HALLMARK TOBACCO COMPANY LIMITED Vs. STATE OF KERALA

JUDGEMENT

(1.) THE main question involved in these writ petitions relates to the constitutional validity of section 4A of the Kerala Tax on Luxuries Act, 1976 as amended by the Kerala Finance Bill, 1994. This Act was called the "Kerala Tax on Luxuries in Hotels and Lodging Houses Act, 1976" as originally introduced and published in the Kerala Gazette Extraordinary No. 647 dated November 13, 1976. By the Finance Bill, 1994 the name of the Act was substituted as "the Kerala Tax on Luxuries Act, 1976" (hereinafter REFERRED TO as "the impugned Act"). THE provisions contained in section 4A of the Act as amended authorising levy and collection of luxury tax have been challenged by the petitioners as violative of articles 301 and 304(b), 286(3), 265, 245 and 246 and 14 and 19(1)(g) of the Constitution of India, section 15 of the Central Sales Tax Act, 1956 and section 9 of the Kerala General Sales Tax Act, 1963. THEre are two alternative prayers; the first being that in the event of its being held by this Court that the first respondent, Government of Kerala, is entitled to levy and collect luxury tax on cigarettes, the second respondent, Union of India, is not entitled to levy and collect additional excise duty on cigarettes and the second being that the first respondent in the event of its being held by this Court is entitled to levy and collect luxury tax on tobacco at 5 per cent, then the first respondent is not entitled to its proportionate share of additional excise duty collected by the second respondent under the provisions of the additional Duties of Excise (Goods of Special Importance) Act, 1957 (for short, "the 1957 Act").

(2.) THE petitioners are M/s. I.T.C. Limited, M/s. Hallmark Tobacco Co. Ltd. and M/s. Shyam Agencies owned by Krishna Consumer Products Pvt. Ltd. THEy are dealers carrying on business and trade in manufacture, production, distribution and sale of cigarettes. THEy are aggrieved by the levy of luxury tax on cigarettes at 5 per cent on manufacturers and importers of cigarettes. THE said tax has been imposed for the first time by the Kerala Finance Bill, 1994 and by virtue of the declaration under section 3 of the Kerala Provisional Collection of Revenue Act, 1985 the provisions of the Bill and the levy of luxury tax on cigarettes shall have effect from 1st April, 1994.

(3.) A glimpse at the brief history behind the legislation on tobacco is found to be necessary in order to have full understanding of the issues in the present case in the context of the over-whelming importance of trade and commerce in tobacco including cigarettes, in the course of intra-State as well as inter-State. When the Government of India imposed its Central excise duty on tobacco with effect from April 1, 1943 the provincial Governments which were levying duties on tobacco under special Acts were persuaded to give up their taxes and were compensated for the revenue forgone. However, after independence the problem of taxation by the States and levy of excise duty by the Centre on tobacco has become an acute problem. The report of the Taxation Enquiry Commission appointed by the Ministry of Finance, Government of India, April, 1953 reveals that in certain States tobacco and tobacco manufacturers were made liable to the general sales tax and in a few States chewing tobacco were exempted; while in some States higher duties were levied on cigars, cheroots and pipe tobacco. The Commission expressed its concern on the fact that tobacco and tobacco products were subjected to a very high level of taxation by the States as well as by the Centre and observed in the report that : "The need is obvious for ensuring proper co-ordination between the different taxes on tobacco levied by the Central Government, the States and the local authorities." Pursuant to the above observations, the Centre and the State at a meeting of the National Development Council held in December, 1956, agreed unanimously that sales tax levied in States on mill-made textiles, tobacco including manufactured tobacco and sugar should be replaced by a surcharge on the Central excise duties on these articles with the income derived therefrom being distributed among the States on the basis of consumption. In pursuance of this agreement between the States and the Centre, the Centre decided to levy additional excise duty on these three goods of special importance and REFERRED TO the Second Finance Commission the question of appointment of the proceeds of the additional excise duty amongst all the States. The Second Finance Commission after studying the entire problem made certain recommendations. It was in pursuance of the said recommendations the Parliament enacted Additional Duties of Excise (Goods of Special Importance) Act, 1957 on December 24, 1957. This Act expressly provides that in the event of State levying a tax, inter alia, on the sale or purchase of tobacco, it shall lose its proportionate share of revenue from the additional excise duty levied and collected by the Centre.