Supreme Court clarifies guidelines on overruling precedents in tax cases

The Supreme Court clarified that there is no conflict between the *Kothari Products* and *Agra Belting Works* lines of cases regarding the taxability of goods covered under the ADE Act. The Court emphasized the guidelines for overruling an earlier decision, stating that the majority decision of a larger Bench prevails over that of a lesser Bench. The reference to the Constitution Bench was considered incompetent, and the cases were directed to be placed before a regular Bench for decision.

---

---

Issues Involved:
1. Taxability of 'Pan Masala' containing tobacco and gutka under State Sales Tax Acts.
2. Conflict between judgments on taxability of goods covered under the ADE Act.
3. Guidelines for overruling an earlier decision of the Supreme Court.

Issue-wise Detailed Analysis:

1. Taxability of 'Pan Masala' containing tobacco and gutka under State Sales Tax Acts:

The primary issue was whether 'Pan Masala' containing tobacco and gutka, covered by an Entry in the First Schedule to the Additional Duties of Excise (Goods of Special Importance) Act 1957 (ADE Act), could be taxed by the State under the Delhi Sales Tax Act 1975, Uttar Pradesh Trade Tax Act 1948, and Tamil Nadu General Sales Tax Act 1959. The ADE Act imposes additional duties of excise on certain goods, replacing sales taxes levied by the Union and States on these goods. The Supreme Court has consistently held that once goods are chargeable under the ADE Act, the State cannot levy sales tax on the same goods under a State enactment. This principle was reaffirmed in cases like *Godfrey Phillips India Ltd. v. State of U.P.* (2005) and *Kothari Products Ltd. v. State of A.P.* (2000).

2. Conflict between judgments on taxability of goods covered under the ADE Act:

The Court examined the conflict between the judgments in *Kothari Products Ltd. v. State of A.P.* and *Central Sales Tax v. Agra Belting Works*. The *Kothari Products* line of cases held that items covered by the expression 'tobacco' and other items included in the First Schedule to the ADE Act are not taxable by the State. In contrast, the *Agra Belting Works* line of cases dealt with the interplay between general exemptions of specified goods from sales tax under Section 4 of the U.P. Sales Tax Act and specification of rates of sales tax under Section 3A of the same Act. The Court concluded that there is no conflict between these lines of cases as they address different legal questions. The *Kothari Products* line pertains to the taxability of goods under the ADE Act, while the *Agra Belting Works* line pertains to the interplay of exemptions and tax rates under the U.P. Sales Tax Act.

3. Guidelines for overruling an earlier decision of the Supreme Court:

The Court referred to the Constitution Bench judgment in *Dr. Jaishri Laxmanrao Patil v. The Chief Minister and Others* (2021), which clarified that a majority decision of a Bench of larger strength prevails over a decision of a Bench of lesser strength, irrespective of the number of Judges constituting the majority. This principle ensures stability and certainty in the law. The Court also cited the judgment in *Central Board of Dawoodi Bohra Community and Anr. v. State of Maharashtra and Anr.* (2005), which emphasized that a Bench of lesser quorum cannot disagree with the view of a Bench of larger quorum. The numerical strength of Judges taking a particular view is irrelevant; instead, the Bench strength is determinative of the binding nature of the judgment.

Conclusion:

The Supreme Court concluded that there is no conflict between the *Kothari Products* and *Agra Belting Works* lines of cases. The reference to the Constitution Bench was deemed incompetent, and the cases were to be placed for decision before the regular Bench. The second question regarding the guidelines for overruling an earlier decision was answered by the judgment in *Dr. Jaishri Laxmanrao Patil*, affirming that the majority decision of a larger Bench prevails over that of a lesser Bench.

---