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TMI Blog2023 (5) TMI 326X X X X Extracts X X X X X X X X Extracts X X X X ..... in Talwar, Adv. Mr. Praveen Kumar, AOR Mr. Nishit Agrawal, Adv. Ms. Sunaina Kumar, Adv. Ms. Kanishka Mittal, Adv. For the Respondent : Mr. Mukesh Kumar Maroria, AOR Mr. M. Yogesh Kanna, AOR Mr. R K Raizada, Sr. Adv. Mr. Bhakti Vardhan Singh, AOR Mr. Ankit, Adv. Mr. Sabarish Subramanian, AOR Mr. Vishnu Unnikrishnan, Adv. Mr. C Kranthi Kumar, Adv. Mr. Naman Dwivedi, Adv. Mr. Danish Saifi, Adv. Mr. R. Nedumaran, AOR Mr. Gurmeet Singh Makker, AOR JUDGMENT S. RAVINDRA BHAT, J. 1. This judgment will dispose of appeals arising from judgments of three High Courts, on the question of taxability of pan masala or gutka/gutkha Which is spelt differently in regional contexts as 'gutka' or 'gutkha' or 'guhtka', For convenience, this is hereafter referred to uniformly as 'gutkha', under state enactments. The appellants unsuccessfully argued that state legislatures were not empowered to levy sales tax on those articles, in view of the provision in the Constitution enabling the Union to levy additional duties of excise, and further that in any case, the rate of state tax cannot exceed the limit prescribed by the Central Sales Tax Act, 1956. Brief Facts 2. The relevant central enactments a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to chewing tobacco was amended w.e.f. 1993-94. 6. By Finance Act, 1995, 'Pan Masala' was brought under the Heading 21.06. In the year 1995, the Fourth Schedule was amended, and the relevant Clause (8) in Chapter 21 read as follows: "(8) in Chapter 21, - (i) for NOTE 3, the following NOTE shall be substituted, namely: '3. In this Chapter, 'Pan Masala' means any preparation containing betel nuts and any one or more of the following ingredients, namely lime, katha (catechu) and tobacco, whether or not containing any other ingredients, such as cardamom, copra and menthol'. Clause (10) in Chapter XXIV reads as follows: (i) for NOTE 2, for the figures and word '24.02, 24.03 and 24.04', the figures and word '24.01, 24.02, 24.03 and 24.04' shall be substituted." Clause (9) in Chapter XXI reads as follows: "(i) for Heading Nos. 21.06 and 21.07 and the entries relating thereto, the following shall be inserted, namely: 21.06 2106.00 'Pan Masala' 50%" Finance (No. 2) Act, 1996, again changed the entry, in the following manner: "(7) in Chapter 24, after NOTE 4, the following NOTE shall be inserted, namely: 5. In this Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgments have reiterated the ruling in that case. 8. Section 3 of the DST Act imposes local sales tax on every dealer whose turnover exceeds the limit specified in a notification, and who is registered or is liable to pay tax under the CST Act, on all sales effected on or after the commencement of the DST Act. Section 3(6) reads as follows: "no dealer who deals exclusively on one or more classes of goods specified in the Third Schedule shall be liable to pay any tax under this Act." Section 7 of the DST reads as follows: "7. Tax Free Goods (1) No tax shall be payable under this Act on the sale of goods specified in the Third Schedule subject to the conditions and exceptions, if any, set out therein. (2) The Substituted for "The Administrator may, with the previous approval of the Central Government and" by Notification No. F4(120)/94 -Fin.(G)/2137 to 2145 dated 02.03.1998 [Lieutenant Governor may] by notification in the Official Gazette, add to, or omit from, or otherwise amend, the Third Schedule either retrospectively or prospectively, and thereupon the Third Schedule shall be deemed to be amended accordingly: Provided that no such amendment shall be made retrospe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cco and any one or more of the following ingredients, namely: (i) lime; and (ii) kattha (catechu), whether or not containing any other ingredients, such as cardamom, copra and menthol." Chapter 24 includes Heading No. 2404.49, which reads as under: "Pan Masala containing tobacco" 14. The appellants had urged before the High Court that "gutkha" is "tobacco" and relied on Kothari Products Ltd. v. Government of A.P (2000) 9 SCC 263 [hereafter 'Kothari Products Ltd.'] and State of Orissa v. Radheshyam Gudakhu Factory 1988 (68) STC 92 (SC); (2018) 11 SCC 505 [hereafter 'Radheshyam Gudakhu Factory']. This court in Radheshyam Gudakhu Factory (supra), noted that "tobacco" in Section 2(c) of the ADE Act means goods in Entry 9 of the First Schedule to the CET Act which is as follows: "'Tobacco' means any form of tobacco, whether cured or uncured and whether manufactured or not, and includes the leaf, stalks and stems of the tobacco plant, but does not include any part of a tobacco plant while still attached to the earth." 15. In Radheshyam Gudakhu Factory (supra) the issue was whether 'Gudaku' was covered by the expression, 'tobacco' defined in ADE A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ales Tax, U.P. v. Agra Belting Works [1987] 3 SCR 93: (1987) 3 SCC 140 [hereafter 'Agra Belting Works'], where the Court pointed out that if a notification under a provision In that case, Section 4 - as in Section 7 of the DST Act in the present case grants exemption from tax, and later, a subsequent notification (under another provision) prescribes the rate of tax, the intention is to withdraw the exemption and impose the levy at the rate prescribed in the later notification. The court held that since the power to grant exemption and variation of the rate of tax is with the State, there is no compulsion in the statute that a separate notification recalling exemption is a pre-condition for imposing tax at any rate. The revenue also relied on two cases that followed the ratio in Agra Belting Works (supra) - Sale Tax Officer, Sector IX, Kanpur v. Dealing Dairy Products & Anr. (1994) 94 STC 93 (SC): 1994 Supp (2) SCC 639 [hereafter 'Dealing Dairy Products'] and State of Bihar v. Krishna Kuthar Kabra. (1997) 9 SCC 763 [hereafter 'Krishna Kumar Kabra']. In the latter case, this court followed the two previous decisions and held that a notification introducing an entry and subjecting it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he dominant object of the user. The percentage of tobacco varies from 7% to 15%. The appellants were aggrieved by the inclusion of the goods as 'Pan Masala' (by whatever name called) - containing betel nuts, that is to say, nut of areca, katechu broken and perfumed, and lime or menthol or sandal oils or cardamom or tobacco or any one or more of these ingredients at Sl. No. 2 of Part-J of the First Schedule read with Section 3(2) of the TNGST Act. The period of dispute is from October, 2000 - February, 2001. The appellants urged - much like in the Delhi cases, that if the goods fell within the description of Sl. No. 1(iv)(d) of the Third Schedule of the TNGST Act, they are exempt from tax by virtue of Section 8. Once the goods are exempted by enumeration under the Third Schedule, Section 8 of the State Act operates, to exempt the goods from levy under the State Act. The subsequent specification of the goods in the First Schedule will have no effect in view of the exemption. The exemption under Section 8 of the TNGST Act is not subject to any restriction or condition as far as Sl. No. 1(iv)(d) of the Third Schedule is concerned. The definition under Sl. No. 1(iv)(d) of the Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the goods more specifically, it had to be preferred, without going into Rule 3(b). What therefore, was held was that the amendment, brought into force from 2001, to the effect that chewing tobacco did not include and never included pan masala containing tobacco, and but for the inclusion of 'pan masala containing tobacco' in Chapter 24 (Heading 2404.49) with effect from 2001, they were goods separately covered under another class altogether, i.e. Heading number 21.06. The Allahabad judgments: P.J. Aromatics CA No. 10374-10379/2014, against impugned judgments dated 12.03.2014 in STR No. 1281-82/2004, and 11.04.2014 in STR No. 789-792/2004 (Allahabad HC), Sarin & Sarin CA No. 8617/2014, against impugned judgment dated 25.04.2014 in TTR No. 91/2005 (Allahabad HC) and Raj Pan Products CA No. 289/2023, against impugned judgment dated 08.11.2017 in TTR No. 1830/2004 (Allahabad HC) 25. In these cases, the assesses manufacture gutkha and disputed imposition of tax on sale of the same. The authorities, under the UPTT Act ruled that 10% tax was leviable on sale of gutkha which was treated as an 'unclassified item'. Section 3 under the UPTT Act, imposes the levy of trade tax on the sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncluded tobacco products like gutkha, and pan masala containing tobacco which were exempted by virtue of Section 4(1) and by not with reference to any statute like the CET Act, etc. Therefore, it was ruled that the contention that something was included in the CET Act, would stand exempted from tax was not correct, unless the State Act contained a specific provision to that effect. Appellants' contentions 29. Mr. Dhruv Agarwal, learned senior counsel appearing in the Delhi cases urged that the heading of Section 7(1) of the DST Act is "Tax free goods" and it uses the phrase "no tax shall be payable". In view of Entry 22 of Schedule III read with Section 7(1), gutkha was "tax free goods" and as per specific mandate of Section 7(1) "no tax shall be payable under the Act" (i.e. the DST Act) on sale of goods listed under Schedule III. The clear effect of Section 7(1) read with Entry 22 of Schedule III was that gutkha fell outside the charge or purview of the levy. 30. It was argued Section 7(2) inter alia provides that the Lt. Governor could by notification add to, or omit from, or otherwise amend Schedule III and "thereupon" it was deemed to be amended. In spite of this power, Ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stead, that was a case of an Exemption Notification where there was another Notification providing the rate. In the judgment, the combined effect of two Notifications was considered. This court relied on Agra Belting Works (supra) in Dealing Dairy Products (supra), and relied on both these cases, when deciding Krishna Kumar Kabra (supra). In all the three cases, there was no issue relating to 'tax free goods' as in the present case. 33. It was next submitted that Entry 22 of the Third Schedule of the DST Act amounts to a 'Legislation by way of Incorporation' so far as it includes a specific provision from the CEA defining 'tobacco' for the purposes of formulating provisions under the DST Act. The Lt. Governor is entrusted with the power to amend the Third Schedule of the DST Act which incorporates the definition of 'tobacco'. It was submitted that when the definition is so incorporated, subsequent changes in law, have no impact on the earlier, incorporated provisions. Counsel cited some decisions Narottamdas v. State of Madhya Pradesh & Ors [1964] 7 SCR 820; Nagpur Improvement Trust v. Vasantrao & Ors (2002) 7 SCC 657; and Girnar Traders (3) v. State of Mah ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s preparations will form part of that entry. Two, gutkha is essentially a preparation of chewing tobacco and what makes it distinct from plain Pan masala are its essential characteristics i.e., tobacco (which is in gutkha). Three, it is a settled principle of classification that it is not a percentage of a particular item in the commodity which will determine the nature of product. Four, undisputedly "gutkha" is sold by the appellant PJ Aromatics under a brand name "Jeet". Therefore, it was urged that it will fall in entry 2404.41 which is specifically covered under Section 14(ix). 38. It was further argued that Entry 21.06 of the CET Act has no relevance for the present purpose when notifications under the Act are being considered. Firstly, there is no entry as "pan masala containing tobacco", and secondly, there is no entry like 21.06 of the CET Act in the notification which provides the rate of tax and therefore the classification is under the residuary clause according to the revenue. The revenue's contentions 39. Mr. N. Venkatraman, the Additional Solicitor General (ASG) appeared on behalf of the Govt. of NCT of Delhi; Mr. Raizada, learned Additional Advocate General (AAG) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incorporation, but rather, that it is a case of legislation by reference. Therefore, changes in the statute will automatically be reflected in the previous law. 44. It was urged that "Pan Masala containing tobacco" and "chewing tobacco" are not identical. They undoubtedly were included under the same heading. However, they were not one commodity. It was argued that the amendment with effect from 2001 that "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. The General Rules for Interpretation (in the CEA) was relied on, to say that "Pan Masala containing tobacco" is a specific description of the goods. Further, that tobacco is an ingredient in the article, is not relevant, because the description (of 'Pan Masala' in Heading 21.06) describes the goods specifically. That classification would prevail. It is, argued that Rule 3(b) is irrelevant. By its description, the goods are 'Pan Masala' containing tobacco. Analysis and reasoning 45. As is evident, in all t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingredients in combination or in isolation. This position prevailed as on 01.03.1988. In 1995, the definition underwent a change. Betel nuts remained the essential ingredient along with "lime, katha or tobacco" together, or separately. Whether the product contained cardamom, copra, and menthol or not was irrelevant: yet one of the three ingredients (lime, katha and tobacco), had to be found in the preparation known as 'pan masala'. By Parliament Act 33 of 1996, the description to Chapter Heading 24.04 and sub-headings under it were re-numbered. The description of goods was reclassified. There was no change in Chapter 21; Heading 21.06 continued to be only 'pan masala'. That changed with effect from 01.03.2001, through Note-3 which reads as follows: ..."3. In this Chapter, 'Pan Masala' means any preparation containing betel nuts and any one or more of the following ingredients, namely: i) lime; and ii) kattha (catechu) but not tobacco, whether or not containing any other ingredients, such as cardamom, copra and menthol." Note-6 in Chapter 24 read as follows: "6. In this Chapter, ''Pan Masala' containing tobacco', commonly known ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that "chewing tobacco and preparations containing chewing tobacco" is comprehensive enough to take in its fold gutkha which contains 7% chewing tobacco. The court then ruled that having regard to the ingredients of gutkha, it fell within the meaning of "pan masala" and was covered by heading 21.60 and subjected to basic duty of Central Excise, but no additional duty. Chapter 24 deals with "tobacco and manufactured tobacco substitutes, etc.". The court held that there was no reference to "gutkha" as such in any one of the headings and sub-headings of that chapter. 51. It was held by the Full Bench that provisions of explanation of the Fourth Schedule to the APGST Act, with reference to the heads and sub-heads in the CET Act, what was relevant in ascertaining the real import of the expression "chewing tobacco and preparations containing chewing tobacco" was the breadth of the terms used in the entry, sub-heading or a notification, or statute. From that aspect, the court concluded that gutkha fell within the wide language of the said expression. However sub-heading 2404.40 "Chewing tobacco and preparations containing chewing tobacco" was a general sub-head. The court concluded that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facture is liable to tax thereunder. Gutka, therefore, is 'goods' covered by the Explanation to the Fourth Schedule to the State Sales Tax Act and, therefore, covered by the exemption contained in Section 8 thereof. The Schedule to the State Act could, therefore, not have been amended by including gutka as a kind of pan masala in entry 194 of its First Schedule. It must, therefore, be held that the inclusion of gutka in the said entry 194 in the manner in which it is done is bad in law and is struck down. The appellants will be entitled to all consequential benefits." 53. As far as the first point argued by the appellants are concerned, which is, whether in a state law which contains two provisions: one which taxes entries, and another which exempts articles from levy (the latter being listed separately, in a notification, or a schedule to the enactment itself), the inclusion, or insertion into the list or schedule of articles that can be taxed (like Section 4 of the DST Act) without amending the subsisting notification that excludes levy (as under Section 7 DST) would the levy fail? 54. There was apparent conflict between two lines of judgments of this court i.e., Radhe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e articles are part of the statute or are exempted from taxation. The assessees' contentions therefore, fail on this point. 56. Turning next to the question of whether pan masala was an exempted item, being "tobacco", it is noticeable that pan masala was expressly mentioned in Chapter 21 for the first time, in 1995 in the CET Act. Note 3 defined 'Pan Masala' as "any preparation containing betel nuts and any one or more of the following ingredients, namely lime, katha (catechu) and tobacco, whether or not containing any other ingredients". However, at the same time, Chapter 24 contained a specific entry "tobacco" which enumerated tobacco, manufactured tobacco, substitutes etc. The relevant sub-heading at that time was 2404.41 which enumerated chewing tobacco, including preparations commonly known as khara masala, kimam, dokta, zarda, sukha and surti. Thus, the CET Act itself made a distinction between pan masala - whether it contained tobacco, or not, and all forms of tobacco. Right from 1995, the distinction in the CET Act between pan masala (Chapter 21) and tobacco (Chapter 24), had been made. The definition of pan masala also clarified that despite one of its ingredients ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nology [1995] 2 SCR 1061 this court followed the same principle, i.e., that "includes" used in conjunction with some words, expands the natural import of the term, to the extent it incorporates those words: "The word "includes", when used, enlarges the meaning of the expression defined so as to comprehend not only such things as they signify according to their natural import but also those things which the clause declares that they shall include. The words "means and includes", on the other hand, indicate "an exhaustive explanation of the meaning which, for the purposes of the Act, most invariably be attached to these words or expressions" [See: Dilworth v. Commissioner of Stamps, [1899] AC 99 at pp. 105-106 (Lord Watson); Mahalakshmi Oil Mills v. State of Andhra Pradesh, [1989] 1 SCC 164, at p. 169)." 59. These decisions have been followed in later judgments as well; one of them is Pioneer Land & Urban Infrastructure v. Union of India [2019] 10 SCR 381: (2019) 8 SCC 416. For these reasons, throughout (till 2001), "Pan masala" and chewing tobacco have received different treatment. They are not interchangeable or synonymous expressions. Entry 2404 refers to chewing tobacco "incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows: - (a) the heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods. (b) mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to (a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable. (c) when goods cannot be classified by reference to (a) or (b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration." 61. In Collector of Central Excise Nagpur v. Simplex Mi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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