Jagannath And Ors. vs Union Of India (Uoi)

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: supreme-court

Case Number: Not extracted

Decision Date: 20 April, 1961

Coram: A.K. Sarkar, K.C. Das Gupta, K.N. Wanchoo, N. Rajgopala Ayyangar, P.B. Gajendragadkar

In this matter, the Supreme Court recorded that a petition had been filed under article 32 of the Constitution challenging the legality of the excise tariff stipulated in clause (6) of entry 4 (I) of the First Schedule to the Central Excises and Salt Act, 1944. The petitioners numbered one through seventeen described themselves as cultivators of tobacco who were engaged in the business of growing and selling tobacco within Kaimganj Tahsil, which lies in Farrukhabad District of Uttar Pradesh. Petitioners numbered eighteen through thirty identified themselves as partners, proprietors, or agents of firms that held private bonded warehouse licences; these firms bought tobacco from the cultivators and then sold it either to dealers or to other private warehouse licencees. By way of their petition, the applicants sought the issuance of a writ of mandamus, or any other appropriate direction or order, directing the Union of India to refrain from imposing excise duty on hookah and chewing tobacco under the contested tariff item, and to grant any further relief deemed necessary to protect the petitioners’ fundamental right to conduct their trade and business involving hookah and chewing tobacco. The challenge to the tariff was premised on two principal grounds. The first ground asserted that the rates fixed by the impugned item were excessive and would effectively destroy the petitioners’ trade. The second ground alleged that the tariff item was founded on unconstitutional discrimination. Counsel for the petitioners, Mr Mathur, openly conceded that the first ground could not be substantiated and observed that a challenge to a tax law on the sole basis that the tariff is heavy is not maintainable. Consequently, the Court was left to consider the allegation of discrimination alone. For the purposes of the petition, the Court proceeded on the assumption that any proven discrimination in respect of the commodities taxed would, in effect, constitute discrimination against the persons taxed, thereby bringing article 14 within the ambit of the challenge. Mr Mathur further argued that this position was supported by the decision rendered by this Court in Kunmathat Thathunni Moopil Nair et al. v. State of Kerala, and the Court agreed to entertain the challenge on that basis. The tariff entry under dispute, as it presently stands, is entry 4 in the First Schedule and pertains to tobacco. Under this entry the term “tobacco” is defined to include any form of tobacco, whether cured or uncured, and whether

The Court described the definition of “tobacco” contained in entry 4 of the First Schedule. According to that definition, tobacco includes any form of the plant, whether it is cured or incured, and whether it is manufactured or not. The definition expressly embraces the leaf, stalks and stems of the tobacco plant, but it expressly excludes any part of the plant that remains attached to the earth.

Clause I of entry 4 governs unmanufactured tobacco and sets out a tariff per kilogram for a series of items. Item (1) enumerates five categories of flue‑cured tobacco that are used in the manufacture of cigarettes, each category being detailed in a separate sub‑clause. Item (2) covers flue‑cured tobacco employed for making smoking mixtures for pipes and cigarettes. Item (3) provides for flue‑cured tobacco that is not otherwise specified in the preceding sub‑clauses. Item (4) concerns tobacco that is not flue cured and that is used for the manufacture of (a) cigarettes or (b) smoking mixtures for pipes and cigarettes. The tariffs applicable to these items range from Rs 16.15 per kilogram down to Rs 1.65 per kilogram.

Item (5) deals with tobacco that is not flue cured and that is not used for the manufacture of (a) cigarettes, (b) smoking mixtures for pipes and cigarettes, or (c) biris. Within item (5) the fourth clause describes tobacco that is cured in whole‑leaf form and that is packed or tied in bundles, hanks, bunches, twists or coils. For tobacco that falls under any of the four clauses of item (5), the tariff is fixed at Rs 1.10 per kilogram. Clause (6) of the same item, which is the clause under scrutiny in the present petition, pertains to tobacco other than flue cured and not otherwise specified. For this residuary clause the tariff is set at Rs 2.20 per kilogram, which is exactly double the rate prescribed for the classes in the preceding item.

Mr Mathur, on behalf of the petitioners, argued that the tobacco dealt with by the petitioners cannot be distinguished on any rational basis from the tobacco covered by item (5), clause (4). He maintained that imposing a double tariff on the petitioners’ tobacco is unconstitutional because it is based on discrimination without a rational classification. The argument relies on the assumption that the tariff structure is determined by the intended use of the tobacco, and it contends that the petitioners’ tobacco is not used for cigarettes, smoking mixtures, or biris, and that the fact it is broken rather than whole‑leaf does not provide a rational basis for a separate classification.

In addressing this contention, the Court found it necessary to refer briefly to the report of the Tobacco Expert Committee, which supplied the principal justification for the revised tariff schedule. The Committee’s findings indicate that the present tariff cannot be said to have been prescribed wholly or even primarily on the basis of the actual use of tobacco. The report emphasizes that tobacco serves as “a rich man’s solace and a poor man’s comfort,” highlighting its consumption across all social classes and in various forms. Consequently, the Committee concluded that a tariff structure based solely on use would not achieve an equitable distribution of the tax burden.

The Committee observed that tobacco is consumed by people of all classes in many different forms, and therefore the tariff ought to be framed so that the tax burden is shared equitably among all users. It noted that the earlier “Intention Tariff,” which relied on the assessee’s declaration of intended use, proved ineffective because it allowed considerable scope for tax evasion. Consequently, the Intention Tariff was replaced by a uniform flat duty, but experience showed that even this flat rate was neither effective nor equitable. The Committee therefore recommended a “capability tariff,” under which the determining factor was whether a particular specimen of tobacco could be used in the manufacture of biris. If the specimen was capable of such use, it would attract a higher rate; if it was not capable, it would attract a lower rate. In discussing the merits of the capability tariff, the report quoted the opinion of the Taxation Enquiry Committee of 1953 and took into account all the evidence and suggestions presented before it. Confronted with practical difficulties, the Committee concluded that the only workable and satisfactory method of classifying tobacco within the existing tariff was to prescribe standards that could be identified readily either by visual examination or by simple tests, so as to determine empirically what was capable and what was incapable of use in biris. The Committee explained that the situation was complicated because the same tobacco was employed for different purposes in different regions, reflecting local consumption habits. A uniform classification for the whole of the Union would therefore impose a heavier tax burden on consumers in areas where the dominant custom was to use the tobacco for chewing, snuff, hookah, or cigar, while the same varieties might be used for biris in other areas. For this reason, the Committee concluded that the safest criterion was the physical form of the tobacco as it affected suitability for biris making. It recognised the difficulty of labeling certain varieties solely as chewing tobacco, since many of those varieties were also used for snuff and hookah. Generally, most chewing varieties are in whole‑leaf form and are cured by adding moisture. Whole‑leaf tobacco does not convert to flakes as easily as tobacco cured by dry methods; although flakes can be produced from whole‑leaf tobacco, the conversion process causes a large proportion to crumble into dust, rawa, or other unsaleable forms. The Committee was aware that, after suitable manipulation, whole‑leaf varieties could be used for biris manufacturing, but this would require converting them into graded flakes and typically mixing them with other tobacco on a small, localized scale.

In the Committee’s view, tobacco that could be used for manufacturing biris would first have to be changed into graded flakes before it could be mixed with other tobaccos, and even then such mixing could be carried out only on a small, localized scale. Regarding the broken‑leaf grades, the Committee advised that they should ordinarily attract the higher tariff rate; however, it also recommended relief by allowing any owner to convert his broken‑leaf tobacco into fine rawa or dust. Once the tobacco has been so transformed, the resulting product becomes physically unsuitable for biris. The Committee further stated that if the converted material meets the statutory specifications for rawa or dust, it may then be taxed at the lower rate instead of the higher rate that applies to the unconverted broken‑leaf grades.

The Court referred to these observations because they draw a clear line between two categories of tobacco defined in the tariff schedule. The first category, described as “tobacco other than flue‑cured and not otherwise specified,” falls under the residuary clause, whereas the second category, phrased as “tobacco other than flue‑cured and not actually used for the manufacture of cigarettes or smoking mixtures for pipes or cigarettes or biris,” is covered by clause (5). By examining the physical form of the tobacco, the Court found the two categories to be distinct; by looking at the intended use, the Court also found them to be different, and the Committee’s recommendations treat them as separate commodities. The Court noted that, although the tariff charge on tobacco falling under the impugned clause (6) is considerably higher, biris produced without any mechanised process are exempt from any tariff, whereas cigars, chewing tobacco, cigarettes and biris made with the aid of machines are subject to the tariff. The Committee’s task had been to classify non‑flue‑cured tobacco that might be used for biris, and for that purpose clauses (5) and (6) were drafted. In the Court’s opinion, the distinction drawn by the Committee between the tobacco covered by clause (5) and that covered by clause (6) is unambiguous and reasonably related to the purpose of the tariff, and therefore the challenge to its validity on the ground of unconstitutional discrimination must be rejected. The Court also considered the point raised by counsel Mathur, who argued that the variety of Nicotiana rustica dealt with by the petitioners is used only for hookah and chewing in Uttar Pradesh. The petition states that the particular form of Nicotiana rustica employed in biris is not cultivated in Uttar Pradesh and that all tobacco grown in Kaimganj consists of Nicotiana rustica that is either pit‑cured or ground‑cured, used exclusively for hookah and chewing, and deemed unsuitable for biris or cigarettes, having never been employed for those purposes.

The petitioners contended that the type of tobacco they handled could not be validly taxed under the clause that was being challenged. The Court observed that the issue of whether the specific tobacco falls within the scope of the impugned clause could not be properly raised in a petition invoking Article 32 of the Constitution. Nevertheless, the Court noted that the answer to the petitioners’ claim was already supplied by the counter‑affidavit filed by the respondents and by the report of the Committee that had examined the matter. The counter‑affidavit expressly denied the allegations that Nicotiana Rustica was used exclusively by a single class of users, contradicting the petitioners’ assertion. Moreover, the Committee’s report specifically observed that, although Rustica varieties are generally not associated with the manufacture of biris, they can be processed in broken‑leaf grades and blended with other biri tobaccos such as Pandharpuri to impart strength to biris. The Committee therefore concluded that no blanket generalisation could be made to hold that every form of the Rustica variety is incapable of use in biris. The report also indicated that dealers of such tobacco might transport the product to other regions where it is employed for the preparation of biris.

In light of the counter‑affidavit and the Committee’s findings, the Court concluded that the petitioners’ grievance—that the tobacco they dealt with could never be used for biris—was not substantiated by the evidence. Accordingly, the Court held that the petition did not disclose any valid ground for relief and therefore could not succeed. The petition was consequently dismissed, and the respondents were awarded costs for having instituted the proceedings without sufficient basis. The final order reflected the dismissal of the petition and the imposition of costs upon the petitioners, and confirmed that no further relief would be granted. The Court further remarked that the matter of classification of the tobacco for tax purposes was not maintainable as a constitutional challenge under Article 32, because the issue was essentially commercial and administrative in nature. Consequently, the petition could not be entertained on the ground that the tax provision discriminated unlawfully against the petitioners’ specific tobacco. Having found no merit in the claim, the Court ordered that the petition be dismissed and that the respondents be allowed to recover costs incurred in defending the proceeding. The decision thereby affirmed that the tax on the said variety of tobacco remained valid and that the petitioners could not obtain relief through the constitutional jurisdiction of the Court.