TMI Blog2022 (1) TMI 380X X X X Extracts X X X X X X X X Extracts X X X X ..... ds and services in the nature of Goods and Services Tax and the use of the word notwithstanding which is a non-obstante clause does not have the effect of abrogation of power available under Article 246. The words notwithstanding anything contained in Article 246 ought to be construed as having the effect of merely clarifying that inspite of the power under Article 246, power under Article 246A could be exercised and that Article 246 would not be an impediment to the operation of 246A - 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 the repealing and saving provision of Section 174 of the Central Goods and Services Tax Act, 2017 which saves provisions of the Central Excise Act, 1974 in respect of goods included in Entry 84 of the Union List of the Seventh Schedule to the Constitution. Taxing on taxable event, Aspect Theory and Subsumation of manufacture in Supply - Subsumation of manufacture in the Concept of Supply - HELD THAT:- The legal argument based on intendment of avoiding of cascading taxes will not have the effect of prohibiting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pects 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 that 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- -vis Article 246 would not strictly fall within the ambit of applicability of the Aspects Theory. Legality of levy of NCCD as per Section 136 of the Finance Act, 2001 - HELD THAT:- As per Section 136 of the Finance Act, a surcharge by way of duty of excise at the rates specified in the sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C/W WRIT PETITION No.51473/2019 (T-TAR), WRIT PETITION No.52323/2019 (T-RES) 52374/2019, 651/2020, 713/2020, (T-RES), 6114/2020 (T-RES), 6122/2020 (T-RES), 3810/2021 (T-TAR) - - - Dated:- 4-1-2022 - HON'BLE MR. JUSTICE S. SUNIL DUTT YADAV Petitioner: (By Sri C.S.Vaidyanathan, Senior Advocate, Sri. K.G.Raghavan, Senior Advocate, Ms. Ananyaa Jagirdar, Sri. Prashanth F. Goudar, Sri. Goutham S. Bharadwaj and Sri. Vinay Kuttappa K.S., Advocates) Respondents : (By Sri M. Venkataraman, Additional Solicitor General a/w Sri. Jeevan J. Neeralgi, Advocate) O R D E R S. SUNIL DUTT YADAV. J I PREAMBLE 1. The petitioners 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods and Services. ii) The Goods and Services Tax is a single tax which subsumes various existing taxes levied at each stage of the supply chain starting from manufacture or import till the last retail level. Reliance is placed on the Statement of Objects of various Acts. iii) Upon coming into force of the GST regime, all goods and services were subjected to the Goods and Service Act except (a) supply of alcoholic liquor for human consumption in respect of which the legislative power continues in Article 246 read with Entry 51 of List II of the Seventh Schedule; (b) goods with respect to which levy of GST has been deferred viz., petroleum crude, high speed diesel, motor spirit (commonly 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 suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntry 84 post the 101st Constitutional Amendment is violative of the Constitutional Scheme as set out in Article 246, 246A, 265, 269A, 270, 271 and 279A. xiii) The levy of basic excise duty and NCCD which is a duty of excise on tobacco and tobacco products is violative of Article 14 on the following grounds: a) Unreasonable Classification: Twin tests are required to be satisfied viz., (i) Classification must be made on the basis of an intelligible differentia ; (ii) The intelligible differentia must have a rational nexus with the object sought to be achieved by the legal provision. All goods were subject to excise duty in the erstwhile indirect tax regime (i.e., pre-GST regime) and were 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- -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: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 246A of the Constitution was not dealt with in the judgment of Unicorn Industries v. Union of India reported in (2020) 3 SCC 492 and no reliance can be placed in the said judgment by the Revenue. xxii) For the period of 2017 to 2019 when excise duty was not levied on tobacco products, there cannot be any levy of NCCD and the same is unconstitutional. III CONTENTIONS OF RESPONDENTS: 6. The contention of the respondents are as follows: i) Except for alcoholic liquor for human consumption, petroleum and petroleum products, stamp duty, tobacco and tobacco products and opium, all other goods are liable only to Goods and Services Tax under Article 246A of the Constitution. ii) Tobacco and tobacco products are subject 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 Cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... striction in the exercise of power and does not in any way take away the power available elsewhere. xi) The two provisions can operate exclusive of each other and remain independent without influencing the other and the existence of one provision need not restrict or prevent the operation of the other. Accordingly, the levy of excise duty under Entry 84 of List I read with Article 246 is independent and can co-exist without influencing or being impacted by the levy of GST on the very same goods namely tobacco products under Article 246A. xii) Article 246A contains source of power and field of legislation and provides for simultaneous power of taxation insofar as GST is concerned, but Article 246 read with Entry 84 of List I confers sole power on the Union. xiii) 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia Corporation Pvt. Ltd. v. Secretary, Board of Revenue, Trivandrum and Another reported in (1964) 4 SCR 280 draws a distinction between the expression subject to and not withstanding and the relevant extract reads as follows: 19. That apart, even if Article 372 continues the pre-Constitution laws of taxation, that provision is expressly made subject to the other provisions of the Constitution. The expression subject to conveys the idea of a provision yielding place to another provision or other provisions to which it is made subject. Further Article 278 opens out with a non obstante clause. The phrase notwithstanding anything in the Constitution is equivalent to saying that spite of the other articles of the Constitution, or that the other articles shall not be an impediment to the operation of Article 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Article 246A is exercised there is denudation of power under Article 246 is liable to be rejected. The sources of power under Article 246A and 246 are in fact mutually exclusive and could be simultaneously exercised. If that were to be so, the court ought not to forbid the Union from exercising power under Article 246 which is not otherwise prohibited. It is to be noted that the Constitution (One Hundred and First Amendment) Act, 2016 introduced Article 246A which identifies the field of taxation as well as source of power. No doubt, GST is levied on products by virtue of the introduction of the Central Goods and Services Tax Act, 2017 pursuant to the amendment made to Article 246A of the Constitution. But as discussed, despite Article 246A containing a non-obstante clause, the power under Article 246 stands protected. No doubt, it has been contended 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ludes at Para 18 and Para 22 as follows: 18. Manufacture is the taxable event under the Central Excise Act, 1944 while under Section 9 of the CGST Act/UPGST Act, the event of taxation is the supply of goods or services except the supply of alcoholic liquor for human consumption. Sub-Section 2 of Section 9 of the CGST Act/UPGST Act empowers to levy tax on supply of petroleum crude, high speed diesel oil, motor spirit, 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. Thus, GST may be levied even on such goods which are excisable goods under the Central Excise Act, 1944. Therefore, Superior Kerosene Oil (SKO) shall continue to be an excisable goods under the Central Excise Act, 1944 even if GST on supply of Kerosene Oil (PDS) is levied under the GST laws. 22. Undisputedly, 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 Fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods and services tax. When express power is there to make law regarding goods and services tax, we fail to comprehend that how such power shall not include power to levy cess on goods and services tax. True, that the Constitution (One Hundred and First Amendment) Act, 2016 was passed to subsume various taxes, surcharges and cesses into one tax but the constitutional provision does not indicate that henceforth no surcharge or cess shall be levied. Accordingly, the legal argument based on intendment of avoiding of cascading taxes will not have the effect of prohibiting levy of tax which otherwise is permissible as the power under Article 246 remains protected and preserved. It must also be noted that the Legislature enjoys a wide latitude to decide on the methodology of revenue generation and the courts should not rush and must tread carefully while dealing with legislation based on Fiscal Policy. In the process 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 vis -vis available source of power which cannot be defeated by resort to argument based ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . If on the same subject matter the legislature chooses to levy tax twice over there is no inherent invalidity in the fiscal adventure save where other prohibitions exist. (iii) Aspect Theory: Another aspect that would require consideration is the Aspect Theory as referred to by both the petitioner and the respondent. The respondent relying on the Aspect Theory has contended that the aspect of supply as defined in the GST Act (Article 246A and the GST Act) would be distinct from the aspect of manufacture which is sought to be taxed by virtue of levy of excise (Article 246 Entry 84 List I) and accordingly, looked at from the subjective point of view of the legislature a single subject from different aspects could be a subject matter of different taxes. The petitioners have specifically contended that the Aspect Theory would not be applicable as it would be applicable only where there is a dispute relating to field of distribution 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould have been raised because it incidentally levied the tax on expenditure incurred on luxuries. The fact that there will be some overlapping then or that here there is a good deal of such overlapping, because the States have chosen to tax only some types of luxuries and the Centre to tax, at least for the time being, only expenditure which results in such luxuries, should not be allowed to draw a curtain over the basic difference between the two categories of imposts. For instance, if the conflict alleged had been between the present State Acts and an Act of Parliament taxing expenditure incurred in the construction of theatres or the maintenance of race horse establishments or the like, there would have been no overlapping at all and the pith and substance of the central tax could well be described as expenditure and not luxuries . This distinction is not obliterated merely because of the circumstance that both legislatures have chosen to attack 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- - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 of 1944) of any other law for the time being in force. As per Section 136 of the Finance Act, a surcharge by way of duty of excise at the rates specified in the schedule is levied. By virtue of the amendment of the Twelfth Schedule of the Finance Act, 2005 the rates stand amended. The surcharge would merely refer to an increase of the duty which in the present case is by way of a duty of excise. The nature of alteration of duty by way of the Finance Act has been considered in the case of The Madurai District Central Co-operative Bank Ltd. v. The Third Income Tax Officer, Madurai reported in (1975) 2 SCC 454 (Bench of Three Judges). The Apex Court has clearly opined that the surcharge leviable under Section 2 (1) of the Finance Act, 1963 are relatable to Article 271 of the Constitution of India. In a detailed discussion, the Apex Court has also clarified that the purpose and concept of the additional surcharge is different from the Income Tax and that 26 . 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charge for purposes of the Union and the whole proceeds of any such surcharge shall form part the Consolidated Fund of India. Though the NCCD is a surcharge by way of duty of excise, its validity rests on the validity of the provision of the Finance Act of 2001 and has nothing to do with the validity of leviability of the duty of excise. As noted supra, in the case of The Madurai District Central Co-operative Bank Ltd. v. The Third Income Tax Officer, Madurai reported in (1975) 2 SCC 454 the Apex Court has clarified the legal position and upheld the validity of imposition of surcharge by way of provision in the Finance Act and accordingly, levy of surcharge by way of provision under the Finance Act of 2001 is not open to be questioned. Article 271 is also clear and provides for increase in duty or taxes by a surcharge. The only bar under Article 271 is that the surcharge contemplated excludes the surcharge as regards the Goods and Services Tax under Article 246A. In the present case, 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 interpretati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discussion in the Unicorn Industries case. Accordingly, though the Notification No.2/2019 dated 06.07.2019 reintroduced a nominal basic Excise Duty, the levy during the period of 30.06.2017 and 06.07.2019, is not disturbed and accordingly the relief sought for in by the petitioners for refund of NCCD during such period is liable to be rejected. It must further be noted that even though NCCD is in the nature of duty of Excise and may be construed to be an additional duty, yet it is an independent levy and exemption granted on Excise Duty cannot prohibit imposition of other additional duties or levy and accordingly there is no bar for operation of NCCD. F. Levy of basic excise duty and NCCD is violative of Article 14 of the Constitution of India : At the outset, it needs to be noted that the petitioner has not raised any contentions in the pleading regarding the attack of the levy of basic duty and NCCD on the ground of it being violative of Article 14 of the Constitution of India. It is only in the written submission that such 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitions assailing the vires of the Expenditure Tax Act, 1987. It is now well settled that a very wide latitude is available to the legislature in the matter of classification of objects, persons and things for purposes of taxation. It must need to be so, having regard to the complexities involved in the formulation of a taxation policy. Taxation is not now a mere source of raising money to defray expenses of Government. It is a recognised fiscal tool to achieve fiscal and social objectives. The differentia of classification presupposes and proceeds on the premise that it distinguishes and keeps apart as a distinct class hotels with higher economic status reflected in one of the indicia of such economic superiority. The presumption of constitutionality has not been dislodged by the petitioners by demonstrating how even hotels, not brought into the class, have also equal or higher chargeable receipts and how the assumption of economic superiority of hotels to which the Act is applied is erroneous or irrelevant. 9. The reliance of the petitioner on the authorities mentioned in Para 59 of the written submissions does not in any way help the petitioner insofar as the judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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