Case: State Of Kerala Vs. A.B. Abdul Khadir &amp; Ors

2. The respondents are dealers in tobacco and tobacco preparation and are doing business in Mattancherry in the name and style of A. S. Bava, Tobacconist. In the year 1909, Cochin Tobacco Act 7 of 1084 (M. E.) was enacted by the Maharaja of Cochin. Section 4 of the that Act prohibited the transport, import or export, sale and cultivation of tobacco except as permitted by the Act and Rules framed thereunder. Section 5 of the Act gave power to the Dewan to make rules from time to time consistent with the Act, to permit absolutely or subject to any condition the possession for sale, or cultivation of tobacco. In pursuance of the power given by this section the Dewan was making rules from time to time relating to the matters specified in the act Cochin State was integrated with Travancore on April 1, 1950 in order to form the new State of Travancore-Cochin. On that date, after the Constitution came into force the State of Travancore-Cochin. became a Part B State and by the Finance Act, 1950 the Central Excises and Salt Act 1 of 1944 was extended to the Travancore-Cochin State. Section 13 (2) of the Act provided that if immediately before the first day of April, 1950 there was in force in any State other than Jammu and Kashmir a law corresponding to, but other than an Act referred to in sub-s. (1) or (2) of S. 11, such law was repealed with effect from such date. In consequence of this provision in the Finance Act, rules which were in force on April 1, 1950 were changed in Cochin and by a notification dated August 3, 1950 the system of auction sales of A and B Class shops was done away with and instead graded licence fees were introduced for various classes of licences including C class licences. The State of Travancore-Cochin was collecting licence fee from the respondents for the period from August 17, 1950 to December 31, 1957 on the strength of the said rules framed by the Travancore-Cochin State. In 1956 the respondents filed O. P. No. 70 of 1956 in the High Court of Kerala for the refund of the licence fee collected after April 1, 1950 on the ground that the Cochin Tobacco Act stood repealed by the Finance Act, 1950 because of the extension of the Central Excises and Salt Act 1 of 1944 to the Part B State of Travancore-Cochin and in consequence the notifications issued in August 1950 and January 1951 framing new rules for the issue of licences and prescribing fees therefor under the powers conferred by the Cochin and Travancore Acts were ab initio void because the Acts under which the notifications were purported to be issued stood repealed from April 1, 1950. The petition was opposed by the appellant on the ground that the Act and the rules were not repealed by the extension of the Central Excises and Salt Act 1 of 1944 to Travancore Cochin State. The High Court dismissed the writ petition holding that the tax levied by virtue of the rules framed under the Travancore Cochin Tobacco Acts was not a duty of excise coming within the Union List but it was a tax on luxuries coming within Entry 62 of that State List. The respondents took the matter in appeal to this Court which held that the rules framed under the Cochin Tobacco Act of 1084 (M. E.) and the Travancore Tobacco Regulation of 1087 (M.E.) requiring licences to be taken out for storage and sale of tobacco and for payment of licence fee in respect thereof were law corresponding to the provisions ofthe Central Excises and Salt Act, 1944 and hence were superseded on April 1, 1950 by virtue of S. 13 (2) of the Finance Act, 1950. Consequently, the new rules framed in August 1950 and January 1951 for the respective areas of Cochin and Travancore for the issue of licences and payment of fee for storage of tobacco were invalid ab initio. The Court did not consider it necessary to decide whether the Cochin and Travancore Acts were within the competence of the State Legislature under Entry 62 of List II for that question would only arise if those Acts were not repealed as corresponding law under S. 13 (2) of the Finance Act.3. Soon after the decision of this Court the respondents complained to the appellant that a sum of Rupees 1,11,750 had been illegally collected as licence fee from 1125 to 1133 M. E. On April 29, 1962 the appellant refunded a sum of Rs. 73, 500/- but did not return the balance.4. On December 16, 1963 the Government of Kerala promulgated Ordinance 1 of 1963 which was later replaced by Act 9 of 1964. The Ordinance was promulgated in order to avoid the effect of the decision of this Court in A. B. Abdulkadir v. State of Kerala, 1962 Supp (2) SCR 741 = (AIR 1962 SC 922  ) in respect of the period from August 17, 1950 to December 31, 1957.Section 3 of the Actthe period beginning with the 17th day of August 1950 and ending on the 31st day of December, 1957 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 the4 confers rule-making power andThe Government may, by notification in the Gazette, make rules to carry out the purposes of this Act.(2) In particular, and without prejudice to the generality of the foregoing, power, such rules may provide for:(i) the prohibition of the vending of tobacco except under a licence;(ii) the issue of licences for the vend and stocking of tobacco and the procedure therefore;(iii) classification of licences and the rate at which tax in the form of a fee for licence may be levied for each class of licences;(iv) appeals from orders under the rules.(3) The rules and notifications specified below purported to have been issued under the Tobacco Act of 1087 (Travancore 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:x xng any judgment, decree or order of any court, all fees for licences for the vend or stocking of tobacco levied or collected or purported to have been levied or collected under any of the rules of notifications specified in sub-section (3) of section 4 of the period beginning with the 17th day of August, 1950 and ending on the 31st 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 and 17th day of August, 1950 and the fees for licences were a luxury tax on tobacco levied under the provisions of this Act and 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 orno 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 orre 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 section 4 has been refunded after the 24th day of January, 1962 and such amount would not have been liable to be refunded if this Act had been in force on the date of the refund, the persons 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 where such amount is not so paid, the amount may be recovered from him as an arrear of land revenue under the Revenue Recovery Act for the time being innotification dated January 25, 1951 issued under the Cochin Tobacco Act of 1084 reads asexercise of the powers conferred by section 5 of the Cochin Tobacco Act VII of 1084 as subsequently amended and as continued in force by the Travancore-Cochin Administration and Application of Laws Act VI of 1125 and in supersession of all previous notifications and Rules on the subject, the following rules are prescribed under sanction of His Highness the Raj Pramukh for the import, export, sale, transport, possession disposal of things confiscated and the grant of rewards under the said Act and for generally carrying out the provisions16:(i) Holders (stockists or A Class licensees) shall be entitled to purchase tobacco from any dealer within or without the State without any quantitative restriction. This class of licencees shall sell only to other A Class licencees or to B class licencees.(ii) the annual fees for these licencees shall be asB. - For the purpos of calculating stockist licence fee in respect of tobacco preparations, the cost price of the article will be taken into account. The licence fee will be realised only for the quantities brought in from outside thethe enactment of Act 9 of 1964 the appellant made a demand on the respondent to repay the amount of Rs. 73,500 which had been refunded to the respondent in accordance with the Supreme Court judgment. Thereupon the respondent filed writ petition No. O. P. 934 of 1964 which was allowed by the High Court on the ground that Act 9 of 1964 and the rules were ultra vires the Constitution of India.5. It was held by the High Court that in the absence of any production of tobacco inside the Kerala State it was not competent for the Kerala Legislature to impose a tax on tobacco imported from outside the State and therefore the provisions of the Luxury Tax on Tobacco (Validation Act) 1964 violated the guarantee contained in Arts. 301 and 304 of the Constitution. In reaching this conclusion the High Court purported to follow the decision of this Court in Kalyani Stores v. State of Orissa, (1966) 1 SCR 865   = (AIR 1966 SC 1686  ).

Court's reasoning:
The view taken by the High Court was that in the absence of any production of tobacco inside Kerala State it was not competent for the Kerala Legislature to enact the impugned Act under Article 304 (a) of the Constitution.In our opinion the High Court has not correctly appreciated the import of the decision of this Court in the Kalyani Stores case, (1966) 1 SCR 865   = (AIR 1966 SCthe present case the High Court has not gone into the question whether the provisions of Act 9 of 1964 and the notification dated January 25, 1951 issued under the Cochin Tobacco Act constitute such restrictions or impediments as directly and immediately hamper free flow of trade, commerce and intercourse and, therefore, fall within the prohibition imposed under Art. 301 of the Constitution. Unless the High Court first comes to the finding on the available material whether or not there is infringement of the guarantee under Art. 301 of the Constitution the further question as to whether the statute is saved under Art. 304 (b) does not arise and the principle laid down by this Court in Kalyani Stores case, (1966) 1 SCR 865   = (AIR 1966 SC 1686  ) cannot be invoked.n our opinion the High Court has not correctly appreciated the import of the decision of this Court in the Kalyani Stores case, (1966) 1 SCR 865   = (AIR 1966 SC1686). The appellant in that case challenged the imposition of a duty of excise on foreign liquor imported into the Orissa State which had been levied at Rs. 40 per L. P. Gallon until March 31, 1961 by virtue of a notification issued in 1937 under section 27 of the Bihar and Orissa Excise Act, 1915 and which had been enhanced with effect from April 1, 1961 by a fresh notification. It was contended on behalf of the appellant that since no foreign liquor was manufactured within the State and consequently no excise duty was being levied on any locally manufactured foreign liquor countervailing duty could not be charged on such liquor brought from outside the State and that the impost was in violation of Arts. 301, 303 and 304 of the Constitution. It was held by the majority of Judges that the notification dated March 31, 1961 enhancing the levy by Rs. 30/per L. P. Gallon infringed the guarantee of freedom under Art. 301 and may be saved only if it falls within the exception contained in Art. 304. As no liquor was produced or manufactured within the State, the protection of Article 304 was not available. The decision was based on the assumption that the notification dated March 31, 1961 enhancing duty on Foreign liquor infringed the guarantee under Art. 301 and may be saved if it fell within the exceptions contained in Art. 304 of the Constitution.The Court did not intend to lay down the proposition that imposition of a duty or tax in every case would be tantamount per se to an infringement of Art. 301. As we have already pointed out it is well established by numerous authorities of this Court that only such restrictions or impediments which directly or immediately impede the free flow of trade, commerce and intercourse fall within the prohibition imposed by Art. 301. A tax may in certain cases directly and immediately restrict or hamper the flow of trade, but every imposition of tax does not do so. Every case must be judged on its own facts and in its own setting of time and circumstance. Inthe present case the High Court has not gone into the question whether the provisions of Act 9 of 1964 and the notification dated January 25, 1951 issued under the Cochin Tobacco Act constitute such restrictions or impediments as directly and immediately hamper free flow of trade, commerce and intercourse and, therefore, fall within the prohibition imposed under Art. 301 of the Constitution. Unless the High Court first comes to the finding on the available material whether or not there is infringement of the guarantee under Art. 301 of the Constitution the further question as to whether the statute is saved under Art. 304 (b) does not arise and the principle laid down by this Court in Kalyani Stores case, (1966) 1 SCR 865   = (AIR 1966 SC 1686  ) cannot beis open to the parties to argue this matter before the High Court at the time of