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TMI Blog2022 (6) TMI 962X X X X Extracts X X X X X X X X Extracts X X X X ..... sed. FACTS 2. Facts giving rise to filing of this appeal in a nutshell are that the appellant is a proprietary firm engaged in the manufacture of tobacco and tobacco products. The appellant had got itself registered under Rule 9 of Central Excise Registration Rules, 2002. After coming into force of Goods and Service Tax regime, the appellant got itself registered under Rule 10(1) of Central Rules Goods and Services Tax Rules, 2017. By a Notification bearing No.2/2019 issued in exercise of powers conferred by Section 5A(1) of the 1944 Act dated 06.07.2019, Central Excise Duty was levied on Tobacco and Tobacco products. 3. The appellant thereupon filed a writ petition in which challenge was made to the validity of the aforesaid Notification. The appellant also sought a declaration that repeal and saving provision as contained in Section 174 of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as 'CGST Act' for short) in so far as it seeks to save the operation of 1944 Act qua the tobacco and tobacco products is unconstitutional and bad in law. The appellant also assailed the validity of Section 136 of the Finance Act, 2001 which provides for levy and co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng imposed by way of Finance Act, has nothing to do with surcharge on Goods and Services tax that may still be levied. (ix) 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 vide Notification No.11/2017 dated 06.07.2019 cannot prohibit imposition of other additional duty or levy. (x) Levy of basic excise duty and NCCD on tobacco and tobacco products in not violative of Article 14 of the Constitution of India. The elements of caprice, irrationality, disproportionality or excessiveness coupled with lack of determining principle have not been made out in the pleading and therefore, the impugned levy does not suffer from manifest arbitrariness. 5. The writ petition preferred by the appellant was accordingly dismissed. During the pendency of the writ petition an interim order was granted on 17.12.2019 restraining respondents from levy and collection of either the excise duty or NCCD, from the appellant. However a show cause notice dated 24.12.2021 was issued to the appellant by which it was required to show cause as to why a sum of Rs.98,75,995/- should not be levied as basic dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. 8. It is contended that non obstante clause has to be construes as operating to set aside, as no longer valid anything contained in relevant existing laws which is inconsistent with the provisions contained therein. It is pointed out that after coming into force of 101st Constitutional Amendment, Article 248 of the Constitution which deals with residuary powers of legislation was amended and was made subject to Article 246-A. It is therefore contended that Article 246-A is exhaustive of taxes on all aspects qua tobacco and tobacco products and overrides the taxing powers referable to Article 246 or Article 248. It is submitted that legislative authority to levy excise duty cannot be sought from a corresponding entry in List I viz., Entry 84(f) read with Article 246 when the exclusive power to levy GST is traceable to Article 246A and subsumes all other indirect taxes. It is further submitted that in GST regime two taxable events namely manufacture and sale have been merged and supply is made the taxable event which includes the erstwhile taxable event of manufacturing. It is urged that since the supply comprehends all aspects and facets and therefore, no indirect tax under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ONLINE MP 1117, * HERO MOTORCORP LTD. VS UNION OF INDIA (2020) 80 GST 111 (DELHI), * SRI SRI SRI KC GAJAPATI NARAYAN DEO VS STATE OF ORISSA, 1954 SCR 1, * FEDERATION OF HOTEL & RESTAURANT ASSN. OF INDIA VS UNION OF INDIA (1989) 3 SCC 634, * N VENUGOPALA RAVI VARMA RAJESH VS UNION OF INDIA (1969) 1 SCCC 681, 17 * VENKATESHWARA THEATERS VS STATE OF AP (1993) 3 SCC 677, JOSEPH SINE VS UNION OF INDIA (2019) 3 SCC 39, * DEPUTY COMMISSIONER OF INCOME TAX VS PEPSI FOODS 2021 SCC ONLINE SC 283 * UNICORN INDUSTRIES VS UNION OF INDIA (2020) 3 SCC 492 * SAI BHASKAR IRON LTD VS AP ELECTRICITY REGULATORY COMMISSION, (2016) 9 SCC 134. SUBMISSIONS OF THE RESPONDENT 10. Learned ASGI submitted that a provision imposing a levy in the form of tax can only be set aside if there is a constitutional bar to the levy, there is constitutional illegality or infirmity in the levy. It is submitted that there is no constitutional bar to the simultaneous levy of excise duty, NCCD and GST on tobacco and tobacco products. It is also submitted that taxable event for levy of GST is supply, whereas taxable event for levy of excise duty is manufacture. It is contended that the provisions under Art ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake laws for levying goods and services tax on every transaction of supply of goods or services or both. The goods and services tax shall replace a number of indirect taxes being levied by the Union and the State Governments and is intended to remove cascading effect of taxes and provide for a common national market for goods and services. The proposed Central and State goods and services tax will be levied on all transactions involving supply of goods and services, except those which are kept out of the purview of the goods and services tax. 2. The proposed Bill, which seeks further to amend the Constitution, inter alia, provides for- (a) subsuming of various Central indirect taxes and levies such as Central Excise Duty, Additional Excise Duties, Excise Duty levied under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955, Service Tax, Additional Customs Duty commonly known as Countervailing Duty, Special Additional Duty of Customs, and Central Surcharges and Cesses so far as they relate to the supply of goods and services; (b) subsuming of State Value Added Tax/Sales Tax, Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision with respect to goods and services tax: (1) Notwithstanding anything contained in articles 246 and 254, Parliament, and, subject to clause (2), the Legislature of every State, have power to make laws with respect to goods and services tax imposed by the Union or by such State. (2) Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter-State trade or commerce. Explanation.-The provisions of this article, shall, in respect of goods and services tax referred to in clause (5) of article 279A, take effect from the date recommended by the Goods and Services Tax Council. 14. Article 248 of the Constitution of India prior to coming into force of the Amendment Act read as follows: 248. Residuary powers of legislation (1) Parliament has exclusive power to make any law with respect to any mater not enumerated in the Concurrent List or State List. (2) Such power shall include the power of making any law imposing a tax not mentioned in either of those Lists. 15. However, after the Amendment Act, Article 248 was also amended and now reads as under: 248. Residua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Union and the States regarding the cesses and surcharges levied by the Union, the States and the local bodies which may be subsumed in Goods and Service Tax. Article 279-A(4)(f) provides for council to make recommendation to the Union and the States, regarding any special rate or rates for a specified period, to raise additional resources during any natural calamity or disaster for the facility of reference Article 279-A (4)(a) and (f) are extracted below for the facility of reference: 279A. Goods and Services Tax Council: (1) The President shall, within sixty days from the date of commencement of the Constitution (One Hundred and First Amendment) Act, 2016, by order, constitute a Council to be called the Goods and Services Tax Council. (2) XXX (4) The Goods and Services Tax Council shall make recommendations to the Union and the States on: (a) the taxes, cesses and surcharges levied by the Union, the States and the local bodies which may be subsumed in the goods and services tax; (b) xxx ....... (f) any special rate or rates for a specified period, to raise additional resources during any natural calamity or disaster; 20. By the Amendment Act, Entry 84 of List ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Goods and Services Tax at the rate of 24% under Schedule IV and tobacco leaves are subject to levy at the rate of 5% under Schedule II. Apart from the taxes, GST Compensation Cess at the rate of 160% is levied under Goods and Services Tax (Compensation to States) Act, 2017. 24. Section 3 of the 1944 Act was substituted by Taxation Laws (Amendment) Act 2017 which provides for levy and collection of Central Excise Duty in such manner as may be prescribed on all excisable goods which are produced and manufactured in India at the rates set forth in the fourth Schedule to 1944 Act. The Central Government issued a Notification dated 30.06.2017 under Section 5-A (1) of the 1944 Act, under which all products falling under Chapter 24 were exempted from the levy of Central Excise Duty. The Central Government, however, vide Notification dated 06.07.2019 withdrew the aforesaid Notification dated 30.06.2017. Thereafter, by another notification, dated 06.07.2019 the Central Government in exercise of powers under Section 5-A of the 1944 Act levied Excise Duty on tobacco products. On 27.03.2020, the VII Schedule of Finance Act, 2001 was substituted with V Schedule specified in Finance Act, 2020 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amendment to the Constitution of India and held as under: 32. The One Hundred and First Constitutional Amendment brought about a significant merger by contemplating a fiscal umbrella comprehending GST. Article 246A was adopted in terms of which, notwithstanding anything contained in Article 246 and Article 254, Parliament and (subject to Clause (2)), the State Legislature of every State have the power to make laws with respect to GST imposed by the Union PART E 65 or by the State under clause (2) of Article 246A. Parliament has the exclusive power to make laws with respect to goods and services tax where the supply of goods or of services, or both takes place in the course of inter-State trade or commerce. With the enactment of the One Hundred and First Constitutional Amendment, Entry 84 of the Union List has been restructured to incorporate duties of excise on the following goods manufactured or produced in India, namely - (a) petroleum crude; (b) high speed diesel; (c) motor spirit (commonly known as petrol); (d) natural gas; (e) aviation turbine fuel; and (f) tobacco and tobacco products. 33. Entry 54 of the State List has been restructured to provide for taxes on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndment Act, w.e.f 01.07.2017, the levy of Basic Excise Duty and NCCD which is a duty of excise on tobacco and tobacco products is constitutionally valid, is answered in the affirmative. 28. Article 245 and 246 of the Constitution describe the source of power and classify the same into three categories. In contrast Article 246A does not envisage a sole power either to the Union or to the States. It has been held by the Supreme Court in VKC FOOTSTEPS SUPRA Article 246A is unique, as it contains the source of power and the field of legislation and the same has been held to be simultaneous power of taxation. Therefore, the Central Excise Duty and GST have distinct sources of power and fields of legislation and therefore, do not overlap each other. 29. A Constitution Bench of the Supreme Court in FEDERATION OF HOTEL AND RESTAURANT ASSOCIATION OF INDIA VS UNION OF INDIA (1989) 3 SCC 634 while dealing with the issue of constitutional validity of Expenditure Tax Act, 1987, took note of 'aspect doctrine' and held as under: 30. In Lefroy's Canada's Federal System the learned Author referring to the "aspects of legislation" under Sections 91 and 92 of the Canadian Constitut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . it applies where some of the constitutive elements about whose combination the statute is concerned (that is, they are its 'matter'), are a kind most often met with in connection with one class of subjects and others are of a kind mostly dealt with in connection with another. As in the case of a pocket gadget compactly assembling knife blade, screwdriver, fishscaler, nailfile, etc., a description of it must mention everything but in characterising it the particular use proposed to be made of it determines what it is. (p. 116) "... I pause to comment on certain correlations of operative incompatibility and the 'aspect' doctrine. Both grapple with the issues arising from the composite nature of a statute, one as regards the preclusory impact of federal law on provincial measures bearing on constituents of federally regulated conduct, the other to identify what parts of the whole making up a 'matter' bring it within a class of subjects...." (p. 117) 88. In the light of the above entries and decisions, I think that the learned Attorney General is right in urging that, merely because the 1987 Act as well as the State Acts levy taxes which have ultimate impact on persons who enjoy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture". 30. Applying the aforesaid ratio, to the facts of the case, it is to be noted that excise duty under entry 84 List I has a source of power to tax under Article 246 of the Constitution of India and is levied on a distinct and separate aspect namely manufacture of tobacco products. It is dealt with under section 7 of CGST Act 2017. The levy of GST is traceable to a different source of power viz., Article 246A on a completely different aspect namely supply of tobacco and tobacco products, section indicates that definition of 'supply' dues not subsume the activity of manufacture. The activities of manufacture and supply remain as two independent activities in goods chain. 31. The Supreme Court in MOHIT MINERALS (P) LTD VS UNION OF INDIA (2019) 2 SCC 599 has held that the expression 'cess' means a tax levied for some special purpose and can also be levied as an increment to an existing tax. It was further held that after Constitution Hundred and First Amendment Act, 2017, the Parliament can levy cess for specific purpose under a law made by it. It was further held that Article 270 empowers the parliament to levy any cess by law. Paragraph No.56, 61, 62, 64 to 67 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 90(4) of the Punjab Municipal Corporation Act, 1976 imposing tax at the rate of Rupee 1 per bottle on Indian made foreign liquor within the Municipal Corporation of Ludhiana. One of the contentions raised was that tax imposed is on sale, hence, beyond the Government power. In para 4 following was laid down : (SCC p. 144) "4. ... A feeble plea that the tax is bad because of the vice of double taxation and is unreasonable because there are heavy prior levies was also voiced. Some of these contentions hardly merit consideration, but have been mentioned out of courtesy to counsel. The last one, for instance, deserves the least attention. There is nothing in Article 265 of the Constitution from which one can spin out the constitutional vice called double taxation. (Bad economics may be good law and vice versa). Dealing with a somewhat similar argument, the Bombay High Court gave short shrift to it in Western India Theatres [Cantonment Board, Poona v. Western India Theatres Ltd., 1953 SCC OnLine Bom 13 : AIR 1954 Bom 261] . Some undeserving contentions die hard, rather survive after death. The only epitaph we may inscribe is : Rest in peace and don't be reborn! If on the same subje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he secondary and higher education cess could not have been demanded. The said issue was answered in the negative. In BAJAJ AUTO SUPRA, the Supreme Court dealt with the question of levy of NCCD, education cess and secondary and higher education cess on manufacturing establishments which is exempted from payment of Central Excise Duty. The aforesaid issue was answered by placing reliance on SRD NUTRIENTS (P) LTD SUPRA and by stating that once excise duty is exempted, the NCCD levied as an excise duty cannot partake a different character and thus would be entitled to the benefit of exemption notification. However, it is pertinent to note that aforesaid decisions were rendered by a two judge Benches of the Supreme Court and did not take into account the decision rendered by a three judge Bench of the Supreme Court in UNION OF INDIA VS. MODI RUBBER LIMITED, (1986) 4 SCC 66. 34. In MODI RUBBER LIMITED SUPRA, a three judge Bench of the Supreme Court it was held that when the exemption is granted under a particular provision, it would not cover any other kind of duty of excise imposed under the separate Acts. The aforesaid decisions was noticed by the Supreme Court in UNICORN INDUSTRIES V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 1958 SC 538 has dealt with the scope and ambit of Article 14 and has enumerated the circumstances in which a law may be held as violative of Article 14. In KHANDIGE SHYAM BHAT VS AGRICULTURAL ITO AIR 1963 SC 591, another Constitution Bench of the Supreme Court held that the Courts must permit a larger discretion to the legislature in the matter of classification, in view of inherent complexity of fiscal adjustment of diverse elements. It has further been held that the power of legislature to classify is of wide range and flexibility so that it can adjust its system of taxation in all proper and reasonable ways. 37. Another Constitution Bench of the Supreme Court in KHYERBARI TEA CO. LTD S STATE OF ASSAM AIR 1964 SC 925 again ruled that legislature which is competent to levy a tax must inevitably be given full freedom to determine which article should be taxed, in what manner and at what rate. It has further been held that in tax matter, the State is allowed to pick and choose districts, objects, persons, methods and even rates for taxation if it does so reasonably. In VKC Footsteps supra in para 76 it is held as under:- Parliament engrafted a provision for refund Section 54(3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . If there is equality and uniformity within each group, the law would not be discriminatory. Decisions of this court on the matter had permitted the legislatures to exercise an extremely wide discretion in classifying items for tax purposes, so long as it refrains from clear and hostile discrimination against particular persons or classes. But, with all this latitude certain irreducible desiderata of equality shall govern classifications for differential treatment and taxation laws as well. The classification must be rational and based on some qualities and characteristics which are to be found in all the persons grouped together and absent in the others left out of the class. But this alone is not sufficient. Differentia must have a rational nexus with the object sought to be achieved by the law. The State, in the exercise of its governmental power, has, or necessity, to make laws operating differently in relation to different groups or classes of persons to attain certain ends and must, therefore, possess the power to distinguish and classify persons or things. It is also recognised that no precise or set formulae or doctrine tests or precise scientific principles of exclusion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h a plea and has to adduce material to establish its allegations and the burden is on the party to plead and prove that its right under Article 14 has been infringed [SEE: STATE OF UP VS KARTAR SINGH AIR 1964 SC 1135] and DANTULURI RAM RAJU AND OTHERS VS STATE OF ANDHRA PRADESH', (1972) 1 SCC 421. It is equally well settled that in the absence of any pleading, the challenge to the constitutional validity is to be rejected in limine. [STATE OF HARYANA VS STATE OF PUNJAB 2004 (12) SCC 673] 39. In view of aforementioned well settled legal principles, we have perused the grounds raised in the petition. It is pertinent to note that in the writ petition, there are no pleadings that action of levy of excise duty on tobacco and tobacco products amounts to hostile discrimination and is violative of Article 14. In the memorandum of appeal, it has been stated that tobacco and tobacco products are the only goods which have been singled out for hostile and discriminatory treatment subjecting it to two regimes of indirect taxations and therefore, it is violative of Article 14. The learned Single Judge has therefore, rightly held that no grounds are made out for application of principle of manif ..... X X X X Extracts X X X X X X X X Extracts X X X X
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