Jagannath And Others vs Union of India

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

Court: supreme-court

Case Number: Writ Petition No. 84 of 1958

Decision Date: 20 April, 1961

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

In the case titled Jagannath and Others versus Union of India, the Supreme Court rendered its judgment on the twentieth day of April, 1961. The judgment was authored by Justice P. B. Gajendragadkar, and the bench that heard the matter comprised Justices P. B. Gajendragadkar, A. K. Sarkar, K. N. Wanchoo, K. C. Das Gupta and N. Rajagopala Ayyangar. The petitioners were identified as Jagannath and others, while the respondent was the Union of India. The formal citation of the decision appears as 1962 AIR 148 and 1962 SCR (2) 118, with citator references R 1973 SC1034 (15, 18) and APL 1974 SC1111 (10). The dispute concerned an excise duty on tobacco imposed under the Central Excises and Salt Act of 1944, specifically the First Schedule entry 4(1) which distinguishes between whole‑leaf tobacco (Item 5) and broken‑leaf tobacco (Item 6). Item 5 stipulated a duty of one rupee and ten annas per kilogram on tobacco other than flue‑cured tobacco that was not actually used for manufacturing cigarettes, pipe tobacco or similar products, provided it was in whole‑leaf form. Item 6 imposed a higher duty of two rupees and twenty annas per kilogram on tobacco that was in broken‑leaf form.

The petitioners, who dealt exclusively in broken‑leaf tobacco, argued that there was no rational basis for distinguishing their product from the whole‑leaf tobacco covered by Item 5. They contended that the double tariff was unconstitutional because it was based on discrimination founded on the intended use of the tobacco. The Court, however, held that no unconstitutional discrimination existed in the levy of the higher duty on broken‑leaf tobacco. It observed that broken‑leaf tobacco could be economically used in the manufacture of hand‑rolled cigarettes known as biris, whereas whole‑leaf tobacco could not be employed for that purpose in a cost‑effective manner. Accordingly, the two forms of tobacco were differentiated by their practical capability of use, and the tariff was not primarily based on the intended use of the tobacco. The Court further noted that the distinction between the two categories, as expressed in Items 5 and 6, was clear, unambiguous and reasonably related to the object of the excise policy. In reaching this conclusion, the Court referred to the earlier decision in Kunmathat Thathunni Moopil Nair v. State of Kerala, (1961) 3 S.C.R. 77.

The original jurisdiction of the matter was a writ petition numbered 84 of 1958, filed under Article 32 of the Constitution of India for the enforcement of fundamental rights. The petitioners were represented by counsel G. C. Mathur, while the respondent was represented by the Solicitor‑General of India, C. K. Daphtary, together with counsel B. Sen, R. H. Dhebar and T. M. Sen. The judgment was delivered by Justice Gajendragadkar, who noted that the petition challenged the validity of the excise tariff imposed by clause (6) of entry 4(1) in the First Schedule of the Central Excises and Salt Act, 1944.

In this case the petitioners invoked the Central Excises and Salt Act, 1944 (1 of 1944). Petitioners numbered one through seventeen were identified as tobacco cultivators who conducted the trade and business of growing tobacco and selling it in Kaimganj Tahsil of Farrukhabad district in Uttar Pradesh. Petitioners numbered eighteen through thirty were described as partners, proprietors or agents of firms that held private bonded warehouse licences; these persons carried on the trade and business of purchasing tobacco from the cultivators and subsequently selling the tobacco to dealers or to other private warehouse licence holders. By way of their petition the petitioners asked that a writ, direction or order in the nature of mandamus be issued to the respondent, the Union of India, restraining the respondent from levying excise duty on hookah and chewing tobacco under the impugned tariff item, and that any other writ, direction or order suitable to protect the petitioners’ fundamental right to carry on their trade and business involving hookah and chewing tobacco be granted. The petition challenged the validity of the impugned tariff item on two principal grounds. The first ground asserted that the rates fixed by the impugned item were excessive and would virtually destroy the petitioners’ trade. The second ground alleged that the impugned item amounted to unconstitutional discrimination. The 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 merely on the basis that the tariff is heavy could not be entertained. Consequently only the allegation of discrimination remained for consideration. For the purpose of the petition it was assumed that any discrimination in respect of the commodities taxed would ultimately constitute discrimination against the persons taxed, thereby permitting invocation of Article 14 of the Constitution. Mr. Mathur further contended that the effect of the decision of this Court in Kunmathat Thathunni Moopil Nair v. State of Kerala supported such a challenge, and the Court accepted that a challenge to the validity of a taxing statute on these grounds could be entertained. The tariff entry that was under dispute was entry 4 in the First Schedule of the Central Excises and Salt Act. This entry defined “tobacco” to include any form of tobacco, whether cured or uncured and whether manufactured or not, and expressly covered the leaf, stalks and stems of the tobacco plant, while expressly excluding any part of the plant that remained attached to the earth. Clause I of entry 4 dealt with unmanufactured tobacco and prescribed a tariff per kilogram for the various items specified therein. Item (1) under this clause dealt with five categories of flue‑cured tobacco that were used in the manufacture of cigarettes, as indicated in the relevant sub‑clauses.

Item (2) of the tariff schedule deals with tobacco that is flue‑cured and used for the manufacture of smoking mixtures for pipes and cigarettes. Item (3) provides for flue‑cured tobacco that is not otherwise specified, while item (4) concerns tobacco that is not flue‑cured and is used for the manufacture of (a) cigarettes or (b) smoking mixtures for pipes and cigarettes. The tariff for these categories ranges from Rs 16.15 nP. per kilogram to Rs 1.65 nP. per kilogram. Item (5) then deals with tobacco that is not flue‑cured and is not actually used for the manufacture of (a) cigarettes, (b) smoking mixtures for pipes and cigarettes, or (e) biris. The fourth clause under item (5) describes tobacco cured in whole‑leaf form and packed or tied in bundles, banks, bunches, twists or coils. For tobacco falling within any of the four clauses of item (5) the applicable tariff is Rs 1.10 nP. per kilogram. Clause (6) of the same item, which is the focus of the present petition, addresses tobacco that is not flue‑cured and not otherwise specified; for this residuary clause the tariff prescribed is Rs 2.20 nP. per kilogram, which is double the rate prescribed for the classes in the preceding item. Mr Mathur’s grievance is that the tobacco with which the petitioners deal cannot be distinguished on any rational basis from the tobacco covered by item (5), clause (4), and therefore the imposition of a double tariff on the petitioners’ tobacco is invalid because it rests on unconstitutional discrimination. The argument assumes that the tariff is based on the use to which the tobacco is put and contends that the petitioners’ tobacco is not actually 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 classification. To address this argument, it is necessary to refer briefly to the report of the Tobacco Expert Committee, whose recommendations form the main basis of the present revised tariff on tobacco. In substance, the committee’s report shows that the current tariff cannot be said to have been prescribed wholly or even primarily with reference to the actual use of tobacco. The report points out that tobacco is “a rich man’s solace and a poor man’s comfort” and is used by all classes of people in various forms; consequently, the tariff must be framed so that the tax incidence falls equitably on all users. The report further notes that an “Intention Tariff” based on the principle of intention was found to be ineffective because the assessee’s declaration of intended use left ample scope for tax evasion. For this reason the Intention Tariff was replaced by a flat rate of duty, which in turn proved neither effective nor equitable, leading to the adoption of a “capability tariff.” The capability test assessed whether a particular specimen of tobacco was capable of use in biris; if capable, it attracted a higher rate, and if not, a lower rate. The committee’s analysis of the advantages of the capability tariff includes reference to the Taxation Enquiry Committee’s 1953 report, and it concludes that, given the practical difficulties, the only workable method within the present tariff framework is to prescribe standards that are readily identifiable either visually or by simple tests, so as to determine empirically what is capable and what is incapable of use in biris.

Initially, the tariff system employed a flat rate of duty on all tobacco products, regardless of their type or use. However, experience demonstrated that this uniform rate was neither effective in collecting revenue nor equitable among different categories of tobacco. Consequently the authorities replaced the flat duty with a capability tariff designed to differentiate rates based on the tobacco's suitability for use in biris. Under this capability test, assessment depended on whether a particular specimen of tobacco was capable of being used in the manufacture of biris. If the specimen was deemed capable, it attracted the higher rate; if it was not capable, it was taxed at the lower rate. The report later examined the advantages of the capability tariff and quoted the opinion of the Taxation Enquiry Committee, whose report was issued in 1953. The Committee’s report considered the large volume of evidence placed before it and incorporated all the suggestions that had been made. “In view of the practical difficulties brought before us”, says the report, “we consider that, within the present tariff, the only workable and satisfactory method of classifying tobacco will be to prescribe standards readily identifiable either visually or by other simple tests and manipulations with a view to determine empirically what is capable and what is incapable of use in biris.” The report further observed that the situation was complicated because the same tobacco was used for different purposes in different parts of the country according to local consumption habits. The Committee realized that a uniform classification system for the whole Union would impose greater tax burdens on consumers in regions where the prevailing custom was to use certain varieties for chewing, snuff, hookah, or cigar purposes. At the same time, those same varieties were used in other regions for making biris, creating an inequitable situation. Therefore, the Committee concluded that the only safe criterion to adopt was the physical form of the tobacco as it affected suitability for biri making. It also recognized that classifying specified varieties solely as chewing tobacco was very difficult because many of those varieties were also employed for making snuff and for hookah purposes. Nevertheless, most chewing varieties were normally in whole leaf form and were cured by the addition of moisture. Tobacco cured in whole leaf form could not be readily converted into flakes, unlike tobacco cured by dry curing methods. In the Committee’s opinion, although it was possible to prepare flakes from whole leaf cured tobacco, the conversion process caused a much higher proportion of the material to crumble into dust, raw and other unsalable forms. The Committee was aware that after suitable manipulation, whole leaf varieties could be utilized for biri manufacturing. However, it believed this could be achieved only after converting the whole leaf tobacco into graded flakes and then only by admixture with other tobacco on a small, localized scale. Regarding the broken leaf grades, the Committee recommended that they should be liable to assessment at the higher rate. It also suggested relief by permitting any owner to convert his broken leaf tobacco into fine rawa or dust, forms in which the material would become physically unusable for biris.

The Committee observed that when tobacco is physically altered so that it meets the specifications for rawa or dust, it may be taxed at the lower rate. The Committee’s report was cited because it draws a clear distinction between “tobacco other than flue cured and not otherwise specified,” which falls within the residuary clause, and “tobacco other than flue cured and not actually used for the manufacture of cigarettes or smoking mixtures for pipes or cigarettes or biris,” which is covered by paragraph five. By examining the physical form of the products, the two categories are differentiated. By examining the intended user, they are also differentiated, and the Committee’s recommendations treat them as essentially different commodities. It was noted that, although the tariff on the tobacco covered by the impugned clause six is considerably higher, biris manufactured without any machine‑assisted processing are exempt from any tariff, while cigars, chewing tobacco, cigarettes and biris produced with any form of mechanical processing are subject to tariff. The Committee’s task was to classify non‑flue cured tobacco intended for biris, and clauses five and six were created for that purpose. Accordingly, the Court held that the distinction between tobacco falling under clause five and clause six, as explained in the Committee’s report, is clear, unambiguous and reasonably related to the purpose of the tariff. Hence, the challenge to its validity on the basis of unconstitutional discrimination could not be sustained.

Mr. Mathur raised an additional issue concerning Nicotiana Rustica, the variety dealt with by the petitioners. He asserted that in Uttar Pradesh this variety is used only for hookah and chewing purposes. The petition claimed that the Nicotiana Rustica used in biris is not cultivated in Uttar Pradesh and that all tobacco grown in Kaimganj is Nicotiana Rustica, either pit‑cured or ground‑cured, and is exclusively used for hookah and chewing, rendering it unsuitable for biris or cigarettes. Consequently, the petition argued that such tobacco should not be taxed under the impugned clause. The Court observed that whether the specific tobacco handled by the petitioners falls within the impugned clause cannot be properly raised in a petition under Article 32. Moreover, the counter‑affidavit and the Committee’s report addressed the allegation concerning the exclusive use of Nicotiana Rustica, thereby providing the necessary response to the petitioners’ plea.

In this matter, the Committee’s report observed that varieties of Nicotiana Rustica are generally not employed in the manufacture of biris. However, the report further explained that when tobacco of the Rustica type is processed in broken‑leaf grades, it may be blended with other biris tobaccos such as Pandharpuri tobacco to increase the strength of biris blends. Consequently, the Committee concluded that a blanket statement excluding all forms of Rustica from biris use is untenable, because the possibility of admixture prevents a universal generalisation. The Committee also noted that dealers dealing in Rustica varieties could transport the tobacco to other regions of the country where it is used for biris production. The Committee further emphasized that the tobacco market in India is highly mobile, and that varieties cultivated in one state may be distributed to distant states for different end‑uses, including the manufacture of biris. Therefore, the mere fact that a particular variety is primarily used for hookah or chewing does not preclude its occasional or supplemental use in biris. The petitioners’ reliance on the characterization that Rustica is exclusively for hookah and chewing was therefore insufficient to demonstrate that the specific tobacco they dealt with could not fall within the scope of the statutory provision under challenge. Accordingly, the contention raised by the petitioners—that the tobacco they handle could never be utilised in biris—was found to lack factual foundation. On these bases, the Court held that the petition did not succeed, concluded that the petition was untenable, and ordered its dismissal with an award of costs to the opposite party.