ADVERTISEMENT
Karnataka High Court
M/S Shri Tirupati Industries vs Union Of India on 13 July, 2026
Author: M.Nagaprasanna
Bench: M.Nagaprasanna
1
Reserved on : 21.04.2026
Pronounced on : 13.07.2026
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 13TH DAY OF JULY, 2026
BEFORE
THE HON'BLE MR. JUSTICE M. NAGAPRASANNA
WRIT PETITION No. 3157 OF 2026 (T-RES)
C/W
WRIT PETITION No. 4331 OF 2026 (T-RES),
WRIT PETITION No. 100634 OF 2026 (T-RES),
WRIT PETITION No. 100636 OF 2026 (T-RES),
Digitally signed
by PADMAVATHI WRIT PETITION No. 100637 OF 2026 (T-RES),
BK
Location: High WRIT PETITION No. 100638 OF 2026 (T-RES),
Court of
Karnataka WRIT PETITION No. 100657 OF 2026 (T-RES),
WRIT PETITION No. 200402 OF 2026 (T-RES)
IN WRIT PETITION No. 3157 OF 2026
BETWEEN:
M/S DHARIWAL INDUSTRIES PVT. LTD.,
COMPANY REGISTERED UNDER
THE COMPANIES ACT, 1956,
HAVING ITS OFFICE LOCATED AT,
GROUND FLOOR, SURVEY NO. 333,
2
BOMMASANDRA INDUSTRIAL AREA,
BENGALURU - 560 099.
REPRESENTED BY ITS
AUTHORISED SIGNATORY.
... PETITIONER
(BY SRI G. SHIVADASS, SENIOR ADVOCATE A/W
SRI PRASHANTH SHIVADASS, SRI RISHAB.J, SRI SAMPATH
KELUDEPPA MUTTHALAGERI & MS. SNEHA SURESH,
ADVOCATES)
AND:
1. UNION OF INDIA,
THROUGH THE SECRETARY,
MINISTRY OF FINANCE
(DEPARTMENT OF REVENUE),
NO. 137, NORTH BLOCK,
NEW DELHI 110 001.
2. CENTRAL BOARD OF INDIRECT TAXES
AND CUSTOMS,
THROUGH THE DIRECTOR,
MINISTRY OF FINANCE
(DEPARTMENT OF REVENUE),
CENTRAL REVENUE BUILDINGS,
L.P. ESTATE, ITO,
NEW DELHI - 110 002.
... RESPONDENTS
(BY SRI N.VENKATARAMAN, ADDITIONAL SOLICITOR GENERAL OF
INDIA A/W
SRI ARAVIND V. CHAVAN, SENIOR STANDING COUNSEL)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND
227 OF THE CONSTITUTION OF INDIA PRAYING TO DECLARE THAT
THE CONSTITUTION DOES NOT EMPOWER THE UNION
GOVERNMENT TO PROMULGATE A LAW TO LEVY HEALTH SECURITY
3
SE NATIONAL SECURITY CESS ON THE PRESUMED/DEEMED
MANUFACTURE AND CONSEQUENTLY THE HEALTH SECURITY SE
NATIONAL SECURITY CESS ACT, 2025 AND THE HEALTH SECURITY
SE NATIONAL SECURITY CESS RULES, 2026 ARE
UNCONSTITUTIONAL; B. TO ISSUE A WRIT IN THE NATURE OF
MANDAMUS DECLARING THAT LEVYING HEALTH SECURITY SE
NATIONAL SECURITY CESS ON THE CAPACITY BASED PRODUCTION
IS ULTRA-VIRES ARTICLES 14 AND 19(1)(G) OF THE
CONSTITUTION OF INDIA FOR BEING UNREASONABLE, ARBITRARY
AND VAGUE; C. TO ISSUE A WRIT IN THE NATURE OF MANDAMUS
DECLARING THAT THE HEALTH SECURITY SE NATIONAL SECURITY
CESS ACT, 2025 AND THE HEALTH SECURITY SE NATIONAL
SECURITY CESS RULES, 2026 LEVYING HEALTH SECURITY SE
NATIONAL SECURITY CESS ON THE CAPACITY BASED PRODUCTION
IS ULTRAVIRES TO THE CONSTITUTION OF INDIA, WHEN THE LEVY
IS BASED ON ASSUMPTION OF QUANTITY MANUFACTURED
INSTEAD OF ACTUAL QUANTITY MANUFACTURED;
D. TO ISSUE A WRIT OF CERTIORARI TO QUASHING THE HEALTH
SECURITY SE NATIONAL SECURITY CESS ACT, 2025,
NOTIFICATION NO. S.O. 6153(E) DATED 31.12.2025 AND
NOTIFICATION NO.1 /2026- HSNS CESS DATED 01.01.2026,
PUBLISHED BY RESPONDENT NO.1 PRODUCED HEREIN AND
ANNEXED AS ANNEXURE 'A' , 'B' AND 'C' RESPECTIVELY AS BEING
ULTRA-VIRES ARTICLE 14 AND 19(1)(g) OF CONSTITUTION OF
INDIA.
IN WRIT PETITION No. 4331 OF 2026
BETWEEN:
M/S. SHIVAM INDUSTRIES,
HAVING OFFICE AT
SHED NO. 2, KHATA NO.2,
SY NO.8, BEDERBOMMENAHALLI,
BHEEMASAMUDRA, CHITRADURGA,
KARNATAKA - 577 520.
REP. PARTNERSHIP ACT.
... PETITIONER
4
(BY SRI G.SHIVADASS, SENIOR ADVOCATE A/W
SRI PRASHANTH SHIVADASS, SRI RISHAB.J,
SRI SAMPATH KELUDEPPA MUTTHALAGERI &
MS. SNEHA SURESH, ADVOCATES)
AND:
1. UNION OF INDIA,
THROUGH THE SECRETARY,
MINISTRY OF FINANCE,
(DEPARTMENT OF REVENUE),
NO. 137, NORTH BLOCK,
NEW DELHI 110 001.
2. CENTRAL BOARD OF INDIRECT TAXES
AND CUSTOMS,
THROUGH THE DIRECTOR,
MINISTRY OF FINANCE
(DEPARTMENT OF REVENUE),
CENTRAL REVENUE BUILDINGS,
L.P. ESTATE, ITO, NEW DELHI-110 002
... RESPONDENTS
(BY SRI N VENKATARAMAN, ADDITIONAL SOLICITOR GENERAL OF
INDIA A/W SRI ARAVIND V CHAVAN, SENIOR STANDING
COUNSEL)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND
227 OF THE CONSTITUTION OF INDIA, PRAYING TO A. TO ISSUE A
WRIT IN THE NATURE OF MANDAMUS DECLARING THAT THE
CONSTITUTION DOES NOT EMPOWER THE UNION GOVERNMENT
TO PROMULGATE A LAW TO LEVY HEALTH SECURITY SE NATIONAL
SECURITY CESS ON THE PRESUMED/DEEMED MANUFACTURE AND
CONSEQUENTLY THE HEALTH SECURITY SE NATIONAL SECURITY
CESS ACT, 2025 AND THE HEALTH SECURITY SE NATIONAL
SECURITY CESS RULES, 2026 ARE UNCONSTITUTIONAL.; B. TO
ISSUE A WRIT IN THE NATURE OF MANDAMUS DECLARING THAT
LEVYING HEALTH SECURITY SE NATIONAL SECURITY CESS ON THE
5
CAPACITY BASED PRODUCTION IS ULTRA-VIRES ARTICLES 14 AND
19(1)(G) OF THE CONSTITUTION OF INDIA FOR BEING
UNREASONABLE, ARBITRARY AND VAGUE; C. TO ISSUE A WRIT IN
THE NATURE OF MANDAMUS DECLARING THAT THE HEALTH
SECURITY SE NATIONAL SECURITY CESS ACT, 2025 AND THE
HEALTH SECURITY SE NATIONAL SECURITY CESS RULES, 2026
LEVYING HEALTH SECURITY SE NATIONAL SECURITY CESS ON THE
CAPACITY BASED PRODUCTION IS ULTRAVIRES TO THE
CONSTITUTION OF INDIA, WHEN THE LEVY IS BASED ON
ASSUMPTION OF QUANTITY MANUFACTURED INSTEAD OF ACTUAL
QUANTITY MANUFACTURED; D. QUASH THE HEALTH SECURITY SE
NATIONAL SECURITY CESS ACT, 2025, NOTIFICATION NO. S.O
6153(E) DATED 31.12.2025, NOTIFICATION NO.1 /2026-HSNS
CESS DATED 01.01.2026 AND NOTIFICATION NO.2 /2026-HSNS
CESS DATED 30.01.2026, PUBLISHED BY RESPONDENT NO.1
PRODUCED HEREIN AND ANNEXED AS ANNEXURE -B, C AND D
RESPECTIVELY AS BEING ULTRA-VIRES ARTICLE 14 AND 19(1)(G)
OF CONSTITUTION OF INDIA.
IN WRIT PETITION No. 100634 OF 2026
BETWEEN:
M/S. SHRI TIRUPATI INDUSTRIES,
PARTNERSHIP FIRM,
HAVING ITS OFFICE LOCATED AT.
SURVEY NO. 61/2A,
RAYANAL GRAM PANCHAYAT,
DEVARAGUDIHAL, KARIYAMMA DEVI TEMPLE,
DHARWAD 580 024.
REP. BY ITS PARTNER
SHRI BHARADEAJPRASAD N. SINGH,
AGED ABOUT 64 YEARS.
... PETITIONER
(BY SRI G. SHIVADASS, SENIOR ADVOCATE A/W
SRI TARIKAR PRAVEEN, SRI PRASHANTH SHIVADASS,
SRI RISHAB.J, SRI SAMPATH KELUDEPPA MUTTHALAGERI &
6
MS. SNEHA SURESH, ADVOCATES)
AND:
1. UNION OF INDIA
THROUGH THE SECRETARY,
MINISTRY OF FINANCE
DEPARTMENT OF REVENUE,
NO. 137, NORTH BLOCK,
NEW DELHI - 110 001.
2. CENTRAL BOARD OF INDIRECT TAXES AND CUSTOMS,
THROUGH THE DIRECTOR,
MINISTRY OF FINANCE
(DEPARTMENT OF REVENUE),
CENTRAL REVENUE BUILDINGS,
L P ESTATE, ITO, NEW DELHI - 110 002.
... RESPONDENTS
(BY SRI N.VENKATARAMAN, ADDITIONAL SOLICITOR GENERAL OF
INDIA A/W
SRI ARAVIND V. CHAVAN, SENIOR STANDING COUNSEL)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND
227 OF THE CONSTITUTION OF INDIA PRAYING TO A. TO ISSUE A
WRIT IN THE NATURE OF MANDAMUS DECLARING THAT THE
CONSTITUTION DOES NOT EMPOWER THE UNION GOVERNMENT
TO PROMULGATE A LAW TO LEVY HEALTH SECURITY SE NATIONAL
SECURITY CESS ON THE PRESUMED/DEEMED MANUFACTURE AND
CONSEQUENTLY THE HEALTH SECURITY SE NATIONAL SECURITY
CESS ACT, 2025 AND THE HEALTH SECURITY SE NATIONAL
SECURITY CESS RULES, 2026 ARE UNCONSTITUTIONAL; B. TO
ISSUE A WRIT IN THE NATURE OF MANDAMUS DECLARING THAT
LEVYING HEALTH SECURITY SE NATIONAL SECURITY CESS ON THE
CAPACITY BASED PRODUCTION IS ULTRA-VIRES ARTICLES 14 AND
19(1)(G) OF THE CONSTITUTION OF INDIA FOR BEING
UNREASONABLE, ARBITRARY AND VAGUE; C. TO ISSUE A WRIT IN
THE NATURE OF MANDAMUS DECLARING THAT THE HEALTH
7
SECURITY SE NATIONAL SECURITY CESS ACT, 2025 AND THE
HEALTH SECURITY SE NATIONAL SECURITY CESS RULES, 2026
LEVYING HEALTH SECURITY SE NATIONAL SECURITY CESS ON THE
CAPACITY BASED PRODUCTION IS ULTRAVIRES TO THE
CONSTITUTION OF INDIA, WHEN THE LEVY IS BASED ON
ASSUMPTION OF QUANTITY MANUFACTURED INSTEAD OF ACTUAL
QUANTITY MANUFACTURED; D. TO ISSUE A WRIT OF CERTIORARI
TO QUASHING THE HEALTH SECURITY SE NATIONAL SECURITY
CESS ACT, 2025, NOTIFICATION DATED 16-12-2025 AT
ANNEXURE-A, NOTIFICATION NO. S.O. 6153(E) DATED 31.12.2025
AT ANNEXURE-B AND NOTIFICATION NO.1 /2026-HSNS CESS
DATED 01.01.2026 AT ANNEXURE-C, PUBLISHED BY RESPONDENT
NO.1 AS BEING ULTRA-VIRES ARTICLE 14 AND 19(1)(g) OF
CONSTITUTION OF INDIA.
IN WRIT PETITION No. 100636 OF 2026
BETWEEN:
M/S. SHASHHI SHEKHAR ENTERPRISES,
SOLE PROPRIETORSHIP FIRM,
HAVING ITS OFFICE LOCATED AT
NO.D-60, INDUSTRIAL ESTATE,
GAMANAGATTI, DHARWAD - 580 025.
REPRESENTED BY ITS PARTNER,
SRI DHARMENDRA TRIPATHI,
AGED ABOUT 52 YEARS.
... PETITIONER
(BY SRI G.SHIVADASS, SENIOR ADVOCATE A/W
SRI TARIKAR PRAVEEN, SRI PRASHANTH SHIVADASS,
SRI RISHAB.J, SRI SAMPATH KELUDEPPA MUTTHALAGERI &
MS. SNEHA SURESH, ADVOCATES)
AND:
1. UNION OF INDIA,
THROUGH THE SECRETARY,
8
MINISTRY OF FINANCE
(DEPARTMENT OF REVENUE),
NO. 137, NORTH BLOCK,
NEW DELHI - 110 001.
2. CENTRAL BOARD OF INDIRECT TAXES
AND CUSTOMS,
THROUGH THE DIRECTOR,
MINISTRY OF FINANCE
(DEPARTMENT OF REVENUE),
CENTRAL REVENUE BUILDINGS,
L.P.ESTATE, ITO, NEW DELHI - 110 002.
... RESPONDENTS
(BY SRI N.VENKATARAMAN, ADDITIONAL SOLICITOR GENERAL OF
INDIA A/W
SRI ARAVIND V.CHAVAN, SENIOR STANDING COUNSEL)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND
227 OF THE CONSTITUTION OF INDIA PRAYING TO A. TO ISSUE A
WRIT IN THE NATURE OF MANDAMUS DECLARING THAT THE
CONSTITUTION DOES NOT EMPOWER THE UNION GOVERNMENT
TO PROMULGATE A LAW TO LEVY HEALTH SECURITY SE NATIONAL
SECURITY CESS ON THE PRESUMED/DEEMED MANUFACTURE AND
CONSEQUENTLY THE HEALTH SECURITY SE NATIONAL SECURITY
CESS ACT, 2025 AND THE HEALTH SECURITY SE NATIONAL
SECURITY CESS RULES, 2026 ARE UNCONSTITUTIONAL; B. TO
ISSUE A WRIT IN THE NATURE OF MANDAMUS DECLARING THAT
LEVYING HEALTH SECURITY SE NATIONAL SECURITY CESS ON THE
CAPACITY BASED PRODUCTION IS ULTRA-VIRES ARTICLES 14 AND
19(1)(g) OF THE CONSTITUTION OF INDIA FOR BEING
UNREASONABLE, ARBITRARY AND VAGUE; C. TO ISSUE A WRIT IN
THE NATURE OF MANDAMUS DECLARING THAT THE HEALTH
SECURITY SE NATIONAL SECURITY CESS ACT, 2025 AND THE
HEALTH SECURITY SE NATIONAL SECURITY CESS RULES, 2026
LEVYING HEALTH SECURITY SE NATIONAL SECURITY CESS ON THE
CAPACITY BASED PRODUCTION IS ULTRAVIRES TO THE
CONSTITUTION OF INDIA, WHEN THE LEVY IS BASED ON
9
ASSUMPTION OF QUANTITY MANUFACTURED INSTEAD OF ACTUAL
QUANTITY MANUFACTURED; D. TO ISSUE A WRIT OF CERTIORARI
TO QUASHING THE HEALTH SECURITY SE NATIONAL SECURITY
CESS ACT, 2025, NOTIFICATION DATED 16-12-2025 AT
ANNEXURE-A, NOTIFICATION NO. S.O. 6153(E) DATED 31.12.2025
AT ANNEXURE-B AND NOTIFICATION NO.1 /2026-HSNS CESS
DATED 01.01.2026 AT ANNEXURE-C, PUBLISHED BY RESPONDENT
NO.1 AS BEING ULTRA-VIRES ARTICLE 14 AND 19(1)(g) OF
CONSTITUTION OF INDIA.
IN WRIT PETITION No. 100637 OF 2026
BETWEEN:
M/S.RAJ POUCHES,
PARTNERSHIP FIRM,
HAVING ITS OFFICE LOCATED AT
R.S.NO. 165, M.N.DOSHI COMPLEX,
ROOM NO.1, NEAR NIPANI BUS STAND,
TAL. NIPANI, BELAGAVI - 591 237,
REPRESENTED BY ITS
AUTHORISED SIGNATORY,
SRI BHARTVEERSINGH H. DEORA,
AGED ABOUT 45 YEARS.
... PETITIONER
(BY SRI G.SHIVADASS, SENIOR ADVOCATE A/W
SRI TARIKAR PRAVEEN, SRI PRASHANTH SHIVADASS,
SRI RISHAB.J, SRI SAMPATH KELUDEPPA MUTTHALAGERI &
MS. SNEHA SURESH, ADVOCATES)
AND:
1. UNION OF INDIA,
THROUGH THE SECRETARY,
MINISTRY OF FINANCE
(DEPARTMENT OF REVENUE),
NO. 137, NORTH BLOCK,
10
NEW DELHI - 110 001.
2. CENTRAL BOARD OF INDIRECT TAXES
AND CUSTOMS,
THROUGH THE DIRECTOR,
MINISTRY OF FINANCE
(DEPARTMENT OF REVENUE),
CENTRAL REVENUE BUILDINGS,
L.P.ESTATE, ITO, NEW DELHI - 110 002.
... RESPONDENTS
(BY SRI N.VENKATARAMAN, ADDITIONAL SOLICITOR GENERAL OF
INDIA A/W
SRI ARAVIND V.CHAVAN, SENIOR STANDING COUNSEL)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND
227 OF THE CONSTITUTION OF INDIA PRAYING TO A. TO ISSUE A
WRIT IN THE NATURE OF MANDAMUS DECLARING THAT THE
CONSTITUTION DOES NOT EMPOWER THE UNION GOVERNMENT
TO PROMULGATE A LAW TO LEVY HEALTH SECURITY SE NATIONAL
SECURITY CESS ON THE PRESUMED/DEEMED MANUFACTURE AND
CONSEQUENTLY THE HEALTH SECURITY SE NATIONAL SECURITY
CESS ACT, 2025 AND THE HEALTH SECURITY SE NATIONAL
SECURITY CESS RULES, 2026 ARE UNCONSTITUTIONAL; B. TO
ISSUE A WRIT IN THE NATURE OF MANDAMUS DECLARING THAT
LEVYING HEALTH SECURITY SE NATIONAL SECURITY CESS ON THE
CAPACITY BASED PRODUCTION IS ULTRA-VIRES ARTICLES 14 AND
19(1)(g) OF THE CONSTITUTION OF INDIA FOR BEING
UNREASONABLE, ARBITRARY AND VAGUE; C. TO ISSUE A WRIT IN
THE NATURE OF MANDAMUS DECLARING THAT THE HEALTH
SECURITY SE NATIONAL SECURITY CESS ACT, 2025 AND THE
HEALTH SECURITY SE NATIONAL SECURITY CESS RULES, 2026
LEVYING HEALTH SECURITY SE NATIONAL SECURITY CESS ON THE
CAPACITY BASED PRODUCTION IS ULTRA-VIRES TO THE
CONSTITUTION OF INDIA, WHEN THE LEVY IS BASED ON
ASSUMPTION OF QUANTITY MANUFACTURED INSTEAD OF ACTUAL
QUANTITY MANUFACTURED; D. TO ISSUE A WRIT OF CERTIORARI
TO QUASH THE HEALTH SECURITY SE NATIONAL SECURITY CESS
11
ACT, 2025, NOTIFICATION DATED 16-12-2025 AT ANNEXURE-A,
NOTIFICATION NO. S.O. 6153(E) DATED 31.12.2025 AT
ANNEXURE-B AND NOTIFICATION NO.1 /2026-HSNS CESS DATED
01.01.2026 AT ANNEXURE-C, PUBLISHED BY RESPONDENT NO.1
AS BEING ULTRA-VIRES ARTICLE 14 AND 19(1)(h) OF
CONSTITUTION OF INDIA.
IN WRIT PETITION No. 100638 OF 2026
BETWEEN:
M/S.V.K.PACKERS,
HAVING OFFICE AT
BIROBA MANDIR, 37/2,
BIROBA MAL, YARNAL ROAD,
TALUKA NIPPANI,
BELAGAVI - 591 237.
MR. VARUN KUMAR, PARTNER,
AGED ABOUT 41 YEARS.
... PETITIONER
(BY SRI G.SHIVADASS, SENIOR ADVOCATE A/W
SRI TARIKAR PRAVEEN, SRI PRASHANTH SHIVADASS,
SRI RISHAB.J, SRI SAMPATH KELUDEPPA MUTTHALAGERI &
MS. SNEHA SURESH, ADVOCATES)
AND:
1. UNION OF INDIA,
THROUGH THE SECRETARY,
MINISTRY OF FINANCE
(DEPARTMENT OF REVENUE),
NO.137, NORTH BLOCK,
NEW DELHI - 110 001.
12
2. CENTRAL BOARD OF INDIRECT
TAXES AND CUSTOMS,
THROUGH THE DIRECTOR,
MINISTRY OF FINANCE
(DEPARTMENT OF REVENUE),
CENTRAL REVENUE BUILDINGS,
L.P.ESTATE, ITO, NEW DELHI - 110 002.
... RESPONDENTS
(BY SRI N.VENKATARAMAN, ADDITIONAL SOLICITOR GENERAL OF
INDIA A/W
SRI ARAVIND V CHAVAN, SENIOR STANDING COUNSEL)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND
227 OF THE CONSTITUTION OF INDIA PRAYING TO A. TO ISSUE A
WRIT IN THE NATURE OF MANDAMUS DECLARING THAT THE
CONSTITUTION DOES NOT EMPOWER THE UNION GOVERNMENT
TO PROMULGATE A LAW TO LEVY HEALTH SECURITY SE NATIONAL
SECURITY CESS ON THE PRESUMED/DEEMED MANUFACTURE AND
CONSEQUENTLY THE HEALTH SECURITY SE NATIONAL SECURITY
CESS ACT, 2025 AND THE HEALTH SECURITY SE NATIONAL
SECURITY CESS RULES, 2026 ARE UNCONSTITUTIONAL;
B. TO ISSUE A WRIT IN THE NATURE OF MANDAMUS DECLARING
THAT LEVYING HEALTH SECURITY SE NATIONAL SECURITY CESS
ON THE CAPACITY BASED PRODUCTION IS ULTRA-VIRES ARTICLES
14 AND 19(1)(g) OF THE CONSTITUTION OF INDIA FOR BEING
UNREASONABLE, ARBITRARY AND VAGUE; C. TO ISSUE A WRIT IN
THE NATURE OF MANDAMUS DECLARING THAT THE HEALTH
SECURITY SE NATIONAL SECURITY CESS ACT, 2025 AND THE
HEALTH SECURITY SE NATIONAL SECURITY CESS RULES, 2026
LEVYING HEALTH SECURITY SE NATIONAL SECURITY CESS ON THE
CAPACITY BASED PRODUCTION IS ULTRA-VIRES TO THE
CONSTITUTION OF INDIA, WHEN THE LEVY IS BASED ON
ASSUMPTION OF QUANTITY MANUFACTURED INSTEAD OF ACTUAL
QUANTITY MANUFACTURED; D. TO ISSUE A WRIT OF CERTIORARI
TO QUASHING THE HEALTH SECURITY SE NATIONAL SECURITY
CESS ACT, 2025, NOTIFICATION DATED 16-12-2025 AT
ANNEXURE-A, NOTIFICATION NO. S.O. 6153(E) DATED 31.12.2025
13
AT ANNEXURE-B AND NOTIFICATION NO.1 /2026-HSNS CESS
DATED 01.01.2026 AT ANNEXURE-C, PUBLISHED BY RESPONDENT
NO.1 AS BEING ULTRA-VIRES ARTICLE 14 AND 19(1)(g) OF
CONSTITUTION OF INDIA.
IN WRIT PETITION No. 100657 OF 2026
BETWEEN:
M/S. GHODAWAT FRESHENERS LLP,
HAVING OFFICE AT
KOTAGONDHUNSHI POST ADARGUNCHI,
KUNDAGOL CROSS, BANGALORE ROAD,
HUBBALLI - 580 029.
REPRESENTED BY ITS
AUTHORISED SIGNATORY,
ATUL MAHADEV SHINDE,
AGED ABOUT 55 YEARS,
RESIDING AT GULMOHAR COLONY,
MSEB ROAD, VIKAS NAGAR,
ICHALKARANJI - 416 117,
MAHARASHTRA.
... PETITIONER
(BY SRI G.SHIVADASS, SENIOR ADVOCATE A/W
SRI TARIKAR PRAVEEN, SRI PRASHANTH SHIVADASS,
SRI RISHAB.J, SRI SAMPATH KELUDEPPA MUTTHALAGERI &
MS. SNEHA SURESH, ADVOCATES)
AND:
1. UNION OF INDIA,
THROUGH THE SECRETARY,
MINISTRY OF FINANCE
(DEPARTMENTOF REVENUE),
NO.137, NORTH BLOCK,
NEW DELHI - 110 001.
14
2. CENTRAL BOARD OF INDIRECT
TAXES AND CUSTOMS,
THROUGH THE DIRECTOR,
MINISTRY OF FINANCE
(DEPARTMENT OF REVENUE),
CENTRAL REVENUE BUILDINGS,
L.P.ESTATE, ITO, NEW DELHI - 110 002.
... RESPONDENTS
(BY SRI N.VENKATARAMAN, ADDITIONAL SOLICITOR GENERAL OF
INDIA A/W
SRI ARAVIND V. CHAVAN, SENIOR STANDING COUNSEL)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND
227 OF THE CONSTITUTION OF INDIA PRAYING TO A. TO ISSUE A
WRIT IN THE NATURE OF MANDAMUS DECLARING THAT THE
CONSTITUTION DOES NOT EMPOWER THE UNION GOVERNMENT
TO PROMULGATE A LAW TO LEVY HEALTH SECURITY SE NATIONAL
SECURITY CESS ON THE PRESUMED/DEEMED MANUFACTURE AND
CONSEQUENTLY THE HEALTH SECURITY SE NATIONAL SECURITY
CESS ACT, 2025 AND THE HEALTH SECURITY SE NATIONAL
SECURITY CESS RULES, 2026 ARE UNCONSTITUTIONAL; B. TO
ISSUE A WRIT IN THE NATURE OF MANDAMUS DECLARING THAT
LEVYING HEALTH SECURITY SE NATIONAL SECURITY CESS ON THE
CAPACITY BASED PRODUCTION IS ULTRA-VIRES ARTICLES 14 AND
19(1)(g) OF THE CONSTITUTION OF INDIA FOR BEING
UNREASONABLE, ARBITRARY AND VAGUE; C. TO ISSUE A WRIT IN
THE NATURE OF MANDAMUS DECLARING THAT THE HEALTH
SECURITY SE NATIONAL SECURITY CESS ACT, 2025 AND THE
HEALTH SECURITY SE NATIONAL SECURITY CESS RULES, 2026
LEVYING HEALTH SECURITY SE NATIONAL SECURITY CESS ON THE
CAPACITY BASED PRODUCTION IS ULTRAVIRES TO THE
CONSTITUTION OF INDIA, WHEN THE LEVY IS BASED ON
ASSUMPTION OF QUANTITY MANUFACTURED INSTEAD OF ACTUAL
QUANTITY MANUFACTURED; D. TO ISSUE A WRIT OF CERTIORARI
TO QUASHING THE HEALTH SECURITY SE NATIONAL SECURITY
CESS ACT, 2025, NOTIFICATION DATED 16-12-2025 AT
ANNEXURE-A, NOTIFICATION NO. S.O. 6153(E) DATED 31.12.2025
AT ANNEXURE-B AND NOTIFICATION NO.1 /2026-HSNS CESS
15
DATED 01.01.2026 AT ANNEXURE-C, PUBLISHED BY RESPONDENT
NO.1 AS BEING ULTRA-VIRES ARTICLE 14 AND 19(1)(g) OF
CONSTITUTION OF INDIA.
IN WRIT PETITION No. 200402 OF 2026
BETWEEN:
M/S.R.K.PAN MASALA PVT. LTD.,
HAVING OFFICE AT
PLOT NO.35 AND 36,
INDUSTRIAL ESTATE, NOUBAD,
BIDAR - 585 402.
REPRESENTED BY ITS
AUTHORISED SIGNATORY,
SHRI. MAHANT LAL YADAV,
DIRECTOR,
AGED ABOUT 56 YEARS.
... PETITIONER
(BY SRI G.SHIVADASS, SENIOR ADVOCATE A/W
SRI SIDDALING REDDY PATIL, SRI PRASHANTH SHIVADASS,
SRI RISHAB.J, SRI SAMPATH KELUDEPPA MUTTHALAGERI &
MS. SNEHA SURESH, ADVOCATES)
AND:
1. UNION OF INDIA,
THROUGH THE SECRETARY,
MINISTRY OF FINANCE
(DEPARTMENT OF REVENUE),
NO.137, NORTH BLOCK,
NEW DELHI - 110 001.
2. CENTRAL BOARD OF INDIRECT
TAXES AND CUSTOMS,
THROUGH THE DIRECTOR,
16
MINISTRY OF FINANCE
(DEPARTMENT OF REVENUE),
CENTRAL REVENUE BUILDINGS,
L.P. ESTATE, ITO, NEW DELHI - 110 002.
... RESPONDENTS
(BY SRI N. VENKATARAMAN, ADDITIONAL SOLICITOR GENERAL OF
INDIA A/W
SRI ARAVIND V. CHAVAN, SENIOR STANDING COUNSEL)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND
227 OF THE CONSTITUTION OF INDIA PRAYING A. TO ISSUE A
WRIT IN THE NATURE OF MANDAMUS DECLARING THAT THE
CONSTITUTION DOES NOT EMPOWER THE UNION GOVERNMENT
TO PROMULGATE A LAW TO LEVY HEALTH SECURITY SE NATIONAL
SECURITY CESS ON THE PRESUMED/DEEMED MANUFACTURE AND
CONSEQUENTLY THE HEALTH SECURITY SE NATIONAL SECURITY
CESS ACT, 2025 AND THE HEALTH SECURITY SE NATIONAL
SECURITY CESS RULES, 2026 ARE UNCONSTITUTIONAL; B. TO
ISSUE A WRIT IN THE NATURE OF MANDAMUS DECLARING THAT
LEVYING HEALTH SECURITY SE NATIONAL SECURITY CESS ON THE
CAPACITY BASED PRODUCTION IS ULTRA-VIRES ARTICLES 14 AND
19(1)(g) OF THE CONSTITUTION OF INDIA FOR BEING
UNREASONABLE, ARBITRARY VAGUE; C. TO ISSUE A WRIT IN THE
NATURE OF MANDAMUS DECLARING THAT THE HEALTH SECURITY
SE NATIONAL SECURITY CESS ACT, 2025 AND THE HEALTH
SECURITY SE NATIONAL SECURITY CESS RUES, 2026 LEVYING
HEATH SECURITY SE NATIONAL SECURITY CESS ON THE CAPACITY
BASED PRODUCTION IS ULTRA VIRUS TO THE CONSTITUTION OF
INDIA, WHEN THE LEVY IS BASED ON ASSUMPTION OF QUANTITY
MANUFACTURED INSTEAD OF ACTUAL QUANTITY MANUFACTURED;
D. TO ISSUE A WRIT OF CERTIORARI TO QUASHING THE HEALTH
SECURITY SE NATIONAL SECURITY CESS ACT, 2025,
NOTIFICATION NO. S.O. 6153(E) DATED 31.12.2025 AND
NOTIFICATION NO.1 /2026- HSNS CESS DATED 01.01.2026,
PUBLISHED BY RESPONDENT NO.1 PRODUCED HEREIN AND
ANNEXED AS ANNEXURE A, B AND C RESPECTIVELY AS BEING
ULTRA-VIRES ARTICLE 14 AND 19(1)(g) OF CONSTITUTION OF
INDIA.
17
THESE WRIT PETITIONS HAVING BEEN HEARD AND
RESERVED FOR ORDERS ON 21.04.2026, COMING ON FOR
PRONOUNCEMENT THIS DAY, THE COURT MADE THE FOLLOWING:-
CORAM: THE HON'BLE MR JUSTICE M.NAGAPRASANNA
CAV ORDER
Conglomeration of these cases raise a solitary challenge viz.,
the constitutional validity of the Health Security se National Security
Cess Act, 2025 (hereinafter referred to as 'the Act' for short), a
legislation enacted by the Parliament to provide for levy and
collection of cess for specific and identified purposes. The ancillary
challenge is to the Rules so notified viz., Health Security se National
Security Cess Rules, 2026 (hereinafter referred to as 'the Rules' for
short). A further challenge is raised to notifications issued, in
furtherance of the Act and the Rules. A common ground of
challenge is that they are ultra vires to the provisions of the
Constitution of India.
2. Facts, in brief, germane are as follows: -
2.1. The petitioners, in all these cases, are business entities,
engaged in the manufacture and supply of Pan Masala, falling under
18
Customs Tariff Item No.2106 90 20. The processed Pan Masala is
packed in pouches by using pouch packing machines and sold by
these entities at Retail Sales Price. Prior to the enactment of the
impugned Act and Rules, the taxation regime in the Nation
underwent a paradigm shift through the, 122nd Amendment Bill,
2014 that was placed before the Lok Sabha, for amending the
Constitution of India, wherein various indirect taxes, Central and
State surcharges and cesses, so far as they relate to goods and
services in the course of Inter-State and Intra-State transactions
were sought to be subsumed under one single levy called the
"Goods and Services Tax" (hereinafter referred to as 'GST' for
short). The said Bill is passed, and the Constitution (One Hundred
and First Amendment) Act, 2016 comes into force with effect from
16-09-2016. Through the amendment, Article 246A comes to be
inserted in the Constitution of India which empowers the Parliament
and the State Legislatures to make laws with respect to Goods and
Service Tax imposed by the Union or the State.
2.2. By the same Constitutional Amendment, Article 279A
also comes to be inserted, providing for the constitution of a
19
Council called the Goods and Services Tax Council (hereinafter
referred to as 'the GST Council' for short). Article 279A empowers
the GST Council to make recommendations to the Union or the
State with respect to taxes, cesses and surcharges levied by the
Union or the State Government. For the purpose of levy and
collection of GST on Inter-State trade and commerce, Article 269A
comes to be introduced in terms of the aforesaid Constitutional
Amendment, which states that, GST can be levied and collected
only by the Government of India and apportioned between the
Union and States, in the manner as may be provided by the
Parliament, on the recommendation of the GST Council. Entry 84 of
List I of the Seventh Schedule to the Constitution of India, also
comes to be substituted by the said Amendment. Thus, begins the
GST regime.
2.3. In furtherance of the Constitutional Amendment as noted
hereinabove, the Parliament enacts Central Goods and Services Act,
2017 (hereinafter referred to as 'the CGST Act') with effect from
01-07-2017 and the Integrated Goods and Services Tax Act, 2017
(hereinafter referred to as 'the IGST Act') which provide for the levy
20
and collection of taxes on all Inter-State supply of goods and
services, or both, by the Central Government. In terms of the
aforesaid two Acts, CGST and IGST is leviable on goods or services
or both, as may be notified by the Government of India, on the
recommendations of the GST Council. Consequently, upon coming
into force of the CGST and IGST Acts, a tax was levied on goods
falling under the Customs Tariff Heading 2106 90 20 (i.e. Pan
Masala) in terms of Schedule IV of the notifications dated
28-06-2017, which provide for the rate of levy of Integrated and
Central Taxes. In terms of the said notification, Pan Masala was
subject to Integrated Tax, at the rate of 28%.
2.4. When things stood thus, in the year 2025, the Parliament
enacts the impugned Act for the purpose of augmenting resources
to meet expenditure on national security and public health, by
levying a cess on the machines installed or other processes are
undertaken, by which goods specified under the Act are
manufactured or produced. The Act comes into force on
01-02-2026, in terms of the impugned Notification dated
31-12-2025. Thereafter, another impugned Notification is issued on
21
01-02-2026, notifying the impugned Rules, which are enacted in
furtherance of the Act. The impugned Rules bring about the
procedure for declaration, quantification, collection and payment of
cess. On notification of the impugned Act and the Rules, the
petitioners/manufacturers and distributors of Pan Masala or the
makers of pouches for the purpose of distribution of Pan Masala
stand at the doors of this Court challenging the constitutional
validity of the Act and Rules and the Notifications issued in
furtherance of the Act and the Rules, on plethora of grounds.
3. Heard Sri G. Shivadass, learned senior counsel appearing
for the petitioners and Sri N. Venkataraman, learned Additional
Solicitor General of India appearing for the respondents.
SUBMISSIONS:
PETITIONERS:
4.1. The learned senior counsel Sri G. Shivadass appearing
for the petitioners, in all these cases, would vehemently contend
that the impugned Act and the Rules promulgated for the purpose
of levy of Health Security se National Security Cess is beyond the
22
power conferred under the Constitution of India. He would take this
Court through the relevant Articles of the Constitution of India to
demonstrate that once these very goods are subject to tax as
obtaining under Articles 246A and 279A invoking the power under
Article 271 is directly contrary to Article 246A. It is his submission
that surcharge in terms of Article 271 can only be levied in addition
to existing duties and taxes levied under Article 269 and Article 270
and is not applicable to GST levied under Article 246A. Further, the
learned senior counsel submits that there is no other duty or tax on
Pan Masala which could be increased by borrowing the power under
Article 271. The only tax applicable in respect of Pan Masala at
present is the GST and the same is specifically excluded under
Article 271. Apart from the Constitutional validity, the learned
senior counsel submits that cess cannot be levied on deemed
production. At best it can be on the production.
4.2. In the case at hand, the learned senior counsel submits
that the Central Government wants the cess to be levied on the
number of machines one possesses and the number of pouches
they produce. He would submit that such a regime of cess cannot
23
have any refuge in law. The learned senior counsel would seek
holding of the Act and the Rules so enacted for levy of cess to be
unconstitutional and all other consequential acts as illegal and
contrary to law.
THE REVENUE:
5.1. Per contra, the learned Additional Solicitor General of
India, Sri N. Venkataraman, appearing for the revenue, would
vehemently contend that, the petitions are wholly misconceived, as
the impugned Act is a constitutionally valid, lawfully enacted piece
of fiscal legislation supported by the Parliament's plenary legislative
power. It is enacted in public interest and is directed at regulating a
sector notorious for tax evasion and has adverse public health
consequences. The learned Additional Solicitor General would
submit that, Pan Masala is a commodity that stands in a class of its
own, as it has severe adverse public health consequences and is
one of the most evasion-prone commodity sectors in India.
Therefore, the twin imperatives, public health and revenue
protection, form the constitutional and policy foundation of the
impugned Act. Therefore, the Government addressing the evasion
24
through Pan Masala Packing Machines has enacted the impugned
enactment and the Rules.
5.2. The learned Additional Solicitor General submits that,
after the introduction of GST in 2017, Pan Masala was brought
under GST Compensation Cess at ad-valorem rates. Despite high
applicable tax rates, revenue collected from the Pan Masala sector
had consistently fallen far below the reasonable estimates of the
sector's productive capacity, which was clearly indicative of
large-scale continuing evasion. The impugned Act addresses this
revenue leakage at its root by moving the taxable event from the
transaction, which is capable of being suppressed, to machine
ownership, which cannot be suppressed. The learned Additional
Solicitor General would submit that the cess now imposed through
the impugned Act, is not a GST or called a Tax. Therefore, Article
246A does not apply. It is also not a surcharge. Therefore, Article
271 will not apply and the GST Council has no jurisdiction over the
Cess.
25
5.3. The mandate of the GST Council is confined to making of
recommendations to the imposition of GST. The impugned cess is
not a tax on supply of goods and services and therefore, it falls
beyond the purview of the GST Council. The learned Additional
Solicitor General would emphasize that levy is on machine
ownership and not on production or deemed production. He would
amplify the submission that it is a policy preference that capacity-
based approach becomes necessary due to the documented failure
of transaction-based taxation. He would submit that the Act
addresses both failure modes that the regime hitherto projected
and there is revenue certainty, if it is based upon the machines that
they own. The Act does not brood any arbitrariness, as the
classification is based on clear intelligible differentia of fiscal
legislation. He would submit that, certain procedures that are found
in the Act or the Rules and the Notifications so issued all would
become valid in the light of Constitutional validity of the Act and the
Rules not being found to be in violation of the provisions of the
Constitution.
26
5.4. Summing up, the learned Additional Solicitor General
would submit that the impugned Act is a valid exercise in
Parliament's plenary power under Article 246(1) read with Entry 97
in List-I of the Seventh Schedule to the Constitution of India.
Article 246A is not applicable as cess is not a GST. Therefore, it
cannot be said to be in violation of Articles 14 or 19(1)(g) of the
Constitution of India and the Rules framed under the Act are valid.
Equity would be that the Pan Masala industry having negative
externalities on public health, documented for over a decade and
the product being directly linked to real cancer and tax evasion, the
Act must be held to be a valid piece of legislation.
REJOINDER OF THE PETITIONER:
6. The learned senior counsel for the petitioners would
vehemently refute the submissions of the learned Additional
Solicitor General by contending that, it is unheard of that, to plug
leakage or a tax evasion in a particular sector, an Act is
promulgated. It cannot be that to plug leakage in one enactment,
another enactment should be brought in, notwithstanding it being
taxed in those regimes. The learned senior counsel submits that the
27
effect of such taxation can be tabulated, and it is not that the
petitioners are not being taxed. They are now taxed under two
regimes, by the surcharge and by the GST, now totaling to the tune
of 48%. Therefore, it cannot be said that the machines that they
possess could become the subject matter of cess. On these
grounds, he would seek the prayers that are sought in the petitions.
7. I have given my anxious consideration to the submissions
made by the respective learned counsel and have perused the
material on record. In furtherance whereof, the issue that falls for
consideration is,
"Whether the impugned Act and the Rules or the
Notifications made in furtherance of the impugned Act and
the Rules would fall foul of certain tenets of the Constitution
of India?"
CONSIDERATION:
8. The afore-narrated facts, dates, link in the chain of events,
in enactment of the impugned legislations, are all a matter of
record. However, even then, they would require an amplified
28
iteration. To consider the said issue, it is necessary to notice certain
Articles of the Constitution of India. Articles 246, 246A, 248, 254,
266, 269A, 270, 271, 279A and Entries 84 and 97 of List - I to the
Seventh Schedule to the Constitution, read as follows:
"246. Subject-matter of laws made by Parliament
and by the Legislatures of States.--(1) Notwithstanding
anything in clauses (2) and (3), Parliament has exclusive
power to make laws with respect to any of the matters
enumerated in List I in the Seventh Schedule (in this
Constitution referred to as the "Union List").
(2) Notwithstanding anything in clause (3), Parliament,
and, subject to clause (1), the Legislature of any State also,
have power to make laws with respect to any of the matters
enumerated in List III in the Seventh Schedule (in this
Constitution referred to as the "Concurrent List").
(3) Subject to clauses (1) and (2), the Legislature of any
State has exclusive power to make laws for such State or any
part thereof with respect to any of the matters enumerated in
List II in the Seventh Schedule (in this Constitution referred to
as the "State List").
(4) Parliament has power to make laws with
respect to any matter for any part of the territory of India
not included in a State notwithstanding that such matter
is a matter enumerated in the State List.
246-A. Special provision with respect to goods and
services tax.--(1) Notwithstanding anything contained in
Articles 246 and 254, Parliament, and, subject to clause
(2), the Legislature of every State, have power to make
laws with respect to goods and services tax imposed by
the Union or by such State.
(2) Parliament has exclusive power to make laws
with respect to goods and services tax where the supply
29
of goods, or of services, or both takes place in the course
of inter-State trade or commerce.
Explanation.--The provisions of this article, shall, in
respect of goods and services tax referred to in clause (5) of
Article 279-A, take effect from the date recommended by the
Goods and Services Tax Council.
.... .... ....
248. Residuary powers of legislation.--(1) Subject
to Article 246-A, Parliament has exclusive power to make
any law with respect to any matter not enumerated in the
Concurrent List or State List.
(2) Such power shall include the power of making
any law imposing a tax not mentioned in either of those
Lists.
.... .... ....
254. Inconsistency between laws made by
Parliament and laws made by the Legislatures of States.--
(1) If any provision of a law made by the Legislature of a State
is repugnant to any provision of a law made by Parliament which
Parliament is competent to enact, or to any provision of an
existing law with respect to one of the matters enumerated in
the Concurrent List, then, subject to the provisions of clause
(2), the law made by Parliament, whether passed before or after
the law made by the Legislature of such State, or, as the case
may be, the existing law, shall prevail and the law made by the
Legislature of the State shall, to the extent of the repugnancy,
be void.
(2) Where a law made by the Legislature of a State with
respect to one of the matters enumerated in the Concurrent List
contains any provision repugnant to the provisions of an earlier
law made by Parliament or an existing law with respect to that
matter, then, the law so made by the Legislature of such State
shall, if it has been reserved for the consideration of the
President and has received his assent, prevail in that State:
Provided that nothing in this clause shall prevent
Parliament from enacting at any time any law with respect to
30
the same matter including a law adding to, amending, varying
or repealing the law so made by the Legislature of the State.
.... .... ....
266. Consolidated Funds and public accounts of
India and of the States.--(1) Subject to the provisions of
Article 267 and to the provisions of this Chapter with
respect to the assignment of the whole or part of the
net proceeds of certain taxes and duties to States, all
revenues received by the Government of India, all loans
raised by that Government by the issue of treasury bills,
loans or ways and means advances and all moneys
received by that Government in repayment of loans
shall form one consolidated fund to be entitled "the
Consolidated Fund of India", and all revenues received
by the Government of a State, all loans raised by that
Government by the issue of treasury bills, loans or ways
and means advances and all moneys received by that
Government in repayment of loans shall form one
consolidated fund to be entitled "the Consolidated Fund
of the State".
(2) All other public moneys received by or on behalf of the
Government of India or the Government of a State shall be
credited to the public account of India or the public account of
the State, as the case may be.
(3) No moneys out of the Consolidated Fund of India or the
Consolidated Fund of a State shall be appropriated except in
accordance with law and for the purposes and in the manner
provided in this Constitution.
.... .... ....
269-A. Levy and collection of goods and services
tax in course of inter-State trade or commerce.--(1)
Goods and services tax on supplies in the course of
inter-State trade or commerce shall be levied and
collected by the Government of India and such tax shall
be apportioned between the Union and the States in the
manner as may be provided by Parliament by law on the
recommendations of the Goods and Services Tax
Council.
31
Explanation.--For the purposes of this clause, supply
of goods, or of services, or both in the course of import
into the territory of India shall be deemed to be supply
of goods, or of services, or both in the course of inter-
State trade or commerce.
(2) The amount apportioned to a State under clause (1)
shall not form part of the Consolidated Fund of India.
(3) Where an amount collected as tax levied under clause
(1) has been used for payment of the tax levied by a State
under Article 246-A, such amount shall not form part of the
Consolidated Fund of India.
(4) Where an amount collected as tax levied by a State
under Article 246-A has been used for payment of the tax
levied under clause (1), such amount shall not form part of the
Consolidated Fund of the State.
(5) Parliament may, by law, formulate the principles for
determining the place of supply, and when a supply of goods,
or of services, or both takes place in the course of inter-State
trade or commerce.
270. Taxes levied and distributed between the
Union and the States.--(1) All taxes and duties referred
to in the Union List, except the duties and taxes referred
to in Articles 268, 269 and 269-A, respectively, surcharge
on taxes and duties referred to in Article 271 and any
cess levied for specific purposes under any law made by
Parliament shall be levied and collected by the
Government of India and shall be distributed between the
Union and the States in the manner provided in clause
(2).
(1-A) The tax collected by the Union under clause (1) of
Article 246-A shall also be distributed between the Union and
the States in the manner provided in clause (2).
32
(1-B) The tax levied and collected by the Union under clause
(2) of Article 246-A and Article 269-A, which has been used for
payment of the tax levied by the Union under clause (1) of
Article 246-A, and the amount apportioned to the Union under
clause (1) of Article 269-A, shall also be distributed between the
Union and the States in the manner provided in clause (2).
(2) Such percentage, as may be prescribed, of the net
proceeds of any such tax or duty in any financial year shall not
form part of the Consolidated Fund of India, but shall be
assigned to the States within which that tax or duty is leviable
in that year, and shall be distributed among those States in such
manner and from such time as may be prescribed in the manner
provided in clause (3).
(3) In this article, "prescribed" means,--
(i) until a Finance Commission has been constituted,
prescribed by the President by order, and
(ii) after a Finance Commission has been constituted,
prescribed by the President by order after considering
the recommendations of the Finance Commission.
271. Surcharge on certain duties and taxes for
purposes of the Union.--Notwithstanding anything in
Articles 269 and 270, Parliament may at any time
increase any of the duties or taxes referred to in those
articles except the goods and services tax under Article
246-A, by a surcharge for purposes of the Union and the
whole proceeds of any such surcharge shall form part of
the Consolidated Fund of India.
.... .... ....
279-A. Goods and Services Tax Council.--(1) The
President shall, within sixty days from the date of
commencement of the Constitution (One Hundred and First
Amendment) Act, 2016, by order, constitute a Council to be
called the Goods and Services Tax Council.
(2) The Goods and Services Tax Council shall consist of
the following members, namely:--
33
(a) the Union Finance Minister ... Chairperson;
(b) the Union Minister of State in ... Member;
charge of Revenue or Finance
(c) the Minister in charge of ... Members.
Finance or Taxation or any
other Minister nominated by
each State Government
(3) The Members of the Goods and Services Tax Council
referred to in sub-clause (c) of clause (2) shall, as soon as may
be, choose one amongst themselves to be the Vice-Chairperson
of the Council for such period as they may decide.
(4) The Goods and Services Tax Council shall make
recommendations to the Union and the States on--
(a) the taxes, cesses and surcharges levied by the
Union, the States and the local bodies which may be
subsumed in the goods and services tax;
(b) the goods and services that may be subjected to, or
exempted from the goods and services tax;
(c) model Goods and Services Tax Laws, principles of levy,
apportionment of Goods and Services Tax levied on
supplies in the course of inter-State trade or commerce
under Article 269-A and the principles that govern the
place of supply;
(d) the threshold limit of turnover below which goods and
services may be exempted from goods and services tax;
(e) the rates including floor rates with bands of goods and
services tax;
(f) any special rate or rates for a specified period, to raise
additional resources during any natural calamity or
disaster;
(g) special provision with respect to the States of Arunachal
Pradesh, Assam, Jammu and Kashmir, Manipur,
34
Meghalaya, Mizoram, Nagaland, Sikkim, Tripura,
Himachal Pradesh and Uttarakhand; and
(h) any other matter relating to the goods and services tax,
as the Council may decide.
(5) The Goods and Services Tax Council shall recommend
the date on which the goods and services tax be levied on
petroleum crude, high speed diesel, motor spirit (commonly
known as petrol), natural gas and aviation turbine fuel.
(6) While discharging the functions conferred by this
article, the Goods and Services Tax Council shall be guided by
the need for a harmonised structure of goods and services tax
and for the development of a harmonised national market for
goods and services.
.... .... ....
SEVENTH SCHEDULE
[Article 246]
LIST I -- UNION LIST
.... .... ....
84. Duties of excise on the following goods manufactured
or produced in India, namely:--
(a) petroleum crude;
(b) high speed diesel;
(c) motor spirit (commonly known as petrol);
(d) natural gas;
(e) aviation turbine fuel; and
(f) tobacco and tobacco products.
.... .... ....
97. Any other matter not enumerated in List II or List III
including any tax not mentioned in either of those Lists."
35
Article 246 of the Constitution deals with the powers of, the
Parliament to enact laws under the Union List, and by the State
Legislature under the State List and by both the Parliament or the
State Legislatures under the Concurrent list. Entry 84 of List I to
the Seventh Schedule, provides for the duties of excise on various
goods manufactured in India as sated in the entry, which also
includes tobacco and tobacco products. Entry 97 provides for the
Residuary List and authorizes the Central Government to impose
tax on matters not covered in List II or List III.
9. Article 246A was not in the Constitution till it comes to be
inserted in the year 2016. Therefore, a little history to Article 246A
is necessary to be noticed. A bill was tabled before the Parliament;
the Constitution 122nd Amendment Bill, 2014 which was introduced
in the Lok Sabha to usher an amendment to the Constitution,
whereby indirect taxes, Central and State taxes, surcharges and
cesses, so far as they relate to the supply of goods and services to
be brought under one regime, the Goods and Services Tax. The
aforesaid bill was passed in the Parliament and the Constitution
(One Hundred and First Amendment) Act, 2016 comes into force
36
with effect from 16-09-2016, whereby the afore-quoted Article
246A was inserted, empowering the Parliament and the Legislatures
of every State, subject to Clause-2 therein, to make laws with
respect to goods and services tax imposed by the Union or by the
States.
10. By the same Amendment comes Article 279A supra,
which provides for constitution of a Council called the Goods and
Services Tax Council, with the specific constitutional duty of making
recommendations to the Union or the State Governments with
respect to taxes, cesses, surcharges levied by the Union or the
State Governments.
11. Article 269A which also comes to be inserted was with
regard to appropriation of tax so collected. In furtherance of the
constitutional amendment, the Central Goods and Services Act,
2017 comes into effect from 01-07-2017. Certain provisions of the
CGST Act are necessary to be noticed. Sections 9 and 11 of the
CGST Act reads as follows:
37
"9. Levy and collection.--(1) Subject to the
provisions of sub-section (2), there shall be levied a tax
called the central goods and services tax on all intra-
State supplies of goods or services or both, except on the
supply of alcoholic liquor for human consumption and un-
denatured extra neutral alcohol or rectified spirit used for
manufacture of alcoholic liquor, for human consumption,
on the value determined under Section 15 and at such
rates, not exceeding twenty per cent, as may be notified
by the Government on the recommendations of the
Council and collected in such manner as may be
prescribed and shall be paid by the taxable person.
(2) The central tax on the supply of petroleum crude,
high speed diesel, motor spirit (commonly known as petrol),
natural gas and aviation turbine fuel shall be levied with effect
from such date as may be notified by the Government on the
recommendations of the Council.
(3) The Government may, on the recommendations of the
Council, by notification, specify categories of supply of goods or
services or both, the tax on which shall be paid on reverse
charge basis by the recipient of such goods or services or both
and all the provisions of this Act shall apply to such recipient as
if he is the person liable for paying the tax in relation to the
supply of such goods or services or both.
(4) The Government may, on the recommendations of the
Council, by notification, specify a class of registered persons
who shall, in respect of supply of specified categories of goods
or services or both received from an unregistered supplier, pay
the tax on reverse charge basis as the recipient of such supply
of goods or services or both, and all the provisions of this Act
shall apply to such recipient as if he is the person liable for
paying the tax in relation to such supply of goods or services or
both.
(5) The Government may, on the recommendations of the
Council, by notification, specify categories of services the tax on
intra-State supplies of which shall be paid by the electronic
commerce operator if such services are supplied through it, and
all the provisions of this Act shall apply to such electronic
38
commerce operator as if he is the supplier liable for paying the
tax in relation to the supply of such services:
Provided that where an electronic commerce operator
does not have a physical presence in the taxable territory, any
person representing such electronic commerce operator for any
purpose in the taxable territory shall be liable to pay tax:
Provided further that where an electronic commerce
operator does not have a physical presence in the taxable
territory and also he does not have a representative in the said
territory, such electronic commerce operator shall appoint a
person in the taxable territory for the purpose of paying tax and
such person shall be liable to pay tax.
... ... ...
11. Power to grant exemption from tax.--(1) Where
the Government is satisfied that it is necessary in the
public interest so to do, it may, on the recommendations
of the Council, by notification, exempt generally, either
absolutely or subject to such conditions as may be
specified therein, goods or services or both of any
specified description from the whole or any part of the
tax leviable thereon with effect from such date as may be
specified in such notification.
(2) Where the Government is satisfied that it is necessary
in the public interest so to do, it may, on the recommendations
of the Council, by special order in each case, under
circumstances of an exceptional nature to be stated in such
order, exempt from payment of tax any goods or services or
both on which tax is leviable.
(3) The Government may, if it considers necessary or
expedient so to do for the purpose of clarifying the scope or
applicability of any notification issued under sub-section (1) or
order issued under sub-section (2), insert an explanation in such
notification or order, as the case may be, by notification at any
time within one year of issue of the notification under sub-
section (1) or order under sub-section (2), and every such
explanation shall have effect as if it had always been the part of
the first such notification or order, as the case may be.
39
Explanation.--For the purposes of this section, where an
exemption in respect of any goods or services or both from the
whole or part of the tax leviable thereon has been granted
absolutely, the registered person supplying such goods or
services or both shall not collect the tax, in excess of the
effective rate, on such supply of goods or services or both."
Section 9 of the CGST Act provides for levy of tax on all intra-State
supply of goods and services at the rates that may be notified by
the Government on the recommendation of the GST Council.
Section 11 of the CGST Act empowers the Government to exempt,
by notification, either absolutely or subject to such conditions as
may be specified therein, goods or services or both from the whole
or any part of the tax leviable thereon, on the recommendation of
the GST Council.
12. With respect to Inter-State supply of goods, a separate
enactment comes about, the IGST Act. On coming into force of the
CGST and IGST Act, GST is levied upon Pan Masala under Section 9
of the CGST Act and Section 5 of the IGST Act, as it was coming
under the Customs Tariff Heading 2106 90 20, as obtaining under
the Schedule IV of the Notifications dated 28-06-2017, which
provide for the rate of levy of Integrated and Central Taxes. These
are admitted facts. The fly in the ointment, now emerges.
40
13. The Parliament enacts the impugned Act i.e., the "Health
Security se National Security Cess Act, 2025" and the Rules in
2026. Certain provisions of the said Act and the Rules are germane
to be noticed.
13.1. Sections 2, 3, 4, 5, 7 and Schedules I and II to the Act
read as follows:
"2. Definitions.--In this Act, unless the context
otherwise requires,--
... ... ...
(e) "cess" means the Health Security se National Security
Cess levied under Section 4;
... ... ...
(g) "machine" for the purposes of manufacture or
production of the specified goods includes all types of
Form, Fill and Seal Machines and Profile Pouch Making
Machines, by whatever name called, whether vertical or
horizontal, with or without collar, single track or multi-
track, and any other type of packing machine used for
packing of the specified goods in pouches, tins or other
containers;
(h) "manufacture" includes--
(i) any process incidental or ancillary to the completion of
the specified goods; and
(ii) the process of packing or repacking of such goods in a
pouch or tin or other container or labelling or re-labelling
thereof including the declaration or alteration of retail sale price
on it or adoption of any other treatment on the goods to render
41
the specified goods marketable to the consumer, whether or not
such process is the only process undertaken;
... ... ...
(j) "pan masala" means goods falling under tariff
item 2106 90 20 of the First Schedule to the Customs
Tariff Act, 1975 (51 of 1975);
... ... ...
(p) "specified goods" means the goods as specified
in Schedule I to this Act or such other goods as the
Central Government may, by notification, specify;
... ... ...
3. Taxable person.--(1) For the purposes of this Act,
"taxable person" means any person who owns,
possesses, operates, manages, or is otherwise in control
of the machine or undertakes any process by which
specified goods are manufactured or produced, whether
directly or through job-workers, employees, hired labour,
or through any other person acting on his behalf under
any arrangement.
(2) A person shall be treated as a taxable person under
this section irrespective of whether he has opted for, or is
availing of, any composition scheme, concessional levy, or any
other alternate scheme of taxation applicable to the specified
goods, under any law for the time being in force.
(3) For the purposes of this section,--
(a) the ownership, possession, or control over the
machine or processes shall be sufficient to
constitute a person as a taxable person,
irrespective of the actual quantity manufactured;
(b) where a machine or process, is owned, possessed,
leased, hired or otherwise placed at the disposal of
one or more persons manufacturing or producing
the specified goods, every such person shall be
regarded as a taxable person; and
42
(c) where the production or manufacture of the
specified goods are divided into stages or processes
carried out by different persons, such person
undertaking the final process that results in the
completion or rendering of the specified goods
marketable, shall be deemed to be the taxable
person.
... ... ...
4. Levy and collection of cess.--(1) There shall be
levied and collected a cess, to be called Health
Security se National Security Cess, from every taxable
person, on the machines installed or other processes
undertaken by him for the manufacture or production of
the specified goods referred to in Schedule I, at the
amount specified in Schedule II and computed in the
manner provided in Section 5.
(2) The cess leviable under sub-section (1) shall be
in addition to any other duties or taxes chargeable on the
specified goods under any law for the time being in force.
(3) If the Central Government is satisfied that it is
necessary in the public interest so to do, it may, by notification,
exempt any taxable person or a class of taxable persons,
unconditionally or subject to such conditions, from the whole or
any part of the cess leviable under this section for such period
as may be specified in the said notification.
5. Manner of computation of cess.--(1) The cess
referred to in Section 4 shall be computed in accordance
with the provisions of this section based on the relevant
process, speed of the machine or capacity of other
processes and the weight of the specified goods packed
in pouch, tin or other container, as the case may be, as
declared by the taxable person and, where applicable, as
verified or calibrated by the proper officer under Section
9, and on the amount specified in Schedule II for such
combination of process, speed or capacity and weight.
(2) Where the specified goods are manufactured or
produced wholly or partly with the aid of a machine, the
43
cess shall be levied and collected from the taxable
person--
(a) with reference to the maximum rated speed
of the machine measured in number of
pouches, tins or containers per minute;
(b) for the corresponding weight of the specified goods
packed in a pouch, tin or container;
(c) at the monthly amount of cess specified in column
(4) in Table 1 of Schedule II against such rated
speed and weight provided therein.
(3) The cess payable under Section 4 shall be the
aggregate of cess calculated under sub-section (2) for each of
the machines installed in a factory of the taxable person and
where such taxable person owns, possesses, leases or otherwise
controls machines installed in more than one factory, the cess
shall be computed separately for each such factory.
(4) Where the specified goods are manufactured or
produced by a taxable person wholly by manual process without
the aid of a machine, the cess shall be levied and collected from
the taxable person for each factory at the monthly amount
specified in column (4) in Table 2 of Schedule II, irrespective
ofthe capacity of such manual process or the weight of the
specified goods packed in a pouch, tin or container.
(5) For the purposes of sub-section (4), a taxable person
shall be deemed to be engaged in the manufacture or
production of the specified goods wholly by manual process
without the aid of a machine only where no machine capable of
performing, assisting, or completing any part of the process of
manufacture or production of the specified goods is installed in
the factory of the taxable person.
(6) The cess determined under sub-section (2) or sub-
section (4) shall be payable for each month or part thereof and
shall be subject to such abatement or other conditions, as may
be prescribed.
44
(7) Where any machine or manual process unit
remains inoperative for a continuous period of fifteen
days or more, the cess computed under this section shall,
subject to such conditions, as may be prescribed, be
abated proportionately for the period of such
non-operation.
... ... ...
7. Purpose of levy of cess.--(1) The cess shall be levied
for the purposes of meeting expenditure on the national
security of India and for public health.
(2) The proceeds of the cess levied under Section 4
shall first be credited to the Consolidated Fund of India
and the Central Government may, after due appropriation
made by Parliament by law in this behalf, utilise such
sums of money of the cess for the purposes specified in
sub-section (1), as it may consider necessary.
(3) For the purposes of utilisation of the cess, the Central
Government may specify such activities, schemes and
programmes for national security or, as the case may be, for
public health, as may be prescribed.
... ... ...
9. Declaration to be filed by taxable person.--(1) Every
taxable person shall, in respect of machine installed or
process undertaken in such factory, furnish a self-
declaration in such form, manner and within such time,
as may be prescribed, containing the particulars of the
machines installed or processes undertaken for the
manufacture or production of the specified goods,
together with the parameters relevant for computation of
the cess, including the maximum rated speed, weight of
packing, nature of packing and such other technical or
operational particulars, as may be prescribed.
(2) Where any parameter relevant for the computation of the
cess undergoes any change, the taxable person shall furnish a
fresh self-declaration under sub-section (1) within such time,
form and manner, as may be prescribed.
45
(3) In case of installation, addition or commencement of
operation of any machine or process, the taxable person shall
furnish the self-declaration referred to in sub-section (2) within
fifteen days of such installation, addition or commencement.
(4) The declaration in sub-section (1) shall be subject
to calibration, verification and confirmation by the proper
officer, with the approval of an officer not below the rank
of Joint Commissioner, in such form, manner and within
such time, as may be prescribed and the parameters so
verified and confirmed shall be considered for the
computation of cess under Section 5.
(5) No calibration, verification or confirmation under sub-
section (4) shall be made by the proper officer without giving
the taxable person a reasonable opportunity of being heard.
(6) Every taxable person shall comply with such oversight,
monitoring or verification mechanisms, whether technological,
operational or audit-based, as may be prescribed, to ensure the
integrity and accuracy of reporting in relation to the
manufacture or production of the specified goods.
... ... ...
SCHEDULE I
[See Sections 2(o) and (p) and 4(1)]
Sl. No. Chapter/Heading/Sub- Description
heading/Tariff item of Goods
(1) (2) (3)
1. 2106 90 20 Pan
masala
Any other goods which may
2. be notified
Explanation.--(1) In this Schedule, reference to a "tariff
item", "heading", "sub-heading" and "Chapter", wherever they
46
occur, shall mean respectively a tariff item, heading, sub-
heading and Chapter in the First Schedule to the Customs Tariff
Act, 1975 (51 of 1975).
(2) The rules for the interpretation of the First Schedule to
the Customs Tariff Act, 1975 (51 of 1975), the section and
Chapter Notes and the General Explanatory Notes of the First
Schedule shall, so far as may be, apply to the interpretation of
this Schedule.
SCHEDULE II
[See Sections 2(o), 4(1), 5 and 6]
TABLE 1
Applicable to wholly or partly machine-based process
Sl. Number of pouches or Weight of the Amount of
No. tins or containers per specified goods per cess per
minute (Maximum pouch or tin or month per
rated speed of container machine
machine) (rupees in
lakhs)
(1) (2) (3) (4)
1. Up to 500 Up to 2.5 grams 101.00
Above 2.5 grams 364.00
but up to 10 grams
Above 10 grams 849.00
2. 501 to 1000 Up to 2.5 grams 202.00
Above 2.5 grams
728.00
but up to 10 grams
Above 10 grams 1698.00
3. 1001 to 1500 Up to 2.5 grams 303.00
Above 2.5 grams
1092.00
but up to 10 grams
47
Above 10 grams 2547
4. Above 1500 Up to 2.5 grams 101 x S/450
Above 2.5 grams
364 x S/450
but up to 10 grams
Above 10 grams 849 x S/450
... ... ...
Notes.--(1) For the purposes of this Schedule, in Table 1 in
column (4) of the table above, the term "S" represents
maximum rated capacity of a machine.
(2) For the purposes of this Schedule, where a packing
machine contains multiple tracks or multiple packing lines and,
in addition to packing the specified goods in pouches, performs
any supplementary processes such as moulding, shaping or
otherwise giving a definite form to the pouches for brand
distinction or for prevention of counterfeiting, two such tracks or
lines shall be deemed to constitute one individual packing
machine for the purpose of calculating the cess liability.
(3) The number of packing machines to be taken into
account for computation of the cess specified in this Schedule
shall be determined in accordance with the rules prescribed by
the Central Government.--"
Section 2(j) of the Act, defines "Pan Masala" to mean goods falling
under Tariff Item 2106 90 20 of the First Schedule to the Customs
Tariff Act, 1975. Section 2(p) defines 'specified goods' to mean the
goods specified in Schedule I to the Act or such other goods as the
Central Government may, by notification, specify. Section 3(1) of
the Act defines a "taxable person" and brings within its ambit any
48
person who owns, possesses, operates, manages or is otherwise in
control of a machine, or undertakes any process resulting in the
manufacture or production of specified goods. Section 4 of the Act
empowers the concerned authorities under the Act to levy and
collect cess from every "taxable person", on the machines installed
for the manufacture or production of the specified goods. The cess
so levied is called the "Health Security Cess and National Security
Cess". The specified goods are those enumerated in Schedule I to
the Act, while the amounts of cess leviable are specified in Schedule
II to the Act. Section 5 provides for the manner of computation of
the cess. Section 5(7) of the Act provides for abatement of cess, if
the machine remains inoperative for a continuous period of fifteen
days or more. "Pan Masala" bearing Customs Tariff Item No. 2106
90 20 is specified as a good in Schedule I to the Act. In terms of
Serial No. 1 in Table I of Schedule II to the Act, the same amount
of cess is levied on all machines having a production capacity of up
to 500 pouches, tins or containers, per minute. The only
classification is on the basis of the weight of the specified goods,
per pouch, tin or container. Likewise, under Table I of Schedule II
to the Act, the same amount of cess is also levied on machines
49
having higher production capacities of 501 - 1000, 1001 - 1500 and
above 1500 pouches, per minute, in terms of the amounts specified
against the respective production capacities.
13.2. Certain provisions of the Rules that are impugned, are
also germane to be noticed. The impugned Rules come into effect
on 01-01-2026. Rules 9, 11, 12, 15 and 16 read as follows:
"CHAPTER III
DECLARATION
9. Declaration to be filed by registered person.--(1)
Every registered person shall file a declaration as
required under Section 9 of the Act in FORM HSNS DEC-01
on the Portal within seven days of the grant of
registration.
(2) In case of any change in the parameters
relevant for the computation of cess, or in case of
installation, addition or commencement of any machine
or process, the registered person shall file a fresh
declaration within fifteen days of such change.
... ... ...
11. Confirmation of declaration.--(1) In case no
discrepancy is found in the declaration filed under Rule 9,
the proper officer shall pass an order within a period of
fifteen days from the date of verification under Rule 10,
confirming the declaration and determining the
computation of the cess payable in accordance with
Sections 5 and 9 of the Act.
(2) Where the proper officer finds any discrepancy in the
declaration furnished under Rule 9 that affects the computation
of cess payable by the registered person, he shall intimate such
50
discrepancy to the registered person and shall pass an order
confirming the computation of the cess payable under Sections
5 and 9 of the Act within a period not later than thirty days from
the date of verification under Rule 10, after giving the registered
person a reasonable opportunity of being heard.
(3) No fresh declaration shall be filed under sub-rule (2)
of Rule 9 until an order of confirmation has been passed by the
proper officer under this rule.
(4) The registered person shall be liable to pay the cess
so determined for the period subsequent to the passing of the
order under sub-rule (2) and shall also be liable to pay the
differential amount of cess, if any, along with interest, for the
period commencing from--
(a) the date of installation of the machine or the start of the
manual process unit, where the declaration is filed under
sub-rule (1) of Rule 9; or
(b) the date of change in any parameter relevant for the
computation of cess, or the date of installation, addition,
or commencement of any machine or process, as the case
may be, where the declaration is filed under sub-rule (2)
of Rule 9,
till the date of actual payment of such differential
amount.
CHAPTER IV
PAYMENT OF CESS AND RETURNS
12. Cess payable to be calculated.-- (1) The cess
payable for a particular month shall be calculated as per
the amount of cess per machine or manual process unit
specified in Schedule II of the Act:
Provided that in the case of a newly registered person,
the cess payable for the first month shall be calculated on a pro-
rata basis, having regard to the total number of days in that
month and the number of days commencing from the date of
installation of the machine or the start of the manual process
51
unit, as the case may be, and such cess shall be paid within five
days of such installation or start......
... ... ...
CHAPTER V
CESS ABATEMENT AND COMPUTATION
15. Conditions for abatement.--(1) The abatement
under sub-section (7) of Section 5 of the Act shall be
available when the following conditions are satisfied,
namely:--
(a) the registered person intimates the proper officer
at least three working days before the non-
operation of an installed machine or manual
process unit for any continuous period of fifteen
days or more, requesting the sealing of the machine
or closure of manual process unit, as the case may
be;
(b) the packing machine or manual process unit is
sealed by the proper officer within three working
days from the date of receipt of intimation in such a
manner that it cannot be operated;
(c) no manufacturing activity for the specified goods is
undertaken on the said machine or by the manual
process unit, as the case may be, during the period
of sealing.
(2) Any registered person eligible for abatement under
sub-rule (1), shall claim such abatement by submitting an
application to the proper officer on or before the 20th day of the
month succeeding the period for which the abatement is
claimed.
(3) The proper officer shall, upon verification of the claim
submitted under sub-rule (2), issue an order, within fifteen days
of the submission of such application, allowing the abatement of
the cess liability for each month covered by the period of non-
operation of the machines or manual unit, which shall be
adjusted against the cess liability payable for the month
immediately following the month in which such order is issued:
52
Provided that no order rejecting the claim of abatement,
either in whole or in part, shall be passed unless the registered
person has been given a reasonable opportunity of being heard.
Explanation.-- For the purposes of this rule, "installed
machine" refers to an operational machine that has become
nonoperative during the period of abatement.
16. Quantification of abatement amount.--The amount
of abatement for a month shall be calculated using the
following formula:
A = (C/N) x D
Where:
A = Amount of Abatement claimed
C = Total Cess liability for the machine for the month
N = Total number of days in the month
D = Total number of continuous days the machine was
inoperative in the month......."
(Emphasis supplied at each instance)
Rules 9 and 11 of Chapter III of the Rules, deal with the
declarations to be given by the assessee. Chapter IV of the Rules
deals with the abatement of cess and its computation. Rule 15
provides for the conditions under which, abatement of cess under
Section 5(7) of the Act can be availed. The formula for computation
of the abatement is provided under Rule 16. As per Rule 15(a),
abatement is allowed only in cases where the manufacturing
53
activity is suspended continuously, for a minimum period of fifteen
days.
14. The validity of imposition of cess, in terms of the
impugned Act and Rules, is required to be considered now.
15. Insofar as the present petitioners are concerned, with
effect from 01-04-2023 to 31-03-2026, GST is levied at 28% ad-
valorem and compensation cess at 32% of the MRP. From
01-02-2026 onwards, GST is said to have been increased to 40% of
the MRP minus the deductions. It is not in dispute that the present
produce of the petitioners is subjected to higher rate of tax under
GST on the actual quantities of Pan Masala supplied by them.
16. Section 4 of the Act imposes levy on machines installed or
other processes undertaken by them for the manufacture or
production of specified goods referred to in Schedule-I at the rates
specified in Schedule-II which is computed in the manner provided
under Section 5. Therefore, the levy is not on the product but on
the machines used for the purpose of the product and the capacity
that the machine would generate. The petitioners have placed a
54
computation table showing that, what this Act has now proposed to
levy is far beyond the total MRP of the product. The computation
table reads as follows:
COMPUTATION TABLE
From the illustrations in the afore-quoted table, it can be seen that,
if a machine per minute produces 65 pouches and runs for 8 hours,
it would produce 31,200 pouches and for 25 days it would produce
7,80,000 pouches. Cess on the said manufacturer under the Act
qua the machines used for such purposes is ₹1,01,00,000/-. The
GST is 1.14%. All these factors put together, the total tax would
come to ₹1,09,91,429/-, whereas the total MRP for 31,200 pouches
would be only ₹31,200,00/-. Therefore, the levy of cess on the
55
machinery has led to grave discrepancy. This discrepancy borders
upon arbitrariness as obtaining under Article 14 of the Constitution
of India.
17. Further, if the impugned Rules are noticed, Rule 15(a) of
the Rules permits abatement only where the manufacturing activity
remains suspended continuously for a period of fifteen days. The
Rule fails to take into account suspension of manufacturing for
periods shorter than fifteen days, which may occur due to various
reasons, including breakdown of machinery, non-availability of raw
materials or labour, factory maintenance, and the like. Such
circumstances may not necessarily continue beyond fifteen days.
However, even in such cases, the petitioners are still liable to pay
cess, thereby incurring further losses in addition to those already
suffered on account of the suspension of manufacturing activity.
The Rule, therefore, operates arbitrarily and is violative of Article 14
of the Constitution of India. The contention of the learned Additional
Solicitor General that, the prescription of a minimum threshold of
fifteen continuous days for grant of abatement, is a deliberate
anti-evasion policy, intended to eliminate bogus claims for shorter
56
periods, and that only a period of suspension extending to fifteen
continuous days establishes the genuineness of the claim, cannot
be accepted. Such a contention fails to account for cases of genuine
hardship faced by assessees, for whom the Rules provide no
alternative remedy. Further, the prescription of a minimum period
of fifteen days, proceeds solely on the presumption that assesses
are likely to indulge in tax evasion. Administrative difficulties in
preventing tax evasion cannot, by themselves, justify the
prescription of such an arbitrary threshold under the Rules.
18. It is a settled principle of law that arbitrariness, as
obtaining under Article 14 of the Constitution of India, is attracted,
as the Act imposes a restriction by demanding cess on the deemed
production and not on actual production. If one has a machinery
that can produce 500 pouches per minute, it is the same cess even
if the said machine produces 250 pouches per minute. Further,
even if the machinery produces 100 pouches per minute it is the
same cess, as Schedule II of the Act clearly indicates that all the
manufacturers who produce up to 500 pouches per minute are
required to pay similar duty. This would clearly mean that, a
57
manufacturer of Pan Masala having installed a machine which is
capable of producing 100 pouches per minute and a manufacturer
who has installed a machine capacity of producing 500 pouches per
minute are required to discharge payment of the same cess.
Therefore, there is no rationale in imposition of cess in the said
manner. The petitioners have installed certain machinery. For
illustration purposes, the details and production capacities of the
petitioners in the five batches of writ petitions are as under:
Sl. Writ Petition No. Petitioner Maximum Number of
No. Capacity Machines
per minute
1. WP/100657/2026 M/s Ghodawat 96-106 44
Fresheners LLP
2. WP/3157/2026 M/s Dhariwal 250 20
Industries 65 1
3. WP/100634/2026 M/s Shri Tirupati 150 9
Industries
4. WP/100636/2020 M/s Shashi Shekar 150 7
Enterprises
5. WP/100637/226 M/s Raj Pouches 182-224 8
From the afore-quoted table it is evident that, the petitioners are
operating with machines having different maximum capacity and in
most of the cases the production capacity would fall less than 500
pouches per minute. In no machine the capacity per minute is 500
pouches. But, the cess demanded now is on the machinery
58
presuming that it would be a machinery which would produce 500
pouches per minute. Therefore, it becomes violative of Article 14 of
the Constitution of India.
19. The Apex Court, in a plethora of cases, has laid down the
circumstances in which taxing statutes would be held to be violative
of Article 14 of the Constitution of India.
19.1. Right from KUNNATHAT THATEHUNNI MOOPIL
NAIR v. STATE OF KERALA1, the Apex Court has emphasised
that, taxation statutes are not immune from applicability of Article
14 of the Constitution of India. Lack of reasonable classification
would create inequality and would be violative of Article 14 of the
Constitution. The Apex Court has held as follows:
".... .... ....
7. The most important question that arises for
consideration in these cases, in view of the stand taken by the
State of Kerala, is whether Article 265 of the Constitution is a
complete answer to the attack against the constitutionality of
the Act. It is, therefore, necessary to consider the scope and
effect of that Article. Article 265 imposes a limitation on the
taxing power of the State insofar as it provides that the State
shall not levy or collect a tax, except by authority of law, that is
1
1960 SCC OnLine SC 7
59
to say, a tax cannot be levied or collected by a mere executive
fiat. It has to be done by authority of law, which must mean
valid law. In order that the law may be valid, the tax proposed
to be levied must be within the legislative competence of the
legislature imposing a tax and authorising the collection thereof
and, secondly, the tax must be subject to the conditions laid
down in Article 13 of the Constitution. One of such conditions
envisaged by Article 13(2) is that the legislature shall not make
any law which takes away or abridges the equality clause in
Article 14, which enjoins the State not to deny to any person
equality before the law or the equal protection of the laws of the
country. It cannot be disputed that if the Act infringes the
provisions of Article 14 of the Constitution, it must be struck
down as unconstitutional. For the purpose of these cases, we
shall assume that the State Legislature had the necessary
competence to enact the law, though the petitioners have
seriously challenged such a competence. The guarantee of equal
protection of the laws must extend even to taxing statutes. It
has not been contended otherwise. It does not mean that every
person should be taxed equally. But it does mean that if
property of the same character has to be taxed, the taxation
must be by the same standard, so that the burden of taxation
may fall equally on all persons holding that kind and extent of
property. If the taxation, generally speaking, imposes a similar
burden on everyone with reference to that particular kind and
extent of property, on the same basis of taxation, the law shall
not be open to attack on the ground of inequality, even though
the result of the taxation may be that the total burden on
different persons may be unequal. Hence, if the legislature has
classified persons or properties into different categories, which
are subjected to different rates of taxation with reference to
income or property, such a classification would not be open to
the attack of inequality on the ground that the total burden
resulting from such a classification is unequal. Similarly,
different kinds of property may be subjected to different rates of
taxation, but so long as there is a rational basis for the
classification, Article 14 will not be in the way of such a
classification resulting in unequal burdens on different classes of
properties. But if the same class of property similarly
situated is subjected to an incidence of taxation, which
results in inequality, the law may be struck down as
creating an inequality amongst holders of the same kind
of property. It must, therefore, be held that a taxing
60
statute is not wholly immune from attack on the ground
that it infringes the equality clause in Article 14, though
the courts are not concerned with the policy underlying a
taxing statute or whether a particular tax could not have
been imposed in a different way or in a way that the
Court might think more just and equitable. The Act has,
therefore, to be examined with reference to the attack
based on Article 14 of the Constitution.
8. It is common ground that the tax, assuming that the
Act is really a taxing statute and not a confiscatory measure, as
contended on behalf of the petitioners, has no reference to
income, either actual or potential, from the property sought to
be taxed. Hence, it may be rightly remarked that the Act obliges
every person who holds land to pay the tax at the flat rate
prescribed, whether or not he makes any income out of the
property, or whether or not the property is capable of yielding
any income. The Act, in terms, claims to be "a general revenue
settlement of the State" (Section 3). Ordinarily, a tax on land or
land revenue is assessed on the actual or the potential
productivity of the land sought to be taxed. In other words, the
tax has reference to the income actually made, or which could
have been made, with due diligence, and, therefore, is levied
with due regard to the incidence of the taxation. Under the Act
in question we shall take a hypothetical case of a number of
persons owning and possessing the same area of land. One
makes nothing out of the land, because it is arid desert. The
second one does not make any income, but could raise some
crop after a disproportionately large investment of labour and
capital. A third one, in due course of husbandry, is making the
land yield just enough to pay for the incidental expenses and
labour charges besides land tax or revenue. The fourth is
making large profits, because the land is very fertile and
capable of yielding good crops. Under the Act, it is manifest that
the fourth category, in our illustration, would easily be able to
bear the burden of the tax. The third one may be able to bear
the tax. The first and the second one will have to pay from their
own pockets, if they could afford the tax. If they cannot afford
the tax, the property is liable to be sold, in due process of law,
for realisation of the public demand. It is clear, therefore,
that inequality is writ large on the Act and is inherent in
the very provisions of the taxing section. It is also clear
that there is no attempt at classification in the provisions
61
of the Act. Hence, no more need be said as to what could
have been the basis for a valid classification. It is one of
those cases where the lack of classification creates
inequality. It is, therefore, clearly hit by the prohibition to
deny equality before the law contained in Article 14 of
the Constitution. Furthermore, Section 7 of the Act, quoted
above, particularly the latter part, which vests the Government
with the power wholly or partially to exempt any land from the
provisions of the Act, is clearly discriminatory in its effect and,
therefore, infringes Article 14 of the Constitution. The Act does
not lay down any principle or policy for the guidance of the
exercise of discretion by the Government in respect of the
selection contemplated by Section 7. This Court has examined
the cases decided by it with reference to the provisions of Article
14 of the Constitution, in the case of Shri Ram Krishna
Dalmia v. Shri Justice S.R. Tendolkar [(1959) SCR p. 279] . S.R.
Das, C.J., speaking for the Court has deduced a number of
propositions from those decisions. The present case is within the
mischief of the third proposition laid down at pp. 299 and 300 of
the Report, the relevant portion of which is in these terms:
"A statute may not make any classification
of the persons or things for the purpose of
applying its provisions but may leave it to the
discretion of the Government to select and classify
persons or things to whom its provisions are to
apply. In determining the question of the validity
or otherwise of such a statute the Court will not
strike down the law out of hand only because no
classification appears on its face or because a
discretion is given to the Government to make the
selection or classification but will go on to
examine and ascertain if the statute has laid down
any principle or policy for the guidance of the
exercise of discretion by the Government in the
matter of the selection or classification. After such
scrutiny the Court will strike down the statute if it
does not lay down any principle or policy for
guiding the exercise of discretion by the
Government in the matter of selection or
classification, on the ground that the statute
provides for the delegation of arbitrary and
uncontrolled power to the Government so as to
enable it to discriminate between persons or
things similarly situate and that, therefore, the
62
discrimination is inherent in the statute itself". (p.
299 of the Report).
The observations quoted above from the unanimous judgment
of this Court apply with full force to the provisions of the Act. It
has, therefore, to be struck down as unconstitutional. There is
no question of severability arising in this case, because both the
charging sections, Section 4 and Section 7, authorising the
Government to grant exemptions from the provisions of the Act,
are the main provisions of the Statute, which has to be declared
unconstitutional.
9. The provisions of the Act are unconstitutional viewed
from the angle of the provisions of Article 19(1)(f) of the
Constitution, also. Apart from the provisions of Sections 4 and 7
discussed above, with reference to the test under Article 14 of
the Constitution, we find that Section 5-A is also equally
objectionable because it imposes unreasonable restrictions on
the rights to hold property, safeguarded by Article 19(1)(f) of
the Constitution. Section 5-A declares that the Government is
competent to make a provisional assessment of the basic tax
payable by the holder of unsurveyed land. Ordinarily, a taxing
statute lays down a regular machinery for making assessment of
the tax proposed to be imposed by the statute. It lays down
detailed procedure as to notice to the proposed assessee to
make a return in respect of property proposed to be taxed,
prescribes the authority and the procedure for hearing any
objections to the liability for taxation or as to the extent of the
tax proposed to be levied, and finally, as to the right to
challenge the regularity of assessment made, by recourse to
proceedings in a higher civil court. The Act merely declares the
competence of the Government to make a provisional
assessment, and by virtue of Section 3 of the Madras Revenue
Recovery Act, 1864, the landholders may be liable to pay the
tax. The Act being silent as to the machinery and procedure to
be followed in making the assessment leaves it to the executive
to evolve the requisite machinery and procedure. The whole
thing, from beginning to end, is treated as of a purely
administrative character, completely ignoring the legal position
that the assessment of a tax on person or property is at least of
a quasi-judicial character. Again, the Act does not impose an
obligation on the Government to undertake survey proceedings
within any prescribed or ascertainable period, with the result
63
that a landholder may be subjected to repeated annual
provisional assessments on more or less conjectural basis and
liable to pay the tax thus assessed. Though the Act was passed
about five years ago, we were informed at the Bar that survey
proceedings had not even commenced. The Act thus proposes to
impose a liability on landholders to pay a tax which is not to be
levied on a judicial basis, because (1) the procedure to be
adopted does not require a notice to be given to the proposed
assessee; (2) there is no procedure for rectification of mistakes
committed by the Assessing Authority; (3) there is no procedure
prescribed for obtaining the opinion of a superior civil court on
questions of law, as is generally found in all taxing statutes, and
(4) no duty is cast upon the Assessing Authority to act judicially
in the matter of assessment proceedings. Nor is there any right
of appeal provided to such assessees as may feel aggrieved by
the order of assessment."
19.2. The Apex Court later in STATE OF KERALA v. HAJI
K.KUTTY NAHA2, has held as follows:
".... .... ....
4. The principles which have been expounded by this
Court in determining whether there has been denial of equal
protection of the laws are also well settled : see Shri Ram
Krishna Dalmia v. Shri Justice S.R. Tendolkar [(1959) SCS 279]
. It is true that in the application of the principles, the Courts, in
view of the inherent complexity of fiscal legislation admit a
larger discretion to the Legislature in the matter of classification,
so long as it adheres to the fundamental principles underlying
the doctrine of equality. The power of the Legislature to classify
is, it is said, of "wide range and flexibility" so that it can adjust
its system of taxation in all proper and reasonable ways
: Khandige Sham Bhat v. Agricultural Income Tax
Officer [(1963) 3 SCR 809] .
5. But in enacting the Kerala Buildings Tax Act no
attempt at any rational classification is made by the Legislature.
As already observed, the Legislature has not taken into
2
1968 SCC OnLine SC 122
64
consideration in imposing tax the class to which a building
belongs, the nature of construction, the purpose for which it is
used, its situation, its capacity for profitable user and other
relevant circumstances which have a bearing on matters of
taxation. They have adopted merely the floor area of the
building as the basis of tax irrespective of all other
considerations. Where objects, persons or transactions
essentially dissimilar are treated by the imposition of a
uniform tax, discrimination may result, for, in our view,
refusal to make a rational classification may itself in
some cases operate as denial of equality. This Court in a
recent judgment has decided that the levy of tax in exercise of
the power under Entry 49 List II of the Seventh Schedule in
respect of factory buildings in a municipal area based on floor
area was illegal : New Manek Chowk Spinning and Weaving Mills
Co. Ltd. v. Municipal Corporation of the City of
Ahmedabad [(1967) 2 SCR 679] . The Court held in that case
that the method of adopting a flat rate for a floor area for
determining the annual value adopted by the Corporation of
Ahmedabad in exercise of the powers conferred upon it by the
Bombay Provincial Municipal Corporation Act 49 of 1949 was
against the provisions of the Act and the Rules made thereunder
as well as all recognised principles of valuation for the purpose
of taxation. If levy of tax in a municipal district based on floor
area in respect of a factory building violates Article 14 of the
Constitution when the tax is sought to be levied by the Municipal
Corporation, we see no reason to uphold the tax imposed under
the impugned Act when the State, in exercise of legislative
authority conferred by Entry 49 List II Schedule VII, imposes
liability to tax buildings solely on floor area. The vice of the Act
in the present case is more pronounced than it was in New
Manek Chowk Spinning & Weaving Mills case [(1967) 2 SCR
679] . In that case the Rules under which the tax was sought to
be levied on the basis of floor area were restricted in their
operation to factory buildings within the Corporation limits of
Ahmedabad, whereas Act 19 of 1961 which is challenged in the
present case applies to the whole State of Kerala in respect of
buildings completed on or after March 2, 1961, whatever may
be the nature or class of the building, the use to which it is put,
materials used in its construction and the extent of profitable
user to which the building may be put, its cost and its economic
rental. It is unnecessary in the circumstances to consider
whether imposition of a tax only on buildings constructed
65
after March 2, 1961, and exempting buildings completed
before that date may not violate Article 14 of the
Constitution."
The Apex Court holds that when tax on dissimilar transactions or
persons are imposed with a uniform tax rate, the same would result
in discrimination and such imposition would be in violation of Article
14 of the Constitution of India.
19.3. A nine Judges Bench of the Apex Court reiterates the
above position of law in the case of JINDAL STAINLESS STEEL
LIMITED v. STAE OF HARYANA3, and holds as follows:
".... .... ....
122. We may at this stage deal with yet another
contention urged on behalf of the assessees who argued that
while Article 304(a) forbids discriminatory fiscal legislation in
respect of goods coming from another state there was no
provision which prevented the States from levying
discriminatory taxes within its territorial limits. The argument
was that the absence of any provision against discriminatory
taxation within a State must be understood to mean that taxes
would generally be restrictions and unless the States take
recourse to Article 304(b) they cannot levy such taxes upon
trade and commerce within their territorial limits. The argument
is, in our view, more in despair than substantial. It is true that
Part XIII does not in terms forbid the levy of discriminatory
taxes on goods produced within the States but the fact that
there is no such prohibition does not necessarily mean that if
such discriminatory taxation does indeed take place the same is
constitutionally permissible. Whether or not there is hostile
3
(2017) 12 SCC 1
66
discrimination between goods from one part of the State
and those from another part is a matter which will have
to be judged on a case-to-case basis and on the
touchstone of Article 14. Having said that we need to remind
ourselves that Part XIII of the Constitution was aimed at
addressing the mischief arising from fiscal and other barriers
which the Princely States had imposed and which gravely
impeded free trade and commerce. The Constituent Assembly
Debates show that Framers of the Constitution were concerned
with the removal of such barriers. Discrimination intra-State in
terms of levy of taxes was never considered to be a challenge
for presumably the Constituent Assembly never considered the
same to be a real possibility necessitating a specific provision
prohibiting levy of discriminatory intra-State taxes."
19.4. Later the Apex Court in CIT v. PEPSI FOODS LTD.4,
holds that a taxing statute may contravene Article 14 of the
Constitution of India, if it seeks to impose upon the same class of
property, persons, or transactions a burden that results in manifest
inequality. The Apex Court, while analyzing the law on the
challenge to a taxing statute as being violative of Article 14,
observes as follows:
".... .... ....
16. It is settled law that challenges to tax statutes
made under Article 14 of the Constitution of India can be
on grounds relatable to discrimination as well as grounds
relatable to manifest arbitrariness. These grounds may be
procedural or substantive in nature. Thus, in Suraj Mall
Mohta & Co. v. A.V. Visvanatha Sastri [Suraj Mall Mohta &
4
(2021) 7 SCC 413
67
Co. v. A.V. Visvanatha Sastri, (1955) 1 SCR 448 : AIR 1954 SC
545] , this Court struck down Section 5(4) of the Taxation on
Income (Investigation Commission) Act, 1947 on the ground
that the procedure prescribed was substantially more prejudicial
and more drastic to the assessee than the procedure contained
in the Income Tax Act, 1922. Section 5(4) of the aforesaid Act
was thus struck down as a piece of discriminatory legislation
offending against the provisions of Article 14 of the Constitution
of India.
17. Instances of taxation statutes being struck down
on substantive grounds which had alleged discrimination
can be found in the five-Judge decision of this Court
in Kunnathat Thatehunni Moopil Nair v. State of
Kerala [Kunnathat Thatehunni Moopil Nair v. State of Kerala,
(1961) 3 SCR 77 : AIR 1961 SC 552] , in which a uniform tax
called "basic tax" levied under the provisions of the Travancore
Cochin Land Tax Act, 1955 was held to be discriminatory as it
treated unequals equally. The Court held : (SCR pp. 91-92 : AIR
p. 558, para 8)
"8. ... Ordinarily, a tax on land or land revenue is
assessed on the actual or the potential productivity of
the land sought to be taxed. In other words, the tax has
reference to the income actually made, or which could
have been made, with due diligence, and, therefore, is
levied with due regard to the incidence of the taxation.
Under the Act in question we shall take a hypothetical
case of a number of persons owning and possessing the
same area of land. One makes nothing out of the land,
because it is arid desert. The second one does not make
any income, but could raise some crop after a
disproportionately large investment of labour and
capital. A third one, in due course of husbandry, is
making the land yield just enough to pay for the
incidental expenses and labour charges besides land tax
or revenue. The fourth is making large profits, because
the land is very fertile and capable of yielding good
crops. Under the Act, it is manifest that the fourth
category, in our illustration, would easily be able to bear
the burden of the tax. The third one may be able to bear
the tax. The first and the second one will have to pay
from their own pockets, if they could afford the tax. If
they cannot afford the tax, the property is liable to be
68
sold, in due process of law, for realisation of the public
demand. It is clear, therefore, that inequality is writ
large on the Act and is inherent in the very provisions of
the taxing section. It is also clear that there is no
attempt at classification in the provisions of the Act.
Hence, no more need be said as to what could have been
the basis for a valid classification. It is one of those
cases where the lack of classification creates inequality.
It is, therefore, clearly hit by the prohibition to deny
equality before the law contained in Article 14 of the
Constitution."
18. Likewise, in Union of India v. A. Sanyasi Rao [Union of
India v. A. Sanyasi Rao, (1996) 3 SCC 465] , this Court struck
down Section 44-AC of the Income Tax Act as being
discriminatory when only particular trades were singled out for
discriminatory treatment, reliefs under Sections 28 to 43-C of
the Income Tax Act being denied only to such trades. This was
done as the denial of such relief had no nexus to the
object sought to be achieved by the legislation and
resulted in unfairness, arbitrariness and denial of
equality of treatment (see para 22).
19. The other facet of Article 14 has been recently
resurrected by a five-Judge Bench judgment in Shayara
Bano v. Union of India [Shayara Bano v. Union of India, (2017)
9 SCC 1 : (2017) 4 SCC (Civ) 277] as follows : (SCC p. 99, para
101)
"101. It will be noticed that a Constitution Bench of this
Court in Indian Express Newspapers (Bombay) (P) Ltd. v. Union
of India [Indian Express Newspapers (Bombay) (P)
Ltd. v. Union of India, (1985) 1 SCC 641 : 1985 SCC (Tax)
121] stated that it was settled law that subordinate
legislation can be challenged on any of the grounds
available for challenge against plenary legislation. This
being the case, there is no rational distinction between
the two types of legislation when it comes to this ground
of challenge under Article 14. The test of manifest
arbitrariness, therefore, as laid down in the aforesaid
judgments would apply to invalidate legislation as well
as subordinate legislation under Article 14. Manifest
arbitrariness, therefore, must be something done by the
legislature capriciously, irrationally and/or without
69
adequate determining principle. Also, when something is
done which is excessive and disproportionate, such
legislation would be manifestly arbitrary. We are,
therefore, of the view that arbitrariness in the sense of
manifest arbitrariness as pointed out by us above would
apply to negate legislation as well under Article 14."
20. Judged by both these parameters, there can be no doubt
that the third proviso to Section 254(2-A) of the Income Tax
Act, introduced by the Finance Act, 2008, would be both
arbitrary and discriminatory and, therefore, liable to be struck
down as offending Article 14 of the Constitution of India. First
and foremost, as has correctly been held in the impugned
judgment, unequals are treated equally in that no
differentiation is made by the third proviso between the
assessees who are responsible for delaying the
proceedings and assessees who are not so responsible.
This is a little peculiar in that the legislature itself has made the
aforesaid differentiation in the second proviso to Section 254(2-
A) of the Income Tax Act, making it clear that a stay order may
be extended up to a period of 365 days upon satisfaction that
the delay in disposing of the appeal is not attributable to the
assessee. We have already seen as to how, as correctly held
by Narang Overseas [Narang Overseas (P) Ltd. v. Income Tax
Appellate Tribunal, 2007 SCC OnLine Bom 671 : (2007) 295 ITR
22] , the second proviso was introduced by the Finance Act,
2007 to mitigate the rigour of the first proviso to Section 254(2-
A) of the Income Tax Act in its previous avatar. Ordinarily, the
Appellate Tribunal, where possible, is to hear and decide appeals
within a period of four years from the end of the financial year
in which such appeal is filed. It is only when a stay of the
impugned order before the Appellate Tribunal is granted, that
the appeal is required to be disposed of within 365 days. So far
as the disposal of an appeal by the Appellate Tribunal is
concerned, this is a directory provision. However, so far as
vacation of stay on expiry of the said period is concerned, this
condition becomes mandatory so far as the assessee is
concerned.
21. The object sought to be achieved by the third proviso to
Section 254(2-A) of the Income Tax Act is without doubt the
speedy disposal of appeals before the Appellate Tribunal in
cases in which a stay has been granted in favour of the
70
assessee. But such object cannot itself be discriminatory or
arbitrary, as has been felicitously held in Nagpur Improvement
Trust v. Vithal Rao [Nagpur Improvement Trust v. Vithal Rao,
(1973) 1 SCC 500 : (1973) 3 SCR 39] as follows : (SCC p. 506,
para 26 : SCR p. 47)
"26. It is now well settled that the State can make a
reasonable classification for the purpose of legislation.
It is equally well settled that the classification in order
to be reasonable must satisfy two tests : (i) the
classification must be founded on intelligible
differentia, and (ii) the differentia must have a rational
relation with the object sought to be achieved by the
legislation in question. In this connection it must be
borne in mind that the object itself should be lawful.
The object itself cannot be discriminatory, for
otherwise, for instance, if the object is to discriminate
against one section of the minority the discrimination
cannot be justified on the ground that there is a
reasonable classification because it has rational
relation to the object sought to be achieved."
22. Since the object of the third proviso to Section 254(2-A)
of the Income Tax Act is the automatic vacation of a stay that
has been granted on the completion of 365 days, whether or
not the assessee is responsible for the delay caused in
hearing the appeal, such object being itself
discriminatory, in the sense pointed out above, is liable to
be struck down as violating Article 14 of the Constitution
of India. Also, the said proviso would result in the automatic
vacation of a stay upon the expiry of 365 days even if the
Appellate Tribunal could not take up the appeal in time for no
fault of the assessee. Further, vacation of stay in favour of the
Revenue would ensue even if the Revenue is itself responsible
for the delay in hearing the appeal. In this sense, the said
proviso is also manifestly arbitrary being a provision which is
capricious, irrational and disproportionate so far as the assessee
is concerned.
25. Likewise, the judgment in Janardhana Rao [M.
Janardhana Rao v. CIT, (2005) 2 SCC 324] , which held that a
right of appeal is neither a natural nor inherent right but has to
be regulated in accordance with the law in force at the relevant
71
time, the conditions of the appellate provision having to be
strictly fulfilled, is also a judgment which has no reference to
the constitutional validity of an appeal provision being assailed.
In point of fact, this Court's judgment in Mardia
Chemicals [Mardia Chemicals Ltd. v. Union of India, (2004) 4
SCC 311] comes nearer home when the constitutional validity of
a condition for the exercise of the right of appeal is assailed.
This was felicitously put by this Court as follows : (Mardia
Chemicals case [Mardia Chemicals Ltd. v. Union of India, (2004)
4 SCC 311] , SCC pp. 352-53, paras 60-61)
"60. The requirement of pre-deposit of any amount at the
first instance of proceedings is not to be found in any of the
decisions cited on behalf of the respondent. All these cases
relate to appeals. The amount of deposit of 75% of the
demand, at the initial proceeding itself sounds unreasonable
and oppressive, more particularly when the secured assets/the
management thereof along with the right to transfer such
interest has been taken over by the secured creditor or in some
cases property is also sold. Requirement of deposit of such a
heavy amount on the basis of a one-sided claim alone, cannot
be said to be a reasonable condition at the first instance itself
before start of adjudication of the dispute. Merely giving power
to the Tribunal to waive or reduce the amount, does not cure
the inherent infirmity leaning one-sidedly in favour of the party,
who, so far has alone been the party to decide the amount and
the fact of default and classifying the dues as NPAs without
participation/association of the borrower in the process. Such
an onerous and oppressive condition should not be left
operative in expectation of reasonable exercise of discretion by
the authority concerned. Placed in a situation as indicated
above, where it may not be possible for the borrower to raise
any amount to make the deposit, his secured assets having
already been taken possession of or sold, such a rider to
approach the Tribunal at the first instance of proceedings,
captioned as appeal, renders the remedy illusory and nugatory.
61. In Seth Nand Lal [Seth Nand Lal v. State of Haryana,
1980 Supp SCC 574] while considering the question of validity
of pre-deposit before availing the right of appeal the Court held
: (SCC p. 590, para 22)
'[R]ight of appeal is a creature of the statute and while
granting the right the legislature can impose conditions for the
exercise of such right so long as the conditions are not so
72
onerous as to amount to unreasonable restrictions rendering
the right almost illusory.' "
(emphasis in original and supplied)
This Court ultimately struck down Section 17(2) of the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (hereinafter
referred to as "the SARFAESI Act") holding that in the
circumstances mentioned, the deposit of 75% of the
amount claimed as a precondition to the hearing of an
"appeal" before the Debt Recovery Tribunal under Section
17 of the SARFAESI Act was onerous, oppressive,
unreasonable, arbitrary and hence violative of Article 14
of the Constitution of India.
26. The learned ASG then relied upon judgments which
indicate that when Article 14 of the Constitution of India is
applied to tax legislation, greater freedom in the joints
must be allowed by the Court in adjudging the
constitutional validity of the same. For this purpose, he
relied upon State of M.P. v. Bhopal Sugar Industries Ltd. [State
of M.P. v. Bhopal Sugar Industries Ltd., (1964) 6 SCR 846 : AIR
1964 SC 1179] In this case, the judgment of this Court held
that if the statute discloses a permissible policy of
taxation, the courts will uphold it. If, however, the tax
was imposed deliberately with the object of
differentiating between persons similarly circumstanced,
such tax would be liable to be struck down.
27. We have already seen how unequals have been
treated equally so far as assessees who are responsible
for delaying appellate proceedings and those who are not
so responsible, resulting in a violation of Article 14 of the
Constitution of India. Also, the expression "permissible"
policy of taxation would refer to a policy that is
constitutionally permissible. If the policy is itself
arbitrary and discriminatory, such policy will have to be
struck down, as has been found in para 20 above.
28. The other judgment relied upon by the learned ASG is
the judgment in N. Venugopala Ravi Varma Rajah v. Union of
73
India [N. Venugopala Ravi Varma Rajah v. Union of India,
(1969) 1 SCC 681] , SCC para 14. This judgment speaks of a
larger play in the joints to legislative discretion in the matter of
classification being granted when such legislation is a tax
legislation. The caveat applied in this paragraph is that a
taxing statute may contravene Article 14 of the
Constitution of India if it seeks to impose upon the same
class of property, persons, etc. something which leads to
obvious inequality. It is this caveat that has been applied to
the third proviso to Section 254(2-A) of the Income Tax Act."
(Emphasis supplied at each instance)
20. If the law laid down by the Apex Court in the
afore-quoted judgments is pitted against the impugned legislations,
particularly the aforesaid disparity in the manner of calculation of
cess under the Act, this Court has no option but to hold the
impugned Act and the Rules to be discriminatory and violative of
Article 14 of the Constitution of India.
21. The learned additional Solicitor General has contended
that the production capacity and the documents placed before the
Court by the petitioners are all prior to 01-02-2026 i.e., the date on
which the Rules under the impugned Act came into force and that
the machineries of all the persons are now changed and the sale of
machineries below 500 capacity is not even available in the market.
74
The said submission is only in justification of the Act. The
subsequent sale of machines on the increased capacity and
purchase of new machines with higher capacity, by some of the
petitioners, cannot be viewed as a ground to levy cess, as every
machinery will have to come under scrutiny. Therefore, the Act
ought to have been drawn on some other rationale and not from
the fact that machines have to produce 500 pouches per minute.
Therefore, the justification of the revenue in the considered view of
the Court is unacceptable.
22. The petitioners have strenuously contended that the
Parliament lacks the legislative competence to enact the impugned
Act and the Rules. Several submissions are also made by the
learned Additional Solicitor General that the impugned cess is not a
GST. Article 246A of the Constitution provides for the imposition of
GST. The taxable event in terms of the impugned Act being the
ownership or possession of the installed machine and not on the
supply of goods and services which is a taxable event under the
GST, Article 246A is not applicable. The impugned cess is also not a
surcharge as obtaining under Article 271. This is also accepted, as
75
the Constitution itself indicates that a surcharge cannot be imposed
upon goods and services that are already taxed in terms of Article
246A. Further, Article 246(1) of the Constitution confers exclusive
legislative power upon the Parliament to make laws with respect to
matters enumerated in List I of the Seventh Schedule. Entry 97 of
List I vests the Parliament with the residuary power to legislate on
any matter not enumerated in List II or List III, including the power
to impose any tax not mentioned in either of those Lists. Therefore,
the contention of the petitioners that Parliament lacked the
legislative competence to enact the impugned legislations is without
merit and deserves to be rejected. While upholding the power of
the Union of India to bring in a legislation for the imposition of tax,
surcharge or cess, the matter that it is bought in and its execution
is found to be in violation of Article 14 of the Constitution. This
results in the obliteration of the Act and the Rules holding them to
be failing the tenets of Article 14. However, liberty is reserved to
the Union to bring in the enactment, bearing in mind the
observations made in the course of the order.
76
23. For the aforesaid reasons, the following:
ORDER
(i) Writ Petition Nos.3157 of 2026, 4331 of 2026,
100634 of 2026, 100636 of 2026, 100637 of 2026,
100638 of 2026 and 100657 of 2026, are
allowed in part.
(ii) The power of the Union Government to promulgate a
law to levy cess is upheld. The manner in which the
Act and the Rules levy the cess is held to be
unreasonable and vague, as it is based on
assumption of quantity manufactured instead of
actual quantity manufactured, failing the tenets of
Article 14 of the Constitution of India and to that
extent, the Act is held to be unconstitutional.
Consequently, the Rules are also held to be
unconstitutional. Sequentially, the notifications dated
16-12-2025, 31-12-2025, 01-01-2026 and
30-01-2026 stand obliterated.
SPONSORED
(iii) Holding the Act, the Rules and the notifications
issued to be contrary to law, will not come in the
way of the revenue to promulgate the law, bearing in
77
mind the observations made in the course of the
order.
(iv) In view of the memo filed for withdrawal in
W.P.No.200402 of 2026, the petition is disposed as
withdrawn.
Pending applications, if any, also stand disposed.
Sd/-
(M.NAGAPRASANNA)
JUDGE
bkp
CT:BR
