2022 (6) TMI 962 - HC - Central Excise

Court upholds constitutionality of tobacco duties post-GST. Simultaneous GST & excise allowed. Appeal dismissed.

The court upheld the constitutionality and validity of the levy of Basic Excise Duty and National Calamity Contingent Duty (NCCD) on tobacco and tobacco ... Simultaneous levy under Article 246A and Article 246 - aspect doctrine / plurality of taxable aspects - National Calamity Contingent Duty as an additional duty of excise - non obstante clause and its effect - exemption to one excise levy not automatically extending to separate levy - manifest arbitrariness test under Article 14Simultaneous levy under Article 246A and Article 246 - non obstante clause and its effect - Levy of basic excise duty on tobacco and tobacco products post 101st Amendment is constitutionally valid and can coexist with GST. - HELD THAT: - The court held that Article 246-A and Article 246 operate in different spheres and provide independent sources of legislative power; Article 246-A does not denude or override the power under Entry 84 of List I to levy duties of excise. The non-obstante language in Article 246A and Article 246 does not effect an abrogation of the distinct source of power under Article 246 for excise; Article 246A embodies a power of simultaneous levy rather than exclusivity. Applying the aspect doctrine, the levy under Entry 84 (manufacture) and GST (supply) relate to different legally cognisable aspects and therefore can legally coexist. [Paras 27, 28, 30, 31]Levy of basic excise duty on tobacco and tobacco products after 01.07.2017 is constitutionally sustainable alongside GST.Aspect doctrine / plurality of taxable aspects - Excise duty targets a distinct aspect (manufacture) which is not subsumed by the CGST taxable event (supply). - HELD THAT: - Relying on the aspect doctrine and relevant precedents, the court explained that a single transaction may give rise to distinct taxable events; manufacture and supply are independent activities in the goods chain. The definition of 'supply' under the CGST Act does not subsume 'manufacture', and therefore imposition of excise on manufacture does not amount to impermissible overlap with GST which taxes supply. [Paras 30, 31]Excise duty is levied on a separate and distinct aspect (manufacture) and does not impermissibly overlap with GST.National Calamity Contingent Duty as an additional duty of excise - exemption to one excise levy not automatically extending to separate levy - Levy of NCCD on tobacco and tobacco products is valid; exemption from excise duty does not ipso facto extend to NCCD unless expressly provided. - HELD THAT: - The court observed that NCCD is levied by Parliament as a duty of excise under Article 271 and is an independent surcharge/duty in addition to any other excise duties. Decisions holding that exemptions from one duty carry over to another were examined and the court followed precedents which require explicit notification for exemption to apply to separate levies. Accordingly, an exemption from basic excise duty does not automatically exempt NCCD in the absence of an express exemption for NCCD. [Paras 32, 33, 34, 35]Levy of NCCD on tobacco and tobacco products is not legally infirm and exemption to excise duty does not automatically cover NCCD.Manifest arbitrariness test under Article 14 - Challenge under Article 14 alleging hostile discrimination in levying excise duty on tobacco and tobacco products fails for want of pleaded and proved manifest arbitrariness. - HELD THAT: - The court reiterated settled principles that taxation classifications receive wide legislative latitude and that a complainant must plead and prove hostile discrimination or manifest arbitrariness. The petition lacked necessary averments and material showing irrational or capricious classification. Given the policy choices inherent in fiscal legislation and established standards of judicial review in taxation matters, the levy did not offend Article 14. [Paras 36, 37, 38, 39]The Article 14 challenge to the levy of excise duty on tobacco and tobacco products is dismissed.Final Conclusion: The High Court dismissed the challenge: basic excise duty and NCCD on tobacco and tobacco products post the 101st Constitutional Amendment are constitutionally sustainable alongside GST, NCCD is a valid additional excise duty not automatically covered by an exemption to basic excise duty, and the Article 14 challenge alleging discriminatory or manifestly arbitrary classification was not made out. Issues Involved:1. Constitutionality of the levy of Basic Excise Duty and National Calamity Contingent Duty (NCCD) on tobacco and tobacco products post-GST regime.2. Simultaneous levy of GST under Article 246-A and Basic Excise Duty and NCCD under Article 246 on tobacco and tobacco products.3. Distinct aspect of levy of excise duty on the manufacture of tobacco products.4. Validity of NCCD as a surcharge on tobacco products.5. Levy of excise duty on tobacco and tobacco products in relation to Article 14 of the Constitution of India.Detailed Analysis:1. Constitutionality of the Levy of Basic Excise Duty and NCCD:The court held that the power under Article 246-A is independent and can be exercised notwithstanding anything contained in Article 246 and Article 254. Article 246-A embodies the principle of simultaneous levy and does not result in the denudation of power under Article 246. The levy of excise duty on tobacco and tobacco products under Entry 84 List I read with Article 246 is independent and co-exists without being impacted by the levy of GST on the same product under Article 246-A. Therefore, the levy of Basic Excise Duty and NCCD post-GST regime is constitutionally valid.2. Simultaneous Levy of GST and Excise Duty:The court observed that Article 246 and Article 246-A operate in different spheres and do not overlap. The Central Excise Duty and GST are levied under different sources of power and fields of legislation. The aspect doctrine was applied, which allows for the same transaction to involve multiple taxable events in its different aspects. Thus, simultaneous levy of GST and excise duty on tobacco and tobacco products is permissible.3. Distinct Aspect of Levy of Excise Duty:The court noted that excise duty under Entry 84 List I has a source of power to tax under Article 246 of the Constitution and is levied on a distinct aspect, namely the manufacture of tobacco products. The levy of GST is traceable to a different source of power, Article 246A, on a different aspect, namely the supply of tobacco and tobacco products. The activities of manufacture and supply remain independent in the goods chain.4. Validity of NCCD as Surcharge:The court referred to Section 136 of the Finance Act, 2001, which provides for the levy of NCCD. It was held that NCCD is a surcharge and can be levied simultaneously with GST and excise duty on tobacco products. The court distinguished the case from previous judgments like BAJAJ AUTO and SRD NUTRIENTS, noting that those decisions did not consider the binding precedent set by the Supreme Court in MODI RUBBER. Therefore, the levy of NCCD as a surcharge on tobacco products is valid.5. Levy of Excise Duty and Article 14:The court reiterated that a levy imposing tax is not immune from attack on the ground of violating Article 14 but emphasized the wide discretion the legislature has in matters of taxation. The court found no pleadings in the writ petition that demonstrated the levy of excise duty on tobacco and tobacco products amounted to hostile discrimination or was violative of Article 14. The court held that the levy of excise duty on tobacco and tobacco products is a matter of public policy and does not suffer from manifest arbitrariness or discrimination. Therefore, it is not violative of Article 14.Conclusion:The appeal was dismissed, upholding the constitutionality and validity of the levy of Basic Excise Duty and NCCD on tobacco and tobacco products post-GST regime, allowing for simultaneous levy under different constitutional provisions, and rejecting claims of violation of Article 14.