2017 (10) TMI 428 - SC - VAT and Sales Tax

Taxability of Pan Masala and Gutka under Delhi Sales Tax Act; Courts clarify conflicting judgments

M/s Shanti Fragrances Versus Union of India And Others

M/s Shanti Fragrances Versus Union of India And Others - 2017 (6) G.S.T.L. 136 (SC), 2018 (11) SCC 305 Issues Involved:1. Taxability of Pan Masala containing tobacco and Gutka under the Delhi Sales Tax Act, 1975.2. Interpretation of 'tobacco' as tax-free goods under the Central Excises and Salt Act, 1944.3. Conflict between specific and general entries in tax legislation.4. Legislative competence of State to levy sales tax on goods also subject to central excise duty.5. Doctrine of precedent and its application in conflicting judgments.Detailed Analysis:1. Taxability of Pan Masala containing tobacco and Gutka under the Delhi Sales Tax Act, 1975:The central question was whether Pan Masala containing tobacco and Gutka were taxable under the Delhi Sales Tax Act, 1975. Section 3(1) of the Act imposes tax on all sales by dealers exceeding the taxable quantum. Section 7 exempts tax on goods specified in the Third Schedule, which includes 'tobacco' as defined under the Central Excises and Salt Act, 1944. The Delhi High Court held that a notification introducing 'Pan Masala and Gutka' as taxable items from 01.04.2000 meant these items were no longer exempt as 'tobacco.'2. Interpretation of 'tobacco' as tax-free goods under the Central Excises and Salt Act, 1944:The definition of 'tobacco' under the Central Excises and Salt Act, 1944, includes any form of tobacco, cured or uncured, manufactured or not. The Supreme Court noted this as legislation by incorporation, meaning only the definition as it stood in 1975 applied, not subsequent amendments. The inclusion of Pan Masala containing tobacco under a later entry in the Central Excise Tariff was argued to reflect the original legislative intent.3. Conflict between specific and general entries in tax legislation:The Delhi High Court relied on the principle that a specific entry (Pan Masala and Gutka) overrides a general entry (tobacco). This was supported by the Kerala High Court's decision in Reliance Trading Company vs. State of Kerala, which held that specific entries take precedence over general ones. The Supreme Court's conflicting judgments in Kothari Products Ltd. vs. Government of A.P. and State of Orissa vs. Radheshyam Gudakhu Factory versus Commissioner, Sales Tax U.P. vs. M/s Agra Belting Works, Agra were noted.4. Legislative competence of State to levy sales tax on goods also subject to central excise duty:The Madras High Court upheld the State's legislative competence to levy sales tax on Pan Masala containing tobacco, despite it being subject to additional central excise duty. This was based on the premise that central excise duty does not preclude state sales tax.5. Doctrine of precedent and its application in conflicting judgments:The Supreme Court acknowledged a direct conflict between the Kothari Products line of judgments, which held that rate entries cannot override exemption entries, and the Agra Belting Works line, which held the opposite. The Court discussed the doctrine of precedent, noting the numerical strength of judgments and the need for a larger bench to resolve the conflict. The Court highlighted the importance of determining the true ratio decidendi and the implications of conflicting precedents.Conclusion:The Supreme Court requested the Chief Justice of India to constitute an appropriate bench to resolve the conflict between the Kothari Products and Agra Belting Works lines of judgments. The bench would also address the application of the doctrine of precedent, considering the observations in Ningappa Ramappa Kurbar and Supreme Court Advocates-on-Record Association cases.