1997 (7) TMI 601 - HC - VAT and Sales Tax

Issues Involved:
1. Competence of the State Legislature to impose sales tax on "pan masala" and "gutka".
2. Legality of the tax rate exceeding 4% on these products.
3. Allegations of double taxation on "pan masala".
4. Exemption of "gutka" from taxation under the APGST Act.
5. Applicability of sections 14 and 15 of the Central Sales Tax Act, 1956 to "gutka".

Detailed Analysis:

1. Competence of the State Legislature to Impose Sales Tax on "Pan Masala" and "Gutka":
The court examined whether the State Legislature had the competence to impose sales tax on "pan masala" and "gutka". The petitioner argued that "gutka" should be exempt since it is a tobacco product. The court, however, upheld the State Legislature's competence to impose the tax, noting that "pan masala" and "gutka" are distinct commercial commodities and that the State can levy taxes on them.

2. Legality of the Tax Rate Exceeding 4%:
The petitioner contended that the tax rate of 50 paise in a rupee on "pan masala" and "gutka" was exorbitant and violated sections 14 and 15 of the Central Sales Tax Act, which restricts the tax rate on declared goods to 4%. The court found that "gutka" does not fall under the declared goods listed in section 14(ix) of the CST Act. Therefore, the restriction of a maximum 4% tax rate does not apply to "gutka", and the higher tax rate imposed by the State Legislature was upheld.

3. Allegations of Double Taxation on "Pan Masala":
The petitioner argued that taxing "pan masala" amounted to double taxation since its ingredients were already taxed individually. The court rejected this contention, stating that once a new commercial product comes into existence from a combination of taxable goods, it is taxable under the APGST Act. The court cited previous judgments to support this view, affirming that the levy of sales tax on "pan masala" does not constitute double taxation.

4. Exemption of "Gutka" from Taxation under the APGST Act:
The petitioner claimed that "gutka" should be exempt from sales tax as it is a tobacco product listed in the Fourth Schedule of the APGST Act. The court examined the relevant provisions and concluded that "gutka" falls under the specific sub-head "pan masala" in Chapter 21 of the Central Excise Tariff Act, and not under the general sub-head for "chewing tobacco" in Chapter 24. Since "gutka" does not suffer additional excise duty, it does not qualify for the exemption under the Fourth Schedule of the APGST Act.

5. Applicability of Sections 14 and 15 of the Central Sales Tax Act, 1956 to "Gutka":
The court analyzed whether sections 14 and 15 of the CST Act, which limit the tax rate on declared goods to 4%, applied to "gutka". It was determined that "gutka" does not fall within the sub-headings of declared goods under section 14(ix) of the CST Act. Consequently, the restrictions of section 15 do not apply, and the State Legislature's imposition of a 50 paise tax per rupee on "gutka" was deemed legal.

Conclusion:
The court dismissed the writ petition, affirming the State Legislature's competence to impose and regulate sales tax on "pan masala" and "gutka" at the specified rates. The court also rejected the petitioner's claims of double taxation and exemption for "gutka" under the APGST Act. The application for a certificate to appeal to the Supreme Court was also rejected, as the case did not involve a substantial question of law regarding the interpretation of the Constitution.

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