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TMI Blog2022 (1) TMI 380X X X X Extracts X X X X X X X X Extracts X X X X ..... ners are stated to be manufacturers of Tobacco and Tobacco products and are registered in terms of Rule 9 of the Central Excise Registration Rules, 2002 ("the Rules, 2002" for short). Subsequent to coming into force of the Goods and Services Tax ("GST" for short) regime, the petitioners have registered themselves under Rule 10 (1) of the Central Goods and Services Tax Rules, 2017 ("CGST Rules" for short). 2. The petitioners in W.P.No.52374/2019, 52323/2019, 51473/2019, 6114/2020, 6122/2020, 2318/2020, 651/2020 and 713/2020 have sought for the following reliefs: a) Setting aside of the Notification No.3/2019 dated 06.07.2019 issued by the first respondent-Union of India whereby Central Excise Duty has been levied on tobacco and tobacco products. b) Declaration that the Repeal and Saving provision as contained in Section 174 of the Central Goods and Services Act, 2017 ("CGST Act" for short) insofar as it seeks to save the operation of the Central Excise Act, 1994 qua tobacco and tobacco products as unconstitutional and bad in law. c) Declaration that Section 136 of the Finance Act, 2001 under which there is levy and collection of National Calamity Contingent Duty (hereinafter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly known as petrol, natural gas and aviation turbine fuel). In the interregnum, old regime of indirect taxes qua such products continues. iv) Article 246A contains a non-obstante clause while conferring power on the Parliament and legislature of the State to make laws with respect to goods and services. As Article 246A is carved out of Article 246, there is a denudation of power under Article 246. Article 246A being a sui generis power exhaustive of taxes on all aspect and facets of supply of goods including tobacco and tobacco products, overrides the taxing power of legislature referable to Article 246 in light of the non-obstante clause in Article 246. v) Article 248 which provided for residuary power of legislation including the power to impose a tax not mentioned in the concurrent or State List stands curtailed, as the same has been amended by 101st Constitutional Amendment whereby Article 248 has been amended and begins with the phrase "subject to Article 246-A, ........." vi) The levy of basic excise duty by virtue of amended Section 3 of the Central Excise Act at the rates set forth in the Fourth Schedule to the Central Excise Act, 1944 despite being subjected to vario ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subjected to tax on two taxable events i.e., manufacture and sale and after coming into force of the GST regime, tobacco products are subjected to indirect taxes under the pre-GST regime (i.e., under the Excise Act) and GST regime as well. The singling out of tobacco products for such taxation vis-à-vis other goods which are subjected to tax only under GST regime does not have any legal justification for such hostile and discriminatory treatment. b) Manifest Arbitrariness: The levy of excise duty and levy of NCCD has elements of caprice, irrationality and lacks adequately determining principles rendering the levy bad as being manifestly arbitrary. xiv) The phrase "adequately determining principle" has been held to be "principle which is in consonance with the constitutional values". In the present case, the levy of excise duty by recourse Notification No.3/2019 dated 06.07.2019 to sustain excise duty is violative of the constitutional scheme and consequently illegal and ought to be set aside as being manifestly arbitrary. xv) Once it is prima-facie shown that the classification is arbitrary and violative of Article 14 there is a duty on the revenue to justify reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bject to the following taxes/levies: a) GST under Article 246A b) Compensation Cess under Article 270 c) Surcharge in the nature of NCCD under Article 271 d) Excise duty under Entry 84 List I r/w Article 246 Reliance is placed on the observations of the Apex Court in Union of India and Others v. VKC Footsteps (decision dated 13.09.2021 in Civil Appeal No.4810/2021) wherein it is observed that with the enactment of the 101st Constitutional Amendment, Entry 84 of the Union List has been restructured to incorporate duties of excise on Tobacco and tobacco products. iii) The Courts while interpreting the GST regime has to keep in mind that the Parliament had to make balances to accommodate the interest of the States and that the area of GST Law is such that judicial interpretation cannot be ahead of policy making. iv) Though GST has subsumed majority of goods and services into its ambit, a complete subsumation of goods into GST remains a constitutional goal for the GST Council to achieve under Article 279A. v) Considering the nature of both the Federal partners and the complexity involved certain goods are kept outside the ambit of GST and certain goods such as tobacco, toba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) As per the Aspect Doctrine, the same transaction may involve two or more taxable events in different aspects and accordingly, there is no illegality in the levy of GST as well as excise duty on the same product. xiv) Selecting Objects to the Tax, determining the quantum of tax, legislating the conditions for the levy and the socio-economic goals which a tax must achieve are the matters of legislative policy. xv) The statement of objects and reasons cannot be read in isolation. xvi) The taxable event for levy of GST under Article 246A is supply while the taxable event for levy of excise duty under Article 246 r/w Entry 84 List I is manufacture. xvii) The exemption of excise duty as per the Notification does not have the effect of granting exemption of NCCD unless the same is made clear by way of a notification. IV. CONSIDERATION: A. POWER UNDER ARTICLE 246 R/W ENTRY 84 LIST I post the GST REGIME AND INTRODUCTION OF ARTICLE 246A OF THE CONSTITUTION OF INDIA : The introduction of levy of Central Excise on tobacco and tobacco products by virtue of Notification of 2019 has resulted in levy of a nominal duty of Central Excise. Such imposition is eventually traceable to the pow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticle 278......" On the same lines is the decision of the Apex Court in Chandravarkar Seetharathna Rao v. Ashalatha S. Guram reported in (1986) 4 SCC 447 which reiterates the above position while explaining that the effect of "notwithstanding" clause would merely amount to declaring that inspite of the provision mentioned in the non-obstante clause the provision would have its full operation. Para 67 of the judgment reads as follows: 67. A clause beginning with the expression "notwithstanding anything contained in this Act or in some particular provision in the Act or in some particular Act or in any law for the time being in force, or in any contract" is more often than not appended to a section in the beginning with a view to give the enacting part of the section in case of conflict an overriding effect over the provision of the Act or the contract mentioned in the non obstante clause. It is equivalent to saying that in spite of the provision of the Act or any other Act mentioned in the non obstante clause or any contract or document mentioned the enactment following it will have its full operation or that the provisions embraced in the non obstante clause would not be an im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tended that there is a clear distinction between source of power and field of legislation and the entries in the lists being fields of legislation cannot be construed as a source of power. It must be noted that Article 246 continues to be the source of power even post-introduction of Article 246A. The amendment to Entry 84 List I whereby field of legislation indicating levy of duty of excise on goods manufactured or produced relating to tobacco and tobacco products does indicate the conscious intention to preserve the exercise of power under Article 246 even after introduction of Article 246A. If the argument of the petitioners that post-introduction of Article 246A and if on the product by virtue of Goods and Services Tax Act under Article 246A GST has been introduced, there would be no power to take recourse to Article 246 r/w Entry 84 of List I to levy a duty of excise, it would in effect render the restructuring of Entry 84 of List I redundant. Such an interpretation is to be avoided. Further, irrespective of the restructuring of Entry 84 of List I the power under Article 246 remains unaltered. The intention of preserving such power under Article 246 is further reflected in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... putedly, Superior Kerosene Oil is mentioned in the Fourth Schedule although no rate of duty has been provided. If rate of duty has not been provided it shall merely mean that no duty is leviable in the absence of rate of duty. It does not mean that such goods are not excisable. All the goods mentioned in Fourth Schedule to the Act, 1944 shall continue to be excisable goods unless the goods is removed from the schedule by an amendment. Section 174 of the CGST Act has not repealed the Central Excise Act, 1944 as respect to the goods included in entry 84 of the Union List of the Seventh Schedule to the Constitution. The Central Excise Act, 1944 as amended by Act 18 of 2017 has been enacted with respect to the goods included in entry 84 of the Union List of the Seventh Schedule to the Constitution which includes S.K.O." The stand taken by the High Court of Allahabad would support the interpretation placed above regarding availability of power under Article 246 post-GST. B. Taxing on taxable event, Aspect Theory and Subsumation of manufacture in Supply : Apart from challenging the validity of levy of NCCD the petitioners in all of the petitions have also challenged the levy of Centra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocess of achieving ultimate goal as envisaged while introducing the GST the continuance of levies under the previous legislations unless barred ought to be permitted as being competent visà-vis available source of power which cannot be defeated by resort to argument based on objects of GST as contained in the Objects Clause. (ii) Taxing of Taxable event: Even though the petitioner would contend that what is being taxed is the aspect of manufacture under the Central Excise Act and the same taxable event of manufacture as subsumed in GST, even if such contention were to be accepted it would amount to taxing of the taxable event of manufacture on two occasions and unless there is any prohibition in law such a levy would still be permissible. It must be noted that taxing statutes are revenue generation statutes and in that context, levy even if on the same taxable event which may also amount to double taxation is per se not prohibited unless prohibition can be read into on the basis of any other constitutionally available principle. The aspect as to whether the levy of excise duty when considered along with other existing duties including NCCD has the effect of falling foul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stribution of legislative powers between Federal and Provincial Governments. In fact, in the case of Federation of Hotel and Restaurant v. Union of India reported in (1988) 3 SCC 634 the question that was considered was whether expenditure tax was in "pith and substance" actually a tax on luxuries which was squarely covered by Entry 62 List II or it could be construed as a tax on consideration paid on purchase of goods which would fall under Entry 54 of List II and accordingly, the question of legislative competence of the Parliament was in question. The then Attorney General Parasaran had invoked the Aspect Theory by contending that there could be different aspects of the same matter constituting distinct fields of legislation. In effect it was submitted that Hotels may be taxed in their "expenditure aspect" by the Union and in their "luxury aspect" by the States. The Apex Court was essentially considering legislative competence of the Union Parliament and it is in that context that the principle of the Aspect Doctrine appears to have been considered and eventually held as follows: 88. In the light of the above entries and decisions, I think that the learned Attorney General is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ack the same area of vulnerability, one with a view to keep a check on "luxuries" and the other with a view to curb undesirable "expenditure". Clearly, in the present case the question as to legislative competence of the Union vis-à-vis the State is not in question. The question as to whether power under Article 246A which is tax on goods and services if levied on a product could also be a subject of levy of an indirect tax on the same product in exercise of power under Article 246. While the power under Article 246A provides for a simultaneous levy by the Parliament and subject to 246A (2) the legislature of every State; on the other hand, power under Article 246 is with the Union. The question of legislative competence under 246A vis-à-vis Article 246 would not strictly fall within the ambit of applicability of the Aspects Theory. Even otherwise, while it is the aspect of supply which is the consideration while levying tax under GST, it is the aspect of manufacture that is of consideration while levying excise duty. Though it is contended by the petitioners that the aspect of supply has subsumed manufacture and accordingly, the levy of tax would in effect be on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.... Thus, additional surcharge is a distinct charge not dependent for its leviability on the assessees liability to pay income tax or super tax." The Apex Court has also observed that the Income Tax Act and Annual Finance Acts are enacted by the Parliament in exercise of the power conferred by Article 246 (1). As to the nature of power exercised under the Finance Act, it is observed as follows: "12....... Once the Parliament has the legislative competence to enact a law with respect to a certain subject matter, the limits of competence cannot be judged further by the form or manner in which that power is exercised. Accordingly, though it would be unconventional for the Parliament to amend a taxing statute by incorporating the amending provision in an act of a different pith and substance, such a course would not be unconstitutional." "13.......Much more so can the Parliament introduce a charging provision in a Finance Act. True, as said in Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth Tax, (Central) Calcutta [AIR 1966 SC 1370 : (1966) 2 SCR 688, 704 : (1966) 59 ITR 767] that the Income Tax Act is a permanent Act while the Finance Acts are passed every ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the surcharge is by way of duty of excise and accordingly, cannot be construed to be a surcharge as regards Goods and Services Tax as contemplated under Article 246A. The interpretation of the petitioners that surcharge cannot be levied under Article 271 as regards those goods and services which are included under Article 246A is liable to be rejected as no such restriction could be placed on a plain reading of Article 271 which provides that surcharge could be levied at any time to increase duties or taxes. In fact, surcharge being imposed by way of the Finance Act has nothing to do with surcharge on GST that may still be levied. As levy under Article 246 is permissible even after introduction of Article 246A, the levy of surcharge tracing power under Article 271 would still subsist even if the goods are subjected to levy of goods and services tax under Article 246A. E. Levy of NCCD during the period of Exemption of Excise Duty : Insofar as petitioner's contention that the exemption of Excise Duty by virtue of Notification No.11/2017 would result in NCCD being inapplicable at least till 06.07.2019 whereby Notification 2/2019 introduced nominal Excise Duty also requires to be re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h contention has been raised. The case that is made out is that tobacco and tobacco products are the only category of goods which are subject to indirect taxes under two regimes viz., GST Regime and Excise Regime. Grounds of challenge are: a) Unreasonable Classification b) Manifest arbitrariness It must be noted that the respondent has countered such contention on the ground that twin test of reasonableness and rational nexus is achieved if taxation on tobacco is viewed as sin tax with the other underlying object being of revenue generation. The Apex Court in the case of Commissioner of Urban Tax v. Buckingham & Carnatic Company Ltd. Reported in (1969) 2 SCC 65 has reiterated the settled principle that selecting objects to the tax, determining the quantum of tax, legislating conditions for the levy and the socio-economic goals which a tax must achieve are matters of legislative policy and these matters have been entrusted to the Legislature and not to the Court. It is a settled principle that the Legislature has a larger discretion in the matter of classification for the purpose of tax. The requirement however is that there is a classification and a rational nexus between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities mentioned in Para 59 of the written submissions does not in any way help the petitioner insofar as the judgments lay down broad principles relating to classification. In fact, the same authorities are also often cited to contend that legislature has wide discretion in classifying items for tax purposes and that the differentia has some reasonable relation to the object of the legislation. 10. It must also be noted that the levy is also for the purpose of revenue generation and the choice of the category of goods for the purpose of revenue generation cannot ipso-facto be a ground of judicial review and something more is required such as hostile discrimination and singling out a particular category of goods. 11. In fact, the choice of the category of goods as in the present case may also be influenced by the objective of discouraging consumption and accordingly the choice of the category of goods for the purpose of revenue generation cannot be held to be arbitrary. 12. As regards the aspect of Manifest Arbitrariness, finding its basis in Article 14, it is accepted that this principle could be pressed into service where the arbitrary actions have "elements of caprice, irratio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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