Case Summary and Outcome

On December 6, 1984, the Supreme Court of India directed the central government to re-examine its taxation policy by evaluating whether it constituted an excessive burden on newspapers. The petitioners, including newspaper companies and employees, argued that an import duty led to an increased cost of newspapers and a drop in circulation, thereby adversely affecting freedom of speech and expression. The Court reasoned that a government can levy taxes on the publication of newspapers, however this must be within reasonable limits so as to not encroach upon freedom of expression. Yet, the Court observed that neither the petitioners nor respondents proved the excessive nature of tax burdens, and therefore called upon the government to re-evaluate its taxation policy regarding the newspapers.

Facts

The petitioners in this case were companies, employees, and shareholders thereof, as well as trusts engaged in the publication of newspapers. They challenged the import duty on newsprint under the Customs Tariff Act 1975 and the auxiliary duty under the Finance Act 1981, as modified by notifications under the Customs Act 1962 with effect from March 1, 1981. Prior to this notification, newsprint had enjoyed exemption from customs duty.

The petitioners contended that the imposition of this duty had an adverse effect on costs and circulation and, therefore, had a crippling effect on freedom of expression under Article 19(1)(a) of the Indian Constitution and the freedom to practice any trade or occupation under Article 19(1)(g). They further asserted that no public interest justified such an interference with these fundamental rights because the foreign exchange position of India was comfortable at the time. Finally, they submitted that the classification of newspapers into small, medium, and large newspapers violated the principle of non-arbitrariness under Article 14 of the Constitution (equality before law).

The government argued that the burden of cost borne by the newspapers and the position of foreign exchange reserves were irrelevant considerations. The public interest involved in taxation was to increase the revenue of the government, a burden that is borne by all citizens of the country. It asserted that the exemption granted to newsprint was not justified and, therefore, could be removed by the government.

Decision Overview

The present case was presided over by Justices E.S. Venkataramiah, O. Chinnappa Reddy and A.P. Sen of the Supreme Court of India. The central issue for consideration was whether the imposition of taxes on newspapers was violative of Article 19 of the Indian Constitution.

The petitioners contended that the imposition of the import duty on newspapers had the direct effect of crippling the freedom of speech and expression guaranteed by the Constitution as it had led to an increase in the price of newspapers and the inevitable consequence of reduction in their circulation. They further argued that the method adopted by the Customs Act, 1962 and the Customs Tariff Act, 1975 in determining the rate of import duty had exposed the newspaper publishers to executive interference. The petitioners urged that the “recognition of the power of the Government to levy taxes of any kind on the newspaper establishments would ring in the death-knell of the freedom of press and would be totally against the spirit of the Constitution”.

The petitioners contended that there was no need to impose customs duty on newsprint which had enjoyed total exemption from its payment until March 1, 1981, as the foreign exchange position was quite comfortable. The petitioners stated that the enormous increase in the price of newsprint subsequent to March 1, 1981 and the inflationary economic conditions which had led to higher cost of production made it impossible for the industry to bear the duty any longer. They further stated that the capacity to bear the duty is an essential element in determining the reasonableness of the levy, therefore the continuance of the levy was violative of Article 19(1)(a) and Article 19(1)(g) of the Constitution.

On the other hand, the Government contended that the levying of duty was in the public interest to augment the revenue of the Government. They denied that the levy suffered from any mala fides and pleaded that every section of the society had to bear its due share of the economic burden of the State, and therefore levy of customs duty on newsprint could not be considered to be violative of Article 19(1)(a) of the Constitution.

To buttress their arguments, the petitioners placed strong reliance on the Sakal case [AIR 1962 SC 305] and the Bennett Coleman case [AIR 1973 SC 106] to argue that any tax on newsprint which is the most important component of a newspaper is unconstitutional.

Firstly, in the Sakal case, constitutionality of the Newspaper (Price and Page) Act, 1956 and the Daily Newspaper (Price and Page) Order, 1960 arose for consideration. The Newspaper (Price and Page) Act, 1956 regulated the number of pages according to the price charged, prescribed the number of supplements to be published and prohibited the publication and sale of newspapers in contravention of the Act. The Government in that case pleaded that the Act was passed in the public interest to restrict unfair competition amongst different newspapers. The Court had rejected this contention and observed that the government can place restrictions on the right to carry on business on the basis of public interest under Article 19(6) however, the same could not be the basis for restricting freedom of speech and expression under Article 19(2) of the Constitution. Therefore, as per the judges, the freedom of speech could not be indirectly taken away with the object of placing restrictions on the business activities of a citizen.

Secondly in the Bennett Coleman case, the question which arose for consideration was related to the validity of a restriction imposed under the newsprint policy which had certain objectionable features such as a big newspaper was prohibited and prevented from increasing the number of pages, page area and periodicity by reducing circulation to meet the requirement even within its admissible quota etc. The majority in that case held that the fixation of a page limit had not only deprived the petitioners of their economic vitality but also restricted their freedom of expression. It also held that such restriction of pages resulted in a reduction of advertisement revenue and thus adversely affected the capacity of a newspaper to carry on its activity which is protected by Article 19(1)(a) of the Constitution.

The judges carefully analyzed these two cases in the instant case and opined that neither of the two cases were concerned with the power of Parliament to levy tax on any goods used by the newspaper industry. They further stated that the “taxes have to be levied for the support of the Government and newspapers which derive benefit from the public expenditure cannot disclaim their liability to contribute a fair and reasonable amount to the public exchequer.” The judges found that the newspaper industry had not been granted exemption from taxation in express terms and that the Entry 92 of List I of the Seventh Schedule in the Indian Constitution empowered the Parliament to levy taxes on the sale and purchase of the newspapers.

Here the judges made reference to the First Amendment of the Constitution of the United States of America and stated that while the freedom of press in USA was almost absolute, still the American courts recognized the power of the State to levy taxes on the newspapers establishments. The judges further observed that “merely because the Government has the power to levy taxes, the freedom of press would not be totally lost”.

While observing the same, the judges tried to strike a balance between the taxing powers of the State and freedom of press and stated that the government’s powers are subject to judicial scrutiny and “as long as the Court sits, newspapermen need not have the fear of their freedom being curtailed by unconstitutional means”. The judges noted that the newspaper industry enjoys two of the fundamental rights, namely, the freedom of speech and expression guaranteed under Article 19(1)(a) and the freedom to engage in any profession, occupation, trade, industry or business guaranteed under Article 19(1)(g). The judges observed that while no tax could be levied on the right to exercise freedom of expression, tax can be levied on profession, occupation, trade, business and industry, hence tax could be levied on the newspaper industry.

The Court also noted that as long as the tax is within reasonable limits and doesn’t contravene the limitations of Article 19(2), it is not unconstitutional, however if the tax transgresses and stifles this freedom, it becomes unconstitutional. The judges also emphasized that while levying a tax on the newspaper industry it must be kept in mind that “it should not be an over-burden on newspapers which constitute the Fourth Estate of the country. Nor should it single out the newspaper industry for harsh treatment. Imposition of a tax like the customs duty on newsprint is an imposition on knowledge and would virtually amount to a burden imposed on a man for being literate and for being conscious of his duty as a citizen to inform himself about the world around him.”

The judges also stated that the tests for determining the constitutionality of a statute taxing newsprint is different from the tests usually adopted for testing the constitutionality of other taxing statutes. According to the judges, in the case of ordinary taxing statutes, the laws may be questioned only if they are either openly confiscatory or a colourable device to confiscate but in the case of a tax on newsprint, it is sufficient to show a distinct and noticeable burdensomeness, clearly and directly attributable to the tax.

The judges further highlighted that the freedom of expression serves four broad social purposes: (i) it helps an individual to attain self fulfilment, (ii) it assists in the discovery of truth, (iii) it strengthens the capacity of an individual to participate in decision making, and (iv) it provides a mechanism by which it would be possible to establish a reasonable balance between stability and social change. While underlining the importance of freedom of speech and expression, the Court observed that the Government should be more cautious when levying taxes on matters concerning the newspaper industry than when levying taxes on other matters.

While emphasizing the critical role played by the press and the need to invalidate any law or administrative action of the Government that leads to suppression of the freedom of speech and expression, the judges held that “freedom of press is the heart of social and political intercourse. The press has now assumed the role of the public educator making formal and non-formal education possible on a large scale particularly in the developing world, where television and other kinds of modern communication are not still available for all sections of society. The purpose of the press is to advance the public interest by publishing facts and opinions without which a democratic electorate cannot make responsible judgments. Newspapers being surveyors of news and views having a bearing on public administration very often carry material which would not be palatable to governments and other authorities. The authors of the articles which are published in newspapers have to be critical of the action of government in order to expose its weaknesses. Such articles tend to become an irritant or even a threat to power. Governments naturally take recourse to suppress newspapers publishing such articles in different ways.”

Lastly, the judges held that “it is indisputable that the newspaper industry should also bear its due share of the total burden of taxation along with the rest of the community but when any tax is specially imposed on the newspaper industry, it should be capable of being justified as a reasonable levy in court when its validity is challenged.” In context of the present petition, the Court held that, although the petitioners had succeeded in showing a fall in circulation, they failed to duly establish that it was a direct consequence of the customs levy and the increase in price.  The Court noted that the fall in circulation could be due to various circumstances such as the general rise in the cost of living, the reluctance of people to buy as many newspapers as they used to buy, bad management, change of editorial policy, or absence of certain feature writers and not necessarily due to the levy of customs duty. Since, in the present case, the petitioners failed to show that the tax was so “burdensome as to warrant it being struck down”, instead of quashing the impugned legislation, the Court directed the Government to reconsider within six months the entire question of the levy of import duty or auxiliary duty payable by the petitioners.