1951. Sections 5 and 6 read as under:
"5. Validation-Notwithstanding any judgment, decree or
order of any court, all fees for licences for the veind or stocking of tobacco levied or collected or purported to have been
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SUPREME COURT REPORTS
(1976] 2 ·s.C.R.
levied or collected under any of the rules or notifications specified i'11 sub-section (3) or s. 4 for the period beginning with
the 17th day of August, 1950 and ending on the 31st day of
December, 1957, shall be deemed to have been validly levied
or collected in accordance with law as if this Act were in force
on and from the 17th day of August, 1950 and the fees for
licences were a luxury tax on tobacco levied under the provisions of this Act, a:nd accordingly,-
(a) no suit or other proceeding shall be maintained or
continued in any court for the refund of any fees paid or
purported to have been paid under any of the said rules or
notifications; and
(b) no court shall enforce a decree or order directing the
refund of any fees paid or purported to have been paid under
any of the said rules or notifications.
6. Recovery of licence fees refundedWhere any amount paid or purported to have been paid:
as a fee for licence under any of the rules or notifications
specified in sub-section ( 3) of s. 4 has been refunded after
the 24th day of January, 1962, and such amount would not
have been liable to be rcfuaded if this Act had been in force
on date of the refund, the person to whom the refund was
made shall pay the amount so refunded to the credit of the
Government in any Government treasury on or before the
16th day of April, 1964, and, where such amount is not so
paid, the amount may be recovered from him as oan arrear of
la'ad revenue under the R-evenuc Recovery Act for the time
being in force."
According to the appellants, the label given to the tax imposed by
the charging section was only a cloak to disguise its real nature of being
an excise duty.
The State Legislature, as such, was stated to be inF
competent to levey excise duty on tobacco. It was also stated that the
provi&ions of the Act were violative of the provisions of article 301 of
the Constitution. In the meanwhile, a single Judge of the High Court
dismissed on July 20, 1964 original petition No. 1268 of 1963 which
had been filed by the appe!lants. The appellants thereupon filed appeaF
before a Division Bench of. the High Court against the judgment of
the learned single Judge.
The learned Judges of the Division Bench
G
allowed original petition No. 963 of 1964 and quashed demand notice
dated January 21
1964
issued
by the State asking for refund of
Rs. 73,500. The High Court relied upon a decision of this Court in the
C'ase of Kalyani Stores v. State of Orissa(') a1ad held that in the absence
of any production or manufacture of tobacco inside the appellant-State
it was not competent for the State Legislature to impose a tax on tobacco imported from outside the State.
The provisions of Act 9 of
H
1964 were held to violate article 301 of the Constitution and nc1t protected by article 304. The learned Judges also set aside the judgment
(1) [1966] l S.C.R. 865.
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A. B. ABDUL KADIR v. KERALA (Kharpw, !.)
697
of the single Judge and allowed the appeals against that judgment in
A
original petition No. 1268 of 1963.
The State of Kerala thereafter came up in appeal to this Court. As
per judgment dated July 30, 1969 reported in (1970) 1 SCR 700 this
Court held that the High Court had not correctly appreciated the import
of the decision in Kalyani Stores (supra). It was held that only such
restrictions or impediments which directly and immediately impeded the
B
free flow of trade, commerce and intercourse fell within the prohibition
imposed by article 301.
This Court further observed that unless the
High Court first came to the finding whether or not there was the infringement of the guarantee under article 301 of the Constitution, the
further question as to whether the statute was saved under article 304
(b) did not arise.
The case was accordingly sent back to the High
Court with the direction to take further affidavits in the matter. The
C
Court left it open to the parties to argue as to whether the levy in
question was in substance a duty of excise ~nd as such whether it was
not competent for the State Legislature to enact the provisions in
question.
After remand' affidavits were filed on behalf of the appellants and
the respondent-State. The learned Judges of the High Court as per
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judgment under appeal gave the following findings :
"(1) The levy being in respect of goods produced outside the State, it cannot be, and is not, an excise duty falling
within entry 84 of the Union List.
(2) The tax is on tobacco, an article of luxury, consumed
within the taxing territory, levied\on the occasion of its stocking and vending by the importers into the taxing territory. It
clearly answers the description of luxury tax falling within
entry 62 of the State List.
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(3) There being no competing internal goods, the mere
fact that the levy is only on imported goods can only have,
like any other tax, the economic effect of reducing the demand by reason of increasing the price. The consequent diminution in the quantity of goods imported into the taxing
territory is too remote an effect to be a direct impediment to
the free flow of trade offending article 301 of the Constitution.
( 4) However, the payment of the tax in the shape of a
licence fee being a condition precedent to bringing the goods
into the taxing territory, there would appear to be a direct
impediment on the free flow of goods and therefore of trade
into that territory notwithstanding that the taxable event is
not the movement of the goods but the stocking after completing their journey and reaching their destination, the levy.
in advance being only for convenience of collection.
(5) Even assuming that the levy offends article 301, it is
saved by article 304 (b) being a reasonable tax levied in the
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SUPREME COURT REPORTS
( 197 6] 2 S.C,R.
public interest, the condition in the proviso thereto being
satisfied by the assent of the President in view of article 255.
( 6) The guarantee in article 301 and the saving in article 304(b) being in respect of both inter-State and intraState trade, the fact that the taxing territory is only a part
of the State is of no consequence,"
On behalf of the appellants, their learned counsel Mr. Krishnamurthy Iyer has at the .outset contended that the
question
as
to
whether the levy of the licence fee upon the appellants
constitutes.
excise duty is concluded by the decision of this Court of January 24,
1962 and the same operates as res judicata.
As against that,
Mr.
Patel on behalf of the respondent-State submits that
the
question
decided by this Court on January 24, 1962 was different from that
which arises in these appeals and that the said decision does
not
operate as res judicata.
The above submission of Mr. Patel, in our
opinion, 'is wellfounded.
What was decided by this Court
in
its
judgment dated January 24, 1962 was that the Cochin· Tobacco Act
and the similar Travancore Act taken along with the rules framed
under those Acts by the respective Diwans were in substance
law
corresponding to the Central Excises and Salt
Act.
The
Cochin
Tobacco Act and the similar Travancore Act, it was
further held,
stood repealed on April 1, 1950 by virtue of section 13(2) of the
Finance Act, 1950.
So far as the rules are concerned which were
issued on August 3, 1950 and January 25, 1951, this Court held
that as the parent Acts under which those rules were issued
stood
repealed on April 1, 1950, there would be no power in
the State
Government thereafter to frame new rules in
August
1950
and
January 1951 for there would be no law to support the new rules.
The above question does not arise for determination in these appeals
before us.
What we are concerned with is the constitutional validity
of the Kerala Act 9 of 1964.
This Act was enacted subsequent to
the above decision of this Court rendered on January 24, 1962. No
question relating to the validity of the above mentioned Act in the
very nature of things could arise at the time of the earlier decision in
1962.
We, therefore, are of the view that
the
judgment
dated·
January 24, 1962 of this Court does not operate as
res
judicata
regarding the points of controversy with which we are concerned in
these appeals.
It has next been argued on behalf of the appellants that the levy
for the licence fee for stocking and vending of tobacco, even though
described as luxury tax in charging section 3 of the Act, is in reality
and substance an
excise
duty
on tobacco.
Excise
duty
on
tobacco under entry 84 of List I of the Seventh Schedule to
the
Constitution can only be levied by Parliament and, as
such, according to the learned counsel for tbe appellants, the State
Legislature was not competent to enact the impugned Act 9 of 1964.
Thir. contention, in our opinion, is equally devoid of force.
Excise
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A. B. ABDUL KADIR v. KERALA (Khanna, 1.)
6 99
duty, it is now we¥-settled, is a tax on articles produced or .manufactured in the taxmg country.
Generally speakmg, the tax is
on
the manufacturer or the producer, yet laws are to be found
which
impose a duty of excise at stages subsequent to the manufacture or
production [see p. 750-51 of the judgment of this Court delivered en
J !umary 24, 1962 in the case between these very parties, reported in
(1962) Supp. 2 SCR 741].
The fact that the levy of excise duty is. in the form of licence fee
would not detract from_the fact that the levy relates to excise duty.
It is, however, essential that such levy should be linked with production or manufacture of the excisable article.
The recovery of licence
fee in such an event would be one of the modes of levy of the excise
duty.
Where, however, the levy imposed or tax has no nexus with
the manufacture or production of .an article, the impost or tax cannot be regarded to be one in the nature of excise duty.
In the light of what has been stated above, we may now turn to
the provisions of the impugned Act 9 of 1964.
The charging section 3 of this Act creates a liability for payment of luxury tax on
the stocking and vending of tobacco.
There is no provision of this
Act which is concerned with production or manufacture of tobacco
or which links the tax under its provisions with the manufacture or
production of tobacco.
The same is the position of the rules issued
on August 3, 1950 and January 25, 1951 and Mr.
Krishnamurthy
Iyer on behalf of the appellants has frankly conceded that those rules
are in no way concerned with the production or manufacture
of
tobacco. It would, therefore, follow 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.
Argument that the
provisions of the Act fall under entry 84 of List I of the Seventh
Schedule to the Constitution must, therefore, be held to be bereft of
force.
·
The next argument which has been advanced on behalf of
the
appellants is that the tax on the vending and stocking of tobacco cannot be considered to be luxury tax, as contemplated by entry 62 of
List II of the Seventh Schedule to the Constitution.
According
to
that entry, the State Legislatures can make laws in respect of "taxes
on luxuries, including taxes on entertainments, amusements, betting
and gambling".
Question, therefore, arises as to whether tobacco
can be cons;dered to be an article of luxury.
The word "luxury"
in the above context has not been used in the sense of something
pertainnig to the exclusive preserve of the rich.
The fact that the
use of an article is popular among the poor sections of the population would not detract from its description or nature of being
an
article of luxury.
The connotation of the word ''luxury" is something which conduces enjoyment over and above the necessaries
of
life. It denotes something which is superfluous and not indispensable
and to which we take with a view to enioy, amuse or entertain ourselves.
An expenditure on something which is in excess of what is
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SUPREME COURT REPORTS
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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.
According to EncycloP'aedia Britanica, luxury tax is
"a tax on commodities or services that are considered to be luxuries
rather than necessities.
Moder11 examples are taxes levied on
t:fie
purchase of jewellery, perfume and tobacco". It has further
been
said:
"In the 19th and 20th centuries increased taxes have
been placed on private expenditure upon alcohol, tobacco,
entertainement
and
automobiles.
Such
expenditure
is
superfluous in the sense that a large part of it may be said
to be in excess of what is required for economic effiCiency
and personal well-being, although the expenditure
affects
large numbers of people."
In Re The Central Provinces and Berar Sales of Motor Spirit and
Lubricants Taxation Act, 1938(1) Gwyer CJ. while
dealing
with
excise duly described spirits, beer and tobacco as articles of luxuries.
D
It is no doubt true that for those who have been lured by the
charms and blandishments of Lady Nicotine there ar~ few
things
which are so soothing to the distraught nerves and so entertaining as
tobacco and its manifold preparations.
One of them has gone to the
extent of saying that he who doth not smoke hath either known no
great griefs, or refuseth himself the softest consolation, next to that
which comes from heaven (Bulwer-Lytton, What will He do
with
E
It ?) .
Charles Lamb in "A Farewell to Tobacco" observes : "For
thy sake, tobacco, I would do anything but die".
The fact all the
same remains that the use of tobacco has been found to have deleterious effect upon health and a tax on tobacco has been recognized as
a tax in the nature of a luxury tax.
One of the earliest indictments
of tobacco is in Robert Burton's Anatomy of Melancholy wherein
he says :
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"It's a plague, . a mi$chief, a violent purger of goods,
lands, health, hellish, devilish, and damned tobacco, the
ruin and overthrow of body and soul."
Another indictment is from James I of England ( Counterbiaste
to
Tobacco) when it is said :
"A custom (smoking) ioathsome to the eye, harmful to
the brain, dangerous to the lungs, and in the blacli: stinking
fume thereof, nearest resembling the horrible Stygian smoke
of the pit that is bottomless."
The taxation of the objects or procedures of luxurious consumption
has aimed at two purposes, on the surface contradictory : the suppressing or limiting of this consumption and the deriving of a public
(l) [1939] F. C.R. 18.
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A. B. ABDUL KADIR v. KERA LA (Khanna, !.)
701
income from it.
On closer inspection a good deal of this contradiction vanishes when it is seen that prohibition and taxation of luxury
tend equally 'to fix certain levels and standards of living, as
against
economic and social progress, which is tending to "level" such differences (see page· 634 of the Encyclopaedia of the Social
Sciences
Volumes IX-X, 14th Printing).
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 @f luxury.
Any difficulty which may arise in borderline case
would n0t 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.
The learned Judges of the High Court were of the opinion that
the levy of tax· in question was violative of article 301 of the constitution, according to which subject to the provisions of Part XIII,
trade, commerce and intercourse throug.hout the territory of India
shall be free.
The learned Judges in this connection took the view
that the levy of tax as a condition preceding to the entry of goods
into a place directly impeded the flow of trade to that place.
The
conclusion arrived at by the High Court in this respect, in our
opinion, was correct and sound.
The appellants were A class licensees. According to rule 16 of the rules issued on January 25, 1951,
A class licensees shall be entitled to purchase tobacco
from
any
dealer within or without the State without any quantitative
restriction.
This class of licensees could sell only to other A class license\!s
or B class licensees.
It was also mentioned in that rule that the
licence fee would be realised only for the quantities brought in from
outside.
Perusal of the rules shows that it was imperative for the
A class licensees to pay the licence fee in advance before they could
bring tobacco within the taxable territory.
We agree with the learned Judges of the High Court that such levy directly impedes the free
flow of trade and as such is violative of article 301 of the Constitution.
The next question which arises for consideration is whether
the
levy of tax is protected by article 304 (b) 0£ the Constitution.· Article
304.(b) reads as under:
"304. Notwithstanding anything in article 301 or article 303, the Legislature of a State may by law-
(a)
(b) impose such reasonable restrictions on the freedom
of trade. commerce or intercourse with or
within
that State as may be required in the public interest;
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[197 6] 2 S.C.R.
Provided that no Bill or amendment for the purposes
of clause (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President."
We may observe that the requirement of the proviso regarding the·
sanction of the President has been satisfied.