Gutkha Or Pan Masala Are Not ‘Declared Goods’: Clarifies SC While Upholding Rate Of State Tax Over Limit Prescribed Under CST Act
|While holding that the heading which provides the most accurate description has to be followed, the Supreme Court held that neither gutkha nor pan masala are “declared goods” under Section 14 of the Central Sales Tax Act, 1956 (CST Act), in view of the restrictions under Section 15 of the CST Act.
Observing that amendment to the Central Excise Tariff Act, 1985 (CET Act) did not become part of Section 14(ix) of the CST Act since the goods under the relevant sub-headings of the CET Act were absent in the list of declared goods of the CST Act, a Two Judge Bench of Justice S. Ravindra Bhat and Justice Dipankar Datta clarified that "the subsequent changes made introducing 2404.40 in the CET Act do not affect or change the CST Act, and consequently gutkha and pan masala are not covered under sub-heading 2404.40 so far as CST Act is concerned".
AOR Pawanshree Agrawal, AOR S.K. Bagaria, Senior Advocate Nalin Talvar, AOR Nikhil Swami, AOR G. Prakash, AOR Jishnu M L, and AOR Nishit Agrawal appeared for the Appellant, whereas AOR Mukesh Kumar Maroria, AOR M. Yogesh Kanna, Senior Advocate R K Raizada, AOR Ankit, AOR Vishnu Unnikrishnan, AOR R. Nedumaran, and AOR Gurmeet Singh Makker appeared for the Respondent.
In a nutshell, the main grievance of the Appellant was in respect of five judgments of the Delhi High Court, on the interpretation of the Delhi Sales Tax Act, 1975 (DST Act), on the question of taxability of pan masala or gutka. It was the claim of the Appellants that state legislatures were not empowered to levy sales tax on those articles, in view of the provision in the Constitution enabling the Union to levy additional duties of excise, and further that in any case, the rate of state tax cannot exceed the limit prescribed by the CST Act.
The stand of the Appellant was that when 'Gudaku' and 'Gutkha' are tobacco and fell within Entry No. 22 of the Third Schedule of the Act, local sales tax cannot be levied by introducing Entry No. 46 through a notification and by including it in the First Schedule. On the other hand, the stand of the Revenue Department was that tobacco in Entry No. 22 of the Third Schedule of the DST Act, is a general entry and therefore, it was open for the state to levy tax in accordance with the Sales Tax Act
The Apex Court found from judgments of the Delhi, Madras, and Allahabad High Courts, that the local enactments contain a similar scheme or pattern, which is (a) a provision that imposes levy of sales or trade tax; (b) a provision which empowers fixation of different rates for different goods, or classes of 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.
As far as the question urged with respect to efficacy or validity of notifications introducing as entries in a schedule(s) and subjecting them to tax, when those articles are part of the statute or are exempted from taxation, the Apex Court took support from the decision of five judges’ bench in Trimurti Fragrances (P) Ltd v. Govt of NCT of Delhi [(2022) 15 SCR 516], and reiterated that goods exempted from sales tax under Section 4 of U.P Sales Tax Act would be exigible to tax by virtue of subsequent notification under Section 3-A of the said Act specifying the rate of sales tax.
Coming to the next question as to whether pan masala was an exempted item, being “tobacco”, the Apex Court found that pan masala was expressly mentioned in Chapter 21 for the first time, in 1995 in the CET Act.
“However, at the same time, Chapter 24 contained a specific entry “tobacco” which enumerated tobacco, manufactured tobacco, substitutes etc. The relevant sub-heading at that time was 2404.41 which enumerated chewing tobacco, including preparations commonly known as khara masala, kimam, dokta, zarda, sukha and surti. Thus, the CET Act itself made a distinction between pan masala - whether it contained tobacco, or not, and all forms of tobacco. Right from 1995, the distinction in the CET Act between pan masala (Chapter 21) and tobacco (Chapter 24), had been made”, added the Court.
Therefore, while mentioning the decision of Pioneer Land & Urban Infrastructure v. Union of India [(2019) 10 SCR 381], the Apex Court opined that till 2001, and the introduction of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (ADE), these two products were covered by local or sales tax levies.
The Bench therefore rejected the arguments of the taxpayers that the rate of local tax, cannot exceed the limit under the CST Act, and dismissed the appeal.
Cause Title: Trimurthi Fragrances v. Govt. of NCT of Delhi and Ors.