Case title:
M/s. Trimurthi Fragrances Pvt. Ltd. through its Director Shri Pradeep Kumar Agrawal vs. Govt. Of N.C.T. of Delhi through its Principal Secretary (Finance) & Ors.
Date of Order:
4 May 2023
Bench:
The Hon. S.Ravindra Bhat and Hon. Dipankar Datta, JJ
Parties:
Appellant- M/S Trimurthi Fragrances (P) Ltd. through its director Shri Pradeep Kumar Agrawal
Respondent- Govt. Of N.C.T. of Delhi through its Principal Secretary (Finance) & Ors.
SUBJECT
The Central Sales Tax Act, of 1956 was introduced through the Sixth Constitutional Amendment. It was enacted to form principles regarding the sale and purchase of goods, as well as to provide for the levy, collection, and distribution of taxes on sales of goods sold through inter-state trade. The government secures a considerable amount of income through taxes. They're used for the maintenance and development of a nation. The present case deals with the taxability of certain goods and the state's power to levy them.
IMPORTANT PROVISIONS
- Central Sales Tax Act, 1956
- Section 14
- Section 14(ix)
- Section 15
- Central Excise Tariff Act, 1985
- Section 4(1)
- Additional Duties of Excise (Goods of Special Importance) Act, 1957
- Section 2(c)
- Andhra Pradesh General Sales Tax Act, 1957
- Section 8
- Delhi Sales Tax Act, 1975
- Section 3
- Section 3(6)
- Section 4
- Section 7
- Tamil Nadu General Sales Tax Act, 1959
- Section 3(2)
- Section 8
- Uttar Pradesh Trade Tax Act, 1948
-
Section 3
-
Section 4
OVERVIEW
- Section 14 of the CST Act classifies certain goods as of special importance. Section 15 of the same Act states that taxation on such goods will be restricted.
- An amendment was made in 1998 to section 14 of the CST Act, to align the description of goods in the Act with that of the CET Act.
- In the Delhi batch of appeals, the grievance concerned five High Court judgments and started with an appeal by M/s Shanti Fragrances.
- Section 3 of the DST Act states that any dealer whose turnover exceeds the specified limit, and is liable to pay tax under the CST Act, will be liable to pay local sales tax.
- Section 3(6) of the DST Act states that a dealer who exclusively deals with goods listed under the third schedule won't be liable to pay tax.
- The governor of NCTD, through a notification dated 31.03.2000 inserted Entry Four into the first schedule of the Act which read “Pan Masala and Gutkha”.
- However, the goods listed on the first schedule were subject to local sales tax.
- The appellants argued that tobacco is defined under the CET Act and falls under the third schedule of the CST Act.
- In addition, they claimed that gutkha was tobacco.
- The revenue contended that tobacco in Entry No. 22 of the Third Schedule of the DST Act is a general entry and that the entry in the first schedule is specific.
- It was also argued that the state has the power to levy taxes as per the Sales Tax Act.
- Subsequently, the High Court rejected the appellant's writ petition.
- In the case of Dharampal Satyapal and Kothari Products, the appellants argued that if the goods fell under the Third Schedule of the TNGST Act, they wouldn't be liable to pay tax as per Section 8.
- The court, in this case, adopted the ‘common parlance test’ i.e., whether a common man understands pan masala as tobacco or pan masala as a product containing tobacco.
- The court concluded that pan masala is different from tobacco and chewing tobacco.
- In the Allahabad judgment, the court ruled that even if the exemption from tax on goods is included in the CET Act, it would not be affected unless a State Act makes a specific provision for the same.
ISSUES RAISED
- Is ‘Pan Masala’ taxable by the State under the Delhi Sales Tax Act 1975, Uttar Pradesh Trade Tax Act 1948, and the Tamil Nadu General Sales Tax Act, 1959?
ARGUMENTS ADVANCED BY THE APPELLANT
- Mr. Dhruv Agarwal represented the appellants in the Delhi cases.
- The senior counsel contended that gutkha were “tax-free goods” and hence fell outside the purview of the levy.
- It was urged that gutkha is a tobacco product and avails exemption from taxes under Section 8 of the APGST Act. The bench relied on the case Kothari Products Ltd. v. Government of A.P [(2000) 9 SCC 263], where the three-judge bench ruled that merely by including gutkha in the First Schedule, its exemption under Section 8 of the State Act would not be amended.
- The Counsel also cited Reliance Trading Company v. State of Kerala [3 (2011) 15 SCC 762] where the bench ruled that irrespective of the legislative intent for amending the First Schedule of the Kerala General Sales Tax Act, 1963, if the entry in the Third Schedule is un-amended, it won’t be taxable.
- Learned Counsel Mr. Pawan Shree Agarwal represented PJ Aromatics. He urged that pan masala containing tobacco is chewing tobacco for several reasons.
- The counsel contended that gutkha is a preparation of chewing tobacco and what distinguishes it from plain pan masala are its essential characteristics i.e., tobacco
ARGUMENTS ADVANCED BY THE RESPONDENT
- Additional Solicitor General Mr. N. Venkatraman represented the Govt. The NCT of Delhi; the Additional Advocate General (AAG) Mr. Raizada represented the State of UP; and Mr. Radhakrishna represented the State of Tamil Nadu.
- The revenue submitted that in Kothari Products Ltd. (supra), the bench dealt with Gudaku, another tobacco product. Hence, the court's decision in the above case is not binding upon the court in the present case.
- Revenue claimed that pan masala and gutkha are distinct entries from tobacco. Therefore, the State Government is competent to levy taxes on these two goods.
- Counsel submitted that the definition of tobacco should be in terms of the changing tobacco definitions under the Central enactments, and cited the decision given in the case of State of Madhya Pradesh v. M.V. Narsimhan [(1975) 2 SCC 377].
- It was further submitted that "Pan masala containing tobacco" and "chewing tobacco" are not one commodity even though they're included under the same heading.
JUDGEMENT ANALYSIS
- The Hon’ble Supreme Court of India allowed the revenue's appeals.
- The court noted that pan masala is defined in Chapter 21 of the CET Act, and tobacco is specifically defined in Chapter 24 of the CET Act.
- It is clear from the definition of pan masala that though one of its ingredients is tobacco, it is a separate commodity and not the same.
- The court relied on the decision of the case, Pioneer Land & Urban Infrastructure v. Union of India [(2019) 8 SCC 416] and held that before ADE was introduced in 2001, both pan masala and gutkha were covered by local or sales tax levy.
- However, after “pan masala with tobacco” was included in Chapter 24 and ADE was imposed, the product “pan masala without tobacco” was exempted from the state sales tax levy.
- The court examined the general rules of interpretation with the help of the decision in the case, Collector of Central Excise Nagpur v. Simplex Mills Co. Ltd [[2005] 2 SCR 441].
- On the application of Rule 3(a), it was noted that before 2001, regardless of whether pan masala and gutkha contained tobacco, they both fell under Chapter 21. Chapter 24 listed tobacco products that did not contain pan masala.
- The bench consisting of Hon’ble Mr. Justice S. Ravindra Bhat and Hon’ble Mr. Justice Dipankar Datta held that neither gutkha nor pan masala was “declared goods” under Section 14 of the CST Act. Hence, the appellant’s arguments that the rate of local tax cannot surpass the limit under the CST Act were dismissed by the court.
CONCLUSION
The present case is an exhaustive one since it dealt with appeals arising from three High Court judgments and disposed of them. The taxability of pan masala or gutkha by the state was questioned. The Supreme Court held that the State has every right to levy sales tax on gutkha, while dismissing the appeal by the assessees.
