TMI Blog2024 (4) TMI 555X X X X Extracts X X X X X X X X Extracts X X X X ..... turnover and transaction business. The Council after discussion, put Pasta, Macaroni, Cakes, Malt, Mineral Water, Tobacco, Pan Masala etc. under the category of 18% GST and at the same time, kept the rate of tax for Human Hair (dressed, Thinned, and Bleached), Agarbatti at nil. The Council kept the rate of tax for certain items at 5% or 12%, though those were the Luxurious items. In the matter of Ayurveda Pharmacy [ 1989 (3) TMI 187 - SUPREME COURT] while dealing with the levy of sales tax on Ayurvedic drugs and medicines, the Hon'ble Supreme Court held that the Legislature is authorized to select different rates of tax for different commodities, but for the same class or category, there must be a rational basis for discrimination - From a perusal of the decision taken by the Council in the meeting, it appears that no reason has been assigned by the Council to exclude the Ice Cream Manufacturers from the benefit of Section 10(1) of the GST Act. The Council ought to have taken into consideration the socio-political effect while putting the Ice Cream within the tax regime of 18%. The taxation law should pass the test of Article 14 of the Constitution of India and there should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed with regard to the approval of draft GST Rules and related Forms of adjustment of GST Rates on certain items etc. With regard to fitment/adjustment of GST Rates on certain items, particularly composition scheme on Ice Cream Manufacturers, it was observed as under:- 8.4 Shri R.K. Tiwari, Additional Chief Secretary (ACS), Uttar Pradesh, stated that his State had a large number of SMEs falling within the annual turnover of Rs. 1 crore and if all of them opted for Composition scheme, they would suffer a very large scale revenue loss to the tune of about Rs. 50,000 crore. The Hon'ble Deputy Chief Minister of Gujarat stated that his State also had a very large number of SMEs. He proposed to increase the turnover limit for Composition scheme to Rs. 75 lakh so that loss of revenue to the Government was comparatively less and suggested to keep the rate of tax at 2%. Dr. P.D. Vaghela, CCT, Gujarat, stated that originally, they had opposed the proposal to extend the benefit of Composition scheme to manufacturers as this could lead to evasion of tax. He stated that some industries should not be extended the benefit of Composition scheme as this could lead to windfall profit for them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated the Ice Cream at par with Pan Masala and Tobacco products. He would further contend that initially a list of 09 items including Ice Cream was included in the negative list, but after discussion, the same were withdrawn from that list. He would also contend that only the State of Gujarat has suggested not extending the benefits of the composition of levy tax on Ice Cream whereas the State of Jammu and Kashmir and the Chief Economic Adviser have suggested keeping only Pan Masala and Tobacco in the negative list. He would argue that the Ice Cream Manufacturers are placed in the 18% bracket of GST which would lead to the shutting down of Small Scale Ice Cream Manufacturing Units. In support of his contention, he placed reliance on the judgments passed by the Hon'ble Supreme Court in the matter of Aashirwad Films vs. Union of India Others reported in (2007) 6 SCC 624; the matter of Ayurveda Pharmacy and another vs. State of T.N. reported in (1989) 2 SCC 2851 and the matter of M/s. East India Tobacco Co., etc vs. State of A.P. and another reported in AIR 1962 SC 1733. 6. On the other hand, the learned Deputy Solicitor General appearing for the respondents would oppose. He would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kept the rate of tax for certain items at 5% or 12%, though those were the Luxurious items. 10. The Hon ble Supreme Court in the matter of Aashirwad Films (supra) while dealing with different rates of entertainment tax on the basis of language held that taxation laws must also pass the test of Article 14 of the Constitution of India and the classification must be reasonable. It is further observed that it is important to read the object of a taxation statute on the touchstone of social values as mentioned in the Constitution. It is also observed that the instrument of taxation is not merely a means to raise revenue in India and it ought to be, a means to reduce inequalities. The Hon ble Supreme Court also held that a classification must not be arbitrary, artificial or evasive and there must be a reasonable, natural and substantial distinction in the nature of the class or classes upon which the law operates. The relevant paras-14, 15 and 16 are as under:- 14. It has been accepted without dispute that taxation laws must also pass the test of Article 14 of the Constitution of India, It has been laid down in a large number of decision of this Court that a taxation statute for the rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bring about, through the machinery of law, a more equal society envisaged by the preamble and Part IV of our Constitution. For, equality before law can be predicated meaningfully only in an equal society i.e., in a society contemplated by Article 38 of the Constitution, which reads: 38. State to secure a social order for the promotion of welfare of the people. (1) The State shall strive to promote the welfare of the people by securing and protecting as effectively as it may a social, economic and political, shall inform all the institutions of the national life. (2) The State shall, in particular, strive to minimise the inequalities in income, and endeavour to eliminate inequalities, in status, facilities and opportunities, not only amongst individuals but also amongst groups of people residing in different areas or engaged in different vocations. The instrument of taxation is not merely a means to raise revenue in India; it is, and ought to be, a means to reduce inequalities. You don't tax a poor man. You tax the rich and the richer one gets, proportionately greater burden he has to bear. Indeed, a few years ago, the Income-tax Act taxed out of every rupee earned by an individ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ong to the same class or category, there must be a rational basis for discriminating between one commodity and another for the purpose of imposing tax. It is commonly known that considerations of economic policy constitute a basis for levying different rates of sales tax. For instance, the object may be to encourage a certain trade or industry in the context of the State policy for economic growth, and a lower rate would be considered justified in the case of such a commodity. There may be several such considerations bearing directly on the choice of the rate of sales tax, and so long as there is good reason for making the distinction from other commodities no complaint can be made. What the actual rate should be is not a matter for the courts to determine generally, but where a distinction is made between commodities falling in the same category a question arises at once before a Court whether there is justification for the discrimination. In the present case, we are not satisfied that the reason behind the rate of 30% on the turnover of Arishtams and Asavas constitutes good ground for taking those two preparations out from the general class of medicinal preparations to which a lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Services Tax Council wherein the High Court of Delhi held that besides pan masala and tobacco, aerated water has also been excluded from the benefit of Section 10(1) of the GST Act. The relevant paras-19, 20 and 22 are reproduced herein below:- 19. We have enquired from the counsel for the respondent no. 2 GST Council, whether any study has been done by the respondent no. 2 GST Council, of the tax effect of extending benefit of Section 10(1) to small scale manufacturers of other similar goods and services and whether after considering all the said goods and services, any decision has been taken to exempt all those goods and services from the benefit of Section 10(1) of the Act, the tax effect whereof cannot be absorbed by the State. 20. At least from the minutes of the two meetings placed before us, it does not appear so. 22. We, in the circumstances, are of the view that the only direction which can be issued in this petition is, to direct the respondent no.2 GST Council to reconsider the exclusion of small scale manufactures of ice cream from the benefit of Section 10(1) of the Act, including on the aforesaid two parameters i.e. the components used in the ice cream and the GST ..... X X X X Extracts X X X X X X X X Extracts X X X X
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