TaxTMI 
TaxTMI 
2009 (4) TMI 284
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....ional authority confirmed the provisional assessment orders. Aggrieved by that, the petitioners approached the Tamil Nadu Taxation Special Tribunal. The Tribunal dismissed all the original petitions filed by the petitioners. The petitioners also filed original petitions seeking the substantial relief of declaration that the word "or tobacco" in Sl. No. 2, Part-J of the First Schedule to the TNGST Act is ultra vires Sections 14 and 15 of the Central Sales Tax Act, 1956 ('CST Act' in short) and Article 286 of the Constitution of India and is repugnant to Sl. No. 1(iv)(d) of Part-A to the Third Schedule read with Section 8 of the TNGST Act and the general scheme of levy of additional duty of excise under the Additional Duties of Excise (Goods of special importance) Act, 1957 ('ADE Act' in short). Aggrieved by the orders passed in the said petitions, these writ petitions have been preferred. 2. We will briefly narrate the submissions of the writ petitioners which are dealt with elaborately in the written submissions filed by them. 'Gutkha', according to them, is a preparation which, apart from tobacco, contains betel nut, katechu, lime, flavours, permitted sp....
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....6(3) of the constitution the State of Tamil Nadu is subjected to restrictions and conditions as specified by Parliamentary Legislation with regard to inter alia tax on sale or purchase of goods declared to be of special in interstate law and commerce. Section 14(ix) of the CST Act which deals with such goods of special importance refers, inter alia, to items of manufactured tobacco. Section 15 spells out the restriction. The description of goods in Section 14 was aligned by the Central Act 26 of 1988 with the product description in the CET Act with effect from 16-3-1988. By Finance Act 2 of 1996, Chapter Heading 2404 of the Central Excise Tariff Act was re-cast and substituted, and chewing tobacco preparations earlier covered by sub-heading 2404.41 were substituted as 2404.40. Therefore, according to the petitioners, since their product contain tobacco it falling within the description 'chewing tobacco and preparations containing chewing tobacco', they would be goods of special importance, and the restriction under section 15 of the CST Act comes into operation. Therefore, the State can neither tax such goods beyond one stage nor over 4% of the sale price during the relevan....
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....21 of the CET Act and therefore, one has to look only to Chapter 24 and the interpretative rules also point out only to sub-heading 2404.04. The word 'inclusive' would show that chewing tobacco by whatever name they are called, including khara masala, kimam, dokta, zarda, sukha and surti, would be classified under sub-heading 2404.41/2404.40 and therefore, the goods would be covered by the words 'chewing tobacco and preparations containing tobacco". The words in the Third Schedule of the TNGST Act, by virtue of Section 8, show that the goods in question are exempt from tax and the inclusion thereof in the First Schedule cannot in any manner take away the exemption granted by Section 8. For this proposition, the learned senior counsel relied on (2006) 147 STC 211 (SC) [Reliance Trading Co. v. State of Kerala] and (2008) 114 STC 559 (SC) [Fenoplast v. State of A.P.]. If this is not accepted, then the goods are any way 'declared goods' as per section 14 of the CST Act and there is a ceiling on tax on such declared goods as per Section 15. For all these reasons, the writ petitioners pray that the impugned order of the Tribunal be quashed and the writ petitions be al....
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....ssion made by the petitioners that 119 S.T.C. 553 (supra) decides the issue, the learned Additional Advocate General submitted that in that case, what was dealt with was Gudaku, a tobacco product falling under sub-heading 2404.11 of the Central Excise Tariff Act as well as the ADE Act and that is not the case of the petitioners herein and that it was a decision rendered on an issue of fact and may not bind us. The learned Additional Advocate General also submitted that the words used in the Andhra Pradesh Government Sales Tax Act were different and all inclusive as compared to the TNGST Act and so, that decision will not cover the issue on hand. He also relied on (2006) 144 STC 529 (Del.) [Shanti Fragrances v. Union of India] and (2006) 145 STC 211 (Del.) [M.R. Tobacco Pvt. Ltd. v. Union of India] which referred to the basis of differences existing between the entries in the APGST Act and the Delhi Act. Therefore, according to the learned Additional Advocate General, on the first ground, viz. whether the goods fall under Chapter 21.06 or 2404.41/40, the answer has to be the former. 10. Then the learned Additional Advocate General submitted that if this submission is not accep....
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....a) answers the description contained in Chapter 24 more particularly in sub-heading 2404.41/2404.40 namely chewing tobacco and preparations including khara masala, kimam, dokta, zarda, sukha and surti, chewing tobacco and preparations containing chewing tobacco? If we hold that 'Pan Masala' containing tobacco commonly known as 'Gutkha' falls under Chapter 21 of the CET Act, then the writ petitions fail. If we hold that 'Pan Masala" containing tobacco commonly known as 'Gutkha' answers the description contained in Chapter 24, more particularly under sub-heading 2404.41/1404.40, then we have to answer the following questions: (a) whether the state Legislature is competent to levy tax on the sale or purchase of goods declared to be of goods of special importance and subjected to the levy of additional excise duty under the ADE Act, 1957? 13. The questions that we have to answer are :- (a) whether 'Pan Masala' containing tobacco commonly known as 'Gutkha' would fall under chapter 21 of the CET Act, 1985 and more particularly under sub-Heading 2106.00 contained thereunder? or (b) Whether 'Pan Masala' containing tobacco (....
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....n on the said goods. Originally Section 14(ix) of the CST Act read thus:- "(ix) tobacco, as defined in Item No. 4 of the First Schedule to the Central Excises and Sale Act, 1944 (1 of 1944) [*]" If we go to item no. 4, 'Tobacco' reads as follows: "4. Tobacco "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. ... II. Manufactured Tobacco ... (5) Chewing tobacco, including preparations commonly known as "Khara Masala", "Kimam", "Dokta", "Zarda", "Sukha" and "Surti"." Central Act 26 of 1988 substituted the words in section 14(ix) with the following words with effect from 13-5-1988 : "14(ix). Unmanufactured tobacco and tobacco refuse covered under Sub-Heading No. 2401.00, cigars and cheroots of tobacco covered under Heading No. 24.02, cigarettes and cigarillos of tobacco covered under the sub-Heading Nos. 2403.11 and 2403.21, and other manufactured tobacco covered under Sub-Heading Nos. 2404.41, 2404.50 and 2404.60 of the Schedule to the Central Excise Tariff Act....
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....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%" By Finance (No. 2) Act, 1996, there was again a change and the same is reproduced hereunder: "(7) in Chapter 24, after NOTE 4, the following NOTE shall be inserted, namely:- 5. in this Chapter, 'smoking mixtures for pipes and cigarettes' of sub-heading No. 2404.10 does not cover 'Gudaku'." "(iii) For Heading No. 24.03 and the entries relating thereto, the following shall be substituted, namely:- Heading No. Sub-Heading No. Description of goods Rate of duty (1) (2) ....
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.... the tax under this Act shall be payable by a dealer on the sale or purchase inside the State of declared goods at the rate and only at the point specified against each in the Second Schedule on the turnover in such goods in each year. [.....]". "Section 8. Exemption from tax. - Subject to such restrictions and conditions as may be prescribed, a dealer who deals in the goods specified in the Third Schedule shall not be liable to pay any tax under this Act in respect of such goods". Item-1 in Part-A of the Third schedule which deals with 'tobacco' reads as follows: "1. (i) Unmanufactured tobacco and tobacco refuse (produced or manufactured in India), as described in column(3, against the heading '24.01' in column (1), of the First Schedule to the Additional Duties of Excise - (Goods of Special Importance) Act, 1957 (central Act 50 of 1957) (hereinafter in this Schedule referred to as the said Act); (ii) Cigars and cheroots of tobacco (produced or manufactured in India) as described in column (3), against the heading '24.04' in column (1), of the First Schedule to the said Act; (iii) Cigarettes and cigarillos of tobacco (produced or manufactured....
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....consisting wholly or partly of such material or substance. The classification of goods consisting of more than one material or substance shall be according to the principles of Rule 3. 3. When by application of Rule 2(b) or for any other reason, 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) wh....
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.... to be 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. Therefore, the primary ingredient of 'Pan Masala' is betel nut, which could be mixed with other ingredients in combination or in isolation and this was the position prevailing as on 1-3-1988. In the year 1995, the definition underwent a change. Betel nuts continued to be one of the essential ingredients along with lime, katha or tobacco in combination or in isolation. It did not matter whether it also contained cardamom, copra and menthol, but one of the three ingredients, viz., lime, katha and tobacco had to be found in the preparation which was known as 'Pan Masala'. By Act 33 of 1996, the description with regard to chapter Heading 24.04 and the Sub-Headings thereunder were re-numbered and the description of goods were re-classified. There was no change as far as chapter 21 was concerned and Heading 21.06 continued to be only 'Pan Masala'. The change came with effect from 1-3-2001, where Note-3 read as follows: "3. In this Ch....
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....ection 14 of the Central Act and also made liable to additional excise duty under the Additional Excise Act." The amendments to the Entry relating to Pan Masala containing tobacco appears to have been followed in 119 STC 553 (supra) which reversed the judgment in (1997) 107 STC 618 [Kothari Products Limited v. Government of Andhra Pradesh]. The relevant entries in the Andhra Pradesh General Sales Tax Act read as follows: S. No. Description of goods Point of levy Rate of tax Effective from 194 'Pan Masala' including gutka sold in sealed containers or pouches or any other type of packages At the point of 10 paise in the rupee 8-2-1996 Sl. No. 7 of the Fourth Schedule to the APGST Act pertaining to exempted goods reads as follows: Sl. No. Description of goods 7. Tobacco    "Explanation - The goods mentioned in entries 5, 6 and 7 of this Schedule shall be goods included in the relevant heads and sub-heads of the First Schedule to the Additional Duties of Excise (Goods of Special Importance) Act, 1957, but does not include goods where no additional duties of excise are levied under that Schedule." 23.....
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....and manufactured tobacco substitutes; homogenised or 'reconstituted' tobacco; tobacco extracts and essences". 4. Clearly, therefore, gutka is a tobacco that is covered by an entry in the First Schedule to the said Additional Duties of Excise Act and the branded gutka that the appellants manufacture 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. 5. The appeal is allowed and the judgment and order under appeal is set aside. No order as to costs." 24. The Delhi High Court, in (2006) 144 STC 529 (supra) and 145 STC 211 (supra), rejected the case of the manufacturers of gutkha who contended that their product is gutkha and is a tax free item by virtu....
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....ts which specify what the expression means and also what it includes is obviously meant to be exhaustive. As Lord Watson observed in Dilworth v. Commissioner of Stamps, (1899) A.C. 99, the joint use of the words "mean and include" can have this effect. He said, in a passage quoted with approval in earlier decisions of this Court: (AC pp. 105-06) "Section 2 is, beyond all question, an interpretation clause, and must have been intended by the legislature to be taken into account in construing the expression "charitable devise or bequest," as it occurs in Section 3. it is not said in terms that "charitable bequest" shall mean one or other of the things which are enumerated, but that it shall "include" them. The word "include" is very generally used in interpretation clauses in order to enlarge the meaning of words or phrases occurring in the body of the statute; and when it is so used these words or phrases must be construed as comprehending, not only such things as they signify according to their natural import, but also those things which the interpretation clause declares that they shall include. But the word "include" is susceptible of another construction, which may become imp....
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....rdly, it is to be noticed that the first part of definition is somewhat restrictively worded." 29. In AIR 1977 SC 90 [S.G.R. Tiles Manufacturers v. State of Gujarat], the Supreme Court, by construing Entry 22 in Schedule Part-I of the Minimum wages Act, held that "It seems that the word 'includes' has been used here in the sense of 'means'. This is the only construction that the word can bear in the context. In that sense, it is not a word of extension, but limitation. The Supreme Court also held as follows: "The use of the word 'includes' in the restrictive sense is not unknown. The observation of Lord Watson in Dilworth v. Commissioner of Stamps (1899) A.C. 105-106, which is usually referred to on the use of 'include' as a word of extension, is followed by these lines : "But the word 'include' is susceptible of another construction, which may become imperative, if the context of the Act is sufficient to show that it was not merely employed for the purpose of adding to the natural significance of the words or expressions defined. It may be equivalent to 'mean and include', and in that case it may afford an exhaustive explanatio....
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....converted into aluminium rolled products and extrusion products, they go through a process of manufacture which brings into existence of a new marketable commodity and that the expression "included" in the notification in question does not enlarge the meaning of "metal" and must be understood in a conjunctive sense, as a substitute for "and". 32. In King v. Planters Nut and Chocolate Co. Ltd. [1951 CLR (Ex) 122], the decision was whether salted peanuts and cashew nuts could be considered to be fruit or vegetable within the meaning of the Excise Tax Act and Justice Cameron of the Canadian Exchequer Court emphasised the importance of commercial understanding of the products in the following words : "My findings must be that as products and as general commodities in the market, neither salted peanuts nor cashews, or nuts of any sort, are generally denominated or known in Canada as either fruits or vegetables. I think it may be assumed, therefore, that if Parliament had intended to include nuts' among the exempted foodstuffs, the word 'nuts' would have appeared in the Schedule. That being so, it must follow that salted peanuts and cashew nuts, which as I have said abo....
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....ation. In this case, the entry in the Third Schedule could have as well been tobacco and all products containing tobacco, instead of which it uses the words "chewing tobacco including preparations commonly known as khara masala, kimam, dokta, zarda and surti. Therefore, the word "includes" here can only be restrictive and used as a word of limitation. 35. Therefore, "Pan Masala containing tobacco" and "chewing tobacco" are not the same. They may now be included under the same Heading, but that does not mean that they are one commodity. "The fact that certain articles are mentioned under the same heading in a statute or the Constitution does not mean that they all constitute one commodity" - vide AIR 1964 SC 1729 [A. Hajee Abdul Shukoor & Co. v. State of Madras] and (1998) 1 SCC 437 [Tvl. K.A.K. Anwar & Co. v. State of Tamil Nadu]. It is clear from the present 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. 36. Applying the General ....
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....cco. Tobacco is another ingredient of Pan Masala and therefore, it was rightly taxed under Entry 2106 until the controversy started. 39. If the words "chewing tobacco and preparations containing chewing tobacco" meant or included "Pan Masala containing tobacco" and had always meant or included "Pan Masala containing tobacco", then in Chapter 24, the note would have read 'chewing tobacco and preparations containing chewing tobacco' means, inter alia, 'Pan Masala' containing tobacco commonly known as Gutkha'. But this is not the case here. It was separately and specifically included. Therefore, their goods now come under Chapter Heading 2404 because "Pan Masala containing tobacco" is introduced therein for the first time. Prior to 2001, the words used in Chapter 21 are 'Pan Masala' containing lime, kattha, catechu, cardamom, copra, menthol and tobacco or "any one or any of these ingredients. And Chapter 24 used the words 'chewing tobacco including preparations commonly known as khara masala, kimam, zarda, surti. 40. After the Finance Act 2001, under the sub-heading 2404.40, which read previously as chewing tobacco and preparations containing chew....