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2023 (5) TMI 326 - SC - VAT and Sales TaxTaxability - gutka/gutkha/guhtka - appellants argued that state legislatures were not empowered to levy sales tax on those articles, in view of the provision in the Constitution enabling the Union to levy additional duties of excise, and further that in any case, the rate of state tax cannot exceed the limit prescribed by the Central Sales Tax Act, 1956. HELD THAT:- Entry No. 2 of Part-J in the First Schedule to the ADE Act is similar to sub-heading 2404.49 - as amended from 01.03.2001. As a result, additional excise duty could be imposed on ''Pan Masala containing tobacco”. As far as Kothari Products Limited v. Government of Andhra Pradesh, [[1997 (7) TMI 601 - ANDHRA PRADESH HIGH COURT]] is concerned, a Full Bench of the (undivided) Andhra Pradesh High Court had examined the interface between the APGST Act, and the provisions of the CET Act, in the context of whether gudaku was subjected to sales tax levy, as the dealers had contended that it was tobacco, and therefore, exempt under the local law - The Full Bench ruling considered the local enactments, and sub-headings in Chapters 21 and 24 of the CET Act, and held that although gutkha falls within the term ‘pan masala’, since no additional duty of excise is levied on it, yet it could not be held that gutkha was exempt from state sales tax. It was held by the Full Bench of the Andhra Pradesh High Court [[1997 (7) TMI 601 - ANDHRA PRADESH HIGH COURT]] that provisions of explanation of the Fourth Schedule to the APGST Act, with reference to the heads and sub-heads in the CET Act, what was relevant in ascertaining the real import of the expression “chewing tobacco and preparations containing chewing tobacco” was the breadth of the terms used in the entry, sub-heading or a notification, or statute. From that aspect, the court concluded that gutkha fell within the wide language of the said expression. However sub-heading 2404.40 “Chewing tobacco and preparations containing chewing tobacco” was a general sub-head. The court concluded that it is a settled rule of interpretation that a specific reference prevails over a general entry. Since the court held that “gutkha” fell within the meaning of “pan masala” in the sub-heading 21.06, there could be no doubt that “pan masala” was a specific sub-head even assuming that it falls within the meaning of “chewing tobacco”. Therefore, the court concluded that in view of the specific head “pan masala” in Chapter 21, that item was excluded from the general sub-head 2404.40 “Chewing tobacco and preparations containing chewing tobacco”. The court also concluded that though “gutkha” fell within the term “pan masala” in Chapter 21 under sub-head 21.06 yet as it is not subjected to additional duty, an essential condition envisaged by the explanation for claiming exemption, is lacking. Whether pan masala was an exempted item, being “tobacco”? - HELD THAT:- It is noticeable that pan masala was expressly mentioned in Chapter 21 for the first time, in 1995 in the CET Act. Note 3 defined 'Pan Masala' as “any preparation containing betel nuts and any one or more of the following ingredients, namely lime, katha (catechu) and tobacco, whether or not containing any other ingredients”. However, at the same time, Chapter 24 contained a specific entry “tobacco” which enumerated tobacco, manufactured tobacco, substitutes etc. The relevant sub-heading at that time was 2404.41 which enumerated chewing tobacco, including preparations commonly known as khara masala, kimam, dokta, zarda, sukha and surti. Thus, the CET Act itself made a distinction between pan masala - whether it contained tobacco, or not, and all forms of tobacco. Right from 1995, the distinction in the CET Act between pan masala (Chapter 21) and tobacco (Chapter 24), had been made. The definition of pan masala also clarified that despite one of its ingredients being tobacco, it would nevertheless be a separate article. On a plain application of the interpretive rules, especially Rule 3(a) it is clear that the heading which provides the most accurate description has to be followed. In the present case, there is no doubt, that before 2001, pan masala and gutkha fell within Chapter 21, as pan masala, regardless of whether they contained tobacco. Goods classifiable under Chapter 24, i.e. tobacco items were more general; also they did not include pan masala. Rate of tax - HELD THAT:- In view of the restrictions under Section 15 CST Act, neither gutkha nor pan masala were “declared goods” under Section 14 of the CST Act. The amendment to the CET Act did not become part of Section 14(ix). The goods under the relevant sub-headings of the CET Act were absent in the list of declared goods of the CST Act; they were not part of the provisions introduced to the Finance Act, 1988. Therefore, the subsequent changes made introducing 2404.40 in the CET Act do not affect or change the CST Act. Consequently gutkha and pan masala are not covered under sub-heading 2404.40 so far as CST Act is concerned. Resultantly the arguments of the assessees that the rate of local tax, cannot exceed the limit under the CST Act, are rejected as unmerited. The appeals by the assessees have to fail. The revenue’s appeals are consequently allowed.
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