East India Tobacco Co. Vs. State of
Andhra Pradesh  INSC 127 (6 April 1962)
06/04/1962 AYYANGAR, N. RAJAGOPALA AYYANGAR,
N. RAJAGOPALA AIYYAR, T.L. VENKATARAMA SINHA, BHUVNESHWAR P.(CJ)
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)
Sales Tax-Tobacco-Imposition of Tax on sale
of Virginia Tobacco and exemption of country tobacco-Provision if discriminatory-Purchase
which proceeds 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).
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 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 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 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  2
S.C.R. 77 Budhan Choudhry v. State of Bihar.  1 S. C. R. 1045, Sri Ram
Krishna Dalmia v. Shri Justice S R. Tendolkar,  S. C. R 2 70, Maddan v.
Kantucky,  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  S. C. R. 11 12, State of
Travancore Cochin v. Shamugha Vilas Cashew Nut Factory.  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
& CIVIL APPELLATE JURISDICTION : Civil
Appeals Nos. 290 & 291 of 1961.
Appeals from the judgment and order dated
September 25, 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
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 theState 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 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 contravention 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
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
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)  2 S C. R. 77, 410 differences between the two categories of tobacco,
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)  1.
(2)  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 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.
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
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 determines a choice between
them as fuels. By disregarding that difference and the greater ones which exist
and by dwelling on competition 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
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 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 country 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)  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) 
(2)  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." 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
consequently 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.( 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.
In the result both the contentions urged by
the appellants fail and the appeals must be dismissed with costs, one hearing