& 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 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 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 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 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, 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
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,
differences between the two categories of to-
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. 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. Ed 237. 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, 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 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. 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.
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 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. 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.