2009 (4) TMI 284 - HC - Central Excise

Gutkha - Pan Masala containing tobacco and chewing tobacco are not the same. They may now be included under the same Heading, but that does not mean that they are one commodity - chewing tobacco does not include, and never included Pan Masala containing tobacco and but for the inclusion of Pan Masala containing tobacco in Chapter 24 and sub-heading 2404.49 with effect from 2001, it would have been goods covered by Heading 21.06 - Applying the General Rules for Interpretation, we find that the words Pan Masala containing tobacco provides the most specific description for the goods in question and even if the fact that tobacco is one of the ingredients in the goods in question, since the description of Pan Masala in Heading 21.06 describes the goods most specifically, that has to be preferred - The writ petitions fail and are accordingly dismissed

Summary

Issues Involved:
1. Classification of 'Pan Masala' containing tobacco under the CET Act.
2. Competency of the State Legislature to levy tax on goods of special importance.
3. Interpretation of the term 'including' in the context of the TNGST Act and CST Act.
4. Prevalence of State tax provisions over Section 8 of the TNGST Act.

Detailed Analysis:

1. Classification of 'Pan Masala' Containing Tobacco:
The primary issue is whether 'Pan Masala' containing tobacco, commonly known as 'Gutkha', falls under Chapter 21 of the CET Act or Chapter 24. The petitioners argue that their product should be classified under sub-heading 2404.40 of Chapter 24, which pertains to chewing tobacco and preparations containing chewing tobacco. They contend that tobacco is the dominant component of 'Gutkha', and thus, it should be classified under Chapter 24. The respondents, however, assert that 'Pan Masala' containing tobacco should be classified under Chapter 21, specifically under sub-heading 2106.00, as it was defined to include betel nuts and tobacco among other ingredients. The court examined the historical amendments to the CET Act and concluded that 'Pan Masala' containing tobacco was specifically included under Chapter 24 only after the Finance Act of 2001. Prior to this, it was classified under Chapter 21. Therefore, the court held that 'Pan Masala' containing tobacco falls under Chapter 21 of the CET Act for the relevant period.

2. Competency of the State Legislature to Levy Tax:
The court addressed whether the State Legislature is competent to levy tax on goods declared to be of special importance and subjected to the levy of additional excise duty under the ADE Act, 1957. The petitioners argued that since their product falls under the description of chewing tobacco, it is covered under Section 14(ix) of the CST Act, making it a declared good of special importance. Consequently, the State cannot levy tax beyond one stage or over 4% of the sale price. However, the court found that 'Pan Masala' containing tobacco was not classified under the same sub-heading as chewing tobacco until the Finance Act of 2001. Therefore, the State Legislature was competent to levy tax on 'Pan Masala' containing tobacco under the TNGST Act during the relevant period.

3. Interpretation of the Term 'Including':
The petitioners argued that the term 'including' in Entry 1(iv)(d) of Part-A, Third Schedule of the TNGST Act and sub-heading 2404.41 should be construed to enlarge the meaning of 'chewing tobacco' to encompass 'Gutkha'. They cited various judgments to support their case. However, the court referred to several precedents and concluded that the term 'including' in this context is restrictive and not expansive. It held that 'chewing tobacco' and 'Pan Masala' containing tobacco are distinct commodities and cannot be classified under the same heading. The court emphasized that the inclusion of 'Pan Masala' containing tobacco under Chapter 24 in 2001 indicated a clear legislative intent to treat it separately from chewing tobacco.

4. Prevalence of State Tax Provisions Over Section 8 of the TNGST Act:
The petitioners contended that once goods are exempted under Section 8 of the TNGST Act, subsequent specification of the goods in the First Schedule should have no effect. They argued that the inclusion of 'Pan Masala' containing tobacco in the First Schedule was ultra vires Sections 14 and 15 of the CST Act and Article 286 of the Constitution. The court, however, held that the general presumption is that all goods are taxable unless specifically exempted. The inclusion of 'Pan Masala' containing tobacco in Entry 2, Part-J of the First Schedule indicated a legislative intent to tax these goods, overriding the exemption under Section 8 of the TNGST Act. The court cited relevant judgments to support its conclusion that the subsequent inclusion of goods as taxable entries effectively withdraws the exemption.

Conclusion:
The court dismissed the writ petitions, holding that 'Pan Masala' containing tobacco falls under Chapter 21 of the CET Act for the relevant period, and the State Legislature was competent to levy tax on it. The term 'including' in the relevant entries was interpreted restrictively, and the inclusion of 'Pan Masala' containing tobacco in the First Schedule prevailed over the exemption under Section 8 of the TNGST Act.