Supreme Court Upheld State Legislature Competent To Levy Taxes On ‘gutkha’ Which Falls Within The Meaning Of ‘pan Masala’ But Distinct From ‘tobacco’

What is the case about ? 

• The appellants in the present appeals argued that the state legislature is not empowered to levy taxes on those articles on which the constitution allows Union to levy additional duties of Excise.
• The issue herein is the taxability of pan masala or gutka under the state legislations.
• The state enactments which are in question before the apex court are Delhi Sales Tax Act, 1975, Tamil Nadu General Sales Tax Act,1959 and Uttar Pradesh Trade Tax Act, 1948.
• The present appeals, five judgements decided by the Delhi High Court on the interpretation of the Delhi Sales Act,1975 is the grievance.
• In the judgements, Delhi HC held that the state legislatures were competent to levy taxes.

Contentions of the parties 

• The learned counsel appearing on behalf of the appellants submitted that view of Entry 22 of Schedule III read with Section 7(1), gutkha was a ‘Tax free goods’ and hence it fell outside the purview of the levy. Counsel relied on the case of Tata Sky Ltd. v. State of Madhya Pradesh and  submitted that when goods are excepted from tax there is no question of their inclusion in the taxable turnover. Counsel laid down several arguments stating that ‘pan masala containing tobacco’ is a chewing hum.
• The counsel appearing on behalf of the respondent argued that pan masala and gutkha are separate and distinct entries from tobacco and hence state legislatures are competent to levy taxes. It was submitted that all levy of such taxes would mean that the additional Excise duty levied and collected on such duties by the Union will not be distributed among the states those who have chosen to levy a tax on sale thereof. It was submitted that the pan masala containing tobacco is a different description of goods.

Judgement and observations 

• The apex court disposed the appeals by the assessees. Court rejected the contention of the assessees that rate of local tax, cannot exceed the limit under the CST Act.
•  Court observed that with introduction of ADE with effect from 2001, goods and products described as pan masala and gutkha were covered by local or sales tax levies.
• Court cleared that the distinction between pan masala and tobacco is made in the CET Act, 1995 itself.
• Court concluded that specific reference prevails over a general reference. Gutkha fell within the meaning of ‘pan masala’ under chapter 21 of CET Act.