Central Sales Tax Act, 1956 – ss.14, 15 – Finance Act, 1988 – Central Excise Tariff Act, 1985 – Chapter 21, 24 of the Schedule – Additional Duties of Excise (Goods of Special Importance) Act, 1957 – Finance Act, 2001 – Delhi Sales Tax Act, 1975 – Tamil Nadu General Sales Tax Act, 1959 – Uttar Pradesh Trade Tax Act, 1948 – Taxability of pan masala or gutka/gutkha under the aforesaid State enactments – Whether pan masala was an exempted item, being “tobacco” – Held: The holding in Trimurti Fragrances (P) Ltd case that there is no conflict between the Agra Belting Works line of cases, and the Kothari Products Ltd. line of cases, concludes the question w.r.t the efficacy/validity of notifications introducing as entries in a Schedule(s) and subjecting them to tax, when those articles are part of the statute or are exempted from taxation – Assessees’ contentions fail on this point – Further, 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 being tobacco, it would nevertheless be a separate article – Till 2001, “Pan masala” and chewing tobacco received different treatment – They are not interchangeable or synonymous expressions – Entry 2404 refers to chewing tobacco “including preparations commonly known as “Khara Masala”, “Kimam”, “Dokta”, “Zarda”, “Sukha” and “Surti”” – Gudaku and snuff are dealt with under a separate heading – The effect of inclusion of pan masala with tobacco in Chapter 24 and simultaneously that product’s exclusion from Chapter 21, as well as imposition of ADE with effect from 2001, on ‘pan masala containing tobacco’ meant that the product (i.e. pan masala without tobacco) went out for the first time of the reach of State sales tax – All along, goods and products described as pan masala and gutkha were included in Chapter 21 – Therefore, till 2001 and the introduction of ADE, these two products were covered by local or Sales tax levies – Before 2001, pan masala and gutkha fell within Chapter 21, as pan masala, regardless of whether they contained tobacco – Goods classifiable under Chapter 24 i.e. tobacco items were more general, also they did not include pan masala – Subsequent changes made introducing 2404.40 in the CET Act do not affect or change the CST Act – Thus, gutkha and pan masala are not covered under sub-heading 2404.40 so far as CST Act is concerned – Thus, the arguments of the assessees that the rate of local tax cannot exceed the limit under the CST Act, rejected.
Disposing of the appeals, the Court
HELD: 1.1 At the relevant time, ‘Pan Masala’ was described as a preparation containing betel nuts and any one or more other ingredients such as lime, katha, katechu, cardamom, copra, menthol and tobacco. This is the definition of Pan Masala under the CET Act which continued till 1995. Heading 21.06 covered ‘Pan Masala’ containing “lime, katha, katechu, cardamom, copra, menthol and tobacco” or any one or more of these ingredients. Chapter 24 dealt with tobacco and manufactured tobacco substitutes and the relevant sub-heading at that time was 2404.41 which deals with chewing tobacco, including preparations commonly known as khara masala, kimam, dokta, zarda, sukha and surti. Parliament Act 22 of 1995, substituted Note-3 to Chapter 21 of the CET Act. “Pan Masala” was described as “any preparation containing betel nuts and any one or more of the following ingredients, viz., lime, katha, katechu or tobacco, whether or not containing any other ingredients such as cardamom, copra and menthol”. The primary ingredient of pan masala therefore, is betel nut, which could be mixed with other 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. Entry No. 2 of PartJ in the First Schedule to the ADE Act is similar to sub-heading 2404.49 - as amended from 01.03.2001. As a result, additional excise duty could be imposed on ‘’Pan Masala containing tobacco”.[Paras 46, 47 and 49][1070-G-H; 1071-B-D; 1072-CD]
1.2 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? There was apparent conflict between two lines of judgments of this court i.e., Radheshyam Gudakhu Factory and Kothari Products Ltd. on the one hand, and Dealing Dairy Products, Krishna Kuthar Kabra and Agra Belting Works on the other hand. This court, in the latter three judgments held that notification introducing an entry and subjecting it to levy, when previously, it was exempt in another part of the taxing statute, the intention was to withdraw the exemption and make the sale leviable to tax at the rate prescribed in the later notification. The court held it to be unnecessary that “a specific or separate notification withdrawing or revoking the notification should be issued”. This conflict was referred to a larger bench of five judges, in Trimurti Fragrances (P) Ltd v. Govt of NCT of Delhi (a case, which is part of the present batch). The holding, that there is no conflict between the Agra Belting Works line of cases, and the Kothari Products Ltd. line of cases, therefore, concludes the question urged with respect to efficacy or validity of notifications introducing as entries in a schedule(s) and subjecting them to tax, when those articles are part of the statute or are exempted from taxation. The assessees’ contentions therefore, fail on this point. [Paras 53-55][1074-GH; 1075-A-C]
Trimurti Fragrances (P) Ltd v. Govt of NCT of Delhi [2022] 15 SCR 516 – followed.
State of Orissa v. Radheshyam Gudakhu Factory (2018)
11 SCC 505; Commissioner, Sales Tax, U.P. v. Agra Belting Works [1987] 3 SCR 93; Sale Tax Officer, Sector IX, Kanpur v. Dealing Dairy Products & Anr (1994) 2 Supp SCC 639; State of Bihar v. Krishna Kuthar Kabra (1997) 9 SCC 763 – referred to.
2. 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 being tobacco, it would nevertheless be a separate article. 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 “including preparations commonly known as “Khara Masala”, “Kimam”, “Dokta”, “Zarda”, “Sukha” and “Surti””. Gudaku and snuff are dealt with under a separate heading. The effect of inclusion of pan masala with tobacco in Chapter 24 and simultaneously that product’s exclusion from Chapter 21, as well as imposition of ADE with effect from 2001, on ‘pan masala containing tobacco’ meant that the product (i.e. pan masala without tobacco) went out, for the first time, of the reach of state sales tax. All along, goods and products described as pan masala and gutkha, were included in Chapter 21. The conclusion therefore, is that till 2001, and the introduction of ADE, these two products were covered by local or sales tax levies. On a plain application of the interpretive rules, especially Rule 3(a) it is clear that the heading which provides the most accurate description has to be followed. In the present case, there is no doubt, that before 2001, pan masala and gutkha fell within Chapter 21, as pan masala, regardless of whether they contained tobacco. Goods classifiable under Chapter 24, i.e. tobacco items were more general; also they did not include pan masala. As regards the question of the rate of tax, in view of the restrictions under Section 15 CST Act, neither gutkha nor pan masala were “declared goods” under Section 14 of the CST Act. The amendment to the CET Act did not become part of Section 14(ix). The goods under the relevant sub-headings of the CET Act were absent in the list of declared goods of the CST Act; they were not part of the provisions introduced to the Finance Act, 1988. Therefore, the subsequent changes made introducing 2404.40 in the CET Act do not affect or change the CST Act. Consequently gutkha and pan masala are not covered under sub-heading 2404.40 so far as CST Act is concerned. Resultantly the arguments of the assessees that the rate of local tax, cannot exceed the limit under the CST Act, are rejected as unmerited. [Paras 56, 62, 63][1076-B-D; 1078-A-D; 1080-D-G]
Pioneer Land & Urban Infrastructure v. Union of India [2019] 10 SCR 381; Kothari Products Ltd. v.
Government of A.P (2000) 9 SCC 263; Mahalakshmi Oil Mills v. State of Andhra Pradesh [1988] 2 Suppl SCR 1088; P. Kasilingam v. PSG College of Technology [1995] 2 SCR 1061; Collector of Central Excise Nagpur v. Simplex Mills Co. Ltd. [2005] 2 SCR 441; Tata Sky Ltd. v. State of Madhya Pradesh [2013] 2 SCR 849; Reliance Trading Company v. State of Kerala (2011)
15 SCC 762; Narottamdas v. State of Madhya Pradesh & Ors. [1964] 7 SCR 820; Girnar Traders (3) v. State of Maharashtra & Ors. [2011] 3 SCR 1; Pappu Sweets and Biscuits v. Commissioner of Trade Tax, U.P, Lucknow [1998] 2 Suppl. SCR 119; Madhya Pradesh v. M.V. Narsimhan [1976] 1 SCR 6; Nagpur
Improvement Trust v. Vasantrao [2002] 2 Supp SCR 636; U.P. Avas Evam Vikas Parishad v. Jainul Islam & Anr [1998] 1 SCR 254 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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