2016 (10) TMI 561 - HC - VAT and Sales Tax

Constitutional validity of levy of VAT on pan masala containing tobacco - claim of exemption from VAT since tobacco products liable to ADE (GSI) under section 3 of the ADE Act, 1957 - The Parliament omitted Chapter headings 2401, 2402 and 2403 and sub-heading and tariff item thereunder from the First Schedule to ADE Act 1957 vide section 10, Taxation Laws (Amendment) Act, 2007 (Act No.16 of 2007) effective from 1st April, 2007, without losing share of central taxes. This enabled States to levy VAT on tobacco with effect from 1st April, 2007. Held that - We need not refer to Articles 270 to 281 of the Constitution prior to 2000 and Article 270 to 281 of the Constitution post 2000 for the simple reason that we are considering the question about the State Legislature s power to tax pan masala with tobacco. Prior to that we must refer to Schedule A. The petitioners rely upon Chapter 24 of the Central Excise Tariff Act, 1985, in which after the Finance Act 2001, it classified pan masala containing tobacco as 2404.09. Mrs. Jeejeebhoy is right in submitting that pan masala on the face of it is different from tobacco and constitutes a separate class by itself. We have perused Chapters 21 and 24 of the Central Excise Tariff Act and as appearing in the compilation tendered by the petitioners from pages 88 to 90, 93, 96 and 101. The corresponding Note, namely, Note No.3 in Chapter No.21 was amended to clarify that pan masala covered by Chapter 21 would not have tobacco as an ingredient. Corresponding to that was the change brought about in column (3) to the First Schedule of the ADE Act to include Tariff Entry 2404.49, namely, pan masala containing tobacco (page 111 of the petitioners compilation). Thus until 2001, pan masala was not included in either page 24 of the Central Excise Tariff Act nor in the the First Schedule to the ADE Act. Pan masala containing tobacco is known to the commercial world as different from tobacco. Pan masala is said to be a preparation containing betel-nuts and one or more of the ingredients referred above. Unlike the other entries in Chapter 24 of the 1985 Act, essentially dealing with tobacco, pan masala may or may not contain tobacco. The State s power to legislate is not curtailed by the ADE Act. If that is not curtailed, then, any reliance on the constitutional scheme of distribution of revenues and taxes cannot be of assistance. That would probably deprive a State of its share in the revenue even if a tax is levied and collected in that State, but would not denude it of its power which is otherwise traceable to the constitutional provisions referred above. The principle that sub-ordinate legislation cannot be given retrospective effect equally is of no assistance in the facts and circumstances of the present case. We are not concerned here with tobacco but a product (pan masala) containing tobacco. Hence, the effect of the explanation as above need not be considered at all. Decided against the petitioner.

Summary

Issues Involved:
1. Quashing of the order demanding part payment for the grant of stay in appeal.
2. Restraining the enforcement of the order directing part payment.
3. Striking down Clause (10) of Notification No.VAT/1505/CR-382/Taxation-1 dated 21.1.2006 as discriminatory and ultra vires Article 14 of the Constitution of India.

Detailed Analysis:

1. Quashing of the Order Demanding Part Payment for Grant of Stay in Appeal:
The petitioners sought a writ of mandamus to quash the order dated 26.6.2015, which demanded a part payment of ?1,41,93,1897/- for the grant of stay in appeal. The petitioner, a private limited company engaged in the manufacture and sale of pan masala (with and without tobacco), argued that it had discharged its VAT liability under the MVAT Act. However, the respondent authorities disallowed the exemption claimed by the petitioner on pan masala containing tobacco under Schedule Entry A-45 of the MVAT Act. The court noted that the petitioner had paid additional duties of excise (ADE) at 18% on the sale of such pan masala containing tobacco and claimed exemption from VAT for the period 1st April 2005 to 31st March 2007. The court found that the petitioner's claim for exemption was based on the ADE Act, but the State Government had amended the Schedule A of the MVAT Act to exclude pan masala containing tobacco from the definition of 'tobacco'. Consequently, the court upheld the respondent's order demanding part payment, as the petitioner's claim for exemption was not tenable under the amended provisions.

2. Restraining the Enforcement of the Order Directing Part Payment:
The petitioners also sought to restrain the respondents from enforcing the order dated 26.6.2015, directing them to make part payment. The court observed that the petitioners had already filed an appeal before the Joint Commissioner of Sales Tax (Appeals), Kolhapur, and the appeal was pending. The court emphasized that the petitioners had an alternate and efficacious remedy available and had already availed of it. Therefore, the court declined to entertain the writ petition on this ground, as the issues raised could be adjudicated in the pending appeal.

3. Striking Down Clause (10) of Notification No.VAT/1505/CR-382/Taxation-1 dated 21.1.2006:
The petitioners challenged Clause (10) of the Notification dated 21.1.2006, which introduced an explanation to Schedule Entry A-45 of the MVAT Act, excluding pan masala containing tobacco from the definition of 'tobacco'. The petitioners argued that this clause was discriminatory and ultra vires Article 14 of the Constitution of India. The court examined the constitutional provisions, including Articles 269, 270, and 271, which deal with the distribution of revenues between the Union and the States. The court noted that the ADE Act provided for the levy and collection of additional duties of excise on certain goods, including tobacco, and the distribution of a part of the net proceeds among the States. However, the court found that the ADE Act did not prohibit the States from imposing sales tax on goods covered by the ADE Act. The court referred to the judgment in State of Bihar v. Bihar Chamber of Commerce, which held that the State's power to legislate was not curtailed by the ADE Act. The court also distinguished the judgment in Godfrey Phillips India Ltd. v. State of Uttar Pradesh, which dealt with the levy of luxury tax on tobacco and tobacco products. The court concluded that the State of Maharashtra was competent to levy VAT on pan masala containing tobacco and that Clause (10) of the Notification dated 21.1.2006 was clarificatory and in consonance with the ADE Act and the Presidential Order. Therefore, the court upheld the validity of Clause (10) of the Notification and dismissed the petitioners' challenge.

Conclusion:
The court dismissed the writ petitions, holding that the petitioners' claims for exemption from VAT on pan masala containing tobacco were not tenable under the amended provisions of the MVAT Act. The court also upheld the validity of Clause (10) of the Notification dated 21.1.2006, which excluded pan masala containing tobacco from the definition of 'tobacco'. The court emphasized that the State of Maharashtra was competent to levy VAT on pan masala containing tobacco and that the petitioners had an alternate and efficacious remedy available in the pending appeal. The court extended the time for the petitioners to make the part payment by six weeks.