TOBACCO AND TOBACCO PRODUCTS ARE LIABLE TO BOTH GST, EXCISE DUTY AND NCCD

[Mr. M. GOVINDARAJAN]

The provisions of Goods and Services Tax Act, 2017 (‘Act’ for short) came into effect from 01.07.2017  subsuming all indirect taxes.  Prior to this regime tobacco and tobacco products were taxed under the provisions of Central Excise Act, 1944 read with Central Excise Tariff Act, 1985.  By virtue of section 174 of the Act the Central Excise Act, 1944 except in respect of goods included in Entry 84 of the Union List of Seventh Schedule of the Constitution of India has been repealed.  The Central Excise Tariff Act, 1985 has also been repealed.

Entry 84 of the Seventh Schedule of the Constitution of India deals with, apart from other things, duties of excise on tobacco and tobacco products.  Tobacco and Tobacco products are taxed since the introduction of GST.  Vide Notification dated 30.06.2017 exemption was given to these products from the levy of excise duty.  But vide Notification No. 3/2019, dated 06.07.2019 excise duty has been sought to be levied on various tobacco and tobacco products @ 0.5%.

Section 136 of the Finance Act, 2001 contemplates levy of Natural Calamity Contingent Duty (‘NCCD’ for short).  The said section provides that a surcharge namely NCCD shall be levied on the goods specified in the Seventh Schedule manufactured or produced.  This NCCD shall be in addition to any other duties of excise chargeable on such goods under the Central Excise Act, 1944 or any other law for the time being in force. 

In GHODAWAT PACKERS LLP, M/S. H.I. TAMBOLI @ SONS, M/S. RAJNANDINI FOODS PVT. LTD., M/S. BALAJEE POUCHES, GHODAWAT FOODS INTERNATIONAL PRIVATE LIMITED, GHODAWAT INDUSTRIES INDIA PRIVATE LIMITED, VERSUS UNION OF INDIA, THROUGH THE SECRETARY, MINISTRY OF FINANCE, (DEPARTMENT OF REVENUE) , THE COMMISSINOER OF CENTRAL TAX AND CENTRAL EXCISE BELAGAVI - 2022 (10) TMI 500 - KARNATAKA HIGH COURT,  the petitioners are manufacturing tobacco and tobacco products.  The Department imposed excise duty and NCCD.  GST is also levied on these products.  Aggrieved against the imposition of Excise duty and NCCD the petitioners in this case filed the writ petitions before the High Court.  Their main prayers are as below-

• To declare that no excise duty under the Central Excise Act, 1944 is payable on the goods manufactured by the petitioners.
• To declare the Repeal and Savings provisions of Section 174 of the Act insofar as it seeks to save the operation of Central Excise Act, 1944 qua tobacco and tobacco products as unconstitutional and bad in law.
• To declare and hold that Section 136 of the Finance Act, 2001 for levying of NCCD, is impliedly repealed with effect from 01.07.2017.
• To declare that the petitioners are entitled to collect NCCD and direct for refund of NCCD collected by the respondents from the petitioners.
• To forbear the respondents from collecting the Central Excise and NCCD from the petitioners.

The petitioners submitted the following before the High Court-

• The purpose of GST is to consolidate and levy indirect taxes in so far as it relates to the goods and services and covered in it.
• The tobacco and tobacco products being subjected to GST the Revenue ought not to have imposed excise duty or NCCD.
• Even if excise duty is leviable upon tobacco and tobacco products no excise duty is leviable on these products from 01.07.2017 to 06.07.2019.
• NCCD being a surcharge of excise duty cannot be levied.

The Revenue justified the levy of GST, excise duty and NCCD on tobacco and tobacco products. 

The High Court analyzed the provisions of Section 174 of the Act and also Entry 84 of the Union List of Seventh Schedule.  The High Court relied on the judgment of Karnataka High Court in M/S. V.S. PRODUCTS VERSUS UNION OF INDIA REP. BY JOINT SECRETARY MINISTRY OF FINANCE DEPARTMENT OF REVENUE NEW DELHI, THE COMMISSIONER OF CENTRAL TAX (EARLIER KNOWN AS THE COMMISSIONER OF CENTRAL EXCISE) BANGALORE-I - 2022 (6) TMI 962 - KARNATAKA HIGH COURT  In this judgment the High Court held that the object and quantum of tax are matters of policy decision of the legislature and the legislature enjoys wide latitude in selection of persons, subject matter, events etc. for taxation.  The levy of excise duty on tobacco and tobacco products isa matter of public policy and the Court in exercise of writ jurisdiction would not interfere with the same.  The appellant have failed to demonstrate that levy of excise duty either suffers from manifest arbitrariness or is discriminatory.  The High Court followed the said judgment and held that the levy of excise duty on tobacco and tobacco products is a matter of public policy and would not interfere with the same.  The CGST itself contemplates levy of excise duty upon tobacco and tobacco products apart from they being taxed under the provisions of the Act.  There is no error in the same.  Therefore the High Court held that the Revenue is entitled to levy CGST, excise duty on tobacco and tobacco products.

The High Court next considered the contention of the petitioners that when excise duty is not levied NCCD cannot be levied for the period from 01.07.2017 to 06.07.2019.  The High Court observed that NCCD is a surcharge which is additional payment.  Section 136 of the Finance Act, 2001 provides for the levy of NCCD which is levied as surcharge not as excise duty. NCCD is a separate duty being levied on the value of the goods manufactured or produced and it is a type of excise duty.

The High Court relied on the judgment of Supreme Court in M/S. UNICORN INDUSTRIES VERSUS UNION OF INDIA & OTHERS - 2019 (12) TMI 286 - SUPREME COURT, in which the Supreme Court held that the proposition urged that simply because one kind of duty is exempted, other kinds of duties automatically fall, cannot be accepted as there is no difficulty in making the computation of additional duties, which are payable under NCCD, education cess, secondary and higher education.  Moreover statutory notification must cover specifically the duty exempted.  When a particular kind of duty is exempted other types of duty or cess imposed by different legislation for a differential purpose cannot be said to have been exempted.

The High Court did not accept the contention of the petitioners that NCCD is being levied as per the Finance Act, 2001 and determination of NCCD was being in accordance with the Seventh Schedule.  When the Central Excise Tariff has been repealed no effect could have been given to the seventh schedule.  The High Court held that repealing of the Central Excise Act does not absolve the petitioners paying NCCD as determined under Seventh Schedule.  NCCD is a surcharge and a type of excise duty which can be levied independently of the excise duty as contemplated under the provisions of Fourth Schedule to the Central Excise Act, 1944.  Therefore the levy of NCCD in the absence of levy of excise duty cannot be considered as bad in law.