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PETITIONER: EAST INDIA TOBACCO CO.

       Vs.

RESPONDENT: STATE OF ANDHRA PRADESH

DATE OF JUDGMENT: 06/04/1962

BENCH: AYYANGAR, N. RAJAGOPALA BENCH: AYYANGAR, N. RAJAGOPALA AIYYAR, T.L. VENKATARAMA SINHA, BHUVNESHWAR P.(CJ) GAJENDRAGADKAR, P.B. WANCHOO, K.N.

CITATION:  1962 AIR 1733            1963 SCR  (1) 404  CITATOR INFO :  R          1964 SC 925  (44)  R          1964 SC1752  (26)  C          1967 SC1458  (23)  R          1968 SC 658  (8)  RF         1970 SC1133  (15,39)  RF         1971 SC 870  (23)  RF         1972 SC 828  (20)  R          1972 SC 845  (14)  APL        1974 SC1111  (10)  MV         1975 SC1564  (65)  R          1976 SC 670  (24)  R          1979 SC 321  (5)  R          1980 SC 738  (10)  RF         1981 SC 463  (16)  F          1983 SC1283  (8)  R          1985 SC 679  (36)  RF         1989 SC 100  (31)  RF         1992 SC 999  (12)

ACT: Sales  Tax-Tobacco-Imposition  of Tax on  sale  of  Virginia Tobacco  and  exemption  of  country  tobacco-Provision   if discriminatory-Purchase  which procedes sale for  export  if could  be  exempted from tax-Madras General Sales  Tax  Act, 1939  (Mad.  9 of 1939), as amended by  the  Madras  General Sales  Tax  and the Madras Tobacco (Taxation  of  Sales  and Registration)  (Andhra Amendment) Act(Andhra XIV  of  1955), ss. 5, 6-Constitution of India, Arts. 14, 286 (1) (b).

HEADNOTE: The  appellants firms were doing business in the  export  of Virginia  tobacco.   The usual course of that  business  was stated  to be that appellants first entered  into  contracts with  their  customers abroad for the sale of  tobacco.  and thereafter they purchased the requisite quantities of  goods locally  and  then exported them to  foreign  purchasers  in performance  of  their contracts.  Section 5 of  the  Madras General Sales Tax Act, 1939, was amended by the Andhra State Legislature when the Andhra State came into existence by the

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Amending Act XIV Of 1955.  As a result of this enactment  to sales  of  country  tobacco were exempted ;  while  sale  of Virginia  tobacco were liable to be taxed.   The  appellants were called upon to produce their account books relating  to their business in tobacco for the purpose of assessing sales tax.   The appellants filed Petitions under Art. 226 of  the Constitution   challenging  the  constitutionality  of   the Amending Act, XIV of 1955, on 405 the  grounds  inter alia that in taxing  sales  of  Virginia tobacco  and exempting from tax sales of other tobacco,  the Act was discriminatory, as obnoxious to Art. 14, and besides that  having  regard to their course of  business,  any  tax levied  on their sales was in contravention of Art. 286  (1) (b) as amounting to a tax on sales "in the course of export" of  tobacco.  The High Court dismissed the petition  holding that  the impugned Act did not infringe  any  constitutional provision,  but  granted certificate under Art. 133  of  the Constitution to appeal to the Supreme Court. Held, that it is for the person who assails a legislation as discriminatory to establish that it is not based on a  valid classification  and this burden is all the heavier when  the legislation under attack is a taxing statute. Though  taxation laws must pass the test of Art. 14  of  the Constitution,  in deciding whether such a law  is  discrimi- natory  or  not, it is necessary to bear in  mind  that  the State  has  a wide discretion in selecting  the  persons  or objects  it  will tax, and that the statute is not  open  to attack  on  the mere ground that it taxes  some  persons  or objects and not others, It is only when within the range  of its  selection, the law operates unequally, and this  cannot be  justified on the basis of a valid  classification,  that there would be a violation of Arts. 14. The  Madras General Sales Tax (Andhra Amendment) Act,  1955, which taxed sales of Virginia Tobacco but exempted sales  of ’Nattu’  or  country  tobacco  could  not  be  said  to   be discriminatory and was not obnoxious to Art, 14. Virginia  tobacco has features which distinguishes  it  from country tobacco and can be treated as a class in itself.  It was therefore within the power of the State to impose tax on the  sales  of  Virginia tobacco while  exempting  sales  of country tobacco. It  is only the sale under which the export is made that  is protected  by Art. 286 (1) (b) ; a purchase  which  precedes such a sale does not fall within its purview though made for the purpose of or with a view to effect an export. K. T. Moopil Nair v. State of Area [1961] 2 S.C.R. 77 Budhan Choudhry v. State of Bihar. [1955] 1 S. C. R. 1045, Sri  Ram Krishna Dalmia v. Shri Justice S R. Tendolkar, [1959] S.   C. R 2 70, Maddan v. Kantucky, [1940] 309 U. S. 83 : 34 L.   Ed. 590, C. Heisler v. Thomas Colliary Co. 250 U.S. 345 : 67  L. Ed. 237, State of Travancore Cochin v. Bombay Co. Ltd. 406 [1952]  S.  C.  R.  11 12, State  of  Travancore  Cochin  v. Shamugha Vilas Cashew Nut Factory. [1954] S. C. R. 53, State of Madras v.   Ourivish Neidue & Co., A. 1. R 1956 S. C. 158 and State of   facture Co., A. I. Mysore v. Mysore  Spinning JUDGMENT:

& CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 290 &  291 of 1961. Appeals  from  the judgment and order  dated  September  25,

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1957,  of the Andhra Pradesh High Court, in  writ  Petitions No. 1172 of 1956 of 1957. A.S. R. Chari and K. R. Choudhri, for the Appellants. A.   V. Vishwanatha Sastri, T. V. B. Tatachary, P.     D. Menon, for the respondent. 1962.  April 6. The Judgment of the Court was delivered by VENKATARAMA AIYAR, J.-Those are appeals against the judgment of the High Court of Andhra Pradesh in petitions Nos. 11  72 of  1956  and  56  of  1957 filed  under  Art.  226  of  the Constitution questioning the validity of the Andhra Act  XIV of 1955 insofar as it imposes a tax on the sale of  Virginia tobacco.   The  appellants are firms doing business  in  the export  of  tobacco.  The usual course of that  business  is stated to be that they first enter into contracts with their customers  abroad for the sale of tobacco,  that  thereafter they purchase the requisite quantities of goods locally  and then export them to the foreign purchasers in performance of their contracts.  Prior to October 1, 1953, the area wherein the appellants carried on business formed part of the  State of  Madras,  and  on  that date the-  State  of  Andhra  was constituted,  and  the  area in question  fell  within  that State.  The law relating to sales tax in force in that  area it; the Madras General Sales Tax Act, TX of 1939.  Section 407 5  of  this Act provides for exemption of tax  on  sales  of goods  specified  therein  and a. 6  confers  on  the  State Government  power to exempt the tax payable on the  sale  of any  specified class of goods or by any specified  class  of persons.   In exercise of the powers conferred by a.  6  the Government   of   Madras  issued  on  March  31,   1953,   a notification  No. 144 exempting the sales of  unmanufactured tobacco  from sales tax.  After the Andhra State  came  into existence, the Legislature of that State enacted Act XIV  of 1955 hereinafter referred to as "the Amendment Act"  whereby it  amended  s.  5 of the Madras General Sales  Tax  Act  by adding as item (viii) the following :-               "(viii)  raw tobacco (except  country  variety               thereof  whether  cured or uncured,  shall  be               liable  to tax under Section 3, Sub Section  1               only  at  the  point  of  the  first  purchase               effected  in the State of Andhra by  a  dealer               who is not exempt from taxation under  Section               3, Sub Section 3 but at the rate of seven  and               half pies for every rupee on his turnover.               Explanation  :-For the purpose of  this  item,               country  variety of tobacco means  variety  of               tobacco other than Virginia and other  similar               varieties of tobacco". As a result of this enactment exemption from tax was limited to sales of what is known as country tobacco (Nattu tobacco) and so far as sales of Virginia tobacco are concerned,  they became  liable to be taxed.  Pursuant to the Amendment  Act, the  Andhra  Government  issued  on  November  4,  1955,   a notification No. 711 cancelling the earlier notification No. 144 dated March 31, 1953. Acting  under  the  provisions of  the  Amendment  Act,  the Additional Commercial Tax Officer, Guntur, issued notices to the appellants to ’produce 108 the account books relating to their business in tobacco  for the purpose of assessing sales tax.  To this the  appellants replied   by  filing  petitions  under  Art.  226   of   the Constitution in the High Court of Andhra Pradesh challenging the  constitutionality of the Amendment Act on  the  grounds inter  alia  that in taxing sales of  Virginia  tobacco  and

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exempting  from  tax  sales of other tobacco,  the  Act  was discriminatory,  and that in consequent ID it was  obnoxious to  Art. 14 of the Constitution and that further it  was  in contravention of Art. 286 (1) (b) as it was really a tax  on sales in the course of export of tobacco.  They  accordingly prayed  that  a  mandamus  might  be  issued  directing  the respondents  to  forbear from making an  assessment  on  the sales  of tobacco.  The learned Judges disagreed with  these contentions  and dismissed the petitions, holding  that  the impugned Act did not infringe any constitutional provisions, but granted certificates under Art. 133 of the Constitution. That is how these appeals come before us. On  the arguments addressed to us, two questions  arise  for our determination :               (1)   Is the impugned Act repugnant to Art. 14               for  the reason that it singles  out  Virginia               tobacco for taxation ?               (2)   Is  the  impugned  legislation  in  con-               travention  of Art. 286 (1) (b) as imposing  a               tax on sales in the course of export ? (1)On the first question the contention of the  appellants may be thus stated.  All laws must satisfy the  requirements of  Art.  14.   Taxation laws are no exception  to  it.   In imposing  a tax on the sales of Virginia tobacco and not  on other kinds of tobacco the impugned Act is on the face of it discriminatory.   It is there-fore obnoxious to Art, 14  and is void, 409 It is not in dispute that taxation laws must, also pass  the test  of Art. 14.  That has been laid down recently by  this Court  in  Moopil Nair v. The State of Kerala (1).   But  in deciding whether a taxation law is discriminatory or not  it is  necessary  to  bear in mind that the State  has  a  wide discretion in selecting the persons or objects it will  tax, and that a statute is not open to attack on the ground  that it taxes some persons or objects and not others.  It is only when  within  the range of its selection, the  law  operates unequally, and that cannot be justified on the basis of  any valid classification, that it would be violative of Art. 14. The   following   statement  of  the  law   in   Willis   on "Constitutional Law" page 587, would correctly represent the position  with  reference  to  taxing  statutes  under   our Constitution :-               "A  State does not have to tax  everything  in               order to tax something.  It is allowed to pick               and   choose  districts,   objects,   persons,               methods and even rates for taxation if it does               so   reasonably........................    The               Supreme  Court  has  been  practical  and  has               permitted    a   very   wide    latitude    in               classification for taxation". In  the  light of these principles, we may  now  proceed  to discuss whether the impugned Act is repugnant to Art, 14  of the  Constitution.  The point for consideration  is  whether there is in fact a real distinction between Virginia tobacco and  other tobacco called country tobacco  ’Nattu  tobacco’. If  there is, then the Act is valid, if not it must be  held to  be unconstitutional.  The finding of learned  Judges  on this point is as follows :-               "  Broadly, there are two  types,Virginia  and               Nattu,  differing in taste, light, colour  and               texture............... There are obvious               (1)   [1961] 2 S C. R. 77,               410               differences between the two categories of  to-

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             bacco,  in  the  nomenclature  used,  in   the               process of growing, curing and grading, in the               market  facilities foreign and inland, in  the               price and in the variety of uses to which they               are  put and also the class of customers  that               take to them." Thus  it  will be seen that Virginia  tobacco  has  features which  distinguish  it  from country  tobacco,  and  can  be treated  as a class in itself.  It will therefore be  within the  power  of  the State to impose a tax on  the  sales  of Virginia tobacco while exempting the country tobacco. It  argued  for the appellants that to repel the  charge  of discrimination in taxing only Virginia tobacco, and not  the country  tobacco, it is not sufficient merely to *bow  that there are differences between the two varieties, but that it must  further  be shown, as held in Budhan Choudhry  v.  The State  of  Bihar  (1) and Shri Ram Krishna  Dalmia  v.  Shri Justice  S.  B.  Tendolkar (2), that  the  differential  has reasonable  relation to the object of the legislation.   The differences  between  the Virginia tobacco and  the  country tobacco,  as  found be the learned Judged, are  not,  it  is argued  , germane to the levy of sales tax, and so there  is no  valid classification.  We are unable to agree with  this contention.   If  a  State can validly pick  and  chose  one commodity for taxation and that is not open to attack  under Art.  14, the same result must follow when the  State  picks out one category of goods and subjects it to taxation. It should, in this connection, be remembered that under  the law  it  is  for  the person who  assails  a  legislation  a discriminatory  to  established that it is not  based  on  a valid classification and it is well settled that this burden is all the heavier when (1) [1955] 1. S.C.R  104S. (2) [1959] S. C.R. 279. 411 the  legislation  under  attack is a  taxing  statute.   "In taxation even more than in other fields" it was observed  by the Supreme Court of United States in Madden v. Kentucky (1) "Legislatures    possess    the    greatest    freedom    in classification.   The  burden it; on the one  attacking  the legislative arrangement to negative every conceivable  basis which  might  support  it".   How wide  the  powers  of  the Legislature  are  in  classifying objects  for  purposes  of taxation  will be seen from the following resume of the  law given by Rottschaefer, in his "Constitutional Law" p. 668 :-               "The  Federal  Supreme Court  has  seldom  any               classification  made  in connection  with  the               levying  of property taxes.  It has  sustained               the levy of a heavier burden of taxation  upon               motor vehicles using the public high ways than               that levied upon other forms of property,  and               the imposition of a heavier tax upon oil  than               upon  other  property.  The  equal  protection               clause does not prohibit the levy of a tax  on               ores   which  is  not  imposed  upon   similar               interests in quarries, forests and other forms               of wasting asset, nor even the imposition of a               tax  upon anthracite that is not  levied  upon               bituminous coal.  A statute providing for  the               assessment  of one type of intangible  at  its               actual  value  while  other  intangibles   are               assessed  at  their face value does  not  deny               equal protection even when both are subject to               the  same  rate of tax.  The decision  of  the               Supreme  Court in this field have permitted  a

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             State  legislature  to exercise  an  extremely               wide  discretion in classifying  property  for               tax  purposes  so long as  it  refrained  from               clear   and  hostile  discrimination   against               particular persons or classes". A  decision  near  to the present case on the  facts  is  C. Heisler v. Thomas Colliery Company (2). (1) (1940) 309 US 83; 84 L. Ed. 590.  (2) 260 US 245; 67  L. Ed 237. 412 There  the  question  was whether a law imposing  a  tax  on Anthracite   coal   and  not  upon   bituminous   coal   was unconstitutional  as violating the equal protection of  laws guaranteed   by   the   14th  Amendment   to   the   Federal Constitution.  In upholding the validity of the law, Justice Mckenna observed as follows:-               "The  fact  of competition  may  be  accepted.               Both  coals, being compositions of carbon  are               of  course  capable of combustion and  may  be               used  as fuels but under different  conditions               and  manifestations and the difference  deter-               mines  a  choice between them  as  fuels.   By               disregarding  that difference and the  greater               ones  which exist and by dwelling on  competi-               tion alone, it is easy to erect an argument of               strength  against the taxation of one and  not               of the other.  But this may not be done.   The               differences between them are a just basis  for               their   different  classification;   and   the               differences  are  great and  important.   They               differ    even   as   fuels.    they    differ               fundamentally     in    other     particulars.               Anthracite coal has no substantial use  beyond               a  fuel;  bituminous  coal  has  other   uses.               Products of utility are obtained from it.  The               fact  is  not  denied  and  the  products  are               enumerated that the extent of their use.  They               are  therefore incentives to  industries  that               the   State  in  natural  policy  might   well               hesitate  to obstruct or burden and to  yield               to  the policy or consider it is  well  within               the  concession  or  the power  of  the  State               expressed  in  the cases we have  cited.   The               distinction in the treatment of the respective               coals  being within the power conceded by  the               cases  to the State it has logical  and  legal               justification   and   is   necessarily,    not               unreasonable or arbitrary". In  our  Judgment the differences which  exist  between  the Virginia and "Nattu country tobacco, 413 as found by the learned Judge,@, are materials on which  the State  could  treat Virginia tobacco as forming a  class  by itself for purpose of taxation, and the impugned legislation must  be  held  to  be  not obnoxious  to  Art.  14  of  the Constitution. (2)  It is next argued that the Amendment Act is ultra vires because  in reality it imposes a tax on sales in the  course of  export and that is hit by Art. 286 (1) (b).  The  course of business followed by the appellants has already been  set out.   It  may  be assumed for the purpose  of  the  present discussion  that  the purchases made by  the  appellants  on which  the  tax is sought to be imposed were  made  for  the purpose of executing specific orders which they had received from their foreign customers.  The question is whether  even

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so the sales in question took place in the course of  export for  the purpose of Art. 286 (1) (b).  In support  of  their contention  that  they  did,  the  appellants  rely  on  the following observations in State of Travancore-Cochin v. The Bombay Co. Ltd. (1):-               "A  sale by export thus involves a  series  of               integrated  activities  commencing  from   the               agreement  of  sale with a foreign  buyer  and               ending  with  the delivery of the goods  to  a               common carrier for transport out of the  coun-               try  bay land or sea.  Such a sale  cannot  be               dissociated  from the export without which  it               cannot  be  effectuated,  and  the  sale   and               resultant  export  forms  parts  of  a  single               transaction.    Of   these   two    integrated               activities,   which  together  constitute   an               export  sale, whichever first occurs can  well               be  regarded as taking place in the course  of               the other". Now  the contention is that the agreement entered into  with the foreign purchasers for Bale of the Virginia tobacco, the purchase of the same (1)  [1952] S. C. R. 1112, 1118. 414 locally  by the appellants for performing the  contract  and their  subsequent export to the foreign purchasers must  all be  hold to form one integrated transaction of sale  in  the course of export. Now the observations quoted above were made in refutation of the  contention that the expression "sale in the  course  of export or import" meant only a sale which takes place  while the goods are actually in movement, in the course of  export or  import,  as  for example, when  shipping  documents  are endorsed and delivered when the goods are in transit.   This Court,  held that this was too narrow an  interpretation  to put on the words in question and that a sale which  actually occasions  the export or import would fall within  Art.  286 (1)  (b).  The question whether sales which  precede  export are  sales in the course of export within Art. 286  (1)  (b) arose directly for decision in State of Travancore-Cochin v. Shanmuga  Vilas Cashew Nu Factory (1) and it was  held  that they were not Explaining in the course of the judgment,  the true  scope  of  the observations  in  State  of  Travancore Cochin’s  case  (2)  quoted  above,  Patanjali  Sastri,  C.I observed :-.               "The  phrase "integrated activities’ was  used               in the previous decision to denote that ’,such               a  sale’  (i. e., a sale which  occasions  the               export) ’cannot be dissociated from the export               without which it cannot be effectuated, an the               sale  and the resultant export from para of  a               single transaction’.  It is in that send  that               the  two activities-the sale and  the  export-               were  said to be integrated.  A  purchase  for               the  purpose  of  export  like  production  or               manufacture   for   export,  is  only   an   a               preparatory  to  export  and  cannot,  in  our               opinion,  be regarded as an act done  ,in  the               court               (1) [1954] S.C.R. 53.                (2) [1952] S. C. R. 1112, 1118.               415               of  the  export  of  the  goods  out  of   the               territory  of India’, and more than the  other               two activities can be so regarded."

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We may refer to two other decisions of this Court where this question  has  been considered.  In The State of  Madras  v. Guriviah  Naidue  &  Co. Ltd.(1), the  facts  were  that  an assessee secured orders for the supply of untanned hides and skins  from  London purchasers and then, he  purchased  them locally  in  order to implement those  orders  and  exported them, and the question was whether a tax on those  purchases was hit by Art. 286(1)(b).  In holding that it was not, this Court observed:-               "Such  purchases  were, it is  true,  for  the               purpose  of export but such purchases did  not               themselves  occasion the export  and  consequ-               ently  did  not fall within the  exemption  of               Art. 286(1)(b) of the Constitution as held  by               this  Court in The State of  Travancore-Cochin               v. The Bombay Company LL.([1952] S.C.R. 1112).               Nor  did  such purchases in the State  by  the               exporter for the purpose of export come within               the  ambit of Art. 286(1) (b), as held by  the               decision  of  the  majority in  The  State  of               Travancore Cochin v. Shanmuga Vilas Cashew Nut               Factory ((1954] S.C.R. 53)." The point came up again for consideration before this  Court in  The State of Mysore v. Mysore Spinning  &  Manufacturing Co.  (2) and it was held following the decision cited  above that Art.286((1)(b) could be invoked only in respect of  the sale  which  occasions  the export, and  not  of  any  sales precedent to it. On  these  authorities  the law must be  taken  to  be  well settled  that it is only the sale under which the export  is made  that  is  protected by Art.. 286 (1)(b),  and  that  a purchase which precedes such a (1)  A.I.R. 1956 S.C. 158. (2) A.I.R. 1958 S.C. 1002, 1005. 416 sale does not fall within its purview though it is made  for the  purpose  of, or with a view to  export.   The  impugned legislation must accordingly be held not to contravene  Art. 286(1)(b). In  the result both the contentions urged by the  appellants fail  and  the  appeals must be dismissed  with  costs,  one hearing fee.                               Appeals dismissed.