The Karnataka High Court last week struck down the Health Security se National Security Cess Act enacted by the Centre for violating Article 14 of the Constitution.Partly allowing a batch of petitions filed by pan masala manufacturers, Justice M Nagaprasanna observed, “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.”Under the impugned Act, the cess is levied not on the product (pan masala pouches) but on the machines used for their production and the capacity the machine can generate.Appearing for the petitioners, Senior Advocate G Shivadass had argued, “The Central Government wants the cess to be levied on the number of machines one possesses and the number of pouches they produce. Such a regime of cess cannot have any refuge in law and cess cannot be levied on deemed production. At best it can be on the actual production.”Representing the Centre, Additional Solicitor General N Venkataraman countered that the petitions were misconceived and the Act was constitutionally valid.He contended that the “law is enacted in public interest and is directed at regulating a sector notorious for tax evasion and has adverse public health consequences.”Further, he had submitted that despite high applicable GST rates, the revenue collected from the pan masala sector had consistently fallen far below the sector’s productive capacity. Thus, the Act levied a cess on a capacity-based approach.Court findingsStory continues below this adThe bench noted that from February 1, 2026, the Goods and Services Tax (GST) on the pan masala sector increased to 40 per cent of the MRP minus deductions on the produce. While under Sections 4 and 5 of the impugned Act, the levy is not on the product but on the machines used for production.Accepting petitioners’ contention that machines installed by them have different production capacities and still the same cess was being levied, the court said, “In no machine the capacity per minute is 500 pouches. But the cess demanded now is on the machinery 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.”Referring to Rule 15(a) of the Rules, which permits exemption from paying cess only when manufacturing activity remains suspended continuously for a period of 15 days, the court observed, “Rule fails to take into account suspension of manufacturing for periods shorter than 15 days, which may occur due to various reasons, including breakdown of machinery, non-availability of raw materials or labour, factory maintenance, and the like.”Also Read | Can’t deny father child’s overnight custody citing mom’s transfer: Karnataka High CourtRejecting the contention of the Union Government that the Rules intended to eliminate bogus claims for a shorter period, the bench observed, “Administrative difficulties in preventing tax evasion cannot, by themselves, justify the prescription of such an arbitrary threshold under the Rules.”Story continues below this adThe court, thereafter, upheld the “power of the Union of India to bring in a legislation for the imposition of tax, surcharge or cess,” but the “matter that it is brought in and its execution is found to be in violation of Article 14 of the Constitution.”