TMI Blog2023 (5) TMI 326X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 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. - WITH CIVIL APPEAL NO(S). 8485 OF 2011 CIVIL APPEAL NO(S). 8487 OF 2011 CIVIL APPEAL NO(S). 8488 OF 2011 CIVIL APPEAL NO(S). 8491-8494 OF 2011 CIVIL APPEAL NO(S). 8495 OF 2011 CIVIL APPEAL NO(S). 8496-8501 OF 2011 CIVIL APPEAL NO(S). 8502 OF 2011 CIVIL APPEAL NO(S). 8617 OF 2014 CIVIL APPEAL NO(S). 10374-10379 OF 2014 CIVIL APPE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 4 of the First Schedule to the Central Excises and Sale Act, 1944 (1 of 1944) Entry 4 of the CET Act, which defines 'tobacco , reads as follows: 4. Tobacco Tobacco means any form of Tobacco, whether cured or uncured and whether manufactured or not and includes the leaf, stalks and stems of the tobacco plant, but does not include any part of a tobacco plant while still attached to the earth. ... II. Manufactured Tobacco ... (5) Chewing tobacco, including preparations commonly known as Khara Masala , Kimam , Dokta , Zarda , Sukha and Surti . 4. The Finance Act, 1988 (Central Act No. 26/1988) substituted the expressions in Section 14(ix) of the CST Act, with the following words, w.e.f. 13.05.1988: 14(ix). Unmanufactured tobacco and tobacco refuse covered under sub- Heading No. 2401.00, cigars and cheroots of tobacco covered under Heading No. 24.02, cigarettes and cigarillos of tobacco covered under the sub-Heading Nos. 2403.11 and 2403.21, and other manufactured tobacco covered under sub-heading Nos. 2404.41, 2404.50 and 2404.60 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986). 5. The 1988 amen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... means any preparation containing betelnuts and any one or more of the following ingredients, namely: (i) lime; and (ii) kattha (catechu), but not tobacco, whether or not containing any other ingredients such as cardamom, copra and menthol ; (2) in Chapter 24, after NOTE 5, the following NOTE shall be inserted, namely: '6. In this Chapter, 'Pan Masala' containing tobacco , commonly known as 'Gutkha' or by any other name, means any preparation containing betel-nuts and tobacco and any one or more of the following ingredients, namely: (i) lime; and (ii) kattha (catechu), Whether or not containing any other ingredients such as cardamom, copra and menthol. On the above products, a special excise duty of 16% was also levied in the V Schedule, apart from additional duties of excise in Part-II of the VI Schedule as indicated below: The Delhi batch of appeals: Shanti Fragrances CA No. 8485/2011, against impugned judgment dated 05.11.2004 in WP (C) No. 11251/2004 (DHC) , Trimurti Fragrances CA No. 8486/2011, against impugned judgment dated 05.04.2006 in WP (C) No. 2925/2005 (DHC) , Kuber Tobacco CA No. 8491- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act states that the dealer who exclusively deals in goods specified in the Third Schedule shall not be liable to pay tax. 10. By a notification dated 31.03.2000 issued by the competent authority i.e. the Lt. Governor of the National Capital Territory of Delhi (hereafter NCTD ), Entry 46 was inserted in the First Schedule to the DST Act. That Entry reads as follows: 46. Pan Masala and Gutkha 11. The First Schedule is dealt with under Section 4 of the DST Act ( rate of tax ) it broadly enacts [by Section 4(1)(a)] that the taxable turnover in respect of the cases specified in the First Schedule would be at the rate of 12 paise to a rupee. Thus, goods enumerated in the First Schedule are per se subjected to be local or state sales tax levy under the DST Act @ 12%. Similarly, goods referred to in the Third Schedule are tax-free. It is also clear that the Lt. Governor is authorised to change the entries, as indicated in Section 7, that is to say, from tax-free goods to taxed goods and vice versa. 12. The appellants had argued before the Delhi High Court, that tobacco is mentioned in the Third Schedule at Sl. No. 22 and that the expression (tobacco) refers to what is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act, local sales tax cannot be levied by introducing Entry No. 46 through a notification and by including it in the First Schedule. Kothari Products Ltd. (supra) was relied on; the dealer was dealing in 'Gutkha' (under the brand Pan Parag ). The introduction of Entry 194 (which taxed pan masala including gutkha ) in the First Schedule to the A.P. General Sales Tax Act (APGST Act) was in issue. APGST Act had a provision See Section 8 like Section 7 of the DST Act which exempted goods in the Fourth Schedule. The Fourth Schedule referred to tobacco (Entry 7) and its explanation stated that it shall be shall be goods included in the relevant heads and sub-heads of the First Schedule to the Additional Duties of Excise (Goods of Special Importance Act, 1957, but does not include goods where no additional duties of excise are levied under that Schedule. 16. This court held that gutkha is tobacco covered by an Entry in the First Schedule to the said ADE Act and that the branded gutka in question was gutkha , and therefore, goods covered by Explanation to the Fourth Schedule to the APGST Act. It was hence exempted by Section 8. It was held that the Schedule to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depart from the reasoning indicated by the various judgments of this court indicated in Agra Belting Works (supra). It therefore, rejected the appellants writ petition. 19. It was further held in the impugned judgments that State Legislatures were competent to levy taxes on the sale or purchase of the commodities subjected to additional excise duty. The levy of any sales taxes only meant that additional excise duty levied on such commodities by the Central Government would not be distributed among the states which had chosen to levy a tax on the sale of such article. The court relied on Mahalakshmi Oil Mills v. State of Andhra Pradesh [1988] Suppl 2 SCR 1088: (1989) 1 SCC 164 [hereafter Mahalakshmi Oil Mills ] . The High Court ruled that pan masala containing tobacco is, under Chapter 24, shown at sub-heading No.2404.49, attracting a duty of 16% and an additional duty of 18% on the same. Pan masala containing tobacco manufactured by the appellants did not constitute a declared commodity under Section 14(ix) of the CST Act read with the CET Act because sub-heading 2404.49 under Chapter 24 of the CET Act are not sub-headings included in section 14(ix) of the CST Act. It was als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentioned in the First Schedule, the tax under this Act shall be payable by a dealer, at the rate and at the point specified therein on the turnover in each year relating to such goods. 22. Much like Section 7 of the DST Act, Section 8 of the TNGST Act reads as follows: Subject to such restrictions and conditions as may be prescribed, a dealer who deals in the goods specified in the Third Schedule, shall not be liable to pay any tax under this Act in respect of such goods. 23. Serial No. 1 (iv)(d) of the Third Schedule to the TNGST Act (which enumerated exempted articles) read as follows: 1. (iv) Other manufactured tobacco as described against the heading '24.04 , including- (a) smoking mixtures for pipes and cigarettes. (b) cut tobacco (c) Bins (d) Chewing tobacco and preparations containing chewing tobacco. (e) Snuff of tobacco and preparations containing snuff of tobacco in any proportion 24. The High Court s judgement considered all previous decisions of the courts, including the judgement in Kothari Products Ltd. (supra) as well as judgments of various High Courts as to whether Pan masala is tobacco. The court adopt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26. The State Government issued a notification dated 31.01.1985 exempting certain goods from tax under the UPTT Act, with effect from 01.02.1985. That notification dated January 31.01.1985 , contained the Serial No. 14, which reads as under: 14. Cigars, cigarettes, biris (both machine made and hand-made) and tobacco in any form whether cured and uncured and whether manufactured or not, including the leaf, stalk and stems of the tobacco plant and all products of tobacco, but including any part of the tobacco plant while still attached to the earth. 27. By Notification dated 26.06.1997, published in Gazette on 01.07.1997, Entry 14 was amended to exclude, specifically pan masala containing tobacco , by whatever name called. Another amendment by Notification No. T.I.F.-2-595/XI-9(4)/99-U.P. Act-15-48-Order-98 dated 06.04.1999 published in Gazette dated 10.04.1999 resulted in Entry 14 reading as follows: 14. Cigars, cigarettes, biris (both machine made and hand-made) and tobacco in any form whether cured and uncured and whether manufactured or not, including the leaf, stalk and stems of the tobacco plant and all products of tobacco, excluding pan masala contain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was no question of their inclusion in the taxable turnover. Learned senior counsel relied on Tata Sky Ltd. v. State of Madhya Pradesh [2013] 2 SCR 849: (2013) 2 SCC 849 . Learned senior counsel submitted that the High Court s reasoning that Entry 22 in Schedule III was general and that Entry 46 of Schedule I was specific, had no application; he cited Reliance Trading Company v. State of Kerala (2011) 15 SCC 762 [hereafter Reliance Trading Company ] . 31. It was urged that Kothari Products Ltd. (supra) is a three-judge bench ruling which held gutkha is a tobacco and that gutkha, being covered by Explanation to Fourth Schedule to the State Sales Tax Act (i.e., APGST Act) and the exemption contained in Section 8 of the Schedule to the State Act could not have been amended by including gutkha in the First Schedule. This court in Radheshyam Gudakhu Factory (supra) held that gutkha is a product of tobacco and that its essential and effective ingredient remains tobacco; it is also known as a product of tobacco in common parlance. Its essential character is that of tobacco; tobacco falls under Entry 35 of the Schedule to the Orissa Sales Tax Act. The decision in Reliance Trading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an earlier legislation, especially when the earlier one is obscure or ambiguous or capable of more than one interpretation. Counsel relied on the amendment to the ADE Act, by Finance Act, 2001, which inserted Entry 8404.49 as the species of the genus Chewing Tobacco to read as under: Chewing Tobacco and preparations containing Chewing Tobacco; Pan Masala Containing Tobacco 8404.41 . 8404.49 Pan Masala Containing Tobacco 35. A comparison of the above and the parent Entry 4 to the First Schedule to the CEA, 1944 shows that Chewing Tobacco was the genus and Pan Masala Containing Tobacco commonly known as gutkha was a species of chewing tobacco. Therefore, it was always covered under the original definition and formed part of Entry 14 of the Schedule to the UPTT Act (as well as Sl. No. 22 of the Third Schedule to the DST Act). 36. Mr. Agarwal argued that the levy of tax is under Section 3 of the UPTT Act while the rate of tax is provided in Section 3A. Section 4 of the Act empowers the State government to grant exemption. From a reading of Sections 3A and 3D it is manifest that the rate of tax on declared goods cannot be more than the rate which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not the case of the petitioners herein; and that it was a decision rendered on an issue of fact which may not bind this court. 41. It was next argued that the use of the construction of the term including in sub-heading 2404.41 in the present case, is followed by the words preparations commonly known as and therefore, the said word has to be understood and read as and in the conjunctive sense. As a result, the preparations mentioned therein should be treated as exhaustive and cannot be expanded beyond that. 42. It was argued that pan masala and gutkha in these cases are separate and distinct entries from tobacco and therefore the State Legislatures are competent to tax pan masala and gutkha. There is no dispute regarding distinction between the independent existence of entries, i.e., tobacco and pan masala gutkha, respectively. It was argued that the State Legislatures are competent to levy taxes on sale or purchase of the commodities subjected to ADE Act. All that the levy of any such sales tax would mean is that the additional excise duty levied and collected on such commodities by the Central government will not be distributed among the states which had chosen to l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods and (c) a provision or provisions which exempt goods, enumerated in a Schedule, for that purpose (like in the case of Delhi - in the Third Schedule, read with Section 7 of the DST Act) or through a general notification. In all cases, the arguments by the dealers were more or less identical, which is reliance on Kothari Products Ltd. (supra); that when specific goods are exempted, they cannot be taxed by inclusion in the notification relating to rate of taxation, notwithstanding that the authority to exempt, and the authority to tax or increase rates, resides with the state or the same authority. The dealer/appellants also relied on the provisions of the CET Act, especially Chapter 24, to contend that pan masala or gutkha, were tobacco, and therefore, exempt. All these arguments were rejected by the High Courts. The Delhi High Court judgment in the case of Shanti Fragrances, was noticed by the later judgments of the same High Court, as well as other High Courts. 46. At the relevant time, 'Pan Masala' was described as a preparation containing betel nuts and any one or more other ingredients such as lime, katha, katechu, cardamom, copra, menthol and tobacco. This is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nthol. 48. In Chapter 24, for sub-heading 2404.40 and the related entries, the following was substituted, namely: Chewing tobacco and preparations containing chewing tobacco; 'Pan Masala' containing tobacco. 2404.41 - Chewing tobacco and preparations containing chewing tobacco 2404.49.1 - 'Pan Masala' containing tobacco 49. 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 Ltd. (supra) 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. Kothari Products Limited v. Government of Andhra Pradesh, 1997 (107) S.T.C. 618 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 ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en 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. 52. This court, in Kothari Products Ltd. (supra) reversed the Full Bench decision stating that: 3. The contention on behalf of the appellants is that it is not open to the State of Andhra Pradesh to tax gutka. Section 8 of the State Sales Tax Act provides that a dealer who deals in the goods specified in the Fourth Schedule thereto shall be exempt from tax thereunder in respect of such goods. Entry 7 of the Fourth Schedule of the State Sales Tax Act refers to tobacco and the explanation in this behalf is that the goods mentioned in Entry 7 shall be goods included in the relevant heads and sub-heads of the First Schedule to the Additional Duties of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation introducing an entry and subjecting it to levy, when previously, it was exempt in another part of the taxing statute, the intention was to withdraw the exemption and make the sale leviable to tax at the rate prescribed in the later notification. The court held it to be unnecessary that a specific or separate notification withdrawing or revoking the notification should be issued . This conflict was referred to a larger bench of five judges, in Trimurti Fragrances (P) Ltd v. Govt of NCT of Delhi [2022] 15 SCR 516: 2022 SCC OnLine SC 1247 (a case, which is part of the present batch). The court held that the judgment in Agra Belting Works (supra) does not in any manner conflict with the ruling in Kothari Products Ltd. (supra) or Radheshyam Gudakhu Factory (supra): In our considered opinion there is no conflict between the Kothari Products (supra) line of cases and the Agra Belting line of cases. The Kothari Products (supra) line of cases was on the question of whether tobacco or other goods specified in the First Schedule to the ADE Act and hence exempted from Sales Tax under State sales tax enactments, can be made exigible to tax under the State enactments by amending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm tobacco and the inclusive clause was wide enough to cover tobacco seeds. This court, observed that: 14. Can then the words tobacco and any form of tobacco in the first part of the definition be given a wider meaning and read as including the seeds also, particularly as it talks of tobacco in any form, cured or uncured, manufactured or unmanufactured ? We do not think they can be for several reasons. In the first place, tobacco seeds hardly answer to the description of either the expression manufactured tobacco or the expression unmanufactured tobacco in their ordinary connotation; and the expression cured or uncured cannot also be associated with tobacco seeds. The expression used in the first part of the definition, though every wide, is, therefore, singularly inappropriate to take within its purview tobacco seeds as well. Secondly, the definition occurs in a statute levying excise duty which is concerned not with the parts of a plant grown on the field but with the use to which those parts are put or can be put after severance. The legislature could not but have been aware that if the leaves, stalks and stems of the tobacco plant are used for manufacturing cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and simultaneously that product s exclusion from Chapter 21, as well as imposition of ADE with effect from 2001, on pan masala containing tobacco meant that the product (i.e. pan masala without tobacco) went out, for the first time, of the reach of state sales tax. All along, goods and products described as pan masala and gutkha, were included in Chapter 21. The conclusion therefore, is that till 2001, and the introduction of ADE, these two products were covered by local or sales tax levies. 60. The General Rules of Interpretation (of the CET Act) which guide the appropriate classification of products, inter alia, provide that: THE FIRST SCHEDULE IMPORT TARIFF (See Section 2) GENERAL RULES FOR THE INTERPRETATION OF THIS SCHEDULE Classification of goods in this Schedule shall be governed by the following principles: 1. The titles of Sections, Chapters and Sub-Chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the following provisions. 2. (a) Any r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the headings and any relevant section or chapter notes . If neither the heading nor the notes suffice to clarify the scope of a heading, then it must be construed according to the other following provisions contained in the Rules. Rule 1 gives primacy to the section and chapter notes along with terms of the headings. They should be first applied. If no clear picture emerges then only can one resort to the subsequent rules. The appellants have relied upon Rule 3. Rule 3 must be understood only in the context of sub- rule (b) of Rule 2 which says inter alia that the classification of goods consisting of more than one material or substance shall be according to the principles contained in Rule 3. Therefore when goods are prima facie, classifiable under two or more headings, classification shall be effected according to sub- rules (a), (b) and (c) of Rule 3 and in that order. 62. 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 whet ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
